By Richard D. Harroch
Having been a startup lawyer, entrepreneur, and venture capitalist, I have been asked many of the following questions over the years by entrepreneurs when starting a business. Sometimes there isn’t an easy answer, and as lawyers often like to say, “It depends on the circumstances.” But here are my shorthand answers to the most frequently asked questions on starting a business, which hopefully will be right 95% of the time.
1. Should I form my startup as a C corporation, an S corporation, an LLC, a partnership, or a sole proprietorship?
Start it as an S corporation or an LLC, unless you have to issue both common stock and preferred stock; in that case, start it as a C corporation. An S corporation can easily be converted later into a C corporation. Partnerships and sole proprietorships are to be avoided because of the potential personal liability to the owners of the business.
2. Where should I incorporate my business?
The standard answer to this is Delaware because of its well-developed corporate law. However, my answer is that in most instances it should be the state where the business is located, as this will save you some fees and complexities. You can always reincorporate later in Delaware.
3. How much should I capitalize my startup with at the beginning?
As much as you can reasonably afford, and in an amount to at least carry you for 6-9 months with no income. What you will find is that it always takes you longer to get revenues, and that you will experience more expenses than you anticipated.
4. How can I get a venture capitalist to pay attention to me?
Any of the following:
- Get a ton of traction in the marketplace
- Have meaningful growing revenues
- Have a world-class management team
- Have truly innovative technology with a big market opportunity
- Get a personal introduction to one of the VC firm partners from a respected colleague
- Show some initial traction with customers or users
5. How can I come up with a great name for my business?
This is difficult. First brainstorm with a bunch of different names. Then do a Google search to see what is already taken, and that will eliminate 95% of your choices. Make it easy to spell. Make it interesting. Don’t pick a nonsensical name where people won’t have a clue as to what you do (with all due respect to names like Google and Yahoo). Do a trademark/tradename search on the name, then make sure you can get the domain name. See What Should I Name My Startup: 13 Smart Tips.
6. What are the biggest challenges to starting a business?
The key challenges to starting a small business are:
- Shortage of capital and cash flow
- Having a good business plan
- Coming up with a great product or service
- Sticking to it
- Working more than you expected
- Getting through the frustrations of being constantly rejected by customers
- Hiring good employees
- Knowing when to fire bad employees
- Having to wear so many hats
- Managing your time
- Maintaining some kind of work/life balance
7. What are the biggest mistakes made by startup entrepreneurs?
Key mistakes made by entrepreneurs include:
- Not starting with enough capital
- Thinking that success will come quickly
- Not carefully budgeting
- Not focusing on the quality of the product or service
- Underestimating the importance of sales and marketing
- Not adapting or iterating quickly enough
- Not understanding the competitive landscape
- Ignoring legal and contract matters
- Hiring the wrong employees
- Mispricing the product or service
8. How can I protect my great idea?
Ideas are a dime a dozen. It’s the actual implementation of an idea that is more important. If it’s truly unique, get a patent for it (see www.uspto.gov). You may get some protection through copyright, trade secret programs, or NDAs, but not a lot.
9. How can I obtain the domain name I want?
Every good “.com” domain name is already taken. And I usually only recommend “.com” names. Ultimately, 99% of domain names are available to be bought—you just have to be prepared to pay for the name. Do a “WHOIS Search” at www.networksolutions.com to find out the contact information for the owner of the domain name you are interested in, and offer to buy the name. Don’t be naive and offer $500 for a premium domain name. You will be ignored. Be willing to pay a fair amount for a good name.
10. How can I drive traffic to my website for my business?
Entire books are written on how to get website traffic. The key ways are as follows:
- Pay Google, Bing, Yahoo, or other search engines to send you traffic (such as through the Google Ads program)
- Build a great site with lots of high-quality original content that is search engine optimized
- Have a smart social media plan to drive traffic from Facebook, X, LinkedIn, and other free social media sites
- Get on business directories
- Frequently post to social media
- Optimize your site for mobile
11. I have an invention idea. How do I check that someone hasn’t already invented it?
Key steps to take:
- Do a Google search on the keywords associated with your invention
- Do a search online of the U.S. Patent and Trademark Office at www.uspto.gov
- If that works and you want to get a patent on the idea, hire a patent lawyer
12. Do I need a business plan?
It’s sometimes useful to come up with a business plan to think through what you want to do for the development of the product or service, marketing, financial projections, and more. Then get input from trusted business/finance advisors. But don’t go overboard with a 50-page business plan. In reality, many startups have to deviate from their plan. See Don’t Waste Time on a Startup Business Plan—Do These 5 Things Instead.
13. What do I need to worry about when hiring an employee?
- Have you done a reference check?
- Does the employee have relevant experience for the job?
- Has the prospective employee filled out an employment application?
- Will the employee fit in with the company culture?
- Do you have a good form of employment “at will” letter for the employee to sign (allowing you to terminate the employee for any reason if it’s not working out)?
14. What kind of books and records do I need to keep for my business?
- Financial Statements (P&L, balance sheet, cash flow)
- Employee records
- Board and stockholder minutes and consents
- Stock and options ledger
- Tax filings and records (federal, state and local income, sales and property taxes)
- Secretary of State filings (Certificate of Incorporation, annual filings, etc.)
- Invoices and contracts
- Bank accounts
- Creditor records
15. What kind of insurance does my business need?
Consider the following insurance, depending on your business:
- General liability insurance
- Product liability insurance
- Professional liability insurance
- Property insurance
- Worker’s compensation insurance
- D&O (directors and officers) insurance
- Health insurance for employees
- Business interruption insurance
- Commercial auto insurance
- Data breach/cybersecurity insurance
- Key man life insurance
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Copyright © by Richard D. Harroch. All Rights Reserved.
Richard D. Harroch is a Senior Advisor to CEOs, management teams, and Boards of Directors. He is an expert on M&A, venture capital, startups, and business contracts. He was the Managing Director and Global Head of M&A at VantagePoint Capital Partners, a venture capital fund in the San Francisco area. Richard is the author of several books on startups and entrepreneurship as well as the co-author of Poker for Dummies and a Wall Street Journal-bestselling book on small business. He is the co-author of a 1,500-page book published by Bloomberg on mergers and acquisitions of privately held companies. He was also a corporate and M&A partner at the international law firm of Orrick, Herrington & Sutcliffe. He has been involved in over 200 M&A transactions and 250 startup financings. He can be reached through LinkedIn.
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