Great companies fail for many reasons that have nothing to do with their products or services. You can prevent that with these startup business tips from industry leaders. Coming up with a great idea is difficult; turning that idea into a business is even harder.
We consulted members of the Financial Poise Faculty to discuss what it takes to start a business and get it off of the ground. They also explored why so many startups fail and what common mistakes entrepreneurs need to avoid. Each panelist is a professional advisor or a successful entrepreneur.
An important question for the would-be entrepreneur or business owner to ask themself is: What is the secret sauce for this business? How do you differentiate it from others, and what is protectable in the business?
The truth is that just having a great idea isn’t enough. Products and services seldom sell themselves. Entrepreneurs need skill, training, experience and passion in other critical areas to survive and grow. Some of those skills include:
Put another way, starting and maintaining a business is not for everybody. But the fact that you are here reading these startup business tips from industry leaders is a significant first step.
You need to, like a chess player, be thinking a step or two in advance about whether you are going to be foregoing opportunities when making business decisions.
Each entrepreneur needs to assess what they are good at and where they need help. You have a personal skill set, but you may need partners that cover your weaknesses or accentuate your strengths.
That said, avoid partnering up without proper thought. Too many novice business owners rush into a market with a partner they don’t know. Or they try to sell to customers they don’t understand.
Here is a short, incomplete list of things to know before you go into a new market:
Trisha Lotzer, entrepreneur and founder of The Lotzer Law Group recounts this salient anecdote: “I once had a woman come to me for a business divorce. She’d given too much equity away in the business too soon to someone she didn’t know. She thought they had a complementary skillset. We did that divorce, but she came back a year later with the same problem.”
New business owners are well-advised to build a network of advisors and professionals upon which ask questions. These include attorneys, accountants and other consultants. Forming an advisory board can also be very helpful to your business.
Even better, you do not have to hire anyone to learn business tips. Many professionals can discuss issues over coffee or in a phone call.
Among our many business tips for you are these: new business owners must selecting the best business structure. The tax-savings for choosing the correct entity can be huge. Laws vary from state to state. Be well-educated before you approach advisors to save time and money. Doing so also facilitates the relationship towards a beneficial path.
Again, from Trisha Lotzer: “Having no legal entity or a sole proprietorship – I don’t advise that on the legal side at all. It’s not recommended for liability purposes. It’s also difficult for record-keeping and bookkeeping. Commingling funds is something you want to avoid.
“Hiring the right people can be the difference in success or failure,” advises Peter Feinberg, who has his own San Francisco-based law practice. “I cannot emphasize enough to spend a great deal of time vetting candidates. Doing so is especially true with startups and inexperienced small businesses. The culture, lack of structure and lack of delegated management can be a shock to people.”
A lack of cash is the next big problem many companies will face. New enterprises tend to starve for liquidity and struggle to grow when the bank account runs low.
Of course, acquiring money almost always comes at a cost. Entrepreneurs who fail to recognize and compare the prices of financing sources can put their enterprise at risk.
Again, from Peter Feinberg: “How you put the money into the company is as important as how much money you put in. Companies need to capitalized at a certain level, but you don’t want to put in too much money as equity—that’s a good general rule.”
Entrepreneurs often put up money up front, whether from savings or through credit. Others rely on friends and family. You can even seek financing from customers and suppliers.
A step beyond friends and family are angel investors. Angels are a more sophisticated source of capital. Generally speaking, they want the same type of equity as the owner. Some angel investors seek out participation rights in the business, but not all.
Angels tend to come in around the low six-figures. But they may also pursue more substantial investments–up into the high six-figures.
Private equity and venture capitalists are the most complicated private business financing source. These players are professional investors. They often seek an advanced class of equity in exchange for their partnership. For example, most seek out some form of board representation or other business rights.
Professional investor money tends to be very, very expensive money. These players are savvy and protective of their interests. That said, the consultative expertise of a PE or VC firm can transform the right smaller business into a large, successful company.
“From the perspective of a business owner, plan for when things are going to get rough,” advises Paul Clinkscales, director of finance and operations for Aesir Media Group, a specialty niche television & film content distribution concern “Particularly with friends and family, hold on to your equity as long as possible. Be very cautious of even considering giving equity away. The bigger the party, the more complicated life gets.”
Every business owner needs to know how to structure their business relationships, both legally and practically. Take these startup business tips from industry leaders. Consider:
Matt B. Schiff, head of labor and employment at Sugar Felsenthal Grais & Hammer, says: “You want to make sure you are controlling your contingent liabilities. Many best actions are not required from a legal perspective, but they are necessary from a competitive point of view.”
One of the best business practices is to put all of your agreements in writing. These include employment agreements, shareholder agreements, supplier agreements and partnership agreements. Business owners often get into trouble when they work with friends or family because they fail to put the terms of their agreements in writing.
Trisha Lotzer, entrepreneur and founder of The Lotzer Law Group: “Don’t have unprotected success. Use a contract every time,”
An employee handbook is a good idea to document the expectations of both employee and employer. This is especially true in the era of social media, the internet and email. However, employee handbooks can be changed. Employee contracts are final and enforceable whenever a dispute arises.
Entrepreneurs should focus on those things about which they have great passion. Most successful entrepreneurs wear many hats and discover things slowly or by accident. There is an economic advantage to seeking help from experts in business development.
Remember: if you’re going to make it, you need to know how to manage employees, investors, customers, suppliers, regulators and the IRS.
[Editor’s Note: To learn more with related topics, you may want to attend the following webinars: The Start-Up / Small Business Advisor 2019, Forming a Company: How to Start a Business, and What Every Founder/Entrepreneur Must Know. This is an updated version of an article that was published on January 25, 2017.]
Michele has been a director with Financial Poise since 2012.
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