Starting a business from scratch is the ultimate business start-up experience. You start with a clean slate and are able to shape and mold the business as you see fit. You select (or develop) the product or service you will sell, pick the business’s name, select a location, and build the business. If you’re careful, you can often start and build the business fairly inexpensively. In fact, the average business in the United States is started for about $10,000.^[1] Even aggressive growth firms, in most cases, don’t take an arm and leg to start. Every year Inc. magazine compiles a list of the 500 fastest-growing privately owned businesses in the United States. In 2006, the medium amount it took to start one of the businesses on the list was $75,000.^[2] That means that half of them were started for less than $75,000. It’s normally more expensive to buy a franchise or purchase an existing business.

Starting a business from scratch is the ultimate business start-up experience.

Starting a business from scratch, for many people, is also very satisfying. The business is a direct reflection of your efforts, values, work ethic, and skills. It’s also the most practical way for a prospective business owner to bring a new product or service idea to market. While there are many advantages to franchising, participating in direct sales, and buying an existing business (as discussed in Truths 12 to 14), these approaches require you to build on someone else’s product or service idea. Additionally, if you’re starting a business to fill an aspiration gap, such as being home by 3:00 p.m. on workdays to meet the school bus or having Sundays free to participate in volunteer activities, starting a business from scratch may be your best alternative. Many people who buy retail franchises, for example, find the hours of operation and other rules to be so rigid that they have to plan their lives around their business. While starting a business from scratch is in many ways more demanding than other ways of getting into business, the owner has the advantage of setting the hours of operation and the overall tone for the business.

There are also disadvantages to starting a business from scratch. Starting a new business entails greater risk than buying a franchise, participating in a direct sales organization, or buying an existing business. You must also build your business’s brand, develop a marketing campaign, establish relationships with suppliers, and complete the other chores necessary to build a business from its inception. While many people enjoy engaging in these activities, they are time-consuming and require expertise. As mentioned in Truth 5, “You may not need prior business experience,” one of the principle advantages of franchising and direct sales, in particular, is that the fundamentals of the business have already been worked out.

It’s also more difficult to obtain financing for a new business than it is to buy a franchise or purchase an existing business. There is always a certain degree of skepticism surrounding a brand-new business. The skepticism can be lessened through a well-developed business plan, as discussed in Truth 10, “Writing a business plan: Still as important as ever.” A new business doesn’t have a track record to rely on. One of the primary advantages of buying a franchise, such as a Subway or a Curves International, is that the business concept is proven, which is reassuring to bankers and investors. The same rationale applies to buying an existing business. As a result of these realities, the same person who is unable to secure a $50,000 loan to start a business from scratch may be able to borrow two to three times that amount to buy a franchise or an existing business. The perceived risk involved with starting a business from scratch is that much higher than the other alternatives.

In general, individuals who have prior business experience are best-suited to start a business from scratch. It also helps to have access to start-up funds through personal savings or via loans from friends and family. These are not hard-and-fast rules, however. Many people have started successful businesses from scratch with no prior business experience and limited start-up funds. The best strategy for making the call is to weigh the advantages and disadvantages of starting a business from scratch against the alternatives for your own circumstances.

In general, individuals who have prior business experience are best-suited to start a business from scratch.