It's easy to do research online, but what will give you a competitive advantage is talking to potential customers, suppliers and vendors directly, says Volchek. For Higher One's banking products, he went to university administrators and asked them about their problems and procedures.
Once you've got the idea, create a business plan. Two pitfalls of writing a plan are overestimating sales and underestimating expenses. Nothing could be worse in a downturn. "We tell FastTrac students that it takes twice as long to break even than they think, so they should basically multiply their startup costs by two," Doss says.
Where's the money coming from?
To be sure, insufficient capital is the reason why most companies fail. Startups with $50,000 or more in capital have a better chance of keeping their doors open than those that don't, the SBA says.
For small businesses of any age or size, the SBA offers three types of loan programs. Its website also offers a good search site for finding business loans, grants and financing programs that you may be eligible for.
On the venture capital side, formerly free-spending firms are tight-fisted these days. If they are investing, their money is going toward software and medical devices and less into other businesses. Instead of raising $3.5 million from venture firms, Volchek and his partners started instead with $600,000 from friends and family.
"Raising money that way makes you more disciplined and resilient financially," he says.
Volchek recommends raising small amounts from individual investors, so the risk is spread among many people. That will make them more willing to invest. Offer them stock in exchange.
And when it comes to a loan, community banks are a better alternative to large lenders, which have been slow to part with cash since the financial meltdown, Entrepreneur's Cosper says. "If you're in Decatur, Ill., the banks there know the culture, the region and economic conditions you'll be working in much better than a bank headquartered in New York," she says.
Regardless of the capital you raise, be frugal with your spending. Plan on your cash lasting at least six months. Don't take on any new debt, and stay away from credit cards to finance your business.
How will you get the word out?
Many businesses see marketing as a luxury when money is tight, but this is the time you need marketing most.
The Internet has been largely unaffected by the downturn and is still an easy and inexpensive way to market. "Our college-age customers mostly communicate electronically anyway, so Higher One uses mobile marketing, which is low cost," Volchek says.
Facebook is becoming an integral marketing tool, Cosper says. "Every company, from Visa to the corner bar, is creating its own Facebook page to promote (itself)," she says.
And though businesses are on Facebook to connect with their customers and fans, keeping them interested and engaged to keep them coming back for more is the challenge.
Besides updating a Facebook fan page, there are different approaches some businesses take, such as running contests and sweepstakes, to grow their reach and increase follower acquisition.
The same approaches can be used with Twitter. Many companies will do a cross-promotion on both social networks to increase their fan base simultaneously. Besides just the two main social network sites and their offerings, there are many app sites, free and paid, which small-business owners can take advantage of when wanting to stay on the minds of their potential customers.
There are also viral marketing methods, such as creating a video on YouTube and e-mailing it to others.
"These are amazing marketing tools, but you must have a clear message," Cosper says.
How will you come out ahead?
There are a few benefits to a lousy economy. For one, you're likely to find that suppliers are more willing to negotiate a lower price.
"During bad times, you can lock in good, long-term deals for office space, technology and other services. When it's time to renew, you can still negotiate and have the advantage," Volchek says.
And in financing DrChrono.com himself, Nusimow has found other ways to keep costs low, such as renting a desk in a shared office with a receptionist and conference room for $400 per month rather than having a separate operation.
Also, you have greater hiring selection in bad times. With vast layoffs in many industries, you have more choices at all levels, from graduates entering the work force to seasoned management.
A simple want ad on Craigslist.com or Monster.com could generate hundreds of resumes. To get seasoned workers, consider offering them part ownership, or shares in the company, so they have a stake in the business. And an internship is an inexpensive way to evaluate talent at a time when more college grads and young workers are willing to work for free to prove their worth in a tough job market.
"When you start on a shoestring, you learn all sorts of ways to run a business efficiently," Doss says. "By bootstrapping, the lessons you learn along the way will serve you well among your competition when the economy gets better."
Read more about starting a business in Bankrate's Small Business Guide.
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