Are you gearing up for the startup grind? Is your aspiration in life to create a life-changing technology like Steve Jobs or Mark Zuckerberg? Are you planning on starting an exciting new business venture? If so, you need to be aware of some serious issues that could stop your startup in its tracks. These issues can kill your venture, which is why you need to know exactly how to dodge these bullets and set yourself up for success.
Game Killer #10: Mismanagement
It seems like an obvious issue, but it is one that is often overlooked. In order to have a successful startup, it needs to be managed properly. Founders must have the skills to manage milestones / deliverables, money, people, and relationships. It’s best to make sure you are actively planning and preparing for your duties to your venture. Plan, Pivot, and Execute!
Game Killer #9: “Frat House” Effect
Treating your startup like a brotherhood might not sound like the worst idea, but if you were a part of a frat in college, you might not necessarily want to be working with your friends or family everyday...unless they’re actually qualified. Think to yourself, who are my partners? Why are they here? What are they offering right now and what can they offer in the future? What do you want? Make sure you are not going into business with people who view your venture as a hobby instead of a commercially viable company.
Game Killer #8: One-Man Band
On the other end of the spectrum, don’t go into business alone! 25% of failures cite team, according the VC database by CBInsight.com that surveyed 101 founders of dead startups. You don’t want to go into business with your best buddies, but you do want qualified people on your team. You’ll need specialists for marketing, legal, finance, tech, etc. and mentors to help guide you through your journey. Not to mention, keeping up with key relationships of value to your company and bringing in the right customers, duh!
Game Killer #7: ZERO Formalities
Don’t beat around the bush with your business. Make sure that you tie down your relationships and define them! And no, I’m not talking about your love life or asking you to put a ring on it. I mean defining roles and avoiding the last minute question, “I thought you were doing that?” Define ownership, contributions, decision making and form a business entity. And speaking of business entities, make sure you form the right one. There are multiple types of business entities, some are good and some are bad so it’s best to seek an expert’s opinion on what the best fit is for you and your startup. Until then, below are a few tips to help guide you.
- Sole Proprietorship (bad because as mentioned before, you don’t want to be going into business alone)
- General Proprietorship (bad if unintended)
- Corporation (great, but not always needed)
- Limited Liability Corporation or “LLC” (great, but with limits)
- Limited partnership (forget it)
Game Killer #6: Inadvertent Inspiration
In order to keep your company protected, be sure to balance under-disclosure and over-disclosure. This means giving people certain information on a “need to know basis”. Think about who you’re talking to, why you’re talking to them and what they require to accomplish your goal. Another way to keep your company protected is by having your employees sign a non-disclosure agreement that is well-written and specific.
Game Killer #5: Stop Boiling the Ocean
Don’t put more on your plate than you can handle or try to do all your work at once. Create a plan with clear and specific goals or milestones to work towards. That way, you can focus on reaching the next milestone in your business journey while still keeping the big picture in mind. Focus on the next, immediate milestones first, set dates and deliverables, allocate experts and manage your plan in the best way that works for you and your business.
Game Killer #4: Failure to Understand Intellectual Property
One of the easiest ways to get into legal trouble, is when you either fail to protect your own intellectual property or you infringe upon someone else’s intellectual property. This is why understanding IP is a key component in a successful startup.
Copyright: Copyright is for “fixed expressions” and NOT ideas. Most commonly, copyrights exist for web content, film, music, lyrics, writings, images, or other “arrangements”.
Trademarks: Trademarks distinguish the source of a product or service by identifying the source of items that have been used in commerce. Most commonly, trademarks exist for words, symbols, devices, combinations, names, slogans, phrases, colors, sounds, smells, etc. Arbitrary trademarks get the best protection but they can’t be generic.
Patents: Patents give owners the right to exclude others from making, using, selling, offering for sale, and importing the invention within the U.S. for a limited time. Be careful when publicly disclosing your intellectual property because it could destroy your ability to patent. Make sure you do not sell, publish, use (other than a beta test), or disclose without adequate protections such as an NDA.
Trade Secrets: “Unlike Victoria’s Secret...cover them up, because once they’re exposed, they’re no longer fun.” This means, keep your mouth shut when it comes to trade secrets because they’re called secrets for a reason. Trade secrets exist to protect customer lists, pricing, terms and conditions, formulations and processes. So shhh!!!
Game Killer #3: Failure to Protect Intellectual Property
So, now that you have a basic understanding of the different intellectual property protections, make sure you utilize them in the correct way. Copyright vests ownership in the author of the work. Meaning, if you create the work and fix it, you are the author and owner of all the rights that come with copyright. The exception to this rule is work for hire. In this situation, anything you create while in a work for hire contract, you can not own the rights to, the company that hired you does.
Game Killer #2: Money
Ahhh money, the root of all evil. You probably knew we’d be getting to this at some point. Be careful with how you handle and how you are making your money. “Bootstrapping” doesn't always work or work well, so be sure to prepare to pay people for their expertise. Make sure to use accredited investors and don’t do public solicitations. Also remember that disclosures are key!
Game Killer #1: Things Don’t Gel
The key is putting it all together!!!
- Seek out Trusted Advisors
- Business Planning Done / Budgeting Accounted For.
- Memorandum of Understanding.
- N.D.A.s – Disclosure / Solicitation / Competition
- Subscription Documents and Private Placement Memo
- Valuation of Capital Contributions or Shares (Cash v. Services)
- Internal Documents: By-Laws or Operating Agreement
- Intellectual Property Tied Down
- Independent Contractor Agreement / Employment
- Regulatory Review
Always remember, practice makes perfect! If you seek tech/startup counsel, contact the experienced attorneys at RM Warner Law. We can help set up you and your business for success and be readily available throughout your ventures.