Friends Chris and Tara have left their jobs are starting a new business. Starting and managing a business is /very different/ than working for one and failure occurs more often than success. Since I had no idea how to run a business until I started the last two, I made them a list of tips for starting a new business. For anyone it may help I’ll post here. /Please/ add your advice or questions on the bottom and I’ll try and keep it updated.

INITIAL FORMATION:
Consider your founding partners very thoughtfully. Barring the often-tricky process of buying a partner out, you will be practically married in all senses of the term (minus snuggling and the good stuff) for years if not decades.

Communicate extensively amongst the partners. Know everyone’s expectations regarding the company’s future. Know exactly what kind of work for what kind of clients everyone expects. Know what non-financial expectations each one has. Ensure that everyone’s true goals of success are mutually attainable. Continue this communication on a very regular basis. Is someone getting stuck carrying too much weight? Is someone not pitching in? Has a life chnage altered a pertners goals? Like any good relationship, the sooner these are exposed and understood by all the best chance of long-term success.

If working with friends or romantic partners double consider the stresses that will be put on that relationship. Communicate like mad and recalibrate as needed to ensure neither party is overburdened in any way. Unresolved grievances between friends tend to be more explosive as peers.

Avoid talking behind a partner’s back with other partners at all times. This is akin to backstabbing and seeps trust out of even the strongests relationship. Wait until everyone is together before raising the concern.

Consider stock allocation and payment carefully! Proper distribution of stock between partners can solve many future problems. Exact equality in terms of responsibility and/or equity can actual hinder growth as there isn’t a clear hierarchy. Everyone should have their roles and and positions which should be known by everyone else.

Do all you can to make it easy for a voted resolution to keep stalemates from happening. Real stock-holder decisions, rarely occur, but when they do it can mean life or death of a company or more importantly, your dreams.

In the end equity distrubution and title assignment should be taken /very/ seriously, which is a /very/ hard thing to do, especially amongst friends. Usually positions and holdings are considered with expectations of a rounding success, but what you /really/ need them for most is as a backstop when things are not working out. Can a partner leave without forcing a complete dilution of the company? Can the company survive a schismatic organizational shift?

Once formal roles have been formed the company leaders should develop softer decision policies such that share-holder decisions are not required. Since a group have diverging opinions regularly develop simple trusted methods to ensure that a path can be chosen so as to avoid hung-jury dilemas at all times. Respecting your cofounders through thick and thin makes this much easier. Only working with cofounders you truly expect to always respect is an excellent starting point.

OPERATIONS:
A huge percentage of business fail due to problems arising from inadequate accounting practices and precise knowledge of cash flow. (I’ve heard as high as 90%.) Once you are spending or earning real money, strive to have professional accounting and reporting processes in place. The person responsible for day-to-day and monthly finances should not be the primary income generater or primary spender. All of these roles will also need thorough oversight by qualified people.

Don’t spend money on anything you don’t /absolutely/ have to. Until your revenue streams are proven do anything within reason to keep expenses to a minimum. It’s also imporant to change gears once you’ve achieved sustainable business. At that point invest all you can back into your own success.

In the beginning pay yourselves zero or as little as possible and divide up profits if you’ve earned them at the end of the year.

INTERNAL GROWTH:
Talk and meet with every successful business person you can. Particularly seek people that have achieved what you are hoping to. Think horizontally. A successful dentist has much to teach about building a sustainable business. A magazine editor knows more about selling entertainment than the average web developer. Don’t confuse notoriety with proven success. If you’re bootstrapping find boot strappers. If you’re selling widgets, find sales experts. Sometimes the perspective of a succesful person outside yourfield is 5x more illuminating than one within.

Read everything you can online about starting a new company. I’m sorry to say I’ve lost all my links, but for every success, there is a sad story of derailed expectations that almost always involve, bad incorporation, bad communication, bad mutual growth and of course bad management.

SALES & CLIENTS:
When deciding how much to charge a client, after 3 years of doing web development I found that answer was charge as much as each client is comfortable paying. Try to do as little work as possible (if any) on spec. Be very wary of clients that say “I’ll be able to pay you in full once we get funding or once we start making a profit” If you do go this route get it in writing and explictly set benchmarks on financial holdings so you get paid as soon as they do. I paid 2 people on spec for early Dogster work based upon ‘when I make a profit’ Once I started making money, I chose to pay them off an amount each month, but I realize I could ahve gone a couple years spending my revenue instead of being ‘profitable’ and required by the contract to pay them.

Pick clients /carefully/ and realistically. Make sure they listen to you as well as they tell you what to do. Make sure they respect you. Make sure they have enough bandwidth to handle all their related responsibilities They should be excellent at both. Make sure there is a single point of contact that will last the lifetime of the project. Make sure everyone in the client’s company thinks contracting you is an excellent idea.

Request that clients pay at least 1/3rd in advance. (This gives you operating capital and also makes client realize they can’t simply change their mind). I would then set a benchmark (usually beta for web work, but you’ll have natural points of accomplisment) to expect the 2nd third. And then the last third comes at completions. I’ve seen people go as far as having 50% up front and only 10% left when the product is done. Wehn possible seek a monthly retainer. Put the onus on the client to make sure you are given your full alotment of work and you get paid without having to pester them to keep the ball moving when it is in their court.

Write contracts for each new client. These don’t have to be legally precise, but put in writing exactly what the client should expect. Include milestones and promises of services. This not only helps to ‘prove’ you deserve your payment at the end, but makes it easy to fend off new requests, feature creep or anything else regarding changing client requirement. Clearly indicate what their responsibilities will be that payment is still expected if they cannot keep up.

Whenever a client asked for something that was not explicitly agreed, if it was easy I would say, “it’s outside of the agreement, but I’ll do it, thought it will push completion back X days” or “I can do it, but it is going to require an increase of payment by X and push back completion by X days’. The key is set expectations and keep a firm but friendly stance when expectations change.

TEAM BUILDING:
Treat your employees as you would expect to be treated. In fact try and treat them better. Your first employees are critical to your overall success. Chose them wisely no matter what pressure you are under. They will be critical to pass on the goals and culture when you go from 10 to 20 employees.

Hire slow and fire fast.

Don’t sacrifice your corporate culture for a single employee.

Share as much as you can at all times with everyone in the company. Secrecy breeds resentment.

Publically praise good work as much as posswible no matter what their role. Let everyone know they are important. If you don’t think a member is important to your success or not worth your praise they should be replaced.

When you think someone is not meeting their goals confer with all partners and mix-up oversight so a more diverse assessment can be made.

Do not talk badly about employees infront of other team members.

LEGAL:
Find a lawyer who is experienced in all that you seek to undertake. Find one who understand who you are and takes a concern in your endeavor.

Decide how and where to incorporate or formalize your business based upon what you realistically expect to happen upon growth. Confer your plans with a CPA to understand the tax liabilities of which there are /many/

Once you have a logo and/or wordmark submit a request to trade or wordmark it. Even if you think trademarks are repulsive don’t forget that not protecting your IP means someone else can subsequently trademark it for their puposes.

Marks can be submitted before you even have final product. Submit a ‘Intent To Use’ if you know your name, but require time to develop the product.

Before committing to any name or image, make sure it is not in use in a service close to yours. The US Patent & Trademark office offers an excellent keyword search on existing and submitted marks. For the love of dog use it. Even if you are not American it’s nice to check along with your own country. Then have a lawyer confirm what you have found. It’s a folly to think that if you own a domain you have rights to use that name. It would be a nightmare to get a cease and desist letter that is in fact valid. Remember that if even one user of a product might be confused that your company is related to the company names (such as Righteous Goods and Righteous Websites) means that you may be compromising the existing mark. Copyright and patents may have become farcial, but they are still the rule of the land and even the EFF knows their are cases it can’t win. Remember that trademarks are the perogative of the country that approved them. What goes in Toledo may not go in Tuscany….

Remember that trademarks are country specific. What may be new in the U.S. could be locked up in England or Japan.

FUNDING:
Don’t take funding money from anyone that expects a financial return within a timeline that can be measured in less than a decade. If they expect returns in a matter of years (vs. decades or maybe even ever at all) this is tantamount to a loan and ceded decision making control for the life of your business to the loanee who can change your company direction entirely.

Do not take money you do not need. Just because someone thinks you are a good investment does not mean you they are right or that their expectations of success are aligned with yours. Only take money if you are absolutely out of personal access, credit cards, family loan, friendly angels (in that order.) Only take institutional money if you have a proven path to huge success.

Institutional Funders like to build a basket of golden eggs. Much like the recording industry their entire model is built upon having a couple of eggs go from golden to multi-platinum while some eggs go from golden to nickel. It’s often said VC funded companies success 1 in 10 times. I hate those odds. One in ten. Yesh. Make your own future, without reliance on others and seek to make your success closer to 10 out of 10.

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