Anyone who has been a part of a startup knows that it is no easy task. I’m going to outline a few things, both legal and not, to make the process a little more streamlined. Every startup is unique, so this guide will only cover the broad overview. Consequently, you will find yourself adapting as you go.
What’s Inside The Startup Founder
The very first thing you must do to start a business is to look inside yourself. Do you have what it takes to run a startup? Most companies will not see profit between six months to three years, depending on industry. The first step is to ensure that you’re properly situated in your own life. Can you earn $0 for a long period of time and still be okay? A lot of entrepreneurs find themselves penniless before their company gets out of the red, and this is how a large chunk of companies fail.
Another thing to note is that your company will change as the needs of the market are more recognized or your clients change their demands. Your dream has to change with it. I’ve seen far too many entrepreneurs refuse to change their vision with the needs and this causes their companies to fail as well. Some people call this “blockbustering” from when Blockbuster kept their business model to be mostly focused on the brick and mortar stores instead of mailings and online streaming like Netflix. As we all saw, the refusal to adapt hurt them in the long run. This isn’t to say you have to change your company completely, but adaptation must be in your nature or your company will not survive.
Additionally, you’re going to have to sit down and map out your own skill sets as well as what the company needs. This intrapersonal perspective is needed to truly discover how your company will grow. If you can, sit down with one or more people who will give you straight answers and ask them what your strengths and weaknesses are. You’re going to want to focus on utilizing your strengths and outsourcing the areas you’re weaker at. In economics, this is call comparative advantage.
Building the Startup Business Plan
After you understand what you can bring to the table, you’re going to want to build a business plan. This plan must include a few key areas such as financial plan, marketing plan, good/services offered, and the operations. Each of these areas will be included in any business. However, every business is unique. I wouldn’t recommend copying and pasting anything from random sources. However, you can, and should, look at other business plans as guidance and for idea forming.
In the financial plan, you’re going to work out how the expenses will be paid. You’ll need to figure out where the money comes from before the company breaks even. If you’re not familiar with finances, you’ll want someone either on your team or as a consultant to guide you through this planning portion. Some of the best ideas will fail because the owner didn’t know how to price the product or manage expenses. A lot of financial advisers and CPAs are very good at this process.
In the marketing plan, you need to outline how your company gets the product in the eyes and arms of your customers. If you’re consumer based, you’re going to focus a lot on advertising, social media, and the like. If you’re business to business, you’re going to focus on trade journals/shows, networking and similar products. The thing every company has in common is the need to get in front of their customer somehow. If you’re not familiar with how marketing works, once again you should team up with someone who does. You definitely need to know when to use different tools and why they’re vital to the growth of your company. Otherwise, you won’t see an optimal return on investment with your marketing dollars. This could mean failure.
Goods and Services
The goods and services offered portion is your spot to get as detailed as possible about your product or service. This is where you or your product developer will sit down and really map out what you’re offering. A lot of the content from this area will be reused in the marketing and operations sections of the business plan.
The operations section is the execution stage. This is how you’re going to implement the business plan, and should include items such as retail space, factories, work flow, transportation, choice of entity, hiring, and every fine detail the company will need to consider. Of course, this section will change dramatically as you get started. However, it is important to put as much consideration into it as soon as you can. This way, you’ll have the information and a set direction to get started.
Building the Startup Team
I’ve written a whole longer piece on building the correct team, so we will keep this section shorter. By this point, you’ve created a business plan, looked inside yourself, and created a clear list of what you still need to make the business a success. A lot of people actually do this part naturally, but I recommend writing it down in the business plan. That way you can constantly revisit it and make sure you’re not missing anything.
With each skill set that you’re missing, you’ll need to determine how you want them on your team. Do you need that person on full-time as a partner or as an independent contractor, employee, or consultant? The advantage of a partner is that you generally do not need to pay in cash, so your cash flow isn’t hurt. The bad part is that you’re giving up a part of your company.
The most important thing in building a team is trust. Above anything else, make sure you can trust the people you select and can work with them. Don’t sign them up until you’ve spent a lot of time with them. I’d recommend meeting their family, understanding their own financial position, getting to know some of their friends, and getting references if at all possible.
Be cautious about partnering with friends and family. They’re your support structure. They’re also relationships you want to still have if the company falls apart. If you do work with family or friends, be sure to have a great governing document.
Legal Stuff for the Startup
Before your company does anything, but after you’ve assembled a strong team, you’re going to want to get everything legally set up. From formation to contracts, this is the time to crank out everything. It sounds biased, but I highly recommend getting an attorney if you have a team, have proprietary assets, or are working with large dollar amounts. My biggest caveat is this: Don’t hire a lawyer if you really can’t afford it. I bootstrapped my law firm, so I understand limited cash flow better than most. I, like you, got tons of advice and recommendations from everyone I spoke with about where I should spend my money. At the end of the day, my rent and bills were more important. I just had to spend more time getting to the goal, but we can all get there.
Governing documents are a huge area you shouldn’t touch without a lawyer. For example, did you know that in most states, the person who drafted it will be at a disadvantage if the agreement is every litigated over? Since you’re the original founder, you might find yourself ousted by the newcomers if you wrote the agreement yourself.
Additionally, there are a lot of tax provisions you should be taking advantage of and SEC rules that should be understood. And, what will happen if the company dissolves, a partner stops working, a partner dies, or there’s a bankruptcy proceeding? These should all be considered and included in the governing document along with a lot of other worst-case scenarios.
If your company is going to be successful, you’re going to have to put a lot of thought or some amount of cash into ensuring the legal areas are covered adequately.
At this point, you should be ready to light a fire within your team and get things rolling. If your business plan and legal documents are solid, each person should know his or her role as well as have a process in place to communicate and distribute labor. There are a lot of different project management softwares out there, so I would certainly recommend using those. It will be the CEO or COO’s job to manage each person’s job from a bird’s eye view. For programming, I have a friend that loves BitBucket.
As things progress, you’ll have weekly or monthly meetings to discuss and reassess the company’s progress. In these meetings, you should modify your business plan to fit the current circumstances. This ever-updating business plan should be used throughout as the guidelines for all who are working in the company.
In conclusion, a startup is a rewarding experience and, if done right, can be very profitable. I sincerely hope that the resources I’m providing will help you as you start your company.
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