This is a digest and recap of highlights, quotes, and comments from articles and discussions posted on this date on the Applied Entrepreneurship, LinkedIn group site.
*Top 5 Mistakes in Forming Your Corporation by Brad Sugars
“While some owners think incorporation is only for “big” companies, there are a number of reasons even “small” entrepreneurs should think about incorporating, mainly from the standpoint of personal liability protection.”
“While the number of sole proprietorships outnumbers corporations, most of those entities exist by default–meaning the owners have taken the easiest and least expensive road to getting their businesses off the ground.”
“What those owners fail to see, however, is the downside of having all of your “business eggs in one basket,” and many are just a lawsuit away from losing every asset in their name–including their home, cars and any personal or investment savings.”
“While forming a corporation or LLC is less expensive and easier than ever before, here are some things to avoid to get your corporation off the ground.”
- Incorporating without getting the advice of a good CPA
- Thinking the corporate veil gives you unlimited liability protection
- Incorporating, then operating without getting the proper local business licenses
- Incorporating and then not filing periodic paperwork or taxes as required by your state
- Incorporating without sufficient capital
“Getting sound financial and legal advice may up your cost of incorporation… but in the long-run, the costs of doing things right pale in comparison to the hard costs of being in the wrong type of corporate structure. Or worse yet, finding yourself subject to fines and penalties you never knew existed.”
*Entrepreneurs’ predicaments illustrate role of lawyer by Stuart Adams
Entrepreneurs can sometimes see only a golden opportunity or irreversible disaster on their horizon because of a lack of perspective. In many such circumstances they might benefit from an attorney’s impartial counsel.
Entrepreneurs, like all of us, sometimes get too close to a situation and can’t see the forest for the trees. An impartial professional can be an invaluable ally in achieving success or avoiding disaster.
Good and bad deals come along every day. When one crosses your path, it’s easy to lose perspective and jump on impulse. Taking the time to thoroughly analyze the opportunity with trusted advisers can spell the difference between fortune and disaster.
*Change Aversion – Coming to Terms by Dr. Earl R. Smith II
“Many people see it as stepping from the known to the unknown. However, the only way that you can see it this way is to ignore that change is an unavoidable part of your every day. You are changing all the time. Therefore, the question is not whether or not you will change but how big are the steps you are ready to allow yourself to take. Your personal growth depends on this very decision.”
“Stress over change comes from two sources. The first is the process of change itself – you have to pay attention to what is becoming the new ‘reality’. The second is the apprehension that you bring to the process when you contemplate changes at your upper level of tolerance. Your ability to come to terms with change and grow will depend on how comfortable you can become with the first apprehension and how much you can reduce the second.”
“It is a truism that there will be no growth without effort. Change and the challenges that it brings is the common denominator. Your approach to change and ability to achieve the correct balance will define your life as much as any other factor – and much more than most.”
*Building a Strategy Pyramid by Tim Berry
“I came up with the strategy pyramid, which made it possible to track implementation and work on strategic alignment. We used it to build a database of business activities that we called “programs” and track them back up through tactics and strategy.”
“You can use the strategy pyramid in your own planning. Focus on three or four main strategic priorities and build a conceptual pyramid for each one. Don’t sweat the details like definitions of strategies and tactics; just make it work for you, in your business, with your pyramid. Do sweat the details like making programs with specific responsibilities, budgets and projected outputs when possible.”
“Remember, good business planning is nine parts implementation for every one part strategy.”
*Assumption is the Mother of All … – Lessons for Young Wannabees by Dr. Earl R. Smith II
In any logical structure, there are key assumptions that, if overturned, will result in the total disintegration of that logical structure. In philosophical terminology, these are ‘synthetic judgments a priori.’
These assumptions are taken as given without question. Examples might be ‘god exists’. ‘I am alive’ or ‘today is the day after yesterday’. However, if these assumptions are proven false, the entire structure that has been built upon them crumbles and falls.
1. Question everything
2. Particularly the most important assumptions
3. Accept nothing as true
4. Unless you have drilled down to bedrock
5. Blind faith is religion
6. Business is validating and debunking
7. Debunking is as important as validating
8. Fools accept – professionals validate
“Remember: in business, it is much more important to be successful that to be right. Business is not about demonstrating the inherent correctness of your belief about reality. It is not about validating your assumptions about reality. It does not give you an opportunity to ‘change the world as we know it’. Business is about connecting a value proposition that can be delivered on with a set of customers who recognize the value of that proposition and are willing to pay an adequate price for receiving its benefits.”
*Beware the ‘Shiny Stuff’ Seduction by Luke McKinney
“Equipping a new office is a fine line between being on Wall Street and a kid in a candy store: you don’t want your brand new business to fail because of penny-pinching, but every cent spent is taken out of the pile keeping your company alive until it’s profitable.”
What questions should you be asking every time you’re about to be invoiced?
- What You Need, Not What You Want
- Don’t Be Ready For Everything
- Time Is Money, But How Much?
- Counting the Concealed Costs
You can’t plan on things working. You have to know what to do when things go wrong, and if you didn’t already know that you should reexamine your business plan.
*Drafting Trouble-Free Social Media Policies by James Wong
“In just two years, social networks have grown from little-known, niche Web sites to popular super-sites on Web. For many company workers, signing on to Facebook is now as much of their morning ritual as the Starbucks latte or checking out the sports pages. Rumor has it that Bill Gates spends 30 minutes per day on Facebook; and President Barack Obama twitters.”
“Meanwhile, in legal departments across corporate America, social networks are under the radar, either because general counsels believe that existing policies are sufficient to manage risk, or worse, they believe what employees post onto social media poses only minimal risk to the corporation.”
The risks presented by unfettered communications on social networks are serious, pervasive and increasing. Existing policies are unlikely to cover evolving situations, but even assuming existing policies are in place, enforcement can be problematic.
“In the area of intellectual property: too much sharing by engineers could jeopardize claims for patents or trade secret status; uploads may infringe copyrights; and the company’s trademark may be misused, for example, on worker blogs that complain about the company’s workplace practices.”
“In securities: misleading statements made by persons with knowledge of the company may be construed as securities fraud; bloggers may make statements during a company’s “blackout” period; bloggers airing a corporation’s dirty laundry on a blog or forum may run against the company’s view of disclosable events.”
“HR departments may go to social networking sites to research job applicants. However, there is a danger that they may gather protected information such as race, age, religious backgrounds, etc., that may expose the company to anti-discrimination claims.”
“Counsel need to create, adopt and enforce policies that reduce risk without causing bigger problems, like resistance from colleagues. Companies may find their policies posted on the Web, dissected and criticized by the general public. So the creation of policy itself becomes risky.”
“One of the most difficult aspects of formulating policy will be enforcement. Significantly, there are numerous federal and state statutes protecting employee speech rights in the workplace, including those that shield whistleblowers. Garden variety review and termination provisions may not be enforceable.”
*Harness the Power of a Trademark by Tamara Monosoff
“In the inventing world, a lot of attention is paid to patenting. Often overlooked is the power of a trademark–a wonderful tool that can provide an incredible value when it comes to protecting your product or brand name.”
“A trademark can become one of your company’s most important and valuable assets. For example, consider all the brands you know, trust and prefer. These trademarked names have immeasurable value, and they’re protected. You couldn’t open up an ice cream shop in your town and call it Ben & Jerry’s without a quick visit from a powerful lawyer.”
“One important thing to know about a trademark is that you should begin using it immediately, prior to the formal application process. And keep detailed records regarding the date the mark is first used in commerce; this is of critical importance when filing the trademark application paperwork. Additionally, by placing the trademark symbol beside your product or service name, you acquire some common law rights. This varies from state to state.”
*How to Value Your Startup by Asheesh Advani
“Entrepreneurs need to put a value on their startups in order to raise money, and investors need to put a value on their investments to generate liquidity. Since neither entrepreneurs nor investors are known for right-brain artistic thinking, this article aims to provide some tips for left-brain thinkers to make sense of startup valuation.”
“If investors are telling you that your startup is worth $1 million, then that’s what it’s worth.”
“If you’re not profitable, your business probably isn’t worth very much.”
“Be careful about overvaluing your startup with faulty assumptions; it will only make your life more difficult-particularly if your investors have governance rights, such as positions on the company’s board.”
“Much like artists, entrepreneurs need to use creativity in valuing their startup businesses. Traditional approaches to valuation based on book values and P/E ratios are akin to painting by numbers.”
What I Think
I think the relatively broad range of articles posted on this date provides a nice primer for first time entrepreneurs and validation for experienced entrepreneurs as well. Brad Sugars’ article, Top 5 Mistakes in Forming Your Corporation, makes the point that sometimes doing things right from the beginning may cost more, but it can save many times that amount in the long run. Many first time entrepreneurs will try to save money by cutting corners on hiring the proverbial “trained professional” to help with critical steps in the process of taking the start-up to the next level.
Although Sugars’ article mentions only fines, penalties, and tax consequences, Tamara Monosoff’s article, Harness the Power of a Trademark, should also give clues about the danger of losing a valuable trademark or service mark. James Wong’s article, Drafting Trouble-Free Social Media Policies, should likewise give some insight into the dangers entrepreneurs face by ignoring the opportunity to obtain professional counsel on issues such as creating employee policies. A slip on either side of the proper path can be extremely costly in many ways, including legal fees greatly in excess of what the entrepreneur would have paid to obtain correct advice to start with, let alone judgment damages imposed by a court.
Luke McKinney’s article, Beware the ‘Shiny Stuff’ Seduction, teaches us to watch the fine line between spending valuable start-up resources on those things which seem important or desirable, and those things which actually are essential. Too many first time entrepreneurs think they know what they’re doing when they attempt to start their first business. Unfortunately, I’ve seen many an MBA and highly compensated executive fall flat on their face when starting their own company.
If starting a business were easy, everybody would be doing it successfully. Many try, but figures from the SBA and other sources indicate the success rate is relatively low. Much of this failure is based upon the entrepreneur not doing adequate research or being underfunded. Sadly, many first time entrepreneurs simply don’t know what they don’t know. Since the devil is often in the details, it makes sense to find a mentor or professional who can guide you through these difficult day-to-day challenges. Until you’ve been down the often circuitous road of entrepreneurship, it is way too easy to miss a step or take a fork in the road, only to end up in the unhappy land of the “wannabees.”
If you enjoyed my impression of these articles, why don’t you read them for yourself and see what you and I missed or hit? Join the Applied Entrepreneurship group on LinkedIn. Membership is free and I try to post about ten articles a day there. We have some great discussions going and if you are an entrepreneur, we hope you will join us.