When setting up a company, most founders are so focused on getting the business off the ground, that they can easily forget of dotting their Is and crossing their Ts.
Here are some essentials to consider to build some solid foundations for your business.
Where to Start.
The most classic way to start off is with your own money or a small round of funding raised from family and friends, just to get things off the ground.
What a lot of the clients I coach seem to assume is that those funds are their runway to securing more funding or borrowing money. Whilst that might well be the case, I can’t stress enough that the best thing you can look for when you are starting are clients.
Whether you pre-sell your product or provide your service in a labour intensive way before you automate and launch a SaaS business, your clients will add to your available funds, can help you prove the financial viability of your proposition, or at least that there’s a demand for what you are offering and most importantly give you invaluable feedback before you’ve even started investing in building anything.
Another often overlooked in the fundraising game is securing a memorandum of understanding or letter of intent from key industry partners, which will work as a distribution channel and help you reach a significant market share quicker than you would on your own.
If you can secure some clients, partnerships or both, you’ll be approaching your potential investors with added credibility and will be able to build the case for a much better valuation.
Hold onto equity.
Speaking of valuation, it might be tempting to give out equity in the early stages of your business where you have a greater need for cash. Well just don’t give up too much equity too soon!
Equity is often used to onboard early employees and put together a more attractive package at a time when you might not be able to offer a competitive salary. Whilst it can be a great motivator for your employees, this is not always the case, and you don’t want to miss out on the talent that might not be in a position to accept a package, which heavily relies on equity as a bonus.
On the other hand when it comes to valuing your business for an investment proposition, there’s no exact science, you’ll be putting together a financial model that is heavily reliant on assumptions and as such needs to be well researched and credible but is far from being an accurate description of how things will pan out. That said, it doesn’t mean that you should be too conservative and if realistically your business is not going to return appealing returns to a fund, you can look at loans, family offices, or angel investors.
The bottom line is: whoever you are approaching you don’t want to send the wrong message, if it looks like you’re not valuing your equity appropriately, it’s like saying you are not confident in your ability to succeed long term, and if you don’t believe in your business, why should an investor?
Last but not least it is important to consider governance both amongst co-founder and before starting fundraising conversations, particularly if that’s with institutional investors such as VCs.
In your articles of association you will outline the percentage of consensus needed for major decisions, which ties into the equity held by voters, make sure this is a sensible number, fair to investors and to yourself.
This should give you an initial idea of how much equity you are willing to give to a single investor, additionally consider if you are willing to give veto rights to anyone, and if possible avoid this at all cost. If this is the first time you’re mulling over this kind of variables, it’s probably worth seeking advice, as getting the legal framework to your business will make it look professional in front of an investor and save you from having to amend this at later stage when all shareholders will be entitled to have their opinion about it.
The C word.
Numerous times I’ve seen founders onboarding their first employee and offering them a co-founder title without spelling out what that actually meant, and contacting me after finding out that not everyone was on the same page, typically in the middle of a bit of a crisis.
I’d generally advise against using this title as a bargaining chip, or offering it in a light hearted way based on efforts put into the business by certain employee(s). What this title says is that the person who carries it is crucial to the success of the business in an initial stage, if you genuinely feel that the contribution of the person joining calls for the co-founder title, then make sure to spell out what that means.
The obvious starting point is to define the equity that comes with the title, and any potential voting powers or perks. A frequently forgotten step is to look at what might happen in case one of the co-founders wants to leave.
The equity part will be regulated by your Articles of Association, your notice period by your contract, but what about everything else?
it’s good to put in writing how each co-founder will go above and beyond to ensure the success of the company beyond their contribution as part of the founding team. This could be anything from offering the business the opportunity to buy back some shares at a preferential price to motivate new recruits and existing team, all the way down to disregarding your notice period and making sure you’re only leaving once everything is in order for a smooth transition.
Writing this when you are starting a company will leave no room for interpretation or a change of heart should things become sour later down the road, this document doesn’t need to be legally binding, but can be an invaluable tool if you find yourself having to navigate rough waters.
The temptation to hire new recruits as soon as possible is often high at the start of your business, whether it’s out of excitement, passion, drive or simply because they want to get on with things and see their business grow.
Your first 10 employees are going to be crucial to the success of your company, take the time to vet them, and be actively involved in the process. Set realistic KPIs for their probation period and prepare an onboarding package to allow them to hit the ground running. If you are going to offer them any options to buy equity make sure that they vest over time, are accessed upon achieving specific milestones that are a game changer for the company, or a mix of both.
No man is an island.
Expanding the team means your cowboy days are over.
You don’t have to document and introduce systems for your every move either, but while you are still juggling a million things it’s easy to forget how much context your team has around decisions and tasks that affect them directly.
Don’t forget it’s not just you any more, so before you address your team take a moment to zoom out and make sure to give them enough elements to fully understand what is happening. This is crucial to establish the right leadership style and ensure you make your employees engaged, empowering them to come up with suggestions and take the initiative to contribute without being micromanaged, which you won’t have time to do anyway.
What do you want from your life?
It might sound like an unrelated philosophical question but a common pitfall of founders is to think that they don’t have the right to have their personal goals, that their whole life revolves around their business and that’s the way things should be.
Whilst you’re going to give your everything to it, aligning your personal goals and your business ones can be extremely powerful and invigorating. You have to view your business as a key piece of your life because it’s purposeful and lignes with your values and aspirations, and these can be anything from giving back to society to being able to afford the lifestyle that you want.
If your business fits within the bigger picture of your life, you are far more likely to keep enjoying it and being able to work on it for all the time that it requires.
Similarly you deserve, need and absolutely must plan for some time off.
It’s going to be hard enough not to think about the business at all times, even when you are physically away from it. To preserve your mental health and avoid burnout, focus on what your can control and limit your exposure to the business: whether it’s sticking to actually taking all of your holidays, planning some screen free time, or not being available 24/7 you have to put some boundaries in place for yourself and as an example to your team.
Do what you’re good at.
As a founder you’re a one man or woman band, and that’s just how all businesses start.
BUT but do take time to imagine your future self and decide what you are going to be doing when you’ll be in the position to make this choice.
Playing to your strength is crucial to optimise your talent and resources, and your happiness or lack thereof can have a huge impact on your team’s morale and ultimately on the amount of energy that you’re going to be able to commit to your business.
So find what you’re good at, what you like and plan towards progressing into the role that suits you best.