Welcome to part 3 of 8 Things to Consider Before Starting your Business.
Parts 1 and Part 2 discussed marketing, startup costs, the lifestyle change and how to find out if there is a market for your product. We continue now with the last 4 things to consider before taking the leap into entrepreneurship.
5. Get some Legal Advice
LLCs, S-Corps, & C-Corps: We cover these various business entities in more detail in other articles but you should be familiar with each entity and the benefits and drawbacks of each one.
- LLC: A limited liability corporation is one of the most common business entities created in the United States due to the protection that it offers. With an LLC, the members of the LLC are not held liable for any debts of the company. That means that in most cases, things like personal accounts, homes and personal assets are protected in case of bankruptcy. LLCs also allow “pass through” taxation that allows members of the LLC to claim profits on personal tax returns, thus avoiding double taxation by avoiding corporate taxes.
- S-Corp: S-Corps, much like LLCs, offer liability protection to members and “pass through taxation” but also offers the ability to attract investors through the selling or promise of shares. The drawbacks are that membership requirements are more strict, only U.S. Residents and Citizens may apply for S-Corp designation, and S-Corps are capped at having no more than 100 shareholders. Additionally, S-Corp designation also comes with a little bit more scrutiny.
- C-Corp: C-Corps are the bigger brother of S-Corps. They offer limited liability protection and the ability to attract shareholders, but there is no cap on shareholders and there is the ability to differentiate voting rights for shareholders. The drawback is that there is no pass through taxation and a C-Corporation is also a “victim” of corporate income tax.
Intellectual Property: Intellectual property rights allow individuals to copyright and benefit from the creation of their creation. This may seems like something for you to consider when your company is well under way, but it’s important to think about all the small things in your company that could be protected under IP rights. Things like
- Ideas that were formed by team-members for the benefit of your business
- Tools and resources created to aid team-members
It’s best to discuss things with a lawyer to see what can be protected. If a team-member leaves for a rival business, wouldn’t you sleep better knowing that the ideas they developed are going to stay with your business?
6. Surround Yourself with the Right People
In a CB Insight’s study of 232 company post-mortems, the number 3 reason why companies say they fail is because they didn’t have the right team. When starting out a business and seeking out a partner, you shouldn’t be selecting your business partner out of convenience, but on what they can bring to the company. Forming the right team is sometimes more important than the initial product or service you offer. There is chance that your company’s business plan may pivot more than once, so having a team that can adapt to your company’s needs are important. You may be a first time CEO, but that doesn’t mean that your team members or partners need to be as well.
7. Focus on What Matters
We all want to feel like we are doing something for our business. Unfortunately, that “something” may not be the best thing and can hurt your business in the long run. 74% of business owners say that the time they spend reconciling business expenses keeps them from tackling more important business tasks. In one survey, 40% of respondents admitted that they spend time on tasks that weren’t growing their company. Let’s not forget the companies that like to over-polish and focus on presence but lack sound business practices and policies. Yes, a cool logo and a great business card is a great conversation starter at a party but it won’t get you anywhere with growing your business.
Work on avoiding things like:
- Administrative Tasks
- Accounting (if you have no experience)
- Travel Planning
- Responding to every email
- Focusing on critics
- Focusing just on raising funding
Some of these things you will feel a need to personally handle and just because they are on this list doesn’t mean they are important, but your main focus should be on growing the company. Think about strategies on how to tackle these tasks and maximize your time.
8. How Many Startups Succeed and Fail
Lastly, you should consider the success and fail rate or businesses and understand the risks. The bitter truth is that 90% of startups fail. It’s a harsh reality that many new entrepreneurs face when starting their business. Reasons for failure range from having a product with no market to getting out-competed to simply running out of cash. So what are some things that separate those who fail from those who succeed? Here are a couple of things:
- They Have A Strong Team: The team that has been build is versatile and resilient. They know how to pivot when the market deems it necessary and they know how to take a blow and work together to overcome it. A new business must be able to change at a moments notice and adopt new marketing plans, new compensation breakdowns or even develop a whole new product or service at a moment’s notice.
- Nothing Falls Through the Cracks: In the early stages of a startup, you may think that assigning certain roles and responsibilities to your team is important. It is, but you need to make sure that especially early on, nothing falls through the cracks because team members were staying “in their lane”. Everything is the responsibility of everyone. It may sound like a cliche but stopping small things from turning into big things may be the difference between your company succeeding or failing.
- They Actually Have a Product People Want: It may be fun to create a product that you’ve always dreamt about, but if people don’t have a need for it then they won’t buy it. Make sure to do your market research (Hint: Go back and read number 4!) and determine if there is even a need for your market. If there is, and you have a great team, a strong leader and a phenomenal product, the rest will be cake. Well, not really, but you get the point!