Hello Tilters ,
Today's subject is How can we take superior start up for Business ?
Boring but Important Business Stuff
The time to set forth the legal documents like articles of incorporation and buy/sell agreements and detailing percentage of ownership is very early in the company and while everybody is on friendly terms. You should work with an experienced business lawyer to set these things up and actually read them and understand them. It's extremely boring and not nearing as fun as building your business. But the reality is it is extremely important to understand the fundamentals of starting a business and behave in a manner that will protect your investment, protect your personal belongings, and give you the best chance of success. You don't want to be in a situation many years from now where you have a valuable company and a dispute with a business partner and these things aren't in place or not well understood by everyone involved. You also don't want to be in a position many years from now where your 50/50 partner needs to leave the area because a spouse got a new job, and you've got to negotiate what happens now. If someone is going to leave the business the rules for how that happens should be well known to everyone on day 1.
Percentage Ownership
If its your idea and you are going to be doing 90%+ of the work and taking on 90% of the risk, you should own 100% of the company. As you bring on business partners, in the earliest of days, you can provide them with stock options that accrue over years of service. Don't assume that your good friend that you've known your whole life is going to be a true 50% partner and is going to give them same level of effort and take the same risks you are. If you believe you are going to have a 50/50 partnership on your idea.. you could still own 100% of the company, give yourself to the ability to fire the other person, and let them vest in stock options for 50% of the company after 5 years of service. So if they actually behave as a true partner like you think they will, they end up as a true 50/50 partner. If not, you are in control. Just because you've enjoyed a few drinks with someone and their company for a number a years, doesn't mean you understand their work ethic. Don't assume it's like yours because it probably isn't. Nothing will poison a partnership more than a 50/50 partnership where 1 person is doing 60% of the work and the other 40%. And it's probably the most common 2-party situation.
Mitigate Your Risk
If you have a spouse, let them keep their normal day job and resist temptation to both quit and work together. Your family will take on a lot less risk that way, and your relationship won't have the risk of undue stress from working together and failing together. Most small businesses fail within a few years, and most have good ideas.
Banks Aren't Going to Give You Any Money
Plenty will waste your time with wanting to see your business plans, etc. But in 2012 they aren't lending anyone any money. If they are, its because you are probably putting all your personal assets at risk. So, make sure your business model has something you can be doing to generate revenue in the early days so you can bootstrap.
Angel Investors Might Give You Some Money
But they are going to take a huge chunk of your equity, so avoid it unless your capital needs are extreme.
Try Not to Borrow Money From Your Friends/Family
This is a personal preference. You'll find plenty of people that will encourage you do to so. The risk of failure is real and high, regardless of what type of business you are starting. I wouldn't want to borrow money from friends and family because I don't feel comfortable having them share that risk and risk poisoning our future relationships. If you need to do this you need to ensure they understand their investment and everything needs to be in writing.
Don't Start a Restaurant
The failure rate on non-franchise restaurants is absolutely massive. The start-up costs are huge. Staffing is extremely difficult because turnover is horrendous. Margins can be very low, chain competition is well-capitalized and have branding, advertising, location, executive, purchasing, management advantages over you. Just because you like to cook doesn't mean you will like running a restaurant, where if you are actually running a restaurant you probably aren't doing much cooking.
It Better Be Fun
You are going to be working longer hours and harder during those hours than if you just held a normal day job. You are probably going to make less money than that day job for a good number of years. You are going to take on a lot financial risk and have a much higher stress level than a normal job. Your family needs to be on board because it's going to impact them. All because some-day some politician will call you rich and tax your business an aggressive rate and only allow you to write off $10,000 of the $200,000 worth of equipment you just bought (or some such nonsense, my point is even success will have environmental drawbacks way out of your control). There's significantly more than a 50% chance that the business will fail within five years. Should you do this? If the day to day activities will invigorate you and you'll enjoy your life more, yes.
If You Fail
Remember everybody fails to some extent or another. People who run successful businesses have made lots of mistakes and may have even run a few businesses into the ground in the past. They learned from those mistakes and didn't make them twice. Keep a weekly journal of your thought processes and assumptions. Document your mistakes, as painful as it can be.
Here are a few thoughts:
Big, Selfless and Simple. Big ideas get noticed. Incremental ideas are noise. Selfless ideas make it much easier to enlist others. Actually, people would rather not see you get rich. Solve their problems. Simple - start with a very simple proposition. This is not necessarily the concept of minimum viable product. More like minimum viable description. Identify the pain point. Identify the very high level description of what you will do. Let the customers fill in the details.
Avoid Risk. It has been well documented that many of the great entrepreneurs were actually great risk mitigators. Survey the landscape. What steps can you take with mimimal risk. Take them. Repeat.
Entremanuer. I have often said I am a good entrpemanuer - repeatedly coming up with shitty new business ideas. Let the customers tell you you are wrong. Let them start to point you in the right direction. The only thing that makes an idea great, is if it gets the customers to start a rich dialogue with you. They will lead you to the real answer.
Special tips for Start up of Business -
Good Luck
Credit of Article to My friends on Quara and My Classmates .
Today's subject is How can we take superior start up for Business ?
The time to set forth the legal documents like articles of incorporation and buy/sell agreements and detailing percentage of ownership is very early in the company and while everybody is on friendly terms. You should work with an experienced business lawyer to set these things up and actually read them and understand them. It's extremely boring and not nearing as fun as building your business. But the reality is it is extremely important to understand the fundamentals of starting a business and behave in a manner that will protect your investment, protect your personal belongings, and give you the best chance of success. You don't want to be in a situation many years from now where you have a valuable company and a dispute with a business partner and these things aren't in place or not well understood by everyone involved. You also don't want to be in a position many years from now where your 50/50 partner needs to leave the area because a spouse got a new job, and you've got to negotiate what happens now. If someone is going to leave the business the rules for how that happens should be well known to everyone on day 1.
Percentage Ownership
If its your idea and you are going to be doing 90%+ of the work and taking on 90% of the risk, you should own 100% of the company. As you bring on business partners, in the earliest of days, you can provide them with stock options that accrue over years of service. Don't assume that your good friend that you've known your whole life is going to be a true 50% partner and is going to give them same level of effort and take the same risks you are. If you believe you are going to have a 50/50 partnership on your idea.. you could still own 100% of the company, give yourself to the ability to fire the other person, and let them vest in stock options for 50% of the company after 5 years of service. So if they actually behave as a true partner like you think they will, they end up as a true 50/50 partner. If not, you are in control. Just because you've enjoyed a few drinks with someone and their company for a number a years, doesn't mean you understand their work ethic. Don't assume it's like yours because it probably isn't. Nothing will poison a partnership more than a 50/50 partnership where 1 person is doing 60% of the work and the other 40%. And it's probably the most common 2-party situation.
Mitigate Your Risk
If you have a spouse, let them keep their normal day job and resist temptation to both quit and work together. Your family will take on a lot less risk that way, and your relationship won't have the risk of undue stress from working together and failing together. Most small businesses fail within a few years, and most have good ideas.
Banks Aren't Going to Give You Any Money
Plenty will waste your time with wanting to see your business plans, etc. But in 2012 they aren't lending anyone any money. If they are, its because you are probably putting all your personal assets at risk. So, make sure your business model has something you can be doing to generate revenue in the early days so you can bootstrap.
Angel Investors Might Give You Some Money
But they are going to take a huge chunk of your equity, so avoid it unless your capital needs are extreme.
Try Not to Borrow Money From Your Friends/Family
This is a personal preference. You'll find plenty of people that will encourage you do to so. The risk of failure is real and high, regardless of what type of business you are starting. I wouldn't want to borrow money from friends and family because I don't feel comfortable having them share that risk and risk poisoning our future relationships. If you need to do this you need to ensure they understand their investment and everything needs to be in writing.
Don't Start a Restaurant
The failure rate on non-franchise restaurants is absolutely massive. The start-up costs are huge. Staffing is extremely difficult because turnover is horrendous. Margins can be very low, chain competition is well-capitalized and have branding, advertising, location, executive, purchasing, management advantages over you. Just because you like to cook doesn't mean you will like running a restaurant, where if you are actually running a restaurant you probably aren't doing much cooking.
It Better Be Fun
You are going to be working longer hours and harder during those hours than if you just held a normal day job. You are probably going to make less money than that day job for a good number of years. You are going to take on a lot financial risk and have a much higher stress level than a normal job. Your family needs to be on board because it's going to impact them. All because some-day some politician will call you rich and tax your business an aggressive rate and only allow you to write off $10,000 of the $200,000 worth of equipment you just bought (or some such nonsense, my point is even success will have environmental drawbacks way out of your control). There's significantly more than a 50% chance that the business will fail within five years. Should you do this? If the day to day activities will invigorate you and you'll enjoy your life more, yes.
If You Fail
Remember everybody fails to some extent or another. People who run successful businesses have made lots of mistakes and may have even run a few businesses into the ground in the past. They learned from those mistakes and didn't make them twice. Keep a weekly journal of your thought processes and assumptions. Document your mistakes, as painful as it can be.
Here are a few thoughts:
Big, Selfless and Simple. Big ideas get noticed. Incremental ideas are noise. Selfless ideas make it much easier to enlist others. Actually, people would rather not see you get rich. Solve their problems. Simple - start with a very simple proposition. This is not necessarily the concept of minimum viable product. More like minimum viable description. Identify the pain point. Identify the very high level description of what you will do. Let the customers fill in the details.
Avoid Risk. It has been well documented that many of the great entrepreneurs were actually great risk mitigators. Survey the landscape. What steps can you take with mimimal risk. Take them. Repeat.
Entremanuer. I have often said I am a good entrpemanuer - repeatedly coming up with shitty new business ideas. Let the customers tell you you are wrong. Let them start to point you in the right direction. The only thing that makes an idea great, is if it gets the customers to start a rich dialogue with you. They will lead you to the real answer.
Special tips for Start up of Business -
- Understand what type of entity to incorporate as and speak to multiple people with experience before you pay any legal fees. LLC or C-Corp (often in Delaware) will be likely options but still find out for sure what is best for your future business. (read blogs from experts in related fields - lean on Quora)
- Figure out what type of funds you will be raising (convertible debt, equity, etc) what your business model looks like, and what type of stock (preferred, common) you and any co-founders will be issued.
- Be as knowledgeable as possible with all legal aspects - note terms (valuation cap, discount %, how PPS is determined) Do hypothetical calculations if you plan on raising $ and not bootstrapping so you can visibly understand dilution (yes, it is inevitable, but its still important to note.)
- Don't build a solution you think people need, nail down a problem that undeniably exists and figure out how you can solve it better than anyone else.
- In re: to business plans: some people will tell you "if you fail to plan, you plan to fail," others will say its completely bogus to make up a business plan because until your product hits the market, you have know idea what's going to happen. This really all depends on what type of company you're starting and if anything currently exists you can benchmark off of. At the very least, I would suggest going to a platform like Gust and using their Executive Summary as a template for what you should have down on paper.
- Study all "lean startup" principles
- Read "Built to Last" by Jerry I. Porras and James C. Collins - know what it means to "preserve the core" and "stimulate progress" (by studying the successful habits of visionary companies you can learn many great philosophies without reinventing the wheel.)
- Read "How to Win Friends & Influence People" by Dale Carnegie - I'm biased because I came from a sales background, but I believe so many people struggle with just being a "people person." In this game the more people that like you, whether; investors, employees, co-founders, customers, (the list goes on) the higher your chances are for success.
- Stay true to your roots and follow your heart. The only difference between winners and losers isn't failure. It's that the winners never gave up despite all the "no's" and setbacks that were put in front of them.
- Not everyone can be a great entrepreneur, but a great entrepreneur can come from anywhere. The world needs innovation more than every before and the next great minds don't have to be people with MBAs or Ivy League degrees
- I wanted to end with 10 but... live by this quote, "If you are not making someone else's life better, than you're wasting your time."
Good Luck
Credit of Article to My friends on Quara and My Classmates .
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