Phase one: Establish a company
Test your idea, build a team and get a business plan together.
Your role as a spectator who merely watches as other adventurous souls launch their own startups is about to end. The decisions you make at this early stage of the game will do much to shape the long-term destiny of your venture.
The tools you'll need to make a go of it include a whiteboard for brainstorming, a cellphone with loads of minutes, a new credit card and some simple accounting software, like Intuit's QuickBooks. Most important, don't procrastinate. If you don't act on your burst of business insight, someone else surely will.
$$$ required: $15K to $25K
Step 1: Stress-Test Your Big Idea
Objective: Debug and perfect your business brainstorm.
You have a brilliant idea. It's shrewd. It's timely. You think about it so much it keeps you up at night. It might even make you rich. There's just one thing left to do: Make sure it really has legs. The only way to do that is by bouncing your idea off as many people as possible. Friends and family probably can't provide the critical insight you need. Track down at least a dozen people with expertise in the market you intend to enter. You want candor and honesty, not diplomacy. Understanding why your idea is flawed is as useful as knowing that it's pure genius. Many will likely express support, but the real question is this: Would they pay money for your proposed product? Use each conversation to sharpen how you explain what your company will sell -- if you can't describe the product clearly and concisely, how can you possibly sell it? Finally, before saying goodbye, always get the name of another person with whom you can discuss your idea.
Step 2: Build Your Founding Team
Objective: Join forces with other execs to navigate the challenges ahead.
Starting a company isn't just a full-time job; in many cases, it's three full-time jobs. The ideal founding team is a triumvirate that includes an ace technologist, a big strategic thinker, and a dealmaker who focuses on sales and marketing. Although everyone must have relevant industry experience, a good Rolodex, and the willingness to wear many hats, trust and good judgment are the most essential ingredients. Expectations should be clearly laid out, and the founders' financial interests should be mutually aligned. "You need to feel confident that your co-founder will fight for a deal as hard as you would," says Dan Gould, co-founder of online news aggregator Newroo.
It's tempting to partner with good friends, but that's not necessarily a pathway to success. In fact, it's dangerous -- under the stress of running a business, your friendship will surely be tested and quite possibly destroyed. Instead, when searching for a partner look for these qualities: Loyalty to the business idea, honesty, versatility, connections that can attract talent to the team, and the ability to be flexible in the face of changing circumstances.
Step 3: Draft a Business Plan
Objective: Map out the market and explain how you fit in it.
A business plan is neither a core asset nor a sacred text. It's just a tool to help focus your ideas and a conceptual summary to share with potential investors, advisers, and employees. The business plan sells your vision for the company: why it's viable, why it's better than anything else out there, and why your team has what it takes to make it happen. It should also detail key factors that relate to the company -- target markets, goals, product attributes, revenue projections, competitive differentiators, and founders' resumes.
Visit the Small Business Administration's website or Bplans.com for an overview of the structure and components of a typical business plan, as well as links to dozens of sample plans. But the most important thing is a well-honed executive summary that's no more than three pages long. Grab the reader's attention by starting with a simple two-sentence description of your company and what it will do. (Rest assured, you'll use those two sentences often.)
And be sure the most common business plan mistakes. Don't ask potential investors to sign a nondisclosure agreement. (It's a rookie move. Besides, they won't sign anyway.) Don't spend too much time describing the market -- instead detail how you plan to dominate it. Don't make wildly optimistic projections -- nothing will get the door slammed in your face faster -- and don't exaggerate your experience. You'll be found out and your credibility destroyed.
Finally, no matter what, don't fall in love with your business plan -- it'll change many times in the months ahead.
Step 4: Play the Name Game
Objective: Give your startup a handle that works.
What's in a name? Plenty. It will make a first impression, carry brand equity, and provide a foundation for every marketing effort you'll ever launch. Naming gurus like David Placek of Lexicon Branding argue that startups should look for names that are either simple and easy to understand (like Salesforce.com (Research)) or quirky and memorable (like Google (Research)). Some names combine the two: Narendra Rocherolle settled on 30Boxes, an easy-to-remember name for his calendaring startup that also alludes to a monthly datebook.
But creativity is only part of the naming challenge; there are legal concerns as well. Before you become attached to any name, check the U.S. government's trademark website to make sure no company serving an overlapping market has staked out a similar moniker. You don't need a lawyer to file a trademark of your own, but the $500 to $700 you'll spend for a professional trademark search -- from a company like Thomson CompuMark -- is a smart investment before you sign papers that make your name official.
Step 5: Incorporate Thyself
Objective: Adopt the corporate form that's best for your growth plans.
Your startup may consist of just a few warm bodies crammed into a living room, but you still need to establish it as a legal entity. A formal corporate structure solidifies the standing of the founders and provides potential investors with the assurances they need to participate in the company's financial evolution. Incorporation also provides tax benefits and all-important liability protection. Hire an experienced lawyer who specializes in setting up startups -- many will even defer payment until the first round of financing. If your lawyer likes your business plan, he or she may also become a crucial source for later introductions.
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