• 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!

Related posts:

1. Should Founders Assign IP to Their Tech Startups?
2. Thinking about incorporating your business? Look no further than your home state.
3. What state should your business incoporate in?

Part of the this process also involves developing a “minimum viable product” that will please some customers, and then build the business from there, responding and reacting rapidly to market responses to product changes.

This process kind of precludes developing a formal business plan – which I do not totally agree with.  I see too many startups, particularly tech startups that do not have the luxury of significant outside funding and investors/advisors that bring business acumen to the table , flounder on the business side of things even when they have developed a great application.  Sure there are exceptions, and a business plan is not always absolutely necessary – but without some sort of focus on making a startup idea / startup application into a real, money making, viable business entity – long terms success is difficult to come by.

Below is a great slideshow that illustrates the process.

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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?

Related posts:

1. Building a Successful Startup – Tips from the CEO of Formstack.com
2. 6 Big Mistakes that Startups Make.
3. Developing a Good Business Model For Your Startup

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.

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1. 6 Big Mistakes that Startups Make.
2. Free Software For Bloomington Based Tech Start-Ups!
3. A Checklist for SaaS Startups / Web Startups

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.

—–

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.

Related posts:

1. Building a Successful Startup – Tips from the CEO of Formstack.com
2. Building a Successful Startup – Tips from the CEO of Formstack.com
3. Top 3 Startup Tips for 2011

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.

—–

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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1. Building a Successful Startup – Tips from the CEO of Formstack.com
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My name is Joshua Koch and I’m a Co-Founder &  the Chief Operating Officer of The Tyros, Inc. I’m going to be writing a series of blogs following my company’s journey as a start-up. The emotions that come with finding funding, assembling a solid team, and moving forward as a unit.

To any aspiring entrepreneurs out there please note that assembling a solid team is a key essential to any venture. We have the ability to lock ourselves into a room and yell and scream at each other and still walk out brothers at the end of the day.

Hurt feelings aren’t welcomed in this arena. Also assembling a team that is skilled in seperate areas and have the ability to trust others to do their part is also essential.

We have had some ups and downs in the 2 years of development and planning for this start-up. We’re nearing our time for market and look forward to introducing our web application to the intended audiences.

I look forward to having weekly installments chronicling our journey and I hope you’ll enjoy reading it as much as I will enjoy writing it.

I leave you with this: What excites you as a reader and/or fellow entrepreneur the most about developing a business from a simple idea or dream?

Joshua Koch-The Tyros

Related posts:

1. The Startup Chronicles-The Tyros, Inc Part VII
2. The Startup Chronicles – The Tyros, Inc – Part II
3. The Startup Chronicles-The Tyros, Inc-Part IV

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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myIndianaLLC.com caters to the needs of these people. By using carefully designed, interactive questionnaires that help me quickly assemble documents, I am able to form and organize an Indiana Limited Liability Company at a fraction of the cost that some other attorneys charge. In fact, the prices on myIndianaLLC.com are right on par with non-attorney legal form sites such as LegalZoom.com. Keep in mind that LegalZoom.com is not an attorney and may not give you legal advice – I can.   Not to mention that myIndianaLLC.com will form your Indiana LLC and return all of your documents to you in either 1 or 3 business days, depending on which package you purchase.  You get an Indiana LLC, prepared online by an Indiana LLC Attorney.

So what do you get?

A single member LLC starts at $400.  A multiple member LLC starts at $600.  You get:

• Articles of Organization that have been filed with the Indiana Secretary of State (the filing fee of $87 is included in your price!).
• A Certificate of Organization from the Indiana Secretary of State.
• A Single Member Operating Agreement.
• Organizing Resolutions of the Members or Managers.
• A Membership Interest Certificate, evidencing your ownership interest in your new Indiana LLC.
• A memo with instructions on what to do with your documents, how to apply for an EIN, various state reporting requirements, and advice regarding how to maintain the limited liability protections provided by your LLC.

How Does it work?

Follow a simple process to get started:

1. Choose the Indiana LLC package you would like to purchase.
2. Register for an account (subject to terms of use).
3. Purchase your Indiana LLC package.
4. Fill out our easy online questionnaire

Once you complete the questionnaire, the documents associated with your Indiana LLC will be generated and sent to experienced LLC attorney Brian V. Powers for review.  We will review them, follow up with any questions, file the appropriate documents with the Indiana Secretary of State, and when everything has been completed, we upload your completed documents to the site where they will be available for your download.

Why are online legal services fast and affordable?

Its the technology of course!  By using the latest in online document automation technology, your LLC documents are prepared quickly without the need to have a paralegal or legal secretary to key in your information.  Our technology is smart too – it knows how to assemble your document based on the answer you provide.  Answers are collected online.  Payments are collected online.  Documents and advice are delivered online (and by phone from time to time).  Most lawyers waste a lot of time and money on expensive offices, unnecessary staff & overhead, and client meetings.  Not here.  We focus on you and your legal needs and organizing your Indiana LLC – which saves you time and money!

Compare Us to Others – A Licensed Attorney vs Legal Forms Providers

I challenge you to find a better value anywhere. In fact, here is a link to the “leading” online document-preparation service: LegalZoom(tm).  I put that link there hoping you will click on it, and knowing that you’ll be back.  I spend a lot of time fixing the mistakes they, and other non-attorney document preparation services, make.  The advantage of using us – you’ll have the advantage of a real lawyer personally preparing your LLC documents and forming your Indiana limited liability company, instead of some non-attorney clerk on the other side of the country.

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• privately held
• have a software-based product or service at the core of their current or future business
• be in business for less than three years
• earn less than $1 million in annual revenue.

The entire press release follows:

Bloomington, Ind. — The Bloomington Technology Partnership announced today that they have joined BizSpark, an international program that provides software technology startup companies with three years of free Microsoft software.

“We are very excited to help bring cost savings to our local start up business community,” said Jeremy Sowders, Vice President of Business Development for the Bloomington Economic Development Corporation (BEDC) which manages the Bloomington Technology Partnership. “The BizSpark program by Microsoft is an innovative way to help companies during the critical early stages of development and for that reason we wanted to help make this resource available in Bloomington.”

The Bloomington Technology Partnership worked closely with the Indiana University Research & Technology Corporation (IURTC) to bring the BizSpark program to the Bloomington area. “The Microsoft BizSpark program fits right into our mission of helping fledgling start up ventures successfully transition into profitable entities.” added Tony Armstrong, President & CEO of the IURTC. “By sponsoring this program the Bloomington Technology Partnership strengthens the position of both the Bloomington area and Indiana University-Bloomington in today’s ultra competitive start up business environment.”

Microsoft programs available through BizSpark include Microsoft Windows Server, Microsoft Office SharePoint Portal Server, Visual Studio, SQL Server and more. To be eligible for the BizSpark program, startup companies must be privately held, have a software-based product or service at the core of their current or future business, be in business for less than three years, and earn less than $1 million in annual revenue. A company may take part in the program for up to three years unless it goes public or is acquired by another company. There are no initial fees to join the program, but $100 is due from the company when it exits the program.

Companies can solicit the Bloomington Technology Partnership to be their BizSpark sponsor by visiting the program’s web page at http://www.microsoft.com/bizspark/ and entering the section labeled “Startups.” After selecting the proper region, click on the Bloomington Technology Partnership as the sponsor organization.

About Bloomington Technology Partnership

The Bloomington Technology Partnership fosters the growth of Bloomington’s emerging high-tech economy. A public-private partnership established in 2008, it draws on the “best and brightest” to meet the needs of high-tech companies and their employees.

The Bloomington Technology Partnership is a program of the BEDC, a not-for-profit corporation funded through memberships from private industry, City of Bloomington, Monroe County, Indiana University and Ivy Tech Community College-Bloomington. The Bloomington Technology Partnership is funded in part by the City of Bloomington. For more information go to www.bloomingtontech.com

Source: Bloomington Economic Development Corp.

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