Launching Your Startup: Don’t Overlook the Basics
Lately, we’ve had too many conversations to count about the fundamentals of starting a business, so we decided to write down some of the basics that are either overlooked or that could use some more explaining.
The world is changing and you want to pivot. You have developed an idea into a business model, which will create and deliver value to customers and capture some of that value for its owners (you!). Now what? Be thoughtful and be sure to consider the following:
1) Business Plan – Concise, Flexible, & Accountable
Your business plan should not be an epic. Rather, it should be kept as concise as possible and updated continuously. There are volumes of books dedicated to the step by step of how to write a business plan (and a great resource that I have linked at the end of this blog!). In the spirit of conciseness: a business plan is a roadmap that lays out your goals and how you intend to achieve them. You learned the fundamentals of how to write your business plan in grade 6 English class - it will outline the who, what, when, where, and how. It also sets out your business strategy, sales forecasts, milestones, expenses, marketing tactics, and deadlines.
Your business plan should be flexible and it should assume change. Details will emerge or circumstances may evolve that will cause you alter your approach. Forget strict adherence (stiffness is a sign of death!), a flexible business plan will empower you to adapt and adjust with the times without needing to go into damage control.
Finally, your business plan will enable you to maintain accountability. It will keep you on track personally and help you track the progress of your colleagues.
2) Market Research – Know Your Competitors!
When is the last time you searched for a particular product (headphones, for example) without canvassing the market for pricing, online reviews, etc? If you have a good idea, then competition is inevitable in a market economy. You should canvass the market to understand who you are up against and how they operate.
Your market research should include the grade 6 English class exercise above (who, what, when, where, etc.). Consider visiting your competition’s stores or websites. Understand their business model. It may actually be worthwhile to purchase their products to develop a deeper understanding of how their business operates. In doing so, you could assess their marketing and advertising methods. You could ask what is done well and what could be done better? Also, try and determine the answer to your “why” questions. Why is this approach A used here when it seems to me that approach B is better, etc.
3) Determine Your Form – Sole Proprietor vs. Corporation
Based on your situation, you will need to decide what form best suites your business. From a lawyer’s standpoint, the main considerations that we consider are liability, ownership structure, fundraising goals, and taxes. Below are two different situations that warrant different business structures.
Example 1 – Sole Proprietor
You have decided to teach yoga on an online streaming platform from home. You don’t have any business partners and the operation can launch on a lean budget.
The form that makes most sense to this particular situation is likely that of a sole proprietor. Here, you would consider reserving your business name and registering as a sole proprietor. This would ultimately protect the name of your business and the brand that you are building. With liability always on your mind, you would consider obtaining an appropriate insurance plan to protect you and your business. You would also consider a having a lawyer prepare a waiver for your clients. In terms of taxes, sole proprietors can offset the losses they may experience against other sources of income that they may generate, which can be claimed as a business expense.
Example 2 - Corporation
You and two friends decide to develop an app. The nature of the business, the ownership, your collective business goals, the involvement of intellectual property, liability, and taxes may warrant incorporating your business.
When a business is incorporated, it becomes a corporation. This means it can buy/sell property, have its own bank accounts, invest, take out loans, sue/be sued, etc. As you know, the owners of a corporation are its shareholders who are generally protected by the corporation’s limited liability. Limited liability means that the maximum amount (the “limit”) a shareholder can lose (their “liability”) is their investment in the corporation. Unlike individuals, a corporation can issue shares for capital as a method to raise money (known as equity financing) to use to propel development.
4) Allocate Equity
The good news is, if you’ve made it this far you will begin thinking about this subject. The bad news is, there is no cut and dry rule in how to go about this. With that said, there is one significant guideline that authors and experts generally agree on: equally splitting up equity among founders is generally the wrong way to allocate equity.
For starters, what co-founders are able to contribute to a company can vary significantly. One founder may have come up with the novel idea/concept, one founder may have the industry expertise, another founder may have the requisite network or invested the greatest amount of capital, and yet another may provide the “sweat equity” necessary to get the company off of the ground. So how do you do it? Nuanced and carefully. See the bottom of this blog for a great resource that will help you model the situation, so you can pragmatically consider how to allocate the equity of your business.
5) Online Presence – Your Most Powerful Tool
While this goes without saying, an online presence (a website/social media presence) validates your brand and enables your business/brand to reach innumerably more sets of eyeballs than any other medium. In Silicon Valley terms, your online presence allows you to leverage code and media so that you can multiply your efforts at a marginal cost to set the world on fire. Do not underestimate the power of your online presence (budget for it in your business plan!).
Remember, the details matter!
Tools
Business Plan Guide:
Allocating Equity Resource:
https://www.andrew.cmu.edu/user/fd0n/35%20Founders%27%20Pie%20Calculator.htm
