Two of the main elements that help create a successful startup are the optimism and enthusiasm of its founders. The same two elements, if not kept in check, can also work toward the detriment of a startup. Excessive enthusiasm and optimism can cause the founders to start working on their ideas without doing proper planning and due diligence. A lack of proper organization and planning can manifest itself as severe roadblocks in raising funds, applying for grants, employing talent and even planning an exit.
In the many years that I have consulted for various startups, and as an entrepreneur myself, I've realized that starting with the right plan in place is one of the most important steps for building a successful company in the tech industry and beyond.
Here is a high-level planning guide with some of the tips I've employed during my time advising in the startup space.
Don't Start Product Development Too Early
Start with your idea -- but before you jump into product development, have an action plan in place that maps your entire journey from incorporation to the exit. This action plan should, of course, start with a customer discovery and then move to a business plan. It should also take a deep look into funding, pricing and financial modeling. In my experience, this is almost always the most difficult part of the process for the founders because they may have to criticize their own ideas and come up with a feasible analysis of their strengths, weaknesses, opportunities and threats (also known as a SWOT analysis). The rest of the action plan will probably change as your company takes form, but it's good to have a clear vision to work with at the offset.
Get Legal And Financial Advice
Once you have your path mapped out, you should start gathering advice on proper legal and tax-planning strategies. There are law firms that have special services for startups, but make sure you interview a few before choosing one. I also recommend making sure you choose a CPA for tax advice because they tend to have the highest level of expertise in tax planning. Your business strategy should take into account insurance, permits, intellectual property (IP) strategy, patents, company structure and -- last but not least -- your documentation. The documentation should have all necessary contracts for employees, outsourcing, IP protection, nondisclosure agreements (NDAs), client agreements, sales or lease contracts, and advisory and board positions. There should also be a carefully drafted articles document (or constitution) for your company.At this point you are ready to start looking at the corporate structure, planning your grants and tax incentives, creating relationships with other stakeholders in the industry, connecting with universities and working on your product development. I will expand on these steps in my next article and give you some pointers.
Stay Organized
I highly recommend that you subscribe to a data room service and electronically file and organize every document you create along the way. Using a project- and task-management software such as Jira or Trello can also be instrumental to keep you organized.
Form An Advisory Board
Now is the time to look for people who can contribute by joining your advisory board. It is important to choose people who have core expertise in areas where you most need advice. Additionally, I recommend that you avoid choosing people who can’t provide constructive criticism and are “yay” people. People who are good choices for an advisory board are those who have direct knowledge about your industry and who are well-connected within that industry. You should also make sure your advisors have complementary skills rather than similar ones. For example, you may want advisors who can contribute to product development, distribution, business governance, compliance and other areas -- but they should generally all be within your industry.
Create A Patent Strategy
Companies with high levels of IP and patents should also plan for a patent strategy that is well-balanced between keeping their trade secrets and filing an adequate number of patents. A strong patent strategy looks at the competitive landscape and also which IP should be patented in which jurisdictions. A patent strategist is different from a patent lawyer, so make sure you have them both on your team.
Plan Your Potential Exit
It is never too early to engage an investment banker who can help you raise funds or a professional who can help you plan an exit from your company. An exit of some sort may be necessary to create liquidity in the company if you don't anticipate being able to pay dividends to your investors in the first five years or so after you start raising funds. Exits can include mergers, acquisitions, initial public offerings (IPOs) and reverse takeovers (RTOs). It is important to choose the right exit, as the wrong approach to an exit could be a pitfall in taking your company to the next growth stage. For example, I've found that IPOs can give a company great exposure and access to funds while creating liquidity, but in an IPO a company could be subject to investor speculation. There are also compliance requirements for which you may need to engage a team of lawyers and accountants on an ongoing basis. A private transaction such as a merger or acquisition can be beneficial to companies that need to create liquidity, and companies can also benefit from the expertise of a more mature corporation.
Some founders have sufficient financial means and choose to stay in full control and grow their businesses rather than exit. This is also great.
All things considered, there is no definite foolproof formula for starting a business. But by following these guidelines, you can help improve your chances for success.
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