How to Start a Business From Scratch in 6 Easy Steps

Author: Kody Wirth

Kody Wirth

Kody Wirth

10 min. read

Updated April 30, 2024

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Did you know that most of the world’s new businesses are bootstrapped

That’s right, most business owners do not launch with loans or outside investment but instead use their personal resources and savings to get up and running. They start from scratch and reinvest in the business as it gains traction.

And you can do the same. 

Key Takeaways:

  • Start with an idea that uses your experience, knowledge, or passion.
  • Determine if there’s a need for your product or service.
  • Create a plan and financial forecasts.
  • Treat it like a side hustle until you get traction.

What does it mean to start from scratch?

“Starting a business from scratch” does not mean:

  • Using no money to launch your business.
  • Getting no outside assistance.
  • Inventing a business idea no one has done before.

Starting from scratch is about building a business from the ground up, using personal resources and minimal external financial support. The goal is to establish a sustainable business you control that satisfies a need in the market. 

Why start a business from scratch?

Here’s why starting from scratch might be the right approach for you:

  • Risk reduction: Control your initial investment and expenses and scale gradually, allowing you to avoid overspending.
  • Full control: With no outside investment or stakeholders to please, you can shape your business how you see fit.
  • Proves your idea has real customers: Test your concept with customers early to help refine your offering and validate market demand.
  • Fast decision-making: Quickly pivot to meet changing market demands without the red tape of larger organizations.
  • Potentially makes future funding easier: You take the time to prove your business model and profitability before seeking funding. Your track record reduces investor and lender risk and can lead to better funding terms.

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6 steps to start a new business from scratch

For this article, we will focus on the steps that take you from a budding business idea to generating sales. 

For additional resources, check out our starting a business guide.

1. Start with an idea

Do some self-reflection and choose an idea you’re passionate about or one that uses your existing skills and experience. 

This will make it far easier to execute and often requires less research, training, and upfront investment to get up and running than an idea completely new to you.

For example, service-based businesses, like accounting or consulting, often need just your time and expertise. If any cash is needed, it should be a small enough amount to fund yourself, giving you full control over the speed at which you grow your business.

As you explore possible ideas, create a one-page business plan to document how it could work. 

It doesn’t have to be an official plan at this stage; just fill in what you can, mark any assumptions, and keep adding details throughout the rest of this process.

What businesses can you typically start from scratch?

While not an exhaustive list, here are a few potential ideas that can be started from scratch:

  • Freelance Writing or Content Creation: Offer writing skills to businesses and online publications.
  • Consulting Services: Share your professional management, marketing, or tech expertise.
  • Handmade Crafts and Art: Sell your unique creations on platforms like Etsy or at local fairs.
  • Tutoring: Offer either in-person or online.
  • Web Design and Development: Build websites for small businesses or individuals.
  • Virtual Assistant: Provide administrative support to businesses remotely.
  • Landscaping and Gardening Services: Turn your love of plants into a business with basic gardening tools.

For more business options and a process to generate ideas, check out our guide on developing good business ideas.

2. Find product-market fit

Landing on an idea is not enough to create a viable business. You need to determine if you have initial product-market fit—that your business satisfies and is demanded by a large enough group of people. 

This involves identifying your potential customers, understanding their motivations and needs, and determining whether they are willing to pay for your product or service. Additionally, spend time researching the market and understand who your competitors are. 

At this stage, you don’t need a fully fleshed-out business. You just need enough of an idea to start speaking to potential customers.  

This is where your one-page plan can be incredibly useful, as it helps you formalize enough information to have the working framework of a business. You can even add notes from your customer interviews to help adapt your plan.

Your goal, in this instance, is to:

  • Hone in on pain points your potential customers have
  • Verify that you can solve them
  • Identify any gaps or issues with your idea
  • (Bonus) Make initial sales 

Keep in mind that you may find none of that. Your solution may not be needed or is missing key components. You may even be targeting the wrong audience and need to change course.

That’s completely okay! Most businesses don’t get things right the first time. Be willing to refine and iterate on your initial idea. Verify what works and what doesn’t, and make the right adjustments to create a sustainable business that customers really want.

3. Examine your resources

While I have this as the third step, you’ll likely be doing this throughout every stage of starting a business.

Start by evaluating your funding sources. Personal savings are ideal as they keep you in full control of your business. If needed, consider asking friends and family for small contributions, as they’ll likely be much more flexible about repayment than traditional lenders.

Next, consider if a partner could benefit your venture. Do they bring complementary skills, share the workload, or offer additional resources? 

The right partner can fill crucial roles – like marketing or operations – allowing you to focus on your core strengths. They may even fill a necessary gap to get customers in the door.

Finally, don’t underestimate the power of your network. Reach out to former colleagues, industry peers, and mentors for advice, services, or referrals.

Why you need to know your available resources

Taking stock of your resources is the first step in understanding what is feasible for your business. It helps you determine whether you have enough cash, expertise, and support to meet your customers’ expectations.

For example, let’s say you want to launch an eCommerce website and have enough cash on hand to fulfill orders but require customers to pay for shipping. If you’re competing with similar businesses that offer free shipping, your lack of it could turn customers away.

Similarly, you have a solid understanding of product development and have already gotten pre-orders. But you have no idea how to set up an eCommerce site, keep track of orders, and ensure they actually ship.

In both circumstances, your resources fall short of the needs of your customers. You may have to explore funding (it doesn’t have to be a loan) and find a partner with the right skill set to get your site up and running. 

4. Write a business plan and develop financial forecasts

At this point, you need to finalize your business plan and create initial forecasts

If you’ve been using the one-page plan throughout the last few steps, then this shouldn’t be a time-consuming process. Your goal at this point is to clearly define:

  • Business Model: Value proposition, customer segments, distribution channels, and revenue streams.
  • Milestones: Set realistic goals (landing your first customer, scaling, etc.) with specific timelines and action steps to track progress.

For your forecasts, start by estimating your:

  • Startup costs and ongoing expenses
  • Revenue in the first year of operation
  • Cash flow — how much money will be moving in and out of your business each month as you collect revenue and pay expenses

These numbers do not have to be perfect. You’ll likely be making educated guesses or using industry estimates. The point is to have something that you believe represents your business. It will help you maintain a healthy cash flow and understand what it will take to be profitable.

Remember, you don’t need to create an overly lengthy plan or complex financial statements. They’re your tools, so focus on usability – they should be flexible and evolve with your business, helping you make informed decisions.

Dedicate time (at least monthly or quarterly) to reviewing and updating your plan and forecasts as you gather data to ensure your strategy aligns with real-world performance.

5. Protect your business

As a business owner, you must make your business legal and guard against liabilities. To keep things simple, we’ll assume you’re starting as a sole proprietorship for this article.

Check out our full guide to learn more about the specifics of each legal structure.

Necessary legal components for a simple startup:

  • Business Registration: As a sole proprietor, you may not need to register your business with the state government if you do business under your legal name. However, if you operate under a name that’s not yours, you must file for a “Doing Business As” (DBA) name. This is often required to set up a business bank account.
  • Licenses & Permits: Research local requirements for your specific business type. You may need a general business license, professional licenses, or specific permits (e.g., health and safety). Contact your city or county business office for details.
  • Tax Registration: Report business income on your personal tax return. If you plan to hire employees, you’ll need to apply for an Employer Identification Number (EIN) from the IRS. Even without employees, an EIN can protect your personal information and may streamline certain business transactions. Check if you need to register for state sales tax collections.
  • Insurance: Consider general liability insurance for accidents and negligence claims. Get professional liability (errors and omissions) insurance if you offer professional services.
  • Contracts: Use written agreements for business partners and supplier or contractor transactions. This clarifies expectations, prevents disputes, and protects both parties. Contact a lawyer to review or help you write this documentation if needed.

6. Promote and run your business

At this point, you just need to run your business. You don’t need to go all in, either. Launch it as a side hustle until you hit the point where it can become your full-time focus.

Don’t overcomplicate it: Set up a simple website, payment system, and essential operational tools. You want to serve customers immediately and learn from real-world experience.

But unless you locked in pre-orders earlier in this process, you’ll need to market your business to do it. 

Select marketing channels you believe will reach your target customers. Start small — you want to avoid overspending while you determine the right mix of marketing tactics. If you’re unsure where to start, paid social media ads (Facebook and Instagram), email campaigns, and local partnerships can be inexpensive options.

Stick to the budget you created, run small, easily measured marketing tests, and look for a positive return on investment (i.e., bringing in more revenue from sales than you spent on advertising). 

Only consider increasing spending after you start bringing in customers.

Continue to review and revise

You are on your way to running a sustainable business and may even have your first customers already! 

Just don’t get too far ahead of yourself. You’re still proving that there is traction that can be repeated with multiple customers. 

As you operate, review your plan and forecasts. Pay close attention to your cash flow and be willing to pivot if things aren’t working. 

That’s the benefit of starting from scratch: You are in full control and can scale and spend at a pace that improves your chances of success.

If you haven’t yet, download a free one-page business plan template to document your idea. The earlier you begin developing the plan, the more useful it will be throughout the startup process.

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Create a professional business plan

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Create Your Plan

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Content Author: Kody Wirth

Kody Wirth is a content writer and SEO specialist for Palo Alto Software—the creator's of Bplans and LivePlan. He has 3+ years experience covering small business topics and runs a part-time content writing service in his spare time.