25 Frequently Asked Questions on Starting a Business

Kind? Challenges? Mistakes? Name? Invention? Protect? Lawyer?, Corp? Where? Capitalize? VC? NDA? Share? Stock Options? VC? Domain? Traffic? Plan? $$$? Regs? Hiring? Records? Insurance? Equity? Resources?

Having been a Startup Lawyer, Entrepreneur, & Venture Capitalist, I have been asked many of the following questions over the years from Entrepreneurs when starting a business. Sometimes there isn’t an easy answer, and as Lawyers often like to say, “It depends on the circumstances.” But here are my answers to the most Frequently Asked Questions (FAQ) on starting a business, which hopefully will be right 95% of the time.

1. What kind of Business should I start?

A business that:

You are intensely passionate about
Doesn’t take a lot of $$ to fund – unless you have it
Has the potential to grow into something big in a reasonable time frame
You have some experience in
One that can cause meaningful improvement in users’ lives

2. What are the biggest Challenges to starting a business?

The answers are:

Shortage of capital & cash flow
Having a comprehensive Business plan
Coming up with a Gr8 product or service
Persistence: Sticking to it thru tuff times
Working more than you expected
Getting through the frustrations of constantly rejection by customers
Hiring good employees
Knowing when to fire bad employees
Having to wear so many hats
Managing your time well

Maintaining some kind of work/life

3. What are the biggest Mistakes made by Startup entrepreneurs?

Not starting with enough capital
Thinking that success will come quickly
Not carefully budgeting (i.e., frivolous spending
Not focusing on the quality of the product or service
Under-estimating the importance of sales & marketing
Not adapting or iterating quickly enough
Not understanding the competitive landscape
Ignoring legal & contract matters
Hiring the wrong employees
Mis-pricing the product or service

4. How can I come up with a Gr8 Name for my business?

This is difficult. First brainstorm with a bunch of different names. Then do a Google search to see what is already taken, and that will eliminate 95% of your choices. “Make it easy to spell. Make it interesting. Don’t pick a non-sensical name where people won’t have a clue as to what you do (with all due respect to names like Google & Yahoo). Do a Trademark/ Tradename search on the name, then make sure you can get the Domain name.

5. I have an Invention idea. How do I check that someone hasn’t already invented this idea?

Key steps to take:

Do a Google search on the keywords associated with your Invention.
Do a search online of the U.S. Patent & Trademark Office at www.uspto.gov.
If that works and you want to get a Patent on the idea, hire a Patent Lawyer.

6. How can I protect my great Idea?

Ideas are a dime a dozen. It’s the actual implementation of an idea that is truly important. If it’s truly unique, get a Patent for it (see www.uspto.gov). You may get some protection through Copyright, Trade Secret programs, or NDAs, but not a lot.

7. Do I need a Lawyer to start a business?

No, if it’s a simple business with one Owner, as you can incorporate through online services like LegalZoom.com & RocketLawyer.com. However, it’s usually a good idea to have an experienced Business Lawyer on your team – who has advised many startups. Hire only a Business Lawyer, not a general Practitioner or Divorce lawyer. Business experience matters !!!

8. Should I form my company as C or S Corp, an LLC, a Partnership, or a Sole Proprietorship?

Start it as an “S” corporation, unless you have to issue both Common & Preferred stock; in that case start it as a “C” corp. An S corp can easily be converted later into a C corp; LLCs are popular, but can get overly complicated. Partnerships & Sole Proprietorships are to be avoided, because of the potential personal liability to the owners of the business.

9. Where should I Incorporate my Business?

The standard answer to this is Delaware, because of its well-developed Corporate law. However, my answer is that it should be the State where the business is located, as this will save you some fees & complexities. You can always re-incorporate later in Delaware.

10. How much should I Capitalize my Business with at the beginning?

As much as you can reasonably afford, and in an amount to at least carry you for 6-9 months with no income. What you will find is – that it almost always takes you longer to get revenues, and that you will experience more expenses than you anticipated.

11. How likely will it be that I can get Venture Capital (VC) financing?

Extremely unlikely !!! Get a product developed, gain some traction, get a good management team, then consider getting VC financing. You may need to start out getting financing from family, friends, or Angel investors.

12. Should I require prospective Angel or VC investors to sign a NDA so they don’t steal my idea?

No, don’t waste your time. It will be counter–productive and slow down your fund-raising. And many investors will refuse anyway. It’s hard enough to get a meeting with an investor—don’t put another roadblock in the way. For the most part it’s not the idea that’s important; it’s the implementation of the idea and the talent of Entrepreneurs behind it.

13. How much Dilution in Share ownership of my company, should I give up to Investors in my business?

Whatever amount gets you funded. Don’t try to over-optimize on ownership. Get cash to grow your business and make your investors happy as well.

14. How big should a Stock Option pool for Employees be?

15-20%. Standard vesting for options is 4 years, with a one-year “cliff vesting” and monthly vesting after that. “Cliff vesting” in this context means the employee must be employed by the company for a minimum of one year before the employee earns any of the options.

15. How can I get a VC to pay attention to me?

Any of the following:

Get a ton of Traction in the marketplace
Have meaningful growing revenues
Have a world-class management team
Have truly innovative technology with an outstanding market opportunity
Get a personal introduction to one of the VC firm partners from a respected colleague

16. How can I obtain the Domain name I want?

Every good “.com” domain name is probably already taken. And I usually only recommend “.com” names. Ultimately, 99% of Domain names are available to be bought—you just have to be prepared to pay for the name. Do a “WHOIS Search” at www.networksolutions.com to find out the contact information for the owner of the Domain name you are interested in, and offer to buy the name. Don’t be naive and offer $500 for a premium domain name. You will be ignored. Be willing to pay a fair amount for a good name.

17. How can I drive Traffic to my Website for my business?

Entire books are written on this topic. The key ways are as follows:

Pay Google, Yahoo, or other Search Engines to send you traffic (such as thru the Google Adwords program).
Build a great site with lots of high-quality original content that is SEO.
Have a smart Social Media plan to drive traffic from Facebook, Twitter, LinkedIn, Tumblr, & other free Social Media sites.

18. Do I need a Business Plan?

It’s useful to come up with a Business Plan to think through what you want to do for the development of the product or service, marketing, financial projections, etc. Then get input from trusted business/finance Advisors. But don’t go overboard with a 50-page business plan. Start with an Executive Summary and write a Business Plan when the business form stabilizes. Review the Sumry & Plan once a month to change to the reality and project the future.

19. Where can I get $$$ for my Business?

Many books & articles have been written on this subject as well. Here is a summary of the most effective sources of Capital: Personal funds, Credit cards, Friends & family, Angel investors, Crowd-sourcing sites such as Indiegogo.com & Kickstarter.com, Bank loans/SBA financings, VC, Equipment loan financing, etc.

20. What Permits, Licenses, or Registrations do I need for my Business?

Depending on the nature of the business, you may need the following:

Permits need for regulated businesses (aviation, agriculture, alcohol, etc.)
Sales tax license or permit
Home-based Business permits
City & county business permits or licenses
Zoning or Sellers permit
Health dept permits (ie, restaurants)
Federal & State tax/employer IDs

21. What do I need to worry about in Hiring an Employee?

Have you done a Reference check?
Does the employee have relevant experience for the job?
Will the employee fit in with the company culture?
Do you have a good form of employment “at will” letter for the employee to sign (allowing you to terminate the employee for any reason – if it’s not working out)?

22. What kind of Books & Records do I need to keep for my Business?

Financial Statements (P&L, Balance Sheet, Cash Flow)
Employee records
Board & stockholder minutes & consents
Stock and options ledger
Tax filings & records (federal, state & local income, sales and property taxes)
Secretary of State filings (Certificate of Incorporation, annual filings, etc.)
Invoices & contracts
Bank accounts, Creditor records

23. What kind of Insurance does my Business need?

Consider the following, depending on your business:

General liability insurance
Product liability insurance
Professional liability insurance
Property insurance
Worker’s compensation insurance
D&O (directors & officers) insurance
Health insurance for employees
Business interruption insurance
Commercial auto insurance
Data breach/cybersecurity insurance
Key man life insurance

24. How should Equity be divided among Co-Ffounders of a Startup?

There is no single correct answer, but you should discuss it and agree upon it right up front to avoid any misunderstandings later on. If you are the original Founder and brains behind the idea, a good argument can be made for more than 50% ownership. The split should take into account:

The relative value of the contributions of the Founders
Vesting dependent upon continued participation in the business
The amount of Time to be committed to the business
Cash Compensation to be paid as an employee
Whether the Founders will be contributing $$$ as Investment in the business
Whether one person wants to maintain control over decision-making or have the final say

25 of the most Frequently Asked Questions on Starting a Business