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Common Mistakes Business Owners Make

Common Mistakes Business Owners Make

While every  business is different, business owners share many common traits.  As a result, they often make the same mistakes as they work on their business plan.   Here is a list of the ten most common mistakes :

  1. No Plan – It is easy to put  off writing a business plan until you have no choice because your banker, investor, or potential landlord requires it. Unfortunately, that is the worst time to try and write a plan.
  2. No Clear Audience – Why do you need a plan? Are you writing for the banker in hopes of getting a loan, or a potential investors or simply to guide your business.  While the outline is the same, the amount of detail required in each section varies depending on the audience.
  3. Too Much Detail or the Wrong Type of Detail – Can you boil down the description of your business to a simple message without getting bogged down in the details?  Limit your product description to an overview, focusing on the problem your product solves and its unique features/  Remember to leave out the jargon and industry slang.
  4. Poorly Defined Customer – Everyone is not your customer. With a clear, specific definition of your target customer, it is easier to write a clear, specific plan.
  5. Limited Market Research – Just because you love your product or idea, it does not mean anyone else will.    (By “anyone,” I mean anyone other than your mom, spouse, or best friend.) Who are these people, and what will make them buy?
  6. Underestimating your Competitors – Everyone has a competitor. Even truly innovative products must deal with competing products or services which may or may not solve the same problem, but ultimately will compete for the end customer’s available resources.
  7. No Meaningful Goals and Milestones – What will you accomplish?  Be specific.  How long will it take you and how will you measure your progress along the way?
  8. Activities Not Tied to Goals – Your goals form the basis of other decisions. Use the planning process to eliminate activities which do not move you closer to your goals.
  9. Unsupported Financial Projections – Unrealistic financial projects with a hockey-stick-shaped growth curve, set up a business for failure when owners spend too much too soon without enough cash reserves to help the business through the startup phase. As you develop financial projections, consider two scenarios: a best case and a worst case.
  10. Inadequate Consideration of Pitfalls – Stuff happens! Things go wrong. When the worst happens, will you be prepared? Having an adequate assessment of risks is not being negative — it is being prepared.
  11. Failure to Communicate – I know, I promised a list of the ten most common mistakes, (but don’t you like getting the little extra from time to time? ) While not directly a part of your document, poor communication will have a detrimental affect on your business. As you write your plan, involve others.  Seek advice from people you respect. Talk to employees, family members, business partners, and advisers, such as your accountant and lawyer.

Need help getting your plan started?  You can download a free copy of my business plan outline

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6 Big Mistakes that Startups Make.

6 Big Mistakes that Startups Make.

Oops!!There is a great post on Venturebeat.com about 6 common legal mistakes startups make.  Some of these have been covered elsewhere on this blog – some not.  Here is the cliff notes version- check out the post itself for more details:

  • IP Ownership – make sure it can be transferred to the startup.
  • Choice of Entity – choose carefully.  They recommend a corporation instead of an LLC.  I disagree on a certain level, as I have stated before on this blog and my Indiana Law Practice Blog.
  • Place of Incorporation – they say Delaware.  Again, I disagree to an extent (see this post).
  • Vesting Restrictions – make sure founders stock vest over time, otherwise you run the risk of a founder leaving early on and keeping all of his /her stock.
  • Securities Law Compliance – beware of not complying when issuing any securities to anyone, no matter who they are.
  • Legalzoom – avoid like the plague.  Hire an attorney! 🙂

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The 10 Ways Startup Advice Is Flawed

The 10 Ways Startup Advice Is Flawed

President Barack Obama unveiled initiatives to help small businesses, saying the U.S. has “a long way to go” to ensure that credit flows to an area of the economy hit hard by the recession.
“There is still too little credit flowing to our small businesses. There are still too many entrepreneurs who can’t get the loan they need to open their doors and start hiring,” Obama said in a speech at Landover, Md.-based Metropolitan Archives, a family-owned firm that stores and delivers paper files for large companies. “There are still too many who are struggling to make payroll and stay open. And there are still too many successful small businesses that want to expand further and hire more but just don’t have the capital to do it.”

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?

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A Checklist for SaaS Startups / Web Startups

A Checklist for SaaS Startups / Web Startups

Internet start-ups are a lot like traditional, brick and mortar businesses.  The require all of the same things I listed here. There are also some unique matters that must be attended to when starting and operating and Internet Business. Below is a checklist of some of the things every Internet start upshould have.

  • A properly organized corporate entity.  Just because you are doing business on the Internet does not mean you are free from the liability concerns of traditional businesses. Make sure you form an entity through which to do business and adhere to corporate formalities.
  • A plan to protect your intellectual property. This should include proper registrations of copyrights, trademarks and patents.  It should also include the use of confidentiality, nondisclosure, and invention assignment agreements. There should also be clear, conspicuous notices of your intellectual property rights.
  • Properly drafted Terms of Use and Privacy Policy for your website. This is an important step for traditional businesses who’s website is merely complimentary to the bricks and mortar.  It is a vital and even more important step for an Internet business.  Don’t rely on cutting and pasting from another site – that is just a bad idea.
  • If you are an SaaS provider, make sure you SaaS agreement is bullet proof. Don’t try to do this on your own!  You not only need to make sure the provisions in the agreement are sound, but you also need to make sure that you have a valid acceptance of the agreement by the end user.
  • Make sure you have carefully reviewed any development agreements.  Among other things, this needs to be reviewed VERY CAREFULLY to ensure the scope of the project, developer obligations, warranties and most importantly intellectual property ownership are all adequately spelled out in the agreement.

This list is, of course, not inclusive.

Have something to add?  Leave it below in the comments!

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Negotiating Fixed Legal Fees For Your Startup

Negotiating Fixed Legal Fees For Your Startup

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.

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Building a Successful Startup – Tips from the CEO of Formstack.com

Building a Successful Startup – Tips from the CEO of Formstack.com

This post is part two of a three post series.

1. Manage Your Own Expectations.

If you are just getting started with your new awesome idea, the tendency is to think that you will launch the product on day one, have enough users to pay the bills on day 30, hire a team within 90 days and sell the company for $23MM on a 5X revenue multiple by year-end.  It isn’t going to happen.  Within our company, which has passed the startup stage, we had very consistent and positive growth from day one…but it still took more than 18 months to sustain even one employee.  That said, I wouldn’t discourage the attitude in place that keeps you thinking you could be Indy’s next Exact Target.

2. Embrace Change.

If you look back and remember your past, the way you have previously thought about things, or even the decisions you made last month- they were all based on factors very different from where you are today.  When you make decisions, remember that everything is up for change. Sometimes, you need to create change just so you remember why you liked things the way they were.  By small example, Formstack attempted to gain more collaboration by placing a few people in an office together rather than our ‘one person to an individual office’ past.  After a few weeks, I was extremely frustrated and returned things to normal because the specific concept didn’t work. A few weeks later, we tried the same concept, but grouped cohorts together based on their individual departments. The experiment is receiving better results, and office morale has increased exponentially.

3. Your First Idea is WRONG.

Let’s say you’ve started your company, released your software, and have begun to market your first idea. That idea you had is why you have a start-up in the first place. The problem with that idea is that it is all wrong.  Maybe the market is wrong, maybe the timing is wrong or maybe the product itself is all wrong.  If you look at our history here at Formstack, we started as a custom software development shop.  From there we actually launched a number of products.   Of those, we killed a few and kept two alive.  One of them is our form-builder which took some time to see its value, and the other is no longer marketed and is only serving the few customers that remain. That said, from a custom development shop to the incorporation of Formstack was a good 4-year process.

We hope Byers’ advice was enough to make you re-think your strategy as well as encourage you to continue on the journey to developing your start-up. Stick around next week for Part Three as Byers continues dishing out his top five tips on starting a successful start-up.

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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.

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Building a Successful Startup – Tips from the CEO of Formstack.com

Building a Successful Startup – Tips from the CEO of Formstack.com

This post is part one of a three post series.

Chris Byers is the CEO of Formstack and runs the day to day operations of the company. He has been a fan and avid user of Formstack for many years but has only recently joined the team in March 2010. Byers understands the hardships that come along with starting a company and surviving the up’s and downs of the it’s life. As CEO, Indianastartup.com asked Byers for a few local tips.

Over the years, Byers has been the founder of a number of businesses in many different capacities.

Byers understands that the ability to say that you want to be a part of a startup or the owner of a business is the easy part. The work of actually being in that role is very different. In the end, a great full-time job can be more rewarding than owning or running a company that doesn’t match your personality. “In past businesses, I thought I knew what I wanted but each experience has simply been a journey and an education for today,” said Byers.

Business Model/Concept

As someone who came on the scene a bit later in the company’s existence, Byers only knew what he had experienced from the outside.  Formstack started in March of 2006 as a solution to its founder’s (Ade Olonoh) frustration with the tedious work of creating forms for his clients.  Olonoh developed an idea that would make the process simpler and along the way, created a tool available to everyone.  From day one, the form builder gained some traction and had signups for the product.  It took about 18 months to realize that it had the legs to decide that he could base a company around the product.  At that point it became time to look for some funding to assist in growth and find the right team to begin marketing Formstack.

In the Part Two of his post, he will share some helpful advice on what it looks like to be successful in a start-up venture.  Check back in a few days.

—–

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 at http://www.formstack.com.

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9 Steps and Tips to Creating a Simple Estate Plan

9 Steps and Tips to Creating a Simple Estate Plan

IOL-fb2Many times small business owners get so caught up in the day to day activities of their business that they either ignore the fact that they have poorly planned their estate, or they simply keep putting it off and putting it off.  Also, there is a common misperception out there that estate planning is only for people with high net worth.  This is NOT true.  Estate planning is more than just making sure that your assets, whatever they may be, go to the right people or organizations.  It is about making sure your family and loved ones are taken care of, and that your wishes and instructions are followed, in the event or your death or disability.  And for the small business owner, it is about making sure that his/her interest in the business is managed and/or passed along in the proper way.

Here are some steps and tips that anyone can take to put a simple estate plan in place:

  1. Have a will drawn up.  Your will should state who you want to inherit your assets when you die. If you are married, make sure that both you and your spouse each have a will.  If you have children, you should name a guardian for those children in your will;  you may also want to have your will create a contingent trust to hold and distribute assets for your children until they become adults (naming a trustee to administer the trust also).  Our Indiana Simple Will allows you to do all of that.
  2. Get a Durable Power of Attorney.  A Durable General Power of Attorney is usually used to allow your attorney-in-fact to handle all of your affairs during a period of time when you are unable to do so. A Durable General Power of Attorney is frequently included as part of an estate plan to make sure that you have covered the possibility that you might need someone to handle your financial affairs if you are unable to do so.
  3. Consider a Trust.  Trusts allow you to put conditions on how and when your assets will be distributed when you die. They also may reduce estate and gift taxes, as well as allow for distribution of assets to your heirs without the cost, delay and publicity of probate court. Some also offer greater protection of your assets from creditors and lawsuits.
  4. Create Advance Health Care Directives.  Healthcare Directives / Advance Directives protect your right to refuse any medical treatment you do not want, or to request any treatment that you do want, in the event that you lose the ability to make decisions for yourself.
  5. Appoint a Healthcare Power of Attorney / Healthcare Personal Representative. A Healthcare Power of Attorney lets you name someone to make certain decisions (healthcare, financial…etc) on your behalf in the event you are unavailable or not able to speak for yourself. Your can also appoint a “health care representative” – which under Indiana law means that person may make decisions concerning the withdrawal or withholding of health care; without being appointed as your healthcare representative, your attorney-in-fact will not have this power.  Our Indiana Healthcare Power of Attorney form allows you to do this.
  6. File Beneficiary Form for Bank Accounts.  Naming a beneficiary for your bank accounts and retirement accounts typically makes those accounts  ”payable on death” automatically to your beneficiary – skipping the probate process.  Talk to your bank or retirement account administrator.
  7. Explore Life Insurance.  If you have minor children and/or a mortgage, or will have other unpaid debts when you dies, you should consider obtaining a life insurance policy.  Here is an excellent post on exploring life insurance options.
  8. Discuss Your Estate Plans With Your Heirs and People that are Responsible (trustees, executors…etc) under your plan. This will help prevent confusion about inheritance and what your wishes are, regardless of how well they are spelled out in writing. Make your wishes known regarding organ donation whether you desire burial or cremation.
  9. Plan Ahead for the Succession of Your Business.  Make sure your wishes regarding how the ownership passes are known, planned for, and properly documented.  If you are not the only owner, make sure you have a buy-sell agreement in place with the other owners.
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Developing a Good Business Model For Your Startup

Developing a Good Business Model For Your Startup

A friend and colleague of mine, David Castor, recently posted a series of entires on his blog about developing a good business model for early stage companies.  In a nutshell, he suggests that any good business model includes (1) a strong market opportunity; (2) a solid management team; and (3) a sound capital structure. Check out the links below if you want to read the entire series – its good stuff.


Entrepreneurial Law – Developing a Good Business Model – Part I

Entrepreneurial Law – Developing a Good Business Model – Part II
Entrepreneurial Law – Developing a Good Business Model – Part III
Entrepreneurial Law – Developing a Good Business Model – Part IV
Entrepreneurial Law – Developing a Good Business Model – Part V

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The 3 Necessities for a Successful Start-up

The 3 Necessities for a Successful Start-up

These seem kind of obvious, but according to successful, serial tech entrepreneur, Marc Andreeson (the guy who founded Netscape and pretty much paved the way for the modern Internet), the 3 criteria for any successful start-up are:

  1. A substantial market opportunity.
  2. A product that is 10x better than its competition.
  3. An outstanding team.

He says #2 above can be compromised to a degree, but the other 2 are not optional.  Can’t say I disagree with these, as I am guessing that most start-ups that fit the above description are wildly successful.  Regardless, the video below is worth a watch – check it out.

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