WALKING ON WATER — AN ENTREPRENEURS GUIDE- Part 2 (The Beginning)

Chapter 1 — THE BEGINNING

This Article is part of a series of eleven articles from my book. You will find the links to the next feature article at the bottom of this page.

SKIP TO A PARTICULAR ARTICLE IN THIS SERIES

Part 1- Introduction
Part 2- The Beginning of a Business
Part 3- Planning and Goal Setting
Part 4- Act As If
Part 5- Financing your Business
Part 6- Investment Bankers
Part 7- Your Management Team
Part 8- Lawyers, Accountants, and Auditors
Part 9- Doing Your Homework
Part 10- Strategy & Growing Your Business
Part 11- Exit Strategies & Keeping Your Sanity

I Have an Idea — Now What?

That’s great! Every single great company has sprung from an original idea by one person. But do not think for a minute that you are the only one with this idea. The sheer fact that there are seven billion people on this planet means that at any given point in time there will be another one hundred people with the same idea. What sets you apart from the rest is your ability to raise money, to follow through on your idea to make it a reality, and the skills to stand out from the crowd. It boils down to motivation, perseverance, tactics, and a bit of humility every now and then.

There are four reasons why 98 percent of all new businesses fail within the first five years:

1. Your timing is off

2. You are underfinanced

3. You have the wrong team

4. You didn’t do your homework

Fortunately for you, you you are reading this totally free on Medium which is designed to convey not only my words of wisdom, but also provide examples, downloads, and reference material that you can use (free of charge) to get organized, raise money, and get you on your way to success. The goal is that by the time you have finished reading this series of articles you will have some key tools and the knowledge you need to make your mark as an entrepreneur. And hopefully, if applied right, the house advantage might just be in your favour.

Your timing is off

No matter how good your product is, and no matter how much money you raise initially, if your timing is off, you will fail. If there’s one thing you should have gleaned from the introduction of this book, it is that every time I started something new, it was in response to some market disruption event — the rise of mp3s and social media, and a power blackout, the pandemic etc. A good (and very old) example of this is PayPal. You see, PayPal didn’t start out as the world’s leading online payment system. In fact, the company floundered at first as a device-to-device payment system for Palm Pilots called “X”. At that time, the concept of a smartphone, iPhone, apps and mobile payment solutions for all of these was foreign to consumers. They didn’t even have debit card payments in those days. Almost bankrupt and out of money, PayPal, with the invention of the web browser, finally realized the potential of online payment systems for websites. This market shift allowed PayPal to become the success it is today, and kicked out Elon Musk in the process. And it is only now, decades later, that device payment solutions and crypto payments are realistic because the market and consumer mindset have both caught up to the technology. And now Elon Musk is dusting off his old “X” business plan from the 1990s and putting it into action. Timing is key.

You are underfinanced

When you start a new business, you will never be an expert until you have paid your dues and spent a couple of years running a company. So it is nearly impossible for an entrepreneur to know exactly how much money he or she will need to stage and launch a business. You can make an educated guess. But ask any successful entrepreneur, and they will tell you that whatever number you come up with, triple it. So if your budget is $50,000, you will most likely need $150,000. If you think you need $10 million, you probably need $30 million. It’s that simple. Now you can probably see why, even if you have $50,000 to start your business, you could run into trouble very fast — because you have no cushion to weather unexpected events. In later chapters, we will determine exactly how and what you need, and for which things you should use personal funds versus investor funds. I will also introduce you to what I call the 10 million dollar formula.

You have the wrong team

The interplay of you and the people who work with you can either make or break your business. I am not just talking about employees, but professionals, lawyers, and advisors. Companies have risen and fallen depending on who the founders have surrounded themselves with. There are a lot of terrible preconceived notions in venture capital circles. Not many people talk about it, but the bias is out there. Legendary investor John Doerr made a telling, offhand remark years ago at a venture capital conference. He observed that the “world’s greatest entrepreneurs” are almost all “white male nerds who’ve dropped out of Harvard or Stanford.” That really rubs me the wrong way, because my experience tells me that anyone, no matter what his or her background, race, religion, sexual orientation or even education can have a successful business. You just need to know your personal shortcomings and augment them with a great team. With the right combination, you will not only shine in the eyes of the market, but you will reduce your business risk by ensuring a higher chance of success. We are going to spend a considerable amount of time on this subject later in the book, because it is vital to understand who fits with you and your personality. What you need is your Dream Team.

You didn’t do your homework

This is one area where some of the biggest mistakes happen. Many founders jump at the chance of opening a new business, spending lavish amounts on new office space, retail decorations, signs, branding, and business cards — but not a single penny (or time) is spent on research. People are willing to believe their own convictions without actually considering the market forces at play, the real profit margins, the barriers to entry, and worst of all, they underestimate their competitors. This is probably one of the fastest ways to go bankrupt. I have spent hundreds of thousands of dollars on businesses that I have walked away from because I found a fatal flaw in the business model. We will delve into the details of what I do to identify these issues before you ever spend a single dollar on the business.

Who Are You?

The Ancient Greek aphorism “Know thyself” was inscribed in the forecourt of the Temple of Apollo at Delphi. What is true in ancient times is true today, particularly in business, because if you know yourself, you have already won half the battle. So, who are you? You might identify yourself with the word entrepreneur, but what type of entrepreneur are you? Maybe you are a skilled and talented producer of something that meets the needs of a particular marketplace. Perhaps you are good at leading and managing people. Furthermore, you might be able to tolerate risk and have a knack for identifying opportunities. Maybe you are a combination of all these attributes. What is important is to understand who you are so that the team you choose matches your traits, augments your talents, and is proficient in the skills you may be lacking.

In business, there are three types of distinct entrepreneurial personalities:

Artist/Talent — This is someone of extraordinary talent who consistently meets the needs of a marketplace.

Manager/Leader — This is someone who consistently and effectively manages and meets the needs of an artist so that he or she can consistently meet the needs of the market. Even though these people have management skills, they don’t necessarily have leadership skills.

Visionary — This person is the creator and holder of the vision, the person who attracts and effectively engages managers/leaders. A visionary entrepreneur has a high level of risk tolerance and is able to personally weather the economic and emotional ups and downs of the business. This person is willing to take on significant risk. Visionary entrepreneurs work with managers to create and build a business system that consistently empowers skilled producers and talented artists to meet the needs of the market they serve.

You might say that you have some or all of these traits, but there will always be one that stands out; this will be the one you lean toward the most. To figure out which one you are, ask yourself the following five questions:

1. Who am I?

2. What are my talents?

3. What do I truly love most?

4. What do I like doing the least?

5. Who else do I need to help me optimize my business results?

You might be starting out on your own, but there will come a time in the life of your company when you can no longer do everything. That means you will need to hire people to keep the business functioning and thriving from day to day. By answering the five questions to determine your strengths and weaknesses, you can also determine the type of person you need on your team to help you thrive and be a success.

How to Get Started

When starting a business, the first two things that come to mind are “How do I register a business?” and secondly, “How do I go about opening a business bank account?”

To answer the first question, find the website for your state, and then do a search for the department that oversees corporations — in the USA that is usually the “Secretary of State”. You can spend hundreds of dollars using a service, or just fill out the PDF and submit it online for a couple of bucks. You will find instructions for how to form various types of companies, but the most common are corporations, limited partnerships, and sole proprietorships. Rather than providing you the pros and cons of each of these business structures, I will make it very simple for you. You are in the game of success, and you are looking to raise money. There is only one type of company that you should form, and that is a corporation, also known as C corporation (not an S corporation). There are three reasons to incorporate your business:

1. You should always keep your business separate from your personal life, particularly when it comes to finances. You have to be under the assumption that you’re going to get audited by the government or the IRS. There is nothing worse than having a government auditor searching through your personal bank account statement on a quarterly basis and you needing to clarify private and personal expenditures.

2. A C corporation provides you some protection when it comes to liability. In this day and age, particularly in America, there are more lawyers than entrepreneurs, and chances are even if you become successful, someone will want to sue you at some point in time. A corporation is great because it limits the liability of the individual shareholder to the original investment. Now that doesn’t mean somebody can’t sue you, but it certainly is a better situation than if you were a sole proprietor with all your personal assets at stake.

3. Thirdly, and most importantly, by having a corporation, you can borrow from the bank, and you can seek out potential investors that might want to invest in your business. You can issue partial ownership (shares), which gives you a certain amount of prestige with clients.

Let’s tackle the next question. Where do you incorporate? In the United States, there are multiple options for incorporating your business. In fact, you can incorporate in pretty much any state. Each individual state government has its own office or Secretary of State to which you apply to incorporate your business. There are fees, and some states’ fees are higher than others. Generally, the best state in which to incorporate a company is the state of Delaware, which can be done even if you don’t reside in that state. Delaware has the most companies registered in America, and because of this, it has the most case law in relation to business disputes. More case law means more protection for you. There are two exceptions to this rule. If you incorporate in the state of Delaware, but you are doing business, for example, in New York, you will need to apply for a state license to operate your business. New York is notorious for expensive licenses and it can be costly to pay a fee in both Delaware and in New York. If money is a concern, incorporate within your state. Some states offer a license fee exemption if you meet certain small business requirements.

It is also best not to incorporate in Delaware if you are located in a zero state income tax locale such as Nevada and Florida. In Nevada, it makes more sense to incorporate there if your business will be located there to save taxes and avoid the $500 annual license fee that out-of-state corporations must pay to do business in that state In fact, if you incorporate locally you can qualify for the business license fee exemption for small businesses.

To summarize, you are going to form a C corporation in the state of Delaware, and you are going to get a business license in the individual state in which you plan to do business. Once you have your incorporation documents and state license, you will need to apply for an Employer Identification Number (also known as an EIN). It is essentially a tax ID number that helps the Federal government (the IRS) identify your company. You can obtain an EIN by following this link: www.irs.gov.

With these three items in hand, you are now ready to open your corporate bank account. Most banks will require that you bring all this paperwork with you to open a business checking account. These days many will accept electronic documents. My recommendation is you choose a startup friendly bank like Bank of America or Chase. Once you have done so, you will have successfully separated your personal finances from your business finances.

Following these steps can be a daunting task. If its a bit scary, I suggest you use a company such as the Delaware Registered Agent (www.delawareregisteredagent.com) or Biz Filings (www.bizfilings.com) as your one-stop shop to get it all done, inexpensively and fast. The nice thing about them is that not only will they help you search for, register, and secure your business name, but more importantly, they will also help you with the incorporation process and the individual state licensing and respective tax accounts that you will need to open up with the IRS and the state government. All the required documents will be FedExed to you in a couple of days. As your registered agent, they will monitor everything over the years to make sure you remain in compliance, file your taxes on time, and renew your licences annually.

If you are reading this book outside of the United States, there are equivalent companies in Canada, the United Kingdom, and pretty much anywhere in continental Europe that will help you become incorporated. There are even such companies in offshore areas such as the Caribbean, Gibraltar, the Cayman Islands, and Malta. It just might take a bit longer to search for them. Here is a list of my favourite international legal service providers, and I know they are reputable with excellent customer service:

Norton Rose Fullbright — Canada/USA/UK

CSB Group — Malta (European Union)

Appleby — BVI, London, Hong Kong, Shanghai, Zurich

Higgs & Johnson — Bahamas

Morgan & Morgan — Republic of Panama

By the way, at this stage, don’t worry so much about choosing the perfect company name. We will tackle the subject of branding and marketing in a later chapter.

NEXT ARTICLE — Chapter 2 — Planning & Goal Setting