Every start-up company is unique, but they will encounter many of the same challenges and obstacles. I have worked with many types of entrepreneurs in the start-up stage. Based on my work with these entrepreneurs, the five following things emerged as those that every start-up must consider.
Follow the Advice of those who have gone ahead of you and it can save you time, money, and hardship when getting your business off the ground. Early stage start-ups need to address critical aspects of the business including structure, documentation, intellectual property, terms, and focus.
1. Choose the Right Structure
Choosing the right structure for your company is important. I recently had to change a LLC to a Corporation because the founders wanted to bring on investors who wanted shares in the company. A LLC does not have shares, so the change from registering as a LLC to becoming a Corporation was time consuming and expensive. An entrepreneur needs to know their options up front, so they do not make a costly and time consuming mistake.
There are many options for a company selecting a business structure. All types of entities have benefits and drawbacks depending on what type of company you have, whether you are seeking outside investment, and whether you plan on being the sole shareholder or bringing on partners. Regardless of what structure you choose, the most important step is setting up some structure that shields you from personal liability. An entrepreneur needs to consider the tax ramifications and liquidity of ownership. Many start-ups plan to raise capital. Particular types of entities are more appropriate when that is the goal.
Choosing a business entity can also feel a bit like alphabet soup when you realize that you can have a C-Corp, S-Corp, LLC, Partnership, or Sole Proprietorship; simply knowing what the options are and the and what questions to ask make it easier to work with your legal and accounting professional to save you money in the long term.
2. Put it in Writing
We all go into a project with bright eyes and rosy cheeks, but a handshake doesn't mean a lot with your co-founder when there is no document backing that handshake up. On too many occasions I see founders who haven't fully thought through their relationship and a year down the road they suddenly have to make decisions, which can lead to tension at best lawsuits at worst.
To avoid the later tension between founders, the most important document you can have is a solid partnership or operating agreement (goes with a LLC). The agreement should clearly set forth each owner's or partner's rights and obligations, clearly articulate vesting provisions and rights, and set clear rules for what happens if a founder or other owner leave the company. It is important to have the documents in place early because it is at the beginning when founders are more likely to move away, shareholders get cold feet, or partners realize that they cannot work together. When these events occur, it is much easier to handle if you have had an attorney draft a clear, straightforward operating agreement or partnership agreement at the outset.
3. Protect your Intellectual Property
How much and what type of intellectual property a start-up has will depend on the type of company. A company using existing tools and processes to provide a good or service directly to consumers may not have as much need for patent and copyright protection as a high-tech company using proprietary processes and technology.
Regardless of the company, you have a brand, name, and reputation to protect. Trademarks, copyrights, and patents are important tools in any company's toolbox. Building your brand through the use of your name, logo, and website will not be as successful if you allow others to dilute your brand, steal your logo, or confuse customers as to who you are.
I was at an event a few weeks ago discussing a Trademark problem with a founder. The founder had branded their company, created a landing page, and printed business cards with the name of their company, which at the time, infringed on no other trademarks. Out of the blue, six months into their development process they received a letter that sounded not very professional from someone claiming that the founder was infringing on their company name. When the founder's attorney checked later, the letter writer filed for a trademark on the same day they wrote the letter. Now, the founder needs to rename the company because they did not begin by protecting their company name via trademark.
Too many companies cut corners when it comes to their intellectual property and pay for it in the long run. Many IP attorneys are willing to help you properly protect yourself on a fixed-fee or reduced-rate arrangement, start-ups should not put off this important step.
4. You set the Terms
Whether you are selling a product, providing a service, or acting as a middleman, setting the terms and conditions by which you expect to work is a crucial step in developing your business. There are obvious terms like the price, product and payment terms. However, there is a lot further that a start-up must go when term setting. The start-up must determine which law they want to govern a dispute, what is a proper limitation to liability, and if they want to include an alternative dispute resolution clause. These are only a few issues that need to be determined before writing a contract.
A start-up's need for contracts isn't limited to consumer purchases. There are also contracts for purchase orders, employment agreements, contractor agreements, and policy statements that must go on your website. In the perfect situation, everything goes seamlessly and without dispute. However, strong terms and conditions will protect you when there is less than favorable ending to your business relationship.
5. Don't Forget the Business Side of your Business
Start-ups often forget that they are running a business and they went into the business because they were good at providing, producing, or creating a product or service that people want to buy. Don't forget what it is that people are looking to pay you to do. Start-ups lose this because the founders are often acting as the CEO, marketing team, accountant, customer relations manager, and salesman. All of these roles are important, but success comes based on your product or service, be sure to keep that central even as you are pulled by multiple obligations.
Founders can also get caught up in looking for investors rather than looking for customers. There is no denying that sometimes you need money to make money, and you may need some investment before you can fully implement your business plan and model. However, investors are interested in the company's ability to gain traction with customers or users. Investors will be more attracted to your company when the start-up can demonstrate its traction, rather than when the idea has yet to show success.
None of this advice will guarantee that your business is the next Dropbox, but if you begin with the proper structure, put your agreements in writing, protect your intellectual property, set and enforce your terms and conditions, and stay on course with customer acquisition, you will have a much easier time focusing on growing your business. Enlist the help of your attorney, accountant, and other professionals at the outset rather than waiting until a problem occurs.
Notice: This page is attorney advertising and does not establish an attorney-client relationship, which is only formed when you have signed an engagement agreement. No information provided to Initiate Advancement Legal Solutions will be confidential unless an engagement agreement has been signed between you and the firm. All information provided is not advice, and should be relied upon as such. Engage your own attorney to address your unique legal needs. We cannot guarantee results; past results do not guarantee future results.
Author: Aimee Haynes
I motivate, I blog, I listen, I give advice, I help, I create, I work with others, I stand my ground when needed, and I am always open to new ideas. In addition to the qualities that define me most, I'm also a Corporate Law attorney working with entrepreneurs, creatives, and small businesses to help them achieve success.