From the November 2011 issue of Entrepreneur

From gallery owners who want to turn the masses into art collectors to DIYers who blend art and science, creative arts entrepreneurs are building new businesses while--purposely or not--reinvigorating cities and towns across the country. We checked around to see who's creating what--and what this growing creative class contributes to economies small and large.

A few months ago, Steve Strauss noticed a fairly popular Italian restaurant in his Portland, Ore., neighborhood had gone out of business. He didn't think anything of it until a week later, when it reopened as a burger joint with a new look, a new name and the same guy behind the counter. "I talked to the owner and said, 'You risk losing your brand. Why would you make such a huge change?'" says Strauss, a business speaker and author as well as a columnist for USA Today. "He said the economy had shifted. That upscale Italian brand wasn't letting him grow the way he wanted. He felt the need to reinvent."

To most business owners who have spent years or decades and hundreds of thousands of dollars building their brand and developing a client base, chucking it all away to reinvent your business probably seems like the height of insanity. And if you do it on the fly or haphazardly, it probably is. But there are many reasons to tweak your business model--or to try out a whole new one--that make perfect sense. If you do it thoughtfully, it could be the best business decision you ever make. Here's our guide to reinventing your business, one smart step at a time.

1. Know When to Make a Change
The first step is deciding if it's the right time for a change. Karyn Greenstreet, a Philadelphia-area small-business coach specializing in self-employment and business reinvention, says she sees a pattern with small-business owners. "Most people who come to me have been running their businesses for about seven years," she says. "They spend the first three years absorbed in getting things started. Then they're in a growth phase for three or four years. Then they hit a glass ceiling, or don't find the work challenging anymore and want to try something different."

Many factors can push a small-business owner toward reinvention--it may be a need to spend more time with family. The market may have changed. The economy may have reshuffled your customer base. You may be bored. All are legitimate reasons for change.

But you need to be practical, too. Any change involves risk. If you're paying for kids in college and have a steady cashflow, you may have to suck it up a few more years.

2. Decide What You Want
After the decision is made to change, you need to decide what type of change is necessary to meet your goals. "Once you decide there's something you can do better, you need to decide whether to make a little tweak or a major overhaul," Strauss says. "You have to decide what's best for your brand.

It's a matter of looking at your core competencies and sticking with what you're best at."

Greenstreet agrees. "Entrepreneurs have more ideas than they have time for. The absolute first stage is deciding to cut off all those other ideas and focus on one. Making a decision to make a decision is the hardest thing for entrepreneurs to do."

The easiest way to figure out what to change--and at what magnitude--is to work backward. Are you chiefly interested in reducing the hours you spend in the office? Are you sick of selling office supplies and think running a dog bakery is your destiny? "Once you have clarity on your goals and values," Greenstreet says, "you have a compass to guide you and help you decide which ideas are good and which are brilliant."

3. Follow the Plan
The next step is something every business owner should be experienced at--making and following a business plan. "You need to act as if you're starting from scratch," Strauss says. "You need to think it through thoroughly, figure out who the competition is, how you are going to beat them and what the costs are."

Strauss and Greenstreet suggest sharing your plans with other business owners or a mastermind group. "Entrepreneurs tend to rely on intuition a lot, but you need to make sure other people think your plan is a good idea," Strauss says.

4. Make the Switch
During the transition, you'll likely be running two businesses at once as you phase out the old business model and ramp up the new one. "Sometimes reinvention means running two businesses simultaneously for almost a year," Greenstreet warns. "It's overwhelming, and business owners are often so excited about the new model, they want to let go of the old model. It's like going through a long divorce before committing to a new relationship. It's not fun."

The solution is to create a detailed exit strategy. Allow time to negotiate new leases, bring on new employees or train current employees. Be transparent through the whole process with vendors, customers, employees and, most important, your family. Give everyone notice that changes are coming, when they will happen and what it means for them.

Pamela Wilson, a marketing consultant in Lehigh Valley, Pa., is in the midst of the process. After running a marketing and design firm for 20 years, she decided to scale back her one-on-one clients and reach a broader audience. In 2010 she created a do-it-yourself marketing course for small businesses called Big Brand System. "It's been difficult juggling two businesses," she says. "But I'm at 50/50 right now. By the end of next year I plan for the new business to generate 75 percent of my income."

5. Mentor and Manage
Even those committed to sticking to their business plans can start to deviate. Greenstreet suggests bringing in outside help. "Business owners sometimes need people to bounce things off of to keep them from going off in crazy directions," she says. "Some people go through a grieving process. They're letting go of a piece of something they've built and need to process that. There's a lot of stuff to deal with, but if you don't, it will come back and bite you hard."

Although the process can be rough, reinventing your business can be a rush. "It's an exciting place to be," Greenstreet says. "A business owner gets to reinvent themselves with capital and 10 or 20 years of experience--without making mistakes. They have an ace in the hole.