Business Startup Process
Anyone who has started a business knows that it is no easy task, but I will 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 and you will find yourself adapting as you go.
Adaptation and Ability
The very first thing you must do to start a business is to look inside yourself and determine if you have what it takes to start a company. Since most companies will not see profit between six months to three years, depending on industry, you'll need to ensure that you're properly situated in your own life where you can 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.
Does your business have a solid business plan?
Building the 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 plan. Each of these areas will be included in any business, but as each business is unique, they will also be unique. I wouldn't recommend copying and pasting anything in your business plan from somewhere on the internet; 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 while your company is growing before profit as well as how the revenue will grow and where it will grow from. Use as many variables as you can so that once you're more familiar with the industry and your own company, you'll be able to change the variables and your financial plan will change automatically. If you're not familiar with finances, you'll want someone either on your team or as a consultant with you 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 sort of 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; and 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 or you won't see an optimal return on investment with your marketing dollars.
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, hirings, and every fine detail the company will need to consider. Of course, this section will change dramatically, but it is important to put as much consideration into it as soon as you can so that you have the information in the back of your mind while you're working on the rest of the company startup process.
Would you rather work alone or with a team?
Building the Team
I've written a whole longer piece on building the correct team, so we will keep this section shorter. Since, by this point, you've created a business plan which will identify what skill sets you need as well as look inside yourself to determine what skill sets you can offer, you should have 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 so 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 if you need that person on full-time as a partner or on 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. Remember that a small percent of something is more than 100% of nothing.
You're also going to want an advisory board that is made up of experienced business men and women who work in the industry you're looking to enter or can add value to your own startup. I always recommend getting a financial expert, a large network person, an investor, a business coach and a legal expert. These will cover areas you generally only need consultations on and also cost a lot to pay in cash for the ongoing advice you're seeking. An advisory board typically will take 1% each of your company, so you'll give up 5% of your company for invaluable ongoing advice while you grow and access to almost limitless resources and contacts.
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.
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.
Even in low-key, solo owner, companies, it's still a good idea to hire a lawyer for your contracts and whatnot because it shouldn't be worth your time. You have a comparative advantage in other aspects of your company, so you should be spending your hours focusing on those instead of researching legal terms that a lawyer should already have a vast understanding of. 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.
Partnership agreements 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. Secondly, there are a lot of tax provisions you should be taking advantage of and SEC rules that should be understood before making stocks or membership units that can be transferred. 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 partnership or membership agreement 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. You can end up saving a lot of money by having a lawyer on your advisory board, but he or she will still probably charge your for the time he or she spends drafting the documents, but not for advice on the formation process.
At this point, you should be ready to light a fire within your team and get things rolling. If your business plan and operating agreement 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, your business plan should be modified to fit the current circumstances, and the business plan should be used throughout as the guidelines for all who are working in the company.
In conclusion, starting a business 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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