Company TBD

From time to time, I catch up with ex-colleagues in the corporate world and the typical reaction when I talk about working on a startup is “wow” or “must be great being your own boss!”.  You know what?  Yes it is nice and rewarding…but building a startup is hard.  Really really hard.

Given the economy, lots of corporate people are taking the plunge and trying their hand at a startup – which I think is fantastic.  I believe that is the only way for us to get out of this recession, we have to invent our way out of it.  See Friedman’s article in the times about this here.  But I digress…

I started thinking about how difficult the transition was for me and I thought I would share my tips for others who might want to make the jump.  So if you are considering taking the plunge (and I hope most people do), do it – with your eyes open.

My top tips:

1. Prepare to roll up your sleeves: Don’t expect an analyst to do your dirty work – you ARE the analyst…and the manager and the secretary.  Fact is most of the work at a startup is detailed, tedious and not glamorous.  Put away Powerpoint and Word.  You may be a Powerpoint or Word/Excel stud, but those skills are not relevant.  Pick up skills that will actually help build your product idea.  If you work for a software or web startup and have no programming experience, pick up a HTML and CSS book (or take online training).  Whatever the tools are to build your product, take the time to roll up your sleeves and learn them.  Even if you hire someone to do it, you’ll be glad you put the time into this as you’ll be able to manage them better.
2. Get close to the customer: Unless you are in sales, your ‘customer muscles’ have probably atrophied.  Sitting inside a large corporate machine sometimes makes it easy to get caught up in your spreadsheet or your specific project.  Take a sales class, volunteer for a sales role at your company or just ask your boss if you can go out and meet real customers.  Learning how to reach out to, listen and pitch customers will be a huge asset when you finally take the plunge.  You need to get used to pitching because you will always be looking for employees, customers, investors, partners.  Only 2 things matter in startups – customers and products.  Which brings me to my next tip.
3. Re-learn product development: You will be part of the product development team no matter what your title or role.  You should forget the corporate way to build products (conduct focus groups, put together a detailed business case, document requirements, develop detailed workplan, etc).  You will run out of money before you launch.  Instead, work in fast iterations.  Build an alpha version and launch to a select group of users.  Then listen closely..and repeat.  Most of the mistakes I’ve made are in this area – so I’ll point you to some real experts.  Read Getting Real from 37 Signals, and follow the blogs of Steve Blank and Eric Ries.
4. Figure out social media: Most corporate people have used Sharepoint or other Enterprise ‘collaboration’ tools, but social media is different.  Done correctly, it can expand your network and your learning.  You need to be on LinkedIn, Twitter, follow blogs, etc.  And not just read (or retweet) but actually be part of the conversation and contribute.  A workshop may teach you about Social Media…but I recommend just to jump in and do it.  And start your own blog (that is a learning experience in of itself)!  If you want a book recommendation on this topic, read Cluetrain Manifesto.
5. Re-learn Communication: Email does not equal communication.  Phone, Instant Messaging, Social Media are the preferred modes of communication.  “Be brief, be direct and be gone!”  That was a favorite saying of an old boss, but is very appropriate for startups.  Everyone has a full plate and you are fighting for survival everyday….forget about long ‘CYA’ emails or ‘he said, she said’ emails.  And lose the buzzwords, no one cares about ’strategy or core competency’.  There literally is no time for that.  Worrying about office politics or bureaucracy takes away from the real focus – customers and products.
6. Be Cheap! Really cheap.  You are probably used to staying at nice hotels and receiving per diems.  Forget that.  If you are not ready to give up some of your lifestyle, you are not ready for a startup.  Every dollar you spend related to your business should be scrutinized.  If it doesn’t directly lead to customers, think twice before you do it.  If you are an aspiring founder, adopt a cheap lifestyle BEFORE you leave your cushy job and save as much $$ as you can.  Getting your alpha product launched without worrying about chasing financing is a huge advantage.
7. Be careful hiring your corporate friends: Unless they have direct skills in either building your product or finding customers, tread carefully.  Even have they have the skills, committing to a startup lifestyle is a big change.  Many will not be able to make this transition.  That doesn’t make them bad or inferior people (you can still be friends with them!) but be realistic and understand that its not for everyone.  At the same time, if you have worked with someone directly, know their talents intimately and believe they are hungry and can make the transition, by all means bring them on board.
8. Park your ego: This one is for the middle/senior managers out there.  The worst thing you can do is say to yourself: “I used to manage X amount of people and was responsible for a $Y budget…and now I’m doing HTML”.  Its not about how many people you manage, or the how much money you can spend – it is only about customers and products.

There is no doubt that there is risk in making the transition from a corporation to a startup and many people will struggle.  However, if you are passionate about creating something new and solving a problem in the market, there is no more exhilarating, intense and learning experience that I know of.

Hope this helps and let me know your thoughts in the comments.  God speed!

One of the major early decisions founders have to make is selecting the right incorporation structure.  As I found out pretty quickly, this is not a simple decision.  While there are only 3 choices (C-Corp, S-Corp and LLC), the number of exception cases and ‘If/thens’ were making my head spin so I decided to simplify the decision.  A picture is worth 1000 words so here goes:

C-corp, S-corp or LLC

Caveat:  This is obviously a simplification and cannot possibly accommodate all of the various scenarios out there.  Thus, this is informational only (I am not a lawyer) and you should consult your accountant and/or attorney to discuss what is best for you.

The advantages of simplifying are so startups can focus on a few important questions to make this decision.  Turns out most of the questions revolve around financing and operating flexibility.

• Are you raising VC or Angel financing? If you’ve already decided that you’ll need equity financing from professional investors then your best bet is to go with a C-Corp.  This gives you the most ownership flexibility (no limit on shareholders, multiple classes of shares, etc).  From what I gather, most VCs will insist on this structure
• Not sure and want to keep all of your options open? The S-Corp allows you to minimize taxes and easily convert to a C-Corp in the future if you do end up raising money.  Think carefully about whether you want to raise money as there are a whole set of other implications (that’s material for another post though).  Note; the vast majority of startups are actually bootstrapped or funded by friends/family.
• Do you want to bootstrap or build a lifestyle business with minimal operating formality? Then an LLC is probably the best structure as it allows you to minimize your tax burden and has no formal operating requirements such as quarterly board meetings and filing annual reports.  However, if you change your mind and want to raise money than it will be more difficult and expensive (relative to a S-corp), but not impossible to convert to a C-Corp.

There are a ton of great resources out on the web on this topic.  Here are the ones I found useful:

• Post by Startup Company Lawyer.  Good overview of the different entities comparing taxation, ownership and other criteria
• Simple overview spreadsheet by Legalzoom
• NextNY discussion on S-corp vs C-corp
• How to choose right legal structure – article by Inc magazine

Hope this helps clarify the decision for some of you.  You are taking enough business risk with your startup, there is no need to add additional risk/complexity by choosing the wrong incorporation structure.

I would love to hear how other founders made this decision and any feedback on the above.  Now back to actually building a business.