Create the Company
In this lesson, we’ll explain important things that you should keep in mind in the initial stages of building a company.
You have the idea and you have chosen to go solo or build a founding team. What is the next step ? When is the best time to incorporate?
The lawyer’s point of view
Incorporate as early as possible.
1. A written official founders’ agreement helps make things clear and avoid fights between Founders.
2. Get the Value Added Tax (VAT) back from all your business expenditures on goods and services.
3. Outside investors and accelerators will require the company to be incorporated.
4. Personal liability protection : don’t contract a debt under your own name.
5. You want to hire employees and sign a contract under a company name, not your own name.
6. Keep the intellectual property safe and sound.
The lean startup expert’s point of view
Incorporate as late as possible.
1. Don’t waste your time and money on paperwork and lawyers. Focus on making a product or service people want.
2. Personal liability at the very early stage is very low. Simply avoid contracting a loan!
3. Some benefits (free co-working space from your city, startup competitions) apply only for early stage startups with less than 2 years of existence.
5. Avoid wasting your time preparing and filing public company reports required in your country or state for your business to be registered, or losing your money to an accountant.
The best time to incorporate your company depends on each situation, but you now have the keys to make the right choice!
Find a name
Once you’ve decided that you want to incorporate the company, you will need a business name. Although you can have a brand name that is different from your business name, those situations usually depend on historical reasons, and it’s simpler to avoid extra creativity work. So, if you want to develop a brand, your name will matter. Some characteristics of a great name:
1. You can pronounce it
2. It’s (relatively) short
3. It’s straightforward
4. It’s easy to remember
We can add many more nice-to-have characteristics like having a “verb potential” and so on. Don’t fall into the trap of overcomplicating the name so that it sounds original.
You can use an online tool to help you find a business name, or you can alternatively outsource your business name creation by creating a contest.
Check the further readings part of this course for some links of business name generators and name contest websites!
Find a logo
Once you have a business/brand name, you might be willing to start defining a brand identity: logo and business cards for instance.
Our advice at MyLeanMBA: don’t spend too much time on it as this is rarely the top priority. It is wiser to dedicate time once you have fully validated your product/market fit and you are going to enter into a growth phase.
If you DO want to design a logo yourself, you can use a graphic vector tool like Sketchapp, Autodesk Graphic, Inkscape or Adobe Illustrator. But chances are that you will need external help for that, and previously mentioned freelancer websites like fiverr, upwork, and 99designs are a great choice.
We will provide you with a list of tools in the further readings part of this course.
Find/buy a domain
Nowadays you NEED to have an online presence, even if you’ve chosen to build an offline business (local store for example). You WILL have to register a domain name at some point. Let’s see how to do it and how to avoid common mistakes.
Register yourself as the owner of the domain name
Let’s illustrate this point with a real story.
Three years after Graham Hunt, 44, started his real estate firm Valencia Property in Spain in 2000, the two-person web design team he hired to build his site split and he had to choose between them. Hunt soon discovered the partner he didn’t choose had registered himself as the owner and administrative contact for the domain name, so Hunt didn’t own his own website. It took three years and he ended up paying the disgruntled partner nearly $6,000 in sales commission fees to get back ownership of the domain, which originally cost just $15.
Remember to renew your domain name registration
Another story (published first in Entrepreneur magazine in December 2013) highlighting this point: When Nick Hoffmann, 32, missed the renewal of his networking company’s domain name inetguru.com in 2000, it was a crippling business blow. The name got bought by someone else and without email access through the site, Hoffmann lost contact with clients. Eventually, he folded the company. Now working as chief operating officer for an aftermarket marketplace for domains, Hoffmann suggests buying a registration for five or 10 years upfront, or setting up an annual auto-renew payment. Just make sure the credit card on file doesn’t expire, another common mistake that might lead to losing a domain name. “The whole aftermarket industry is based on names that drop off,” he says. “It happens every day.”
Check if your website name does not infringe a trademark
If you want to avoid receiving a cease and desist letter from the trademark owner’s lawyer and following legal costs, check first that you don’t infringe on a trademark name. You can use TMview (link provided in further readings) for that purpose.
Find a coworking or office space
One natural question you will have is where you are going to work. If you’re not in a situation where you live at your parent’s place and can make some room in a garage to invite friends/co-founders over to work with you, what should you choose?
Work from home
Working from home is often the first choice of the budding solopreneur. It has the advantage of being the cheapest option when starting a business, it has zero commuting time and you’re at ease… Maybe too “at ease” sometimes? Make sure you have a dedicated space for work and plan your day. The high risk is not being productive enough. If you see your productivity fall, and you can’t work more than 8 hours focused 100% on your startup, then you SHOULD at least give a try to coworking spaces or public libraries.
Ann Jordan-Mills, a writer and editor from Alberta, Canada, says:
“I work exclusively in my home, where I have a spare bedroom set up as my study. I have a stand-up, sit-down desk that sits on top of my regular desk. I also have a treadmill desk in my developed basement. My view is tall poplar trees that I watch through the seasons (no leaves yet), and my company, to date, is a couple of squirrels that romp in the trees.”
A recent study by Ravi Mehta of the University of Illinois at Urbana-Champaign found that a moderate level of noise can actually benefit people who are working on creative tasks. Home office workers can simulate this level of noise through tools like Coffitivity.com, which help you to experience a moderate amount of background noise.
Work from a co-working space
A coworking space can be an excellent choice when working solo or even with a small team. You can rent a desk by-the-hour or per month, and benefit from a working environment as well as amenities (coffee, vending machines, kitchen, scanner/printer…)
Find a lawyer or accountant
In the process of incorporating and during the whole life of your company, you will need legal advice. You can of course find tons of information online and you can prepare and file paperwork yourself. Hiring a service from a lawyer can be very expensive, and you should compute the following:
legal cost when hiring the service
number_of_hours_you_would_spend * your_own_hourly_opportunity_cost * risk_factor * learning_factor
where the risk_factor>1 is a multiplying factor coming from the fact that you will probably not do the job as well as a lawyer would do it, and this implies potential risks for your business (legal issues, more time lost if you need to file the paperwork again, etc.)
The learning_factor is a multiplier between 0 and 1 and means that you are learning things when you do the work yourself and that’s important (especially when you’re the CEO) to be able to understand how your business works.
The hourly_opportunity_cost is something you should always have in mind. Preparing and filing legal paperwork is not core business and is something you could definitely outsource. If you want to do it yourself to learn, that’s totally fine, but you should know how much one hour of your time is worth: how much money would you (statistically) bring to your company if you were selling your product/service during one hour?