Make sure something to write with is handy before beginning. Write down the answers to the questions below so they aren't forgotten!
Ask questions about the characters. Who is the main character? What is his or her flaw? If the character is flawless, then fix that. A flawless character is boring. How should the character grow throughout the story? Is the flaw going to be fixed, made worse, or is the character going to become happy with that flaw instead of changing? Find something in the character that is going to develop or be revealed throughout the story.
See article on "How to Develop a Character" (link below) for more help on this step.
Interrogate the starting situation. What is the main character's life like? Is it perfect? Is it troubled? What are the problems and what could possibly go wrong? Is there anything interesting in the character's past?
Decide on a message. What should be conveyed to the reader? This doesn't have to be something as awe inspiring as the meaning of life, the universe and everything. This also doesn't have to be a moral, like Aesop's fables. Decide on something to use as a starting point.
Think. Decide on a situation that changes the character's life. What happens in the book that influence's the character and interferes with his or her life. This is the pivot that everything in the book will run off of. Is it an obstacle? Does the character have to overcome something, or deal with some problem? This should be a problem, issue, or event that runs through most of the story.
Think some more. Sit and brainstorm about different scenarios the character could get into and what they would accomplish. What happens in each instance? Is there action, violence, love, comedy, suspense, horror, or what? How does it affect the character? For example, if someone is chasing the character, then think about different close calls he or she could have with the pursuers.
Outline. Take the scenarios, the character development, the character's past, the overall situation and the background and put them into a detailed outline.
For more help on this step see the article "How to Outline a Book" (link below). This How To can also be applied to short stories.
Write the story!