Guide for Launching a Startup

Don't look for an ideal cofounder, look for someone that can help you right now

Think about finding a co-founder as finding a husband or a wife. Nobody goes around the city asking someone to marry them on the spot. You start by taking someone out on a date, and see what happens from there.

Similarly, when it comes to looking for a co-founder, "date" them first. Start working with different people that can satisfy your immediate needs. It will be clear who the right people are and a co-founder (or two) will eventually emerge. It could be someone you are paying, bouncing ideas off of, or someone that is just willing to help you out. Before you agree on any paperwork, understand and communicate about your goals and ideas, ensure your working styles are compatible because, as already stated, making someone a co-founder of your startup is like marrying someone.

On a related point, you should make someone your co-founder based on what you need in order to gain a unique advantage. Choose someone that could help you take the next two or three steps and get you off the ground. This is sometimes a technical co-founder, but in other cases could be a marketing person, or a business development person. Remember, you can always bring in other skill sets or talent as your business matures at much less of a cost than a big chunk of your equity.

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Lock down the company structure before things get interesting

Before you get in the trenches and get your startup off the ground, you need to test people. Ensure that the company's interests and the interests of all the individuals align. Once the idea you have talked about stabilizes, your goal is to use the process of locking down shares, vesting agreements and collaboration agreements to test the strength and collaboration of the people around you. This is early enough in the process that you can risk everything to be scrapped.

Separate the idea stage from the execution stage of the company. Before this point, it could be gentlemen's handshakes or pinky promises, but the formation of the company will define what the next 3 or 4 years will look like. You will need to do this only once.

This is a rigorous process assisted by each person's legal representative and a lawyer for the company. It will protect everyone and allow disagreements to play out. Better for it to be early than to have it happen later when everyone has invested quite a bit in your company and it creeps into your future.

Speak about share distributions, the diluting process, who gets to vote, who doesn't and vesting. This could be the last exit, and you could all agree to go separate ways. It's probably smart not to invest too much more time until there is a good legal structure underneath your startup.

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Choose a corporate structure to optimize your short-term tax implications

To form a company, either a lawyer or an accountant can help you talk through the benefits of each type of corporate structure, e.g. S Corp, C Corp or LLC. One of the most important things is the tax implications in the first two years of your startup. Decide how you want to be taxed, and this will determine the type of company you will be building. Tax implications are often more important than where you decide to incorporate (although most startups do end up incorporating in Delaware).

Deduct company expenses from your income. Any tax money you save becomes capital you can use to invest in your company. A tax professional can give you a better idea for your specific needs. Make your expenses clear. Separate home office expenses from personal expenses.

The attorney can put additional paperwork on top of your now formed structure to determine the collaboration agreement among your other founders. This would have implications if you get venture funding, but once there is external funding, the cost of changing the corporate structure to fit the venture capitalist agreements will be negligible. This is often included in the cost of closing a round, so worry about the immediate tax implications first, and adjust to your future investors' preferences later.

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Don't feel guilty when it comes to using your unique advantages

While most startups lack cash to pay vendors and accelerate growth, some founders, especially those that are working professionals, may have quite a bit of cash flexibility. While you might want to preserve capital, when you have cash, spending it wisely really does accelerate your progress and elevate the quality of your product if you get the right people to work for you.

If you are currently a student, you can get a lot of free help from classmates and you should plan to engage as many people as possible in your circle while in school. Though most people are not as driven as you, they want to feel like they are part of something exciting that could become big one day.

These are examples of obvious advantages you may have. The key is to look deeply and honestly on every potential advantage that you and your co-founders have and maximize its use. Only by fully exploiting your unique advantages are you on par with everybody else and going forward. You will be playing a game of recognition of opportunity and tailoring your strategy to optimize them. You should play all your trump cards as early as possible because they will get you more connections and opportunities. In turn, you will be rewarded with more trump cards that will get you further along.

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Business plans should be bottom-up, not top-down

People with professional experience of making business plans for larger businesses often make the mistake of talking about the size of the market. This is a top down approach and it is a waste of ink and paper. A startup is certainly not in a position to take any percentage of any market since your biggest struggle is to exist at all.

Your business plan should be based on what you believe you can realistically achieve with actions your team will perform to get to quantifiable success. If you are thoughtful about the tactics you can chain them together to achieve your short-term and medium-term goals. Then it may be inspiring to talk about the larger macro climate and discuss how you could be a big player in a big market somewhere down the line.

However, even if you have your eyes on changing the healthcare industry, you still have to show in your business plan how you can win your first 100 customers.

As for the long-term outlook, it is more important to show what you have in common with other startups that have made it to the big time with huge adoption, rather than straining to justify why you can capture 4.6% of a billion-dollar market with a PowerPoint slide.

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Don't put anything in your terms of service you wouldn't talk about in public

Think of your terms of service as a deal you are offering your customers that they can accept or reject. The norm on websites is that you either automatically agree with the terms or need to check off the box before using the site. This seems like you could add any terms you wish at any time to benefit yourself. Don't do this.

Make this deal you are offering fair, mutually beneficial and most importantly, comfortable to you. You should never translate something you are not comfortable asking in person onto a legal document.

Experienced lawyers will always find ways to maximize protection for you without compromising the deal you are making with the users. Before you speak with one, write out the gist of the deal in terms you can understand. Discuss feedback from your first customers in person and a viable skeleton of your terms of service and privacy policy will emerge. As a bonus, you may want to put a summary of your deal in human-readable terms on your website as well.

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