Startup Success: What You Need to Know to Start Your Business
- Kevin Gibson
- October 28, 2019
You’re ambitious, hardworking, you’ve got a brilliant idea and you’re ready to start your business. But what do you really need to know to achieve startup success and to protect your business down the road?
Statistics around startups can be intimidating: 50 percent of new businesses fail within five years and 70 percent of startups fail because they scale prematurely. Starting your business with two founders, instead of just one, increases your chances for success because you’re likely to raise more money, experience more growth and be less likely to scale too quickly, but it can also present challenges around equity ownership and vesting. And, more experienced founders who have started a previous business (whether it was successful or unsuccessful) have a better chance at succeeding than first-time entrepreneurs.
Whether you’re a first-timer or a serial entrepreneur, each new venture has its own path. Here are a few key questions and answers to set up your startup for success and protect it from the get-go.
Which business entity should I choose?
Should you choose a partnership, LLC, C-Corp, S-Corp or nothing? There are several factors to consider for entity formation, including company ownership, personal liability, profits and losses, types of investors you plan to seek money from and more. For example, venture capital investors prefer C-Corps while friends and family might not know or care. A startup lawyer can guide you through the entity formation process to tee yourself up for startup success.
How do I own and protect my intellectual property?
Intellectual property (IP) is one of the most important assets your company has. Whether you’re developing software and technology, collecting data or creating content, you’ll need help to own, license, protect, transfer and capitalize your intellectual property.
Investors will want to see that your company owns all of its IP so it is important to develop intellectual property ownership, protection and growth strategies. Startup attorneys can help protect your ideas and work product through IP assignment and non-disclosure agreements as well as Proprietary Information and Inventions Assignment Agreements (PIIAs), and proactively resolve early-stage IP-related disputes.
Which agreements does my startup need?
Startup lawyers who specialize in this space serve as valuable business advisors who can advise you on which agreements you really do need to get started and which you don’t, how to grow your business and how to make your business attractive to investors.
While having two or more founders can increase your odds for startup success, it also opens up room for uncertainty around ownership which can lead to crippling disputes, so it’s important to agree on equity ownership and vesting upfront. Investors are looking for documentation, properly classified workers, properly paid employees (and no IP infringement, as mentioned above). Investors will want to see that founders have established equity allocations and vesting, and that the founders are avoiding potential pitfalls in these categories.
On the other hand, many startups often won’t need shareholder agreements or complicated operating or employment agreements in the early stages of a company’s formation. Often, these types of contracts only serve to complicate a future financing round, not to mention they can needlessly drive up legal costs at a time when every available dollar should be going to building your team and product.
Don’t get over-lawyered.
In other words, one size does not fit all so don’t get mired down by endless legal roadblocks. Startups don’t need the same things that large, established companies need, and priorities vary by business type, industry and other factors. For startup success, work with an expert who understands every stage in your lifecycle and can help you apply just the right amount of legal strategy every step of the way.
Kevin Gibson is a corporate partner at Koenig, Oelsner, Taylor, Schoenfeld & Gaddis PC (KO Law Firm), an innovative corporate and commercial law firm with a team of experienced lawyers and a practical, efficient, business-focused approach. Founded in 2003 on the philosophy that a different approach delivers better value, our business-first legal and industry expertise helps established brands and emerging companies achieve meaningful business outcomes. KO is headquartered in Denver and Boulder, Colo., and serves the software and SaaS, retail and manufacturing, professional services, energy, food, beverage and consumer goods, eCommerce and internet, healthcare and life science and ancillary cannabis industries. Reach Kevin at firstname.lastname@example.org.