Starting a Business as a Solopreneur
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A traditional entrepreneur builds a company by employing helping hands along the way. But a solopreneur builds a business without increasing the head count.
That’s according to Dorie Clark, adjunct professor at the Fuqua School of Business at Duke University and author of leadership books “Entrepreneurial You” and “Reinventing You.”
Like solopreneurs, freelancers and contractors often perform their work solo, but there’s a key difference. Freelancers and contractors do not need a business license or formal registration to operate, while solopreneurs run a registered business and must pay business taxes and adhere to industry regulations. Registering their business also gives solopreneurs legal liability protections that freelancers may not have.
U.S. businesses with no employees are on the rise, according to recent data from the U.S. Census Bureau, growing to 24.8 million in 2016 from 24.3 million in 2015. Solopreneurs are seeing revenues ranging from thousands to the multi-millions. In 2016, 38,551 businesses with no employees earned $1 million or more in revenue.
Solopreneurs have full autonomy without the responsibility of taking care of employees. They’re also able to pocket more of what they make without having to pay employee-related expenses. But running a business alone has its own trade-offs and can be just as challenging to operate.
“The concerns of the business are always there,” Clark said. “It becomes an inextricable part of your life.”
Pros and cons of working as a solopreneur
While working solo is not ideal for everyone, Clark said some entrepreneurs prefer independence.
“Not everybody likes managing people,” Clark said. “With more people comes more complexities and more headaches sometimes.”
Here are some other benefits, as well as challenges, of running a business as a solopreneur.
- It may be more peaceful on your own. Solopreneurs don’t have the commitment and stress of compensating employees. It can be hard to predict revenue and business growth cycles, and if you need to keep things lean you don’t have to worry about laying off anyone, Clark said.
- You can take home more of the profits. Traditional entrepreneurs often earn a fraction of what their business makes because of overhead costs related to other employees, Clark said. Solopreneurs can take home a significant share of their profits.
- You can shape your environment. As the sole member of the business, you have the freedom to set your schedule and design your workspace, whether at home or in an office, based on what’s most efficient for you. If you decide to run your business at home, be aware of the home-based regulations within your community to avoid penalties.
- No workplace camaraderie. A big motivator for many people in the workforce is companionship with colleagues, Clark said. Solopreneurs don’t have that camaraderie built into their workday, though they can join coworking spaces or other professional groups.
- Hiring outside help can be difficult. When solopreneurs encounter a business problem that they need help solving, they have to hire outside help, which can be as difficult and expensive as hiring employees, Clark said. You would have to figure out how to find the right person for the task.
- Vacation is limited. Because solopreneurs are responsible for the business, they may not be able to take time away from work, Clark said. The business becomes integral to your life, and business concerns will still be present even if you take a vacation, she said.
5 steps to become a solopreneur
Test the premise of the business.
Before quitting your day job and jumping into your own project, you should make sure you have a viable business on your hands, Clark said.
“Our society celebrates people who take a daring leap and succeed, but we hear less often about people who failed very badly,” she said.
While you still can rely on your paycheck or another source of income, you should test out your business plan. This may include providing your services or products for free to make sure there is interest in what you’re offering, Clark said.
“If they’re not interested when it’s free, they’re not going to be interested when they have to pay for it,” she said.
Register your business.
Once you’ve got a workable business plan, you would need to register your business before you start operating. Registering your business would require you to choose an entity, or structure, which affects your taxes and personal liability.
Solopreneurs can operate as a sole proprietorship, a limited liability company or a C or S corporation. You could also choose a B corporation or nonprofit structure if your business is mission-driven.
No matter which structure you select, you would be responsible for paying income tax, self-employment tax and potentially excise tax, depending on what type of business you run.
The type of business you’re starting as a solopreneur would affect your startup costs. If you need more money than what you’ve saved on your own, you could turn to friends and family for investments or loans.
You could also apply for a small business loan from a bank or an online lender. Financial institutions would likely want to see your financial statements and business plan before lending you money, so it’s best to have those documents in order.
Build your online presence.
New business owners often set up their website and social media accounts before they’re sure of the viability of their idea, Clark said. Once you’ve ironed out the details of your business plan and have a clear path ahead, then you can begin designing your website and other online pages.
You would need to register your website domain name, which should be completed by the time you begin doing business. You would also need to make sure all your desired social media account names are available.
During the early days of your business, you should gather testimonials from customers and conduct case studies to analyze how people interact with your business, Clark said. You may find that some aspects of your business miss the mark and you may need to make adjustments. Solopreneurs should be humble enough to admit if something isn’t working, she said.
“The only risk in pivoting is the risk to your ego,” she said.
Best businesses for solopreneurs
When choosing a business concept, solopreneurs should focus on what they know and what services they are best equipped to deliver, Clark said. Because you’ll be working on your own, your business should be built around your capabilities.
“If you’re a solopreneur, it’s important to perform the tasks that you are uniquely skilled at, particularly if someone is hiring you for your expertise,” she said.
Solopreneurs can start the same types of businesses as traditional entrepreneurs, but Clark said many tend to pursue service-based businesses, such as consulting or teaching music lessons. These types of businesses typically require little capital when starting.
“The good news for something like that is testing the concept requires zero capital investment,” Clark said.
Many solopreneurs make their income selling handmade items online through platforms such as Amazon or Etsy, Clark said. For craft-based businesses, you should make sure your prices accurately reflect your effort. You wouldn’t want to put a $35 price tag on a scarf that took 35 hours to make, she said. You should understand the value of your products and whether consumers would be willing to pay a premium price, Clark said.
No matter what industry your business is in, it’s important that you test the concept as much as possible before sinking too much time and money into the venture, Clark said.
“Don’t put the cart before the horse,” she said.
Should you become a solopreneur?
There’s a variety of opportunities that solopreneurs can pursue based on their specific knowledge, Clark said. You could build a business around your past professional experience or a hobby that you’ve practiced in your free time.
“Everybody has expertise in some area,” Clark said.
A major aspect of being a solopreneur is understanding that people may not initially want to purchase what you have to offer, Clark said. First-time business owners may have to test various iterations of their business model to land on a solution that resonates with customers.
“It’s not the crime of the century if you guess wrong at first about what your customers want,” she said. “You just have to listen.”
Because you may need to make changes, it’s best to start a business with low startup costs. This could be a service-based business that you could initially offer for free to get a sense of how people respond. If you start a business that requires you to manufacture a prototype of a product, the costs could add up before you even get the business off the ground, Clark said.
Although you would be running the business on your own, there may be instances when you need to bring in outside help. A secret to becoming a successful solopreneur is learning how to complete all the tasks at hand, but it eventually becomes more efficient to hire someone with a different skill set, Clark said. It may be easier for you to hire a contractor to do bookkeeping or graphic design work rather than spending a chunk of time learning to do it yourself.
But money will likely be tight, at least at first, so you would need to make sure your cash flow could support outsourced work, she said. Many solopreneurs belong to a community or network of other professionals who could assist when needed. Solopreneurs don’t need to be isolated, Clark said.
“The successful solopreneur is going to be someone who is scrappy and figures it out on their own,” she said. “But you can’t be successful if you’re hiding in your garage.”