I read an interesting post on Gigaom.com titled “The 10 Ways Startup Advice is Flawed.”  It focuses on advice given by people perceived as successful start-up entrepreneurs – attacking the premise that someone’s status (i.e. wealth, fame…etc) may not necessarily be related to what they did as a start-up – and that therefore their advice is not sound.  Here is a key excerpt from the post.You can read the whole post here.

1. Maybe the thing they did really didn’t cause them to get rich. A lot of startup stories are after-the-fact rationalizations or outright myths. As they say in Latin (and on the “West Wing”):Post hoc ergo propter hoc. In other words, just because something takes place after something else, doesn’t mean the two have a causal relationship.

2. Maybe they got lucky. After all, as my grandmother used to say, “Even a blind pig eventually finds a truffle.”

3. Maybe they did the thing they said and it was actually a bad idea, but they were in the right place at the right time. A lot of powerful businesses (especially network-effects businesses) are largely resilient to incompetence.

4. Maybe the thing they did worked, but only in conjunction with some other unnamed factor. For example, many visionaries partner with a heads-down, practical type.

5. Maybe the thing they did worked, but it only under certain circumstances. For example, perhaps it worked in their industry and not in yours, or only in certain phases of growth, or for certain kinds of teams.

6. Maybe the thing they did used to work, but it doesn’t anymore. For example, perhaps competitors now know how to counter such a move.

7. Maybe the thing they did worked, but for a different reason than they think. For example, perhaps it was the feedback of their customers, not their grand original idea, that was key to success.

8. Maybe they didn’t really do the thing they said they did. Most of the mythological startup stories are highly misleading. Many of us remember the past the way we wish it had been rather than the way it actually was.

9. Maybe they’re not really rich and/or famous. A lot of startup energy goes into what I call “success theater” –- that is, convincing the world that you and your startup is successful. Next time you’re listening to a guru, ask yourself: How do I really know that they’re successful? What is their definition of success? What’s mine?

10. Maybe they have an agenda. Ask yourself: Does this person stand to benefit if I follow this advice? The VCs I know and trust are honest and very pro-entrepreneur, but I routinely hear others give advice that entrepreneurs should be suspicious of. Fundamentally, their incentives are based on having a portfolio of startups. As an entrepreneur, you have a portfolio of one. Think about that the next time a VC advises you to swing for the fences.

I tend to agree with most of this.  I see a lot of this in the startup world – bad advice from people that really have no business handing out advice.  And I REALLY see a lot of number 9 – “success theater” as they call it.  So many start ups exude a ton of energy, maybe get a little bit of hype, but really have barely any substance or success behind the business.  The point is, be careful who you take advice from and how seriously you take that advice.

What do you think?  Received any bad startup advice lately?

There are a lot of things to consider when you decide to start a business – here is a simple check list of some things to consider and get you started. While not all of these are required at the very beginning stages of your business, these are all things that you should consider at some point during the startup or growth of your business.

Legal entity structure decision (consult your attorney and CPA)

• Sole proprietor
• Partnership
• LLC
• Regular C corporation
• Tax entity decision: should your LLC or C corporation file as an S-Corporation
• How many owners are there and what is their ownership percentage? Are legal agreement in place?

Have you chosen a lawyer and a CPA to assist and advise you? Do you have other key advisors? Who is your insurance agent?

Banking Relationship

• Do you have your business account(s) set up?
• Will your business require any special banking arrangements such as multiple types of accounts, international transactions, etc.

Have you developed a basic business plan that includes

• What does your business do and what makes it different?
• Is there a market for what you do?
• What obstacles do you anticipate and how will you overcome them (risk factors)?
• Is there a financial plan that includes the balance sheet, income statement, cash flow projections and break even analysis?
• What are your sources of funding?
• How are you going to pay yourself

Current business systems in place or to put in place

• Accounting systems including software, security, policies, procedures, controls and asset management
• Human capital management – HR systems and payroll
• Cash management systems and controls
• Tax management, sales and use tax, employment tax, income tax
• Key performance metrics identified and measurement systems.

Sources and uses of cash

• Start up capital (cash) required
• Working capital needs (cash needed to fund operations)
• Are your sales and expense projections realistic?
• Will you need to fund inventory?
• What other assets will you need to acquire?
• What is the lag time from the sale to actual cash received?
• How do you anticipate paying back loans to the business?

Have you considered how the changing business environment may affect your business?

• How is your business impacted by government regulations?
• Do you need to be concerned about license issues?
• How easy is it for a competitor to enter your market?
• Does your market have long term viability?
• What impact would an economic downturn have on your business? Could you downsize quickly if required?
• Is your business location crucial to your success?
• Are your products or services price sensitive?
• Could your cash flow support a rapid expansion?

A very common question I get from entrepreneurs involves the timing of actually incorporating or organizing (depending on whether a corporation or LLC is formed) a formal business entity through which to conduct business.  There are lots of factors to consider. Last year I read an interesting “decision matrix” by Ryan Reynolds, which takes into consideration factors such as:

• The number of founders.
• The degree of risk of experiencing some sort of lawsuit.
• Whether your start-up is seeking outside fundings.
• Whether and what sorts of contracts you are signing.

I tend to agree with this these factors for the most part – at least as a way to quantify the need (for those people that like to quantify things before making a decision).   Typically, though, I will recommend that a business incorporate or form an LLC as early in the process as possible (assuming the cost is not prohibitive – and it shouldn’t be so long as you find counsel that can help you do so for a reasonable fee).  For entrepreneurs that are serious about their business endeavor, forming a business entity is usually the first step toward making things “official.”  When someone goes through the process of organizing an LLC, opening a bank account, retaining an attorney, retaining an accountant…etc…what was once an abstract business plan or hobby becomes more tangible…and a platform is created from which to focus and launch the business (not to mention the obvious legal advantages such as limited liability that are discussed elsewhere on this blog).   What it really boils down to is this – when you are serious about starting up and executing a new business, that is when you should seriously consider spending the time and money to incorporate or organize a formal business entity (corporation of LLC).

What about Tech Startups that run lean?

I do deal with a ton of tech startups, and in the past few years, those guys have sort of flipped the script on the startup model by spending lots of time developing an application way before even thinking about formalizing the business entity.  Sometimes this can be ok – but problems can arise when you have, for example, 2 founder-types and 2 developer-types.  With no written agreements in place, and everyone involved working on a shoestring (or no) budget, how do the 4 “partners” know everyone will be on board with an operating agreement or founders vesting agreement once something is on the table?  What if the “partners” can’t come to an agreement on equity levels and vesting schedules?  Good luck trying to find investment capital if there is a founders dispute.

Drop Dead Time

Assuming your startup and its founders are all in perfect harmony on equity and vesting issues, the drop dead date for incorporating your business should be BEFORE you start dealing with 3rd parties (vendors, customers, investors, landlords…etc).  Don’t make the mistake of signing contracts without having set up a formal business entity – if you do – that means YOU are on the hook for any liabilities or obligations created by those contracts.

Before you launch your new startup in Indiana, check out these 3 startup tips to get you going down the right track:

Find a Technical Co-Founder – If you are starting a new business in 2011 you absolutely need a technical Co-founder. This means you need someone that can code, a computer programmer, a Mark Zuckerberg. In 2011, big ideas don’t mean much. You can’t raise capital with a big idea, you need a working prototype. You don’t want to outsource all of your product or web development because you are likely to find that the developers took short cuts that will cost you dearly in the long run.

Find a Niche – Successful companies do not start out by trying to be all things to all people. When Mark Zuckerberg started Facebook he was focused on the college student niche. Facebook dominated the college social networking arena first and then expanded from there. In the same way you should start your business by focusing on a particular group of people. Establish yourself as “the expert” in a smaller niche and then be on the lookout for logical expansions.

Find Time to Work on the Business – Most entrepreneurs get sucked into accepting every job that comes their way. They are so busy working in the business, that they don’t have time to build and grow the business. As an entrepreneur you might have to say no to a job or two each month in order to spend time evangelizing your products and services, and hiring talent to take on that extra work. You can only work so many hours each year, so if you are committed to growing your business then you will need to take a step back, hire the right people, and strategically position your business for continued growth.

Building a startup is not for the faint of heart. It takes patience, and the ability to keep driving forward even when the future is uncertain. In 2011, make sure to keep these 3 startup tips in mind as you set out to change the world

The short answer is YES!

Lots of technology startups, internet startups and software startups I work with have typically developed some degree of intellectual property prior to actually organizing a business entity (corporation, LLC…etc). Sometimes that IP is very early stage, sometimes, especially in the case where a founder is a developer or engineer, the IP may be very far along in terms of development. Sometimes that IP may simply be a domain name. This may not seem like a big problem initially – but if the company ever wants to (a) enter into any significant contractual relationships relating directly or indirectly to the IP, (b) raise capital via private equity or debt, or (c) sell the business, not assigning the IP to the company can be a big problem. The other parties in the transactions mentioned in the previous sentence will require that the company represent that it owns the IP – and when it can’t make that representation (because it doesn’t) – those other parties will require that it be duly assigned by the founder to the company. What if the founder then demands a big payday? What if he walks – and takes the IP with him?

To prevent all of this and a litany of other problems, founders should assign to the company whatever IP they own / have developed that is related to the business of the company – and the assignment should be made upon inception when the first grant of stock is made to the founder. This may be done via a simple, broadly worded, IP assignment agreement.

Of course, this assignment should be coupled with other considerations, such as whether the business should hold it’s IP in an IP holding company, and how founders ownership will vest. Check back soon for posts on these topics.

As always, you should consult an attorney to help you with the matters discussed in this post.

If you are starting a business, there are a number of things you need to consider when you are in start-up mode, beyond what you might normally think of (i.e. the business name, business location, sales and marketing…etc).  From a legal perspective, here are a few things you should carefully consider:

• What form of business entity should you choose?  There are multiple entries on this blog dealing with the various types of business entity a start-up can choose from.
• If there will be multiple owners (i.e. shareholders, partners or members), how will control of the business be structured?
• How much and how often will the business owners be paid?
• How will business records be maintained?
• Will the business hire employees, independent contractors, or a mix of the two?
• What type of  / how much liability insurance will the business need?
• Will the business enter into a lease for space?  Or will it buy and develop its own real estate?
• If the business will have employees, will it provide benefits? How will the business handle payroll?
• What types of banking relationships will be necessary?
• Will the business need to raise capital?  If so, will it be through debt or private equity?
• Will any sort of license or permit be required to conduct business?

These are just a few things that should be considered. If you have other things to add to the list, please leave a comment below.

Most startup ventures are strapped for cash – and most start-up ventures typically require at least some, if not a significant amount, of legal work to help them get the business up and running.  One great way for a start-up to save itself some money is to negotiate fixed fees for the transactional legal services it receives.  Billable hours have been a cash cow for big law firms for a long time, but most smaller and solo law practices will be more than willing to provide a fixed fee for certain types of work.

Seek out attorneys that are willing to provide fixed fees for your projects – and if you can’t find an attorney that markets him or herself as providing fixed fees – don’t be afraid to ask for fixed fees from an attorney – even if it is an attorney you have used in the past who you have historically paid by the hour.  Fixed fees will help you control your costs, and will help you more accurately budget your tight cash flow since you know EXACTLY how much your legal expenses will be.

This post is part three of a three post series.

In last week’s post, Chris Byers, CEO of Formstack LLC, gave us a few tips on what it looks like to build a successful start-up. This week, he will continue his discussion in Part Two by adding a few more encouraging pieces of advice on building business success.

4. Build Momentum.

We commonly tend to think that the day we release our software or service, the biggest part of the work is done.  It’s not.  My approach is to hink of life and business as a marathon rather than a sprint.  While I have only run a half-marathon to date, my preparation takes place over the course of months and my distance slowly increases over that course of time.  Even then, improving my half-marathon time over previous records takes years of consistently deciding to get out and run, committing to tweaking my running strategies and the resulting run-time.  In the same way, you too need to build your startup over a number of weeks and months with small victories each week rather than hunting the big wins once a quarter.  This will allow you to build momentum in your product as well as excitement about the days ahead.
5. Keep Expenses Low.

I tend to be very debt averse, though there used to be a day when I wasn’t.  In my first startup, we started heavy with five staff members that needed to get paid each month.  In addition, we got this idea that having awesome marketing and logos were going to make us successful.  While the logos were pretty, that commitment cost us a great deal financially in the short-term.  Also, we thought that nice offices were a key to running our software business.  Three years of personal guarantees were wrong for our business and wrong for my personal finances.  And finally, I fell for the “lease a car to save taxes” trap and committed myself to $20K of a brand new car.  In the end, all of these debts and costs were a great detriment to our ability to make wise decisions for our company.  The good news was that if we had been successful, we might have blown the money anyway. This told me I needed a few lessons in stewardship before my next startup.

I hope these tips were helpful for those of you thinking about starting up your own company. There are always going to be lessons you have to learn along the way, but it’s always good to take as much advice as possible. Good luck in your venture.

If you have any questions or comments for Chris, contact him at Chris.Byers@formstack.com.

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Formstack LLC., is an Indianapolis, Indiana located company with a mission to give businesses and organizations of all caliber a solution to their online needs. Formstack provides a way for companies to develop, design, create, and manage online forms with little to no knowledge of HTML coding or programming. Users can create any type of form desired including surveys, contact forms, event registrations, and more. These forms are used by companies with a desire to collect data in a smarter, more convenient and stress-free way. Formstack’s online forms can also be integrated with multiple third-party applications. Check out Formstack athttp://www.formstack.com.

This is a guest blog post by Carl Kinker of The Controllership Group.  You can find Carl’s bio at the end of this post.

Starting a new business can be both exciting and terrifying at the same time. There are many reasons a new business may fail and one of them is a lack of planning. Planning should ideally be done before you open for business but in the real world this is not always the case. Without a business plan how will you measure your progress or if you are on track to achieve your goals and objectives? How do you aim for the target if you haven’t defined the target?

A business plan can range from very detailed and complicated with full blown financial projections and market research to a basic business start up plan. It is always good to seek the advice of your lawyer and accountant who have had experience working with a variety of businesses and can use that knowledge and experience to assist you.

Here are some basic areas that should be in any business plan and this is not all inclusive there are many resources available to help you get started.

• What is your Business?
• Who are you and what do you do?
• What product or services are you selling?
• What legal/tax structure should you use?
• Who are the key people in your business?
• Who or What is your target market?  Include parameters that define your market such as number of employees, revenue, industry, customers, etc.
• What is your marketing plan to reach your target market? Develop a marketing plan on how you expect to reach this target market – doesn’t need to be complicated but have some plan you can measure.
• Who is your competition and what is your competitive advantage?

Prepare a financial plan. Be realistic

• Have a worse case plan and best case plan and then scale both back.
• How will you price your product or service?
• Do you know your break even point (including cash flow break even)?
• What expense will you have? Do you need up front capital to start?
• What systems do you need to put in place (accounting and other)?
• Will the business generate enough income to support your lifestyle?
• Can you finance the business startup?
• How are you going to get paid?

In summary it is important whatever the stage your business is in to have or develop a business plan. There are resources available and people who can help with this process.