We covered step one, protecting your intellectual property, in a February blog post on common start-up mistakes. Now, it’s time to talk about some important decisions surrounding the people side of your emerging business. These choices have the power to impact your future returns, so it’s important to give them some serious consideration.
Founders
Before you even register your business, decide who will join you as an official founder of the company. Keep in mind that the more founders you list, the more you divide the stakes in the company’s value, so it’s best to keep the list of founders short.
You and your co-founders are the people with the commitment and drive to formulate the idea behind your company and put it into action, and these people will be rewarded down the road with greater returns than non-founders. Many start-ups make the mistake of including too many founders and, in the process, give away too much equity.
As you choose co-founders, you should also write your business agreements to include a clause about founders’ rights, responsibilities, and vesting. Protect yourself from a co-founder leaving the company after a short time but walking away with a large chunk of its value.
Leadership team and employees
Once you and your co-founder(s) have completed the legwork of starting the business, it’s time to think about creating a team that will help your company succeed. Some entrepreneurs take on employees too early – before the business plan is solidified or before the product is fully conceptualized. Others wait too long and only hire when they have hit panic mode.
The sweet spot for building your team lies between those two points. When you have a solid idea, product concept, and plan, start hiring the people who will help you raise money and bring the ideas into a successful reality.
To learn more about how to protect yourself and your emerging business with well-crafted business agreements, visit EmergeCounsel online.