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Startup Launch: 5 Prep Steps Before You Take the Leap

There’s nothing like jumping off a cliff to make you feel alive — it’s the landing that’s the tricky part.

Make the leap at the wrong time, or let your nerves get the better of you, and you just might find yourself hanging from the edge by your fingertips, or worse yet, SPLAT!

Plunging into your own startup venture can be no less of a risky endeavor. As with any decision, preparation and strategy can help minimize the risk, as well as alleviate some of your anxiety. One of the most important aspects of your startup’s initial success is having a thorough and well-organized plan that maps your company’s direction as you launch.

To help you with the planning, here’s a list of vital to-dos before you take the plunge:

1.    Soul Search.

A great idea isn’t enough to build a successful business, just like the desire alone for a gold medal won’t get you on the winner’s podium singing your national anthem.  Whether you are jumping into an entrepreneurial venture or off a springboard in pursuit of Olympic gold, diving is physically and mentally demanding, requiring stamina, agility and flexibility.

Entrepreneurship is a full-time, all-consuming enterprise. Before going all-in, consider whether you’re really ready to create and captain a fledgling business by asking yourself some critical questions:

Do you have the time? Starting a business is like having a new baby – it is a 24/7 endeavor.  You need to be prepared for the long days and nights necessary to nurture your business in order to set it on the right track for growth.  If you cannot invest the time right now, then consider delaying your launch until your personal, professional and financial houses are in order.  Being fully available to your new venture will enhance your chance of success.

How deep are your pockets? You’ll have to be prepared to live without a steady paycheck and benefits while you get your new business off the ground. Ensure that you have the means, as well as the discipline, to weather this period of austerity while you bootstrap your business in its early salad days. In order to do so, time your launch to align with your personal financial situation.

Do you have the moxie? Launching a startup will take more than just business know-how and money. Becoming an entrepreneur requires mental and physical resilience bolstered by a good social support system. You’ll be challenged to keep a cool head as you manage moments of great uncertainty. The way to calm those knocking knees while you’re standing at the edge is to take a deep breath, focus and persevere, never losing focus of your goals.  Plan to stay healthy and have a little fun while enjoying the thrill of jumping off that cliff.

2.    Find Funding.

It takes money to make money. Keep these questions in mind as you determine how much capital you will need to launch your startup without a hitch:

How much will it cost and how soon can you fund? Spend time and research to come up with an estimate of the initial cost of launching your startup. Once you do that, draw up a timeline. Given your current personal finances, how long (if at all) can you self-fund? How long will it take to save the money? Will you have to raise startup capital? Are there any time-sensitive factors to consider that shorten the runway for launch? Regardless of the scenario, you’ll have to estimate how long it might take to acquire the appropriate capital. Be realistic – raising money always takes longer than you think, so start sooner than later.

Who or where will the funding come from? Once you’ve established a timeline, you’ll have to decide how, or from where, to get the money–especially if self-funding won’t get you to your first milestone. Seeking a loan from your personal financial institution might seem like a logical first step, but it is not a realistic one for all startups given the risk adverse nature of banks (and the likely need for additional loan protections and personal guarantees). Depending on the initial cost, you could look to Friends and Family or seek funding from Angel Investors or Venture Capitalists. You also should weigh the pros and cons of debt vs. equity financing. Do you seek equity financing and sell shares of your company to investors, or do you take in new debt investment that must be repaid with interest?  Consult with your legal counsel and financial advisors to determine which financing scenario makes the most sense for your business.

Why should they gamble on you? If you can’t self-fund, then start developing tools that support why your business concept is valuable to investors and how the financing will affect your company:

  • Research your market opportunity and develop a business plan that describes what you plan to do with your business and how you plan to do it. This document should begin with a concise executive summary, clearly setting forth the potential of your business and what you need from investors to achieve your goals.  Ideally, it should entice them to delve into the much more detailed information in the business plan that follows. Your plan should present a well-researched and annotated description of the present outlook of your industry as well as its future potential. Describe your product and services and what sets them apart from the competition. Most importantly, explain the factors that will make your business successful, as well as why additional funding will take it to that next milestone or next level of profitability.  In order to present your case, your plan should include, among other things, a detailed market analysis, as well as highly targeted and competitive distribution, pricing, marketing and promotional strategies providing an indication of the growth potential within the industry. You also should describe the proprietary “secret sauce” that makes your company unique or provides commercial advantages. Last but certainly not least, your plan should have realistic financial statements, including cash flow and income statements and a balance sheet in order to provide an accurate depiction of your company’s current value, viability and future ability to meet its technical and commercial milestones. These financial statements will be closely scrutinized by potential investors as they consider the odds that your company will survive and continue to thrive with an influx of needed capital. Your financial analysis also will reflect on your professional competence, so take a balanced and thoughtful approach.
  • Build a strong online presence that includes a website and social media that tell your company’s story.  Unless you are in stealth mode for strategic reasons, an online presence will help bring attention to your business, and hopefully catch the eye of potential investors. Every detail matters, especially how you are perceived in the marketplace.
  • Run financial models using different financing scenarios to predict how the financing terms and dilution could affect your control and ownership as you raise money.   Models allow you to understand how the terms of proposed financing will affect your company’s equity capitalization table and resulting stock ownership after the financing is complete. They are a great way to test drive the terms of a prospective investor’s offer with your eyes wide open before you commit to anything that you may regret later on and can’t reverse.
  • Finally, keep all of your company’s documents in a virtual folder to stay organized, ready and accessible, both for yourself and your investors. As you generate interest in your company, you can use this document cache as a due diligence data room where investors can see the primary source details of your startup.

3.    Bring On Co-founders That Complete You.

Unless you’re going it alone, building strong relationships with potential co-founders could be the key to making your plan come together. We’ve blogged about this in the past, but here are two questions to keep in mind when considering prospective partners:

What do they have that you need? An ideal co-founder must be a smart match for you in skill and personality, which often means someone with complementary traits and experience to your own. They’ll have to understand what you want for the company and be a good fit for its needs and culture. It is also important to identify candidates who share your vision, values and work ethic in order to keep your business focused on success, rather than diverted by infighting. Find out what a potential co-founder is bringing to the table by asking tough questions and evaluating their responses accordingly.

What can you do to ensure they walk the walk? Retain experienced startup counsel to put the proper contracts in place with your co-founders, in order to lock down the intellectual property that each of you is contributing to the venture while protecting proprietary information and invention assignments after your launch. Additionally, establish stock vesting to align your co-founders’ equity ownership with the long-term goals of your company. Stock vesting ensures that your co-founder(s) are personally invested in the success of your startup and will continue to strive for success as they earn the full value of their equity interest. In addition, stock vesting can help prevent early departures from your company, which could knock your trajectory off course, or allow you to recover unvested stock and keep the sweat equity properly allocated.

4.    Work With The Right Advisors.

As a general rule, focus on what you do best and enlist advisors to do the rest. Spend your time where you provide the most value, such as the development of your technology, and leave the bookkeeping and lawyering to those who have those specialized skills. Finding advisors with the right experience can expedite the launch of your company and provide invaluable advice as you grow.

Take a thoughtful and sophisticated approach in your search for advisors. This is not the time to rely on one recommendation from a friend or save a few bucks by using your retired Uncle Fester. Worse yet is using a finder improperly when you are seeking funding, and this is why.  You want to find advisors who actually have “been there, done that,” particularly with regard to the startup arena.  Invest the time in identifying a reputable community of experts which includes attorneys, accountants and tax advisors who understand the practicalities and pitfalls of the startup journey. Your vetting process should include asking for references and interviewing your prospective advisors in order to ensure that their experience and focus match the needs of your startup.

5.    Exit Gracefully.

Admit it. You have fantasized about having a Jerry Maguire moment, standing in the middle of your office, clutching your lone goldfish in a Ziploc bag, and crying out, “Who’s coming with me?!” As tempting as this scenario might be, this fantasy is not the first step to take If you want your venture to have a Hollywood ending. When you determine the best time to leave your current place of employment, suppress your inner-Tom Cruise and be tactful and cautious. While it might be tempting to ride out in a blaze of glory, it’s much better practice to not burn any bridges. Consider these rules of thumb before and during your departure.

Be Respectful. Your word is your honor.  Respect any legal obligations to your current employer, including those involving intellectual property ownership, confidentiality, proprietary information and/or invention assignments. If you play by the rules and handle your departure with class, then you will not only maximize the possibility of maintaining a good relationship with your soon-to-be-ex-employer, but you might be able to leverage that respect into their support of your new venture.

Be Smart. Now is the time to lie low at work about your plans to launch your new business. Don’t use work materials or operational systems from your current job, including your work computer or company e-mail address, when laying the groundwork for your startup. Unless you are a champion limbo dancer, you do not want to risk having your employer lower the boom because they have discovered what may be perceived as your traitorous plans being hatched on company time. Moreover, your actions could open the door for your current employer to claim ownership rights in the ideas and intellectual property of your new venture. You want to announce your departure based on your own timing, rather than be forced into a premature launch that sends you on a rocky path.

Be Discreet. Be careful about discussing your business plans with co-workers, and/or asking them to immediately join your new venture. Doing so places you at risk of being accused of stealing employees in violation of any non-solicitation provision in your employment contract.  Let some time pass and follow the rules. The right co-workers eventually will find their way to your company and be sure to consult with legal counsel for especially sensitive situations.

Are you now ready to take that entrepreneurial leap?  In the immortal words of Jerry Maguire, “this moment will be the ground floor of something real and fun and inspiring and true.”  So, go make it happen! A little forethought and planning will go a long, long way to putting your startup on the path to success.

 

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