If you want to know how to start a startup, Sequoia Legal have the answer, but is not as simple as it might seem. After all, at least half of all startups fail within five years. Some analysts put this figure even higher. To prevent your nascent company from becoming “just another statistic”, you are likely to need some start up lawyer along with a lot of hard work and planning.
Start with a Great Idea
All great companies start with a great business idea. With a solid idea for a startup, you have a seed that can grow to be your company. The basic structure of a great idea is usually straightforward. Identify a problem faced by many people and find a way to solve it better than currently available solutions do.
No matter how wonderful your idea seems to you, there is no substitute for customer feedback, a.k.a. market research. You can get feedback with little or no money by the following means:
- Talking to your friends and family. Pay most attention to no-nonsense personalities who won’t flatter you just to preserve your ego.
- Carefully research the market by reading every relevant source you can get your hands on. This could take a lot of time, but it doesn’t have to cost a lot of money.
- Retaining willingness to modify your basic concept or even toss it out entirely in favor of a brand-new approach.
You must be persistent. In almost all cases, circumstances simply will not allow you to skip the trial-and-error phase of developing your product.
Research Your Customers
There is no substitute for market research. Of course, you don’t want to bankrupt your young company by conducting an extensive market research project. At the same time, however, skipping market research altogether could result in disaster after you have invested much more money into your company. It is best to take the middle path.
Your customers are the ones who butter your bread, so to speak. Identify your target market and make it your mission to find out as much as you can about their tastes, preferences, and the problems that you can solve for them. Identify actual and potential competitors, study the solutions they offer to the same problem, and note how your target market responds to your competitors.
Create a Business Plan
It is not an exaggeration to say that it is impossible for a startup to succeed without a solid business plan. A good business plan dramatically increases your odds of:
- Obtaining a business loan;
- Raising investment capital; and
- Growing your business.
Creating a business plan also forces you to think through matters that you might have ignored otherwise.
But what is a business plan? Put simply, a business plan is a description of your company’s future, typically over the next three to five years. Your business plan describes in detail what you plan to do and how you plan to do it. Your business plan should describe:
- Your company’s products and services;
- Your company’s operations;
- Your competitors;
- Your industry;
- The market for your product; and
- Your finances.
Make your business plan looks good. Remember, you are probably going to need to show it to potential investors and lenders.
Think Carefully About Financing
You are going to need some form of financing to launch your startup. The best product ever invented will fail without good financing. The harsh reality is that unless you are already wealthy, most of this capital will have to come from some other party such as:
- A bank,
- A business credit card;
- Friends,
- Family,
- A venture capitalist, or
- An “angel investor”.
You will need to plan your financing, including contingencies before you start raising money. You will also need effective accounting. QuickBooks, for example, might work for you if you can’t afford an accountant.
Be careful! Too much borrowing, and you could end up bankrupt by your debt. Too little borrowing and your company could fail due to undercapitalization. Too much equity financing and you could lose control of the company you founded; too little equity financing and you might find your company unable to raise capital when it needs it.
Gather the Right People Around You
In almost all cases, starting your own startup is not something you want to take on all by yourself. The success of your new venture depends to a great degree on who you surround yourself with. In addition to dynamic co-founders, you also need:
- Bankers,
- Accountants,
- A lawyer
- Contractors, and
- Employees.
If this is your first startup, it won’t hurt to have an experienced mentor to offer you wisdom from time to time. In short, gather people around you who are inspiring, energetic, enthusiastic, knowledgeable, and bold but prudent (these two qualities can co-exist quite effectively).
Take the Right Legal Steps
Taking the right legal steps is critical, especially when your company is first getting off the ground. These steps include:
- Establishing your business in the right legal form (an LLC, for example);
- Getting the right business license;
- Registering your business name;
- Getting a federal tax ID number;
- Registering your trademarks;
- Creating a company bank account; and
- Drafting the contracts, you will need to execute with employees, partners, investors, suppliers, and customers.
Familiarize yourself with industry regulations to determine any other legal steps you need to take.
Establish a Location and Build a Website
The reason startups commercial lease rather than buy is that the initial capital outlay is much lower. This might allow your company to occupy a prime location during its critical early phase. The liabilities of leasing, however, include possible spikes in rent and the failure to build up equity the way you would if you purchased the property outright. Of course, if you are an online business, you might not even need physical office space – a desk and a laptop might do.
In any case, a professional website is an absolute necessity. A website offers the following advantages:
- It keeps your business open 24/7;
- It gives your company global reach; and
- It allows potential customers from all over the world to read reviews of your product.
Find other ways of using the Internet to promote your business, such as posting on social media sites, starting a blog, etc.
Create a Minimum Viable Product
A Minimum Viable Product (MVP) is a simple, cheap, test version of your intended final product.
- Put your MVP on the market and scrutinize customer reactions to it;
- Use your MVP experience to identify flaws in your product; and
- Modify your product’s design accordingly.
Even if your MVP fails, since you invested so little into it, your failure will be small-scale. Hopefully, this will leave you with the financial resources to create a new and improved product based on your MVP experience.
Mandatory Focus on Marketing
Your business could succeed or fail based on your marketing plan. Without one, nobody will know you even exist, much less know what products you offer. You are going to need to establish your brand identity and company viability, build a reputation, and begin creating customer relationships. Some of the startup marketing activities you might want to consider include:
- Using social media to promote your product and build brand image;
- Giving away incentives in exchange for referrals;
- Offering free samples; and
- Sponsoring local community events to increase your company’s name recognition.
Only your imagination limits the number of marketing activities you can choose from.
Create Contingency Plans
You need to prepare for anything that might happen in advance because, indeed, anything could happen. Not many companies, for example, were ready to switch to a remote workforce in response to the Covid-19 crisis, but that is exactly what many companies ended up doing. Don’t expect smooth sailing:
- Key employees come and go,
- You will make bad decisions that seem right at the time,
- Adverse changes will hit the market, and
- Your product, like Kodak film, may become obsolete due to emerging technology.
“Expect the unexpected” is a cliche because, by definition, you don’t know what to expect. Hire people with forward-thinking, flexible minds who don’t easily become discouraged when things go wrong. Stay updated on trends within your industry, and don’t make stupid mistakes like failing to pay your taxes. Prepare in advance for the disruptive events that you can foresee. That’s about all you can do.
Conclusion
As an entrepreneur, fearlessness comes with the territory. You can expect the voices telling you that “It can’t be done” to come at you from all sides. That’s OK because boldness has genius, power, and magic in it. Just make sure to understand that there is a critical difference between boldness and foolhardiness.
If you are starting a new business, you need to involve a business lawyer from the very beginning. At Sequoia Legal, our attorneys enjoy extensive experience in helping startup companies take flight for the first time. Call us at 303-529-1338 or contact us online for a free initial consultation.
