Starting a business is a challenging endeavor that requires time, money, and continuous learning. In our blogs, we cover how to start a business with brief overviews. In our hub, we aim to provide you with everything you need to go through each step. Our first step is conducting market research. Throughout the steps, we'll provide insights from Paul Akers, the owner of FastCap, and a Lean Expert who has created hundreds of products for woodworkers and cabinet makers. There are four basic steps to conducting market research:

1. Understand "what is marketing research and which type is right for my business?
2. Perform market research.
3. Analyze the data.
4. Use the research to make decisions.

We'll start by exploring some of the concepts involved in market research analysis to help you perform it yourself.

Step 1: What is market research in business?

Market research is the process of gathering information about target customers to better understand their views about a product or service. The primary ways of classifying market research are:

• The method of the collection
• Common types of market research

Let's look at each.

The method of collection

Market research normally uses six methods of collection when looking for answers:

• Primary market research
• Secondary market research
• Qualitative research
• Quantitative research
• Exploratory research
• Specific Research

Let's look at each.

Primary market research

Primary research is the original research conducted directly by an organization. It is used to find out what customers are interested in. It can be done through questionnaires, interviews, or videos. Primary market research is used for understanding the underlying needs and desires of consumers. Primary market research helps us to understand the needs, wants, and behaviors of potential buyers. It is the basis for the buyers' persona. It helps us to formulate marketing strategies that can be used to meet those needs and wants.

Secondary market research

Secondary market research is a process of finding information about a product or service through other sources. This includes looking up other companies that are in the same market as your company and finding out what they are doing. A company should conduct secondary market research to find out if the product or service has been done before, which will help them figure out how they can differentiate their product from competitors. Secondary research can be used to gain information about competitors, pricing, distribution channels, etc. It also helps the company save time by not having to conduct primary research that has already been performed. Researching competitors before you start your business is not only crucial for success but essential for survival in the business world where everyone is trying to get ahead.

What is the difference between qualitative and quantitative research?

One is focused on themes while the other is focused on information that can be processed numerically. Let's look at each.

Qualitative Research

Qualitative research is focused on finding themes that run through interviews and surveys. This type of research is more focused on opinions and is more art than statistical analysis, but in some cases, you can turn this type of research into data that can use statistical analysis. For instance, a question like the one below converts a qualitative data point into a quantitative data point, making it easier to compare how happy someone was with their food. You might perform qualitative research along with market validation after you have created a prototype of a new product.

Quantitative research

This research is focused on information that can be easily processed with statistical analysis software. For instance, median household income would be easy to statistically calculate if you gather the data for the target customers' income. Market research analysts love this kind of data because it is easier to process.

Exploratory research

Exploratory research is market research that looks for a better understanding. For instance, you may have come to this site doing exploratory research about how to do market research for a startup. After you've gained broader information about marketing research methods, you might move on to more specific research.

Specific research

Specific research is when market researchers are looking to answer a very specific question using market data. This research might include searching for a specific concept or item. For example, the lowest cost statistical software for a company that will have ten users of the software. You might also want to research the history of a business location before deciding to sign a lease because some shopping centers have high turnover. To find the answer, you'll probably want to go with Google Workspace because Forms, Sheets, and other useful business tools are included in the same package as your email. Google is the primary email provider for small and medium-sized businesses. Market research may include a combination of primary and secondary data, quantitative and qualitative data, exploratory and specific research. Now that you understand the market research definition, let's look at the common market research methods and what questions they are trying to answer.

Common types of market research methods

Most companies will perform 13 types of market research:

1. Literature reviews
2. Surveys
3. Interviews
4. Focus Groups
5. Observation
6. Customer Utilization Research
7. Buyer Persona Research
8. Market Segmentation Research
9. Pricing Research
10. Competitive Analysis Research
11. Customer Satisfaction and Loyalty Research
12. Brand Awareness Research
13. Campaign Research

In each of these, market researchers attempt to answer different questions. Let's discuss each.

Literature Reviews

One of the leanest ways to do market research is a literature review. With your laptop or cell phone, you can easily find vast amounts of data about your market through sources like:

• Statista – Provides graphs that are easy to process for most economic subjects
• Competitors' research – Your competitors have probably already done the research. Find it so you don't have to duplicate the effort.
• Industry trade organizations – Companies
• Think with Google – Helps marketers gather information using Google's extensive database of consumer behaviors
• Census Bureau – The U.S. Census Bureau is a government agency that collects data on a variety of subjects including a full count of the U.S. population every decade.

After you've gathered everything available through market research, it's time to create some surveys.

Surveys

Surveys are the most common type of market research because they are so easy to conduct and are low-cost. With software like Google Forms and Facebook, you can easily create a survey, distribute it, and analyze the data on your own. When creating a survey, it is important to be aware of some best principles including:

• Use a variety of style questions: scaled, multiple-choice, and open-ended questions are typically used with success.
• Avoid biased questions that lead the survey participants to a preferred answer. They will harm the validity of your research.
• Be respectful of the participants' time. Unless you are paying them, try to keep the survey to 10 questions or less. If you are paying them, $50-$100 per hour is typically what market research firms will pay for longer surveys.
• Make sure to gather demographic data and contact information for follow-up.
• Practice proper sampling methods. In most cases, you won't need more than 1,000 survey participants, but you can use the table below to establish how many people to include in your survey.

Confidence Level	Margin of Error	Sample Size
99%	1%	16576
99%	2%	4145
99%	3%	1842
99%	5%	664
99%	10%	166
95%	1%	9603
95%	2%	2401
95%	3%	1067
95%	5%	385
95%	10%	97
90%	1%	6764
90%	2%	1691
90%	3%	752
90%	5%	271
90%	10%	68

You can normally gather the data you need through this method for under $5 per survey participant, making it one of the most effective and lean methods of gathering market research.

Interviews

Another great tool is a market research interview. They follow the same principles of surveys but have the benefit of the ability to ask follow-up questions. Using these with select survey participants who gave meaningful input might be useful. Interviews are much more labor and capital intensive than surveys, so only use them for follow-up questions for your target market. Keep reading to learn about focus groups.

Focus Groups

A focus group brings 5-10 people together to discuss a product or service with a moderator. These will typically run $4K-$10K per group, and they are not conducive to being conducted by novices because of the challenges involving focus groups dynamics. If you are going to use this type of research, we'd suggest hiring a professional market research firm to assist you in the recruiting and managing of a focus group. If you are trying to run lean market research, you should skip focus groups entirely. Keep reading to learn about observations as a market research tool.

Observation

Observation can be an extremely powerful market research tool. Using observation, you can learn how people actually interact with your product and service, but it doesn't allow you to actually communicate with them. Observation is particularly powerful for software products because tools like Google Analytics and Crazy Egg help you see how people interact with the software. This makes it easier to fix areas where customers stop interacting with the application. You can perform market research through observation in different ways. The primary ways of conducting market research through observation are covert observation and overt observation. Covert observation is collecting market research data without the participants' knowledge. This type of data collection can be achieved through analytics software on the web or using security cameras in stores where people can test your product. Overt observation is when the participants are aware of the marketing research and provide feedback to questions. When you conduct market research about a product or service this way you will get more information about potential customers' opinions, but it may be influenced by their awareness that you are conducting market research. Effective market research can gain actionable insights from both methods. Overt observation is better when you know who your potential customers are and you want to establish whether they like your business idea, while covert observation is helpful for establishing who naturally gravitates to a product or service. You'll want to take notes any time someone performs a desired or undesired action. If the participant is aware of the market research analysts, you'll also want to ask them what influenced the decision. Cautionary Tale: During the early stages of FastCap, Paul would gain actionable insights from conventions, but he stopped conducting research at such events because he found them costly to collect data. He also found that competitors would try to steal his ideas. To truly make the most out of this tool, you'll need to combine it with other research methods like surveys to gain user input after the observation.

Customer Utilization Research

Customer utilization research is focused on how your current customers use your products or services. Marketing professionals will normally use customer surveys to perform this exploratory research. The following questions are questions that an online survey might include:

• How often do you use our product or service?
• What do you like most about our product or service?
• With 1 being highly dissatisfied and 5 being highly satisfied how would you rank our product?
• What do you like least about our product or service?
• With 1 being highly dissatisfied and 5 being highly satisfied how would you rank our customer service?
• Have you tried any of the competitors' products? If so, which ones? How does our product compare to theirs?
• What features would you like added to our product?
• With 1 being highly dissatisfied and 5 being highly satisfied how would you rank our pricing?

You can replace "product" with "services" in any of the questions above. In addition, it would make sense to include the name of the specific product or service they bought instead of the word product or service. These questions will help you establish what real customers think of your products and services. This type of market research data provides insight into aspects including competitive advantage and creating buyer personas for potential clients based on the data collected. FastCap has an interesting take on this type of market research. They actually offer tradesmen a 2-5% royalty for product suggestions that they decide to take to market.

Buyer Persona: Identify Your Target Market

A user persona is a character that represents your target market. A user persona will include aspects including:

• Demographics – age, gender, location, marital status, number of kids (if applicable to your product)
• Financial Information – Employment status, job title, household income, homeowner status
• Behaviors and Interests – Hobbies, products they like, buying habits, where they get information about products and services
• Market size and market trends

You can create similar personas for B2B businesses using stats like:

1. Number of employees
2. Industry
3. Revenue
4. Age of company
5. Titles of decision-makers
6. Market size

If you are using analytic tools, they collect most of this information. You can add a form to check out or that opens when the user is leaving the site to ask questions about:

• Who are they? In FastCap's case, they would be carpenters and cabinet makers.
• What are they trying to achieve? They don't want exposed screw holes in their cabinets.
• What is the main obstacle? The products on the market are ugly, difficult to use, and expensive.

What if you find that your buyer persona is too broad to use to identify potential clients? We'll discuss how to address that next

Market Segmentation Research

A small business might need to do market segmentation research if all their clients don't fit neatly into a single user persona. For instance, FastCap would have at least three market segments that they might want to prepare marketing materials for:

1. Distributors that will be selling their products to carpenters
2. Tradespeople who will be using their products
3. Coffee shops that buy caps for drinks so people don't burn themselves (it's an ancillary use for a FastCap that he decided to market to restaurants with To-Go cups)

As you can guess, each market segment would have characteristics that make them different, and you wouldn't want to market to them all the same. You'd use market segmentation research to identify what those key characteristics are and create a user persona for each.

Pricing Research

The term pricing research is refers to establishing a fair price. Pricing research should be done before you open a business or launch a new product because it can impact whether the business is worth starting. To understand the benefits of pricing research I should discuss pricing strategies first. Businesses normally use either the value-added method or the cost of doing business. The value-added method charges a price that is based on the value that is provided to a client. An example of this pricing is how Tesla prices solar roofs. They determine the price using the cost of a comparable roof plus the net present value of 30 years of energy in the target market. The cost of doing business is calculated by adding up all your expenses (including taxes) and adding the amount of profit you want to make, then dividing by the number of units you want to sell. Both of these pricing strategies have issues though. In the value-added method, how do you determine the value that is added? In the cost of doing business method, what is the maximum your target market can sustain? Both of these are answered by researching comparable products. While there may not be something identical on the market, there is always something that serves a similar purpose. For instance, when portable MP3 players were created, the cost of the MP3 player plus downloading songs should have been compared to the cost of a portable CD player plus the cost of all the CDs.

Competitive Analysis Research

Competitive analysis research is focused on developing a thorough understanding of the market and identifying how you want to differentiate yourself in a market of comparable competitors. This type of research will be included in a business plan. You'll want to focus on aspects of the industry including:

• Identify competitors and the products they offer. This can be done through their websites.
• Analyze sales trends. You can use industry resources and company quarterly reports.
• Research how economic indicators impact the industry. For instance, consumer staples tend to do better during a recession, while consumer discretionary products tend to do better as an expansionary cycle matures.
• Understand the impact government agencies have on the industry.
• Has the industry reached market saturation? If 9 out of 10 people have already purchased the product you are selling, you are probably late to the game. Before you spend money in an industry that is at capacity, you should review the following bullet point.
• What is the job outlook for the industry? The Bureau of Labor Statistics (BLS) creates an occupational outlook handbook for every industry. You want to be aware of the growth prospects. If both of the last two bullet points are going in the wrong direction stay clear.

The document you create from this research should be detail-oriented, contain lots of external links to prove sources, and show analytical skills that show an understanding of the industry. This research and the communication skills used to present it are often deciding factors when applying for loans.

Customer Satisfaction and Loyalty Research

Customer satisfaction and loyalty research are focused on building relationships that increase the lifetime value of your existing customers. With big data and rewards programs becoming more affordable, small business owners can now offer similar types of rewards to what people see at major chains. You'll want to use the market research process to establish the answer to questions like:

1. Should I use a point system or a number-of-purchases reward system?
2. How big of a reward should I offer for repeat customers?
3. Should I offer referral bonuses? If so, how much is meaningful?
4. What are my competitors doing?

To answer these questions, you'll need to establish:

• How often your average customer buys your product or services. You can find this in Customer Relationship Management (CRM) software. Alternatively, you can sort receipts by credit card if you don't already have an app or loyalty program that people sign up for.
• If you have a CRM, establish what percent of customers interact with your business daily, weekly, monthly, or irregularly. Also, calculate the first two bullet points for each group to see if different promotions make sense.
• How much your average customer spends on each trip. Calculate revenue or number of receipts.

For example, you might target people differently by offering daily customers a free upgrade every $50 spent, while weekly customers you might want to offer every 5th visit they get a free product. In both scenarios, this can reward customer loyalty and encourage more spending in the future by slightly shifting their habits. Let's look at how to understand brand awareness.

Brand Awareness Research

Brand awareness research is focused on establishing what your target audience knows about your business, how they perceive it and giving you input on improving brand awareness. Facebook has a feature for brands running ads that is really useful for establishing brand awareness called Brand Survey Tests. It is currently an experimental stage, but here's how it works:

1. Divides target market into two groups, one that is shown ads and one that is not shown ads.
2. Collects data on both groups' clicks, purchases, and other actions with your company
3. The ones that are shown ads will be shown a survey a couple of days later that asks up to three of the following questions:
   1. Required: “Do you recall seeing an ad for [page name] online or on a mobile device in the last two days?”
   2. “Have you heard of [page name]?”
   3.  “How would you describe your overall opinion of [page name]?”
   4. “Are you familiar with [Page name]?”
   5. “Will you recommend [page name] to a friend?”
4. Provides an analysis of what the market research process found.

This can be a great tool for understanding if people recognize your brand name.

Campaign Research

Campaign research is focused on reviewing past business strategies to promote your products and services so that you can establish what worked, what didn't, and why. In today's marketing boom, people often forget the importance of including lessons learned when closing a project. During this process, you'll want to look at questions like:

• Did we reach enough people to be a representative sample? Typically, over 500 will be enough to count as a representative sample,
• What was the return on investment?
• Where did people drop out of the sales funnel?
• Did the campaign have a favorable reception?
• Should we try to duplicate the content in future campaigns?
• What should we avoid in future campaigns?

Now that you know about some of the types of market research techniques, keep reading to learn why market research is so important.

Why is market research important?

Because market research is the act of investigating consumer preferences as well as economic, social, and statistical data, it helps to better understand the customer and guides business decisions in the areas of:

• Customer insights - Market research can be used to gain insight into how customers behave, what they like and dislike about products, and what they think about different marketing strategies.
• Marketing strategy development - Market research can be used to develop a marketing strategy by identifying the needs of the market, target audience, and competitors in the industry.
• Product development – Market research is key for product development because it helps companies discover what customers want to buy or use next. It also helps companies see how their product will fare against other similar products on the market today or in the future.
• Product pricing considerations – Market research helps companies determine prices for their products by understanding expenses to continue production.

Now that you understand why market research matters so much to businesses, let's take a look at how to conduct market research.

Step 2: Conduct market research

As you begin to get a handle on your goals and the questions you need to answer, it's time to do the market research. At UpFlip, we are fans of Lean methodologies, so we figured we'd give you an introduction to lean market research.

1. Put together the list of questions you are trying to answer based on the previous sections. Structure them in a way that answers can be analyzed easily.
2. Seek out data that is already available and document the findings that impact you under each question.
3. Establish the minimum number of online surveys or observations needed for a statistically accurate sample using our calculator.
4. Find participants and gather data. When possible use software for collecting data.
5. Proceed to analyze data.
6. Implement business strategies.

Using these strategies will make it easier to do effective market research quicker and at a lower cost. No need for costly market research analysts. If you'd like to learn more about how one of the United State's most successful Lean practitioners approaches market research check out our interview with Paul below. [su_youtube url="https://www.youtube.com/watch?v=wog3FLh0tHk"] Keep reading to learn about analyzing the results

Step 3: Analyze the results

Market research analysts look for trends in data gathered from market research. The analysis involves both statistics and looking for patterns. To make it easier to analyze data, it is helpful to use software while gathering the data. If you don't, you'll have to input it into a spreadsheet manually. The first step is to clean up data. This means fixing misspellings and other improper collection like zip codes where state names should be. Next, remove obvious deviations from the sample. (If someone says they buy your products 100 times per day, that's probably not right.) After that, you can do data analysis using functions like:

• Mean – sum divided by the number of surveys
• Median – (Number of surveys+1)/2
• Mode – Most common answer
• These can also use conditional statements such as "IF male and Under 45 mean"

With some forms of data, you might find visualization easier, so we are providing some market research examples of visualization of data. Let's look at some common visualization methods.

Flow Model

The flow model is simply a visual representation of how interactions occur. Check out the behavioral flow for website visitors in Google Analytics. This model can be useful for establishing where issues occur and how processes work.

Affinity Diagram

An affinity diagram is used to group people, businesses, or other items together by a common feature. For instance, you might group by male and female, profession, or age. This can make it easier to tell whether one group tends to prefer your product or service more than another group does. If you want to learn how to do this in Microsoft Excel, check out the video below. Lucidcharts is another software you can use for affinity diagrams.

Customer Journey Map

A customer journey map is a visual representation of the path people take from being unaware of your product to becoming a paying customer, and eventually a potential advocate. Customer journeys are typically broken into five steps in the process:

• Awareness – The customer knows about the product
• Consideration – When the customer starts researching the product
• Purchase – The customer buys the product
• Retention –Keeping the customer happy, repeating purchases
• Advocacy – When the customer goes from being a satisfied customer to singing your praises to others.

The stages can vary for different groups of people, but awareness is typically a matter of advertising. This can be in the form of an online ad, a coming soon sign when preparing to open up a location, or even current customers (or influencers) advocating for your brand. Consideration begins when the customer starts researching your company. This phase might  be:

• Short: Searching "gas stations near me" and immediately going to get gas
• Long: Spending hours researching the best shoe, best price, and best place to buy it.

The point of understanding a journey map is to be able to understand how many points of reference a person has before buying your product. Then you can use that to speed up the awareness and consideration phases while encouraging advocacy by your long-term customers. Now that you understand "what is market research?" how to perform the market research, and how to analyze the research, there's only one thing left...

Step 4: Use the info for decision making

The final and most important part of performing your own market research is converting the research into business practices to improve revenue. Depending on what you find in the research, this step may include:

• Adding new user personas and marketing campaigns
• Narrowing your target audience
• Discontinuing marketing campaigns
• Investing in software to increase customer loyalty or lifetime value
• Documenting the planned strategies for a business plan
• Rejecting the business idea completely

Thank you for reading!

Wherever the research leads you, UpFlip is here to help you run a better business. We use your feedback to create content that helps you build a better business. Which sections of this did you find beneficial and which would you like to learn more about?

More data is coming out to suggest that an economic slowdown is occurring. Gas prices are rising. The Federal Reserve is raising interest rates the fastest since the 2009 recession. Small business owners are increasingly concerned about rising inflation. It’s going to be okay. You just need to recession-proof your business. We’ve talked to many business owners who found ways to beat the odds when federal and local governments closed down the economy during the pandemic. One of my favorites is Jazmin Richards, who started Blk Sunflower with less than $100 after losing her job at the beginning of the pandemic and made $300K in less than 18 months. We’ll share insights about preparing your small business for an economic cycle with slowing growth. We’ll discuss what to do when a recession hits by discussing: [su_note note_color="#dbeafc"]

1. What happens during recessions
2. The definition of recession-proof 
3. Recession-proof Industries, companies, and jobs 
4. What to do in a recession
5. What to do with your money
6. How to protect your money
7. How to make money during a recession [/su_note]

What happens in a recession?

A recession is typically considered at least two consecutive quarters of declining GDP growth, which means that the U.S. economy is currently in a recession.  Recessions have occurred when the economy falters, and you will normally see:

• Eight to 12 months, or three quarters of declining demand. (The longest was the Great Recession at 18 months.)
• Unemployment rising to over 5.5%, but potentially as high as 10.8% 
• A 4% to 6% decline in year-over-year GDP, which is calculated on a modified income statement.

The nationwide shutdown in 2020 was an exception to the rule because it was only two months long, but unemployment rose to over 15% and GDP dropped 3.5% in 2020 because of the closures. During recessions, businesses and consumers change their behavior to adjust to the downturn. Economic research shows that people and businesses tend to make the following changes:

1. People and companies reduce discretionary spending.
2. People look for ways to earn extra income.
3. Some increase their savings if they have extra income, then savings account balances decrease.
4. Companies reduce hiring and then cut jobs when they cannot cut costs any more.
5. The stock market declines.
6. Banks increase requirements for loans and reduce lending to prevent defaults.
7. Total personal income decreases.
8. The Federal Reserve normally lowers interest rates, but interest rates, gas, and supply chain issues are responsible for the current decline in GDP.

Next, we’ll discuss how businesses can make it through recessions.

What is recession-proof?

Recession-proof is a term used for a company, job, or industry that is considered less impacted by a downturn in the economy. Business owners, investors, and consumers will tend to gravitate towards the sectors of the economy that are not impacted by a recession. These businesses include: [su_note note_color="#dbeafc"]

• Consumer staples like hygiene products
• Discount retailers
• Food 
• Gas
• Utilities
• Investments like bonds
• Education[/su_note]

These are all industries that see stable or increased demand. Other industries would be recession-resistant because they are less damaged by recessions than others. For instance, health care has a certain resistance level because essential care will never disappear. A diabetic that stops taking insulin will die, so they keep taking it even if they can’t afford the medication.

What jobs are recession-proof?

For people looking for long-term job security, you might want to consider these investment-proof jobs when you fall on hard times:

• Teachers: Elementary through high school education doesn't stop because a recession occurs. According to Capital News Service, most recessions create increased demand for higher education because more consumers want to increase their job prospects by investing in their education. 2020 was an exception because people were worried about the transmission of COVID.

• Health Care Professionals: Nurses, doctors, and specialized care providers are also recession-proof careers. This goes for therapists, psychiatrists, and social workers, too.
• Government Employees: Jobs like firefighters, police, first responders, and social workers that work for the government are normally recession-proof jobs because the demand for their services stays the same or increases during a recession.
• Public Service Jobs: People still need garbage pickup, electricity, water, and other essentials to keep their home and community livable so these services make it through a rough patch virtually unscathed.
• Financial Service Providers: Taxes still have to be made, and auto insurance is still required by law. There have been two bank runs in the last hundred years, and the last one saw massive numbers of bailouts. Make sure to go with a conservatively run financial institution, and you should be fine.

When a recession hits, you won’t want to be heavily invested in new construction, home furnishings, car sales, travel, and printing businesses because they are the least recession-resistant services.

What companies are recession-proof?

Companies that do well during inflation tend to supply needs, not discretionary goods and services. Investors tend to look for recession-proof stocks during recessions. These will normally be companies that are in the industries mentioned above. They may also look for stocks with low debt-to-income ratios or investments with better interest and dividends. U.S. News recommends these electronically traded funds to get stock picks that are recession-proof investments:

• Vanguard Total International Stock ETF (VXUS): Every country has different economic conditions. International investing can be done at a discount when the dollar is strong. When the dollar weakens again, you can see huge gains in these stocks.
• Vanguard Consumer Staples ETF (VDC): These are a mix of Procter & Gamble, Coke, Pepsi, Costco, Walmart, and other companies that people buy from regardless of uncertainty. Economic data show that these companies have built a recession-proof business.
• iShares 0-3 Month Treasury Bond (SGOV): Short-term bonds are currently performing better than long-term bonds. The peak levels are at the two-year mark. You can buy them on Treasury Direct if you prefer.
• Schwab U.S. Dividend Equity ETF (SCHD): Dividends are like interest paid on stocks, but you can opt for dividend reinvestment to increase your equity. When the prices go back up, you have more stock.
• Health Care Select Sector SPDR Fund (XLV): Healthcare spending is a major piece of the economy, regardless of what the rest of the market is doing.
• Vanguard Utilities Index Fund ETF (VPU): As we’ve mentioned previously, utilities are recession-proof businesses.
• SPDR Gold MiniShares (GLDM): Many people invest in gold to hedge against inflation when they see uncertainty.
• Vanguard S&P 500 ETF (VOO): Recessions often occur in different areas at different times, so investing in international stocks might pay off.

Coin laundromats also do well because people still need to wash their clothes. Watch our interview with a laundromat owner below. [su_youtube url="https://youtu.be/4Uh_qWSTmoY"]

What are recession-proof Industries?

Industries that do well in a recession include: 

• Grocery stores: They sell food, and it’s the absolute last thing in life people can give up.
• Convenience stores: People always need gas to get to their job, and most gas stations have a contract with the gas company where the gas company keeps the gas revenue, and the market keeps the profit from the products in the store.

Check out our interview with a gas station owner who turned a $1 million investment into eight gas stations in three years. If you have the funds to invest, it’s one of the industries that do well in a recession. [su_youtube url="https://youtu.be/PZhL6_U9pWI"]

What to do in a recession?

During a recession, you want to pay more attention to market data. The average duration of a decline is short enough that most businesses can ride it out and make a profit over the long run. To make sure you have the best chance of navigating a down market, consider the following ideas:

1. Save money as soon as your company is running a profit.
2. Create a subscription service; it tends to increase the average revenue per client.
3. Pay off debt every month so you can ride out a down market.
4. Keep a look out for amazing investment opportunities for your portfolio. Sometimes people sign over their business just to keep from declaring bankruptcy.
5. Sell underperforming assets.
6. Renegotiate with vendors and landlords.
7. Don’t buy anything you don’t need.
8. Ask your employees to help. Dan Price almost had to lay off 20% of his company, but his employees opted for pay cuts. Everyone kept their jobs, and he paid them back after they weathered the storm.
9. Lower profit margins if necessary. Sometimes lower prices will matter enough to keep customers you would lose otherwise. Remember when everywhere offered $10 pizza? Pizza places used that strategy to protect their stores from closing. Then, after the 2009 recession passed, pizza prices gradually doubled.
10. Consider reducing the products and services you offer. Alternatively, add products and services businesses have requested.

Each business is different, but you should always be prepared for a recession. Industries tend to consolidate during recessions. The smallest businesses shut down and bigger businesses look for merger opportunities. During the great recession, banks holding 6% of total deposits shut down, leaving greater profit opportunities for the ones that took over their assets. During the same time, 2.4% of small businesses shut down. If you have the funds, a recession can be a great time to expand. Next, we’ll examine what to do with your money during a recession.

What to do with your money in economic downturns

I don’t think anyone would advise hiding your money in a mattress. If you need it quickly, leave it in your savings account. Otherwise, you can consider investing in stocks, bonds, or businesses. 

Stock Market

One common reason why people lose their retirement funds is they pull out of their portfolio when it’s too late. Don’t do it. If you’ve already lost more than you are comfortable with, ride it out. If you think your portfolio has reached an all-time high, just turn it into cash and wait until the market hits a bottom. All time highs are the safest time to pull out. Like Warren Buffet said: [su_quote] A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. [/su_quote] Look for great buys after leading indicators show a sign of change. Leading indicators are business statistics like:

• Purchasing Managers Index: Shows companies are buying materials.
• Durable Goods Orders: Shows demand for industrial products.
• Jobless Claims: Weekly and monthly reports that show how many unemployment claims are being filed. When both weekly and monthly align, it is a good thing. Weekly will show changes first, but monthly will show confirmation that the weekly wasn’t an anomaly. 
• Consumer Confidence Index: This shows how confident consumers are. If consumers are confident, the economy will likely trend higher unless unforeseen events occur.

You can find most economic reports on the Census website.

Bonds

Treasury bonds have durations of one month to 30 years. They are some of the safest investments in the world because the faith of the U.S. government backs them. Treasury Direct also sells TIPS, which tracks the consumer price index, and I-bonds, which are a combination of fixed rate and variable rate.  They are both long-term bonds, but TIPS can be sold on the open market. These are the best options if you want to earn some interest in safe investments.

Buy Businesses

When businesses start going under, it’s your chance to get assets at ridiculously low prices. People who bought neighborhoods in Las Vegas for $50K per house have turned $1 million investments into $8 million or more.  The same can be done with businesses. Just make sure you are analyzing the business strategically. Be cautious when they don’t have documentation of their debts. Read our blogs about buying a business, including:

• Questions to ask
• Business valuation
• How to buy a business

Next, we’ll discuss how to protect your business during a recession.

How to protect your money in an economic downturn

Protecting your financial stability is critical during recessions. We’ll discuss a few options to protect your business funds. 

Increase Savings Rate

Reduce your salary and keep the savings in an interest-bearing account. It may not save a ton, but you'll weather the downturn if you save more money.

Decrease Unnecessary Spending

Everybody has waste. Whether it is making your employees drive the vehicle back to the shop, buying too many supplies, or having weekly team meetings with a huge lunch budget, there are bound to be expenses you can cut.

Reduce Employees Hours

If your business has multiple employees, you can reduce their hours. Try to do it fairly because nobody likes being singled out. If you value the employees, you want them to stick around until the money starts flowing again. Some air conditioning companies offer pay packages that allow you to bank your overtime for the slower months. It helps your employees maintain a more simple budget year round. It also helps you earn more interest.

Reduce Employee Pay

Most employees would rather take a pay cut than find another job. If you do this, try to reward them when the business recovers by paying them more than when they agreed to the pay cut. If you don’t, you’ll be hiring just when you thought you had weathered the storm.

Layoffs

Nobody loves firing people, but you can lay off people. If you have to do this, you’ll still be paying a percentage of their wages. They might even come back if you invite them back when business picks up.

How to make money during a recession

Making money during a recession is the same as any other time. You just have to be more determined.  Assuming you meet normal business profit margins, you’ll probably barely make a profit. There are some things you can do to help prepare to make more profits once the recession passes.

Systemize Your Business

Make the best of a slowdown. Recessions are times to look at how you can improve your business. Start with these:

• Automate accounting and bookkeeping.
• Improve your marketing strategy.
• Add a subscription plan.
• Review your services to see which ones lose your money.

Get Rid of Underperforming Assets

Look for items you don’t use and get rid of them. Some low-hanging fruit might be:

• Work vans that are in the shop too often.
• Scrap metal you never took to the recycling yard.
• Equipment you bought thinking you need it, but you never use.

Run Promotions

You can run promotions to current customers if you aren’t getting enough business. You can also visit sites that help customers find skilled contractors or freelancers. It might not pay as much upfront, but it will help make money while business is slow.

Develop New Skills

There are a lot of businesses that have similar skills and tools. For instance, a pressure washer that does driveways could also wash cars or building windows. Taking on new skills will diversify your income and help you be better insulated for the next recession.

Keep Your Morale Up

During downturns, people tend to have more anxiety, depression, and sometimes a single rough spot can destroy a person’s life. Don’t let that happen to you. If you feel down, go for a walk, see a friend you haven’t seen recently, or get a therapist to help you think through your experiences.  Just do something to keep your mind off your struggles. Some things are beyond your control. I hope this blog has helped to give you some ideas about how to recession-proof your business. What strategies have worked best for those of you who have run a business through multiple recessions?

We were wondering how to start a woodworking business so we looked for a company that was already a successful woodworking business. We found John Blunt, founder of Seattle-based community woodworking shop IsGood Woodworks. John started IsGood in 1992 without accepting loans or investors. Over the years John grew IsGood from a small, self-funded contract woodworking business into an industry-renowned community woodworking shop that generates approximately $2 million in annual revenue. Woodworking is an undeniably profitable industry. In fact, the US woodworking industry was already valued at $258.5 billion in 2018 and is expected to reach an astonishing $291.3 billion by 2024. For those who are highly skilled, woodworking is a lucrative industry. Starting your own woodworking business is rewarding for 3 reasons:

• You are your own boss when opening a woodworking business
• Starting a woodworking business provides an amazing revenue stream
• Opening a woodworking business connects you with your community and other business owners.

If you're ready to start the journey of opening a woodworking business, follow this step-by-step guide on how to start a woodworking business. Let’s get started by discussing how to develop the shop skills necessary to become a world-class woodworker.

Step 1: Develop your woodworking skills

The first step to starting a successful woodworking business is to develop your woodworker skills. John had already accumulated a lot of woodworking experience prior to starting IsGood Woodworks. In his own words: [su_quote]My experience when I started IsGood was house framing to high-level finish carpentry to project management to woodworking in a shop environment.[/su_quote] If you’re already well-versed in woodworking, then move ahead to step 2. If you’re looking to build your woodworking skills, the Woodworkers Guild of America offers many resources for people looking to learn the basics or expand upon their current skill set. You should also check to see if your area has any woodworking businesses like Is Good Woodworks where you can become a member and participate in woodworker workshops and classes. If you really want to know how to start a woodworking business, there is no better way to learn than from a small woodworking business owner. Keep reading for information on what type of small woodworking business opportunities there are.

Step 2: Ideas for Starting a Woodworking Business

In addition to developing the skills necessary when opening a woodworking business, you'll also need to decide what kind of woodworking business you will open. Woodworking businesses typically fall into several categories:

1. Custom Furniture Business - Building furniture that is more ornate in design
2. Cabinetry Business - Building storage spaces for a home
3. Craft Business - building artistic trinkets, jewelry, and other items out of wood
4. Carpentry Business - Building frames of house, windows, and doors according to local code.
5. Business Focused on Finishing Work - Working on floorboards, baseboards, and other decorative parts of houses.
6. A Woodworking Incubator - IsGood is basically a woodworking incubator. It provides tools and wood for other creators who need a space to start a woodworking business. If your area doesn't already have a woodworking incubator, this may be a perfect opportunity for small business owners.
7. Check out Medium's Woodworking Blogs for other ideas about opening a woodworking small business.

Which type of woodworking business you want to start will probably be impacted by the demand for the service or products in your area. Let's look at some frequently asked questions about woodworking.

Who are the major players in woodworking?

According to FDMC 300 annual report, a report by Pollmeier that tracks the sales of cabinet, furniture, millwork, store fixture, home organization, components, and other wood products industries, the top 5 woodworking companies are:

1. Ashley Furniture Industries Inc. - $6.32B Furniture
2. Steelcase Inc - $3.724B Furniture and Interior Architecture Products
3. Andersen Corp - $2.5B Millwork, Windows, and Doors
4. Herman Miller - $2.486B Commerical and Residential Furniture and Storage Systems.
5. Jeld-Wen Inc - $2.475B Wood Windows and Doors, Millwork, Exterior, and Interior Doors

Furthermore, revenue has to exceed the following amounts to be one of the top woodworking businesses owners:

• Top 15: $1B
• Top 25: $400m
• Top 100: $75m
• Top 300: $10m

As you can see it doesn't take insanely high revenue to break into the top 300 woodworking business list. John makes around $15k/mo ( $180k/year). Anyone willing to put in the hard work can make money when you start your own woodworking business from your wood products and woodworking skills.

What is the industry outlook?

IBISWorld, estimates wood product manufacturing is a $6 billion industry, and the top 50 companies only control approximately 30 percent of the market. That means there is $4.2 billion left for small woodworking businesses. According to Globe News Wire The construction industry will be growing by about 2.2% for the foreseeable future, but business owners may find challenges in the woodworking business due to labor and lumber shortages. This suggests that those wondering how to start a woodworking business should factor in higher than normal inflation until the woodworking supply chain stabilizes from pandemic disruptions.

Step 3: Identify the Ideal Target Market

When starting any type of business, you must identify your ideal target market, understand that market well, and know how to reach them if you want your woodworking business to succeed. Otherwise, you might not generate enough revenue to keep your doors open! A great way to identify and conceptualize target markets is creating buyer personas – in-depth, accurate (yet fictional) descriptions of the ideal customer or client you’d like to sell to when starting your woodworking business. By creating buyer personas, a business owner can paint a thorough picture of the client base to sell your products. Forbes provides the perfect detailed guide for putting together buyer personas. Once you’ve identified your target market, it’s time to perform detailed market research on that audience to gauge their interests. This will help you decide what items to sell (and what materials you’ll need to sell those items). Customer Base Example 1: Your target audience is well-off adults aged 30-60, they might be interested in smaller household wood pieces such as rocking chairs, dining table sets, or ornate boxes and keepsakes. What’s more is that after you’ve identified and researched your target market, you can create print and digital advertising materials that cater specifically to that market (and display them in spaces where that market is likely to spend time). Making Facebook ads (digital) and placing flyers near office buildings or in industry-related publications (print) would be useful for reaching this target market. If you build a solid enough client base, your business will reap long-term benefits from it. With IsGood, John built such a meaningful client base that it allows his business operations to come full circle. As he says: [su_quote]The number one entrepreneurial hack that works to create an extremely resilient community is to always go to my clients first when I have a professional need of my own.[/su_quote] For more hacks and tips watch another interview we've done with Daniel Westbrook, owner of Westbrook Carpentry and Millwork: [su_youtube url="https://www.youtube.com/watch?v=dTByJCFsr4k"] Another client base might be real estate wholesalers who can refer you to contracts they recently sold. If you think like John when it comes to client and market outreach, you’ll make the right connections when you start your business and grow your woodworking business in no time!

Step 4: Create a Woodworking Business Plan

Use the knowledge you compiled in step 2 to create a comprehensive woodworking business plan for your woodworking shop. The SBA offers a helpful video guide for constructing a business plan!

Templates

In addition to the SBA resources, check out these free business plan templates!

• One-page business plan template
• Template for a plan generator by state
• Our Blog: How to Write A Business Plan (Plus Examples and Templates)

Here’s the kicker… In woodworking, building a highly organized business plan is somewhat contingent on funding. John’s advice was: [su_quote]When you start a business with good backing, you can build a structured business plan.[/su_quote] John started IsGood with practically no funding, but he was able to design a more flexible business plan that worked for him: [su_quote]I made plans of course, but I always designed with multiple contingencies to allow for rapid changes. I started out as a hunter more than a creator of work.[/su_quote] Regardless of your situation, your business plan should be adaptable so it can grow with your woodworking business. Just make one!

Identify Potential Challenges You’ll Face as a Business Owner

In case you might be asking yourself: “Will I face any trying challenges when starting my woodworking business?” – the answer is yes. Without a doubt, any new business owner is going to face obstacles in the startup process – after all, challenges foster growth! This article from Small Biz Trends details the 10 biggest challenges that small business owners face when starting a small business. From government regulation and tax compliance to generating cash flow and expanding client bases. Perhaps the challenge from this list that is most worthy of mentioning, however, is the 7th one: staying passionate. When asked about any mistakes he made in the process of growing his shop, John responded with: [su_quote]I waited about 10 years longer than I should have to make the shift from contract work to building a community shop and educational venue. I am a much better fit for that than I am for serving the ultra-rich.[/su_quote] For John, Making the switch from contract work to opening his shop is what allowed him to remain passionate about his work and to grow IsGood Woodworks into a successful business in turn. John also noted that one of the biggest challenges he faces as a woodworking shop owner is balancing the needs of each community member with the needs of his community as a whole. As he says: [su_quote]When you are in the business of helping others succeed, it is imperative to provide sufficient professional training with ongoing robust mentoring to ensure your students and mentoring clients avoid the pitfalls of failure.[/su_quote]

Step 5: Figure out Your Funding Sources and Budget (i.e., Fund Your Woodworking Business)

There are two essential financial components when it comes to starting your own business –budgeting and finding funding.

Budgeting

Similar to budgeting in your personal life, creating and maintaining a professional budget is a vital component of starting a successful business. The budget should include:

• Costs associated with business licensing
• Costs of any tools and equipment you need
• Costs of liability insurance to protect your business if something goes wrong.
• Employee costs
• Costs of daily operations
• Taxes
• Paying yourself

The initial cost for enough woodworking supplies to get your business going is estimated at $3,500; $2,000 for material costs and $1,500 for power tools. It gets better once you get going! Another budgeting factor you need to consider now? Rent. In fact, John says: [su_quote]Rent is the biggest ongoing expense for his company.[/su_quote] For reference, the startup cost for IsGood Woodworks was around $3,000.

Budgeting resources:

• A complete guide to creating your business budget and managing expenses
• A breakdown of the necessary costs for a woodworking business

Funding

You should have figured out how much funding you need based on the budget for your woodworking business, but you can learn how to start a woodworking business without learning more about the funding types. For funding, you'll typically want to know how you will cover at least enough to cover the startup costs and the first year's operating expenses. You can do this through a combination of any of the following:

• Personal funds/personal assets - Most common way business owners start a business.
• A loan from family or friends - If your family can afford to help and believes in the business plan, they may be willing to.
• Funds from a business partner - A business partner can help with the funding but will get a percentage of the earnings. In addition, multiple business owners may complicate decision-making.
• Government programs - There are often government grants for minorities, women, and economically disadvantaged areas. Check the SBA site to see if you qualify.
• Crowdfunding - Pitching your idea and getting retail investors to fund your company.
• Credit cards - Be careful because of high-interest rates, but if you can pay the balance each month, this may be a great way of funding.
• Home equity loan - Taking equity from your home is another option to fund a business especially if current interest rates are lower than your current interest rate.
• Business loan - check out our partners
• Rollover for business startups (ROBS)

You might need to self-fund like most entrepreneurs do. This can be done by tapping into savings or a 401(K), reaching out to family and friends, or – in John’s case – making ongoing investments and working hard to accumulate the funds. As he explains: [su_quote]I continued to work as many woodworking jobs as I could to fund the business without loans or investors.[/su_quote] You can always reach out to investors or apply for a small business loan, but it is important to bear in mind that IsGood Woodworks grew into a multi-million dollar shop from being entirely self-funded. What’s the bottom line? Basically, there is no right or wrong way to acquire funds to start a woodworking business – just acquire them! The SBA provides a comprehensive business funding guide that has a lot of good information about getting funds when starting a business. Keep reading for how to pick a name when your start a business.

Step 6: Pick a Woodworking Business Name

There are several key components that go into the creation of a good woodworking business name. Some of the primary considerations of picking a business name include:

• Does the Name explain the products a woodworking business makes?
• Does the name hint at the business location?
• Does the name make the business easy to remember?
• Is the business name easy to spell?

Be Clear

When picking your business name, make sure it clearly states what your business does (i.e., woodworking/woodworks/etc.) but avoid being too specific – you don’t want to limit your opportunities for growth with a niche name. You might want to include the word "furniture" if you make custom furniture out of wood, but if you make artistic wood products, you might want to include the word "Craft" in the name when starting a craft business.

Keep it Simple

Don’t pick a name with complicated spelling or confusing presentation – keep it as short and simple as possible.

Stay True to Yourself

Whatever name you choose for your woodworking business, make sure it represents the heart of your company and aligns with the brand you’re trying to cultivate.

Register a Domain

When registering a domain name for your business, always go for a .com. Both GoDaddy and Instant Domain Search are great resources for registering a .com domain name quickly and easily – as if that’s not enough, Instant Domain Search will show you what’s available in real-time! John’s business name (IsGood Woodworks) is so great because it utilizes every component mentioned above. Once you’ve decided on your business name, registered a domain, and run it by those who will be honest with you, register it with the government. The SBA provides a useful guide for how to do this.

Step 7: Create a Legal Structure for a Woodworking Business

When starting any business, you absolutely have to sort out the legalities. This isn’t the fun part, but it is required if you want your business to take off! It is crucial that a woodworking business make it a point to follow all legal requirements when starting a business. Depending on the kind of business you start, you may be working in other people's homes or have employees that could get hurt while working with wood, power tools, and other equipment. I’ve broken it down into two essential components for any up-and-coming woodworking business owner.

Develop a Legal Structure

You can develop a legal structure on your own, but it’s encouraged that you work with an accountant, attorney, tax specialist, or government official of some kind for the best outcome. The most common legal business entities are sole proprietorships, partnerships, LLCs, and corporations.  Our partners at Better Legal can help you set up your business legal structure.

Sole proprietorship

A sole proprietorship means the business owner is entitled to all of the profit (i.e., pass-through taxation) but is responsible for all potential risk and debt. For this reason, a sole proprietorship is not the way to go when starting a woodworking business. If someone gets hurt, it will impact your personal life because your personal finances and your business finances are tied together. you can lose everything from one accident that occurs when someone is working with wood products. It's just not worth it.

Partnership

A partnership is any informally organized business owned by 2 or more people. Similar to a sole proprietorship, partnership owners are to be held personally liable for any actions taken against the company.

Limited Liability Company

An LLC (Limited Liability Corporation) is a legal business entity that offers personal liability protection for the business owner while simultaneously offering pass-through taxation.  Limited liability companies can be single or multi-owner LLCs, making them a great way for a woodworker to start a business. LLCs will typically need to have an operating agreement especially if the business is a multi-owner LLC. Most woodworking business owners are encouraged to establish their business as an LLC because of the heightened risk of product liability, workplace injuries, and property damage.

Corporation

Establishing a corporation means limited personal liability protection and tax benefits. However, corporations are required to follow more operational guidelines than LLCs. They also incur double taxation, meaning you'll have to pay income tax and corporate tax.

Obtain Business Licenses, Permits, Tax Forms, and Insurance

Regardless of the legal structure you implement, find out if your woodworking company requires any business licenses, tax forms, or permits to operate legally. This SBA tool will help you when it comes to applying for a business license or permit. Some of the most common requirements for a woodworking business include:

• Sales Tax Permit
• Unemployment Insurance
• General Liability Insurance

Keep reading for references on how to make sure your furniture or craft business is running legally.

Sales Tax Permit

Most states have a sales tax, and you need to adhere to their requirements. This blog isn't the place to discuss the permits for all 50 states, but Avalara has a guide on Sales Taxes. Check it out. Some states will only charge tax on the material costs, while some will charge tax on the wood products and the revenue from labor. Before you start your business, make sure you understand how sales tax works in your area so you don't pay too little or too much.

Unemployment Insurance

Unemployment insurance protects employees if they are laid off. While we hope your woodworking business will not have to lay off employees, recessions occur. The U.S. Chamber of Commerce has a ton of information on unemployment and also offers links to each state agency that handles state unemployment. You’ll have to pay $420 per employee on a federal level plus any state UI.

Business Insurance/ Liability Insurance

Business insurance is necessary to protect woodworking businesses when accidents occur. The primary types of business insurance include:

• Business General Liability Insurance - For when costly damage occurs to a person or their property.
• Professional Liability Insurance - If you do the structural analysis for a home and then the structure collapses you might need this type of business insurance.
• Cybersecurity insurance - if your woodworking business handles sensitive data like credit cards, social security numbers, and other information hackers might want you might want this type of business insurance.

Most of these types of business insurance should be readily available from your local insurance agent. Now that you are familiar with the legal requirements of starting a woodworking business, let's look at some of the things you'll need to do before your woodworking business is ready to take on clients.

Step 8: How to Start a Woodworking Business

Here’s the deal: starting a woodworking business requires a lot of leg work. You can’t run a successful woodworking business without considering:

• Find a Location
• Purchasing tools and equipment
• Materials costs
• Implementing the business systems
• Following safety and ethical business practices
• Establishing a pricing structure

There are many moving parts when you start a woodworking business. John told us some of the most challenging aspects of how to start a woodworking business including: [su_quote]Worker training, office systems and management, computer-aided design, public relations, sales, conflict resolution, shop safety, and production design.[/su_quote] That means most of the skills John needed to learn weren't the operation of power tools and the basics of running a workshop. They were the soft skills of business management. For extra help understanding the process, of how to start a woodworking business, check out our step-by-step YouTube guide on how to start a business! [su_youtube url=" https://www.youtube.com/watch?v=wog3FLh0tHk"] Keep reading to learn how to find a location for a woodworking business.

Find a Location for your Woodworking Business

Finding a location for your woodworking business will often need to be done sooner or later. You might be lucky enough to start a woodworking business from home, but as a small home-based business grows, new business owners will need to find a location for their woodworking business. That said, it’s better to establish your funding sources, budget, and legalities first. It can be helpful to research the costs of a location before you start a woodworking business because customers are often resistant to paying higher prices because you purchased a workshop. Include the costs of starting a business location in your pricing method, which we'll discuss later. There are a handful of factors involved in picking the right location – refer to this SBA business location guide for more information. With some hard work and luck, you might be able to find a location as quickly as John did for IsGood. In his words: [su_quote]I was able to find a spot and open doors within one month.[/su_quote]

Acquire Tools and Materials for Woodworkers

From backsaws to sanders, to wood products, you cannot operate a successful woodworking business without acquiring all necessary tools and materials first! Before starting your woodworking business, consider obtaining the following tools and equipment to work with wood:

Table Saw

A table saw is the first piece of large equipment you should purchase as a woodworker. A woodworker will need a table saw to make precise, straight, smooth cuts on wood boards of different sizes.

Backsaw

Unlike a table saw, a backsaw is a hand tool that is characterized by a stiffened rib running alongside the edge opposite the cutting edge. Though it isn’t quite as precise as a table saw, it’s much easier to use on wood products when on a job site or in tight areas where power tools may be more dangerous.

Orbital Sander

An orbital sander is a handheld sanding power tool and a cheaper, easier-to-use alternative to a belt sander. Belt sanders move more quickly and abruptly along the wood, so orbital sanders are better power tools for new business owners that are still developing their skills.

Circular Saw

The circular saw is one of the most versatile tools you can have in your shop. Circular saws can be bought as stationary or portable tools. These tools serve many different purposes but are particularly good for cutting large wood boards.

Hammer

The king of tools. It might seem obvious, but having a high-quality hammer (or multiple) in your shop is essential. It will last you a long time and cause less fatigue than cheap tools.

Routers

Routers are handheld tools that can be used to carve patterns, designs, and grooves across multiple pieces of wood. Even better, you can use these tools to recreate patterns from broken pieces.

Clamps

Clamps are a must when it comes to building projects in the shop, as they hold different components together before the final product is assembled. Always buy more of these tools than you think you need because you WILL need them all!

Dust Collector

If you want to maintain a clean, safe shop, you need to purchase a dust collector (which does exactly what it sounds like). However, you can always use a vacuum cleaner in the meantime. These tools are essential when working with wood in customers' homes.

Chisels

Chisels are inexpensive, highly useful handheld tools used to cut and shape wood. Because you’ll want them to be as sharp as possible, try to buy a high-quality set. These are great when building custom furniture or small wood products that need exquisite detail.

Measuring Tape

As the most affordable item on this list (like $10 affordable), the measuring tape is invaluable to a woodworker. Consider upgrading to a woodworker’s ruler or measuring block after a while for more accurate measurements.

Thickness Planer

If the job involves finishing work, a planer is an arguably essential tabletop tool used to trim the wood down to a consistent thickness. Be careful with planers, though, as it’s easy to accidentally waste wood while using them.

Jointer

Somewhat similar to a planer, a jointer is used to produce perfectly flat edges on wood boards so that they can be connected edge-to-edge. Some woodworkers call this tool a necessity, while others avoid it.

Workbench

Whether you are a home-based business working out of your garage or a busy workshop, you MUST have a dedicated bench for conducting your woodworking projects. The best part? You can make your own out of wood for under $200! Check out this super sweet rolling workbench with extra storage space for wood, tools, and other commonly used materials. For more information, here is an in-depth list of 27 essential woodworking tools.

Material Costs

Material costs will include:

• The cost of wood
• The cost of dowels
• The cost of wood glue
• The cost of screws and nails
• Cost of stain/paint and other types of wood coloring
• Cost of sealants
• Other wood materials and accessories

For each job, you'll need to consider the materials you need and the cost associated with them. If you want a good reference point for materials cost in different industries, check out the Ready Ratios website for the typical gross sales margin: Gross Margin=(Sales-Expenses Attributable to Sales)/Sales Depending on what type of products you sell, the Gross Margin will be between 10-40% of revenue. Businesses will often sell products based on (2.5x Cost of Goods Sold) to make sure that the gross margin will guarantee the gross margin creates the profit they want for each product they sell. Check out this Lumen Learning tutorial on estimating projects for custom furniture to understand more about estimating based on material costs. Keep reading for tips on how a woodworking business manages its customer base.

Hire Woodworkers and Other Employees

Hiring employees is more than likely going to be a necessity after some time because running and performing woodworking aspects of a business is hard labor. And after all, what business owner doesn’t want the opportunity to take a break from running their woodworking business every once in a while? Of course, there are a handful of expenses that come along with hiring employees for your own woodworking business. That said, it is imperative that you take the following steps.

Pay the employees of your woodworking business.

Employee compensation will be your biggest expense here – they want to make money just as you do. This expense shouldn’t be a problem if you’re generating solid revenue and don’t require much staff. Because of the structure of his shop, John only has two employees working at IsGood Woodworks – the three of them are able to teach classes and run the business efficiently!

Get an EIN for Your Workshop

Every business operating in the United States needs an employer identification number. It doesn't matter if you are running a home business, operating on a free business license, or trying to create the next billion-dollar furniture business, you have to have an EIN. An Employer Identification Number (EIN) is basically a social security number for businesses. Just like an SSN, an EIN is necessary to have; you’ll need it to open a business bank account, file tax returns, and apply for business licenses. Apply for an Employer Identification Number (EIN) with the IRS – alternatively, call 800-829-4933 for more information.

Maintain Tax Filing Requirements for Your Woodworking business

As a new business, federal and state guidelines will require you to keep a record of employment taxes for at least 4 years. Luckily, a complete IRS tax filing guide is available.

Follow Federal Employment and Labor Laws

The DOL requires many small business employers to display poster notices for employees, either electronically or physically in the workplace. A comprehensive employer guide for how to display and distribute these posters is available on their website.

Other Requirements

• The Federal Unemployment Tax Act (FUTA) requires any business with employees to pay a payroll tax.
• Employment Eligibility Verification (Form I-9) allows business owners to verify the identity and employment clearance of every person they hire.
• Meeting Occupational Health and Safety Administration (OSHA) standards enforce workplace safety and are necessary for any business (and highly relevant in an industry as physical as woodworking).
• Worker’s Compensation Insurance is a must in woodworking, as it helps businesses avoid the cost of an employee’s medical bills and lost wages following a workplace injury.

Implementing the Business Systems for A Woodworking Business

Before opening a woodworking business, you'll need business systems in place to:

1. Sell your products (typically a website)
2. Manage customers information
3. Accept payments
4. Keep track of inventory
5. Manage human resources.
6. Marketing Systems

Let's look at each of these to help you understand how to start a woodworking business.

Sell your products (typically a website)

When you start a woodworking business, you will need to have a website. It provides a place for your customers to interact with your business. What type of website you'll need depends on whether you are selling products online or just creating a web presence.

eCommerce: Sell products online

If you'll be selling products online, you'll need an eCommerce site like those found on Shopify. These sites have extensive backends and APIs to make conducting business such as managing inventory, accepting online payments, and handling sales tax requirements easier. In addition, e-commerce sites have product pages, collections to classify products such as wood jewelry, wood furniture, and home decor.

Websites to maintain a web presence

If you aren't selling products online, you should still have a website, but it won't need as many features. Websites are one of the best ways to create a web presence and are easy for a business to maintain. All they really need is some pictures, descriptions of your services, some information about your company, and ways to contact you. Check out our blog How to create a website to learn more about building websites.

Manage customers information

You'll need to keep track of customers interactions with your business. Maintaining customer data is normally done through software called a CRM (Customer Relationship Management). Capterra is a great place to read reviews of CRM to establish which will work best for your business. CRM can be integrated with email, phone calls, payment processors, your website, and almost anything else that is software-based.

Accept payments

Accepting payments for a woodworking business is typically done 3 ways:

• Through website
• Through a Point-of-Sale System (POS)
• Through a mobile card reader

Depending on your business model you may need all three, but many businesses only need one or two of the option. For instance, if you don't have a store a customer comes to, you can skip the POS. Paypal handles most small business payments, but Square, and other providers are available as well. Until you are making over $250,000 there is not much difference between the payment processors. If you scale past that, some of them offer custom rates.

Keep track of inventory

Keeping track of inventory can be a real challenge especially for a woodworking company where you have oddly shaped pieces of wood. Some of the aspects you should track in woodworking include:

1. Purchased materials
2. Scrap that will go to waste (Unless you are running a business like John that lets other craftsmen use the scraps in exchange for their membership dues).
3. Finished products.

Each of these will go into your accounting. There are various ways to monitor them including:

• Hand counting
• Using scales to detect changes in weight
• Connection to POS so that every time a sale is made changes are counted.

A business will often need to use a combination of strategies to minimize the work from a manual hand count, but verify that the electronic strategies are accurate. Using multiple strategies can reduce hand counts from once a week to quarterly or annually.

Manage human resources

Once you have employees, your business will need to manage human resources. This includes aspects such as payroll, tax filing, and documentation. I suggest paying a human resource company to manage it once managing human resources starts taking more than 5 hours per month. Check out Capterra's comparison of HR companies.

Marketing Systems

There are a ton of free marketing tools to use. You should familiarize yourself with them or hire someone who specializes in marketing woodworking businesses. Some of my favorite marketing tools are:

• Google My Business - Shows a listing on Google Search and Google Maps for your business
• Google Analytics - Data analytics that you can connect to all your web assets. ( Make sure to exclude your network IPs from the tracking)
• Facebook Pixel - Facebook's data tracking. If you are good with development, you can include a separate pixel for each product or service your woodworking business offers to have more detailed analytics.
• Open Broadcaster Software - Great software for creating videos, podcasts, and live streams.
• Social Media - Facebook, LinkedIn, YouTube, Instagram, Tiktok, Pinterest

All these providers have extensive help sections to help business owners and their employees learn more about how to maximize results with their software. Just go to their help features and it will give you great links for anything you need to know. Print materials like business cards and flyers still work well for businesses too.

Follow Safety and Ethical Guidelines for Woodworking Businesses

It’s time to get serious. As an employer, following safety and ethics guidelines is critical in the woodworking industry as you will more than likely have employees working under you in risky conditions. In case you might be asking yourself what exactly a “risky condition” is, physical dangers in this profession include:

• Laceration
• Severed fingers
• Skin and respiratory diseases (from wood dust and chemical exposure for finishing)

Of course, there are many measures that you can (and should) put in place to avoid extreme worker injury and illness. Obeying ethical guidelines as a woodworking shop owner includes the following:

• The development and implementation of written safety and emergency response procedures
• Providing thorough worker orientation, training, and supervision
• Executing a process for identifying, evaluating, and controlling any workplace safety hazards
• Regularly inspect your workplace, all equipment, and work procedures to help identify any potential hazards
• Investigating accidents (or close calls) to pinpoint causes and prevent recurrences
• Holding regular health and safety meetings for your workers
• Keeping useful records related to workplace health and safety (training processes, safety discussions and inspections, and incident investigations)
• Determining the extent of on-hand first aid required for your shop

The OHSA website provides a comprehensive list of woodworking safety guidelines that any responsible shop owner should follow.

Establish a Pricing Structure

If you want to make money, establish a pricing structure that will lead to a successful woodworking business. After all, this is an essential component to starting and managing a lucrative business. When it comes to pricing, there are 2 factors to consider above all else:

Competitors

Conduct thorough research on top market competitors in the industry (e.g. Rockler). You can start by checking out the top 20 woodworking companies in North America and a longer list of woodworking competitors – look them up, examine their pricing models, and make yours even better!

Cost and Labor

Not only is it important to research the competition – you have to ensure that you’re making a profit off of whatever you sell. This informative guide from The Wood Whisperer provides new business owners with the perfect pricing formula: materials cost (+10%) + (hourly rate x project hours)

Step 9: Have a Solid Brand and Marketing Strategy

Having both a strong brand and a working marketing strategy in place for your business is crucial if you want to see real profit growth. When developing a working marketing strategy for your business, it will help you greatly to:

• Create a social media following (Facebook, Twitter, LinkedIn, maybe even Instagram). Start a woodworking blog and invite those in your network to read it. Advertise it to your target audience.
• Design a showroom in your shop, even if your shop is your own home. Build some of your key pieces and display them in a way that showcases their utility to customers.
• Send direct mail with shop information to new homeowners in your area. Invest in creating a booklet with samples of your best work to send out.
• Rent space at trade shows, and make sure to choose those that your target audience is most likely to attend (e.g. home remodeling shows).

This Hubspot blog post is an awesome reference for small businesses looking to develop or improve their marketing strategy. You can’t begin outreach until you look inward, meaning that you can’t implement a great marketing strategy without knowing your brand. Brand development is a vital component in starting and running any successful business; for brand strategy purposes, consider the following:

• Brand Identity – Develop a strong brand identity by defining your brand, establishing clear company values to humanize your business, and differentiating yourself from other woodworking shops.
• Brand Strategy – Perform a SWOT analysis of your business to better understand yourself and identify industry threats, produce a clear narrative (where your business is at now versus where it’s headed), and construct a strong visual brand.
• Brand Loyalty – Be transparent with your customers; provide authentic customer service, listen to and engage with them regularly (on social media and in-person), and always deliver high-quality products.

For visual brand development purposes, check out this woodworking business logo generator! John does a great job when it comes to combining digital marketing for IsGood with community engagement. In his words: [su_quote]We create accurate and educational content via our blog, videos, and social media and do our best to engage in the community and ensure our readers are receiving the highest quality and latest material.[/su_quote] Like John, try to prioritize digital strategy development – it is 2021, after all! Keep everything as up-to-date and relevant as possible to ensure audience engagement. Both Canva and Piktochart are wonderful, easy-to-use resources for creating your own digital and print marketing materials. Want to know the best part? They’re free to use!

Step 10: Make Your Business Stand Out

Money flows when your business grows, and your business grows when it’s noticed! For a small woodworking business, there are several ways to stand out among the competition and distinguish yourself as a worthy competitor in the industry.

Find a Niche

Finding a niche that works for you is the key to operational success for small woodworking business owners. Whether it be a product type (e.g., chairs, high-end frames, birdhouses, tables, keepsakes) or a skill set (e.g., restoration and repairs, because many woodworkers turn these jobs down), there’s a great niche for any shop.

Help Others

This method of making your woodworking shop stand out in the crowd may not seem as obvious, but it is just as necessary. After all, some of the best clients and professional relationships come from spreading your knowledge and sharing resources with others in the woodworking industry. Simply put, think of it as networking with a little more generosity thrown into the mix. John holds the process of helping other woodworkers close to his heart and attributes that to the success of his shop in comparison to others. In his own words: [su_quote]Every maker space that I have looked at requires a basic class to use the equipment, which then leaves you on your own. In a sense, they are setting people up to fail as soon as they encounter a process that is new. Without available human advisors, you will not retain your clients, and you will not build community.[/su_quote] John became more successful than ever when he transitioned his business from contract work to a community shop that’s primary focus is helping others succeed. As he puts it: [su_quote]IsGood Woodworks has evolved to reflect my true passion, which is helping others to succeed. We are now a community shop with classes, shop rentals, and robust mentoring.[/su_quote]

What’s Next?

To recap this step-by-step guide for how to start a woodworking business, ask yourself the following questions:

• Do I have the required skills to start a woodworking business?
• Do I understand the basics of this process?
• Do I know how to create a business plan?
• Will I be able to acquire funding to make a profit/make this business lucrative?
• What are the costs?
• Where will my business be located?
• Will I be able to acquire the tools and materials needed?
• Will I be comfortable communicating with clients?
• Can I afford to hire employees when necessary?
• Why am I starting a woodworking business?
• Do I need any additional help or advice?
• How can I develop a working brand and marketing strategy?
• What exactly must I do to be successful?

By now, you should have all of the knowledge about how to start your own woodworking business – it’s time to take the next step! If you after reading this, you don't think starting a woodworking business is right for you, there are a ton of other options. You can:

1. Buy a business through our Businesses for Sale
2. Learn about starting a food truck
3. Consider starting a screen printing shop.

Let us know in the comments below if you have any questions. We’d love to help!