Pay for a good startup lawyer

This article is the eighth in the Startup Series on FirstPost’s Tech2 section and first appeared on Dec the 23rd, 2016.

I am aware this is controversial advice.

Especially since the last column said: “You pay for some things, you do not pay for some things; you should take your time to understand which is which.”

Especially since we all know free legal templates are available online, or a friend can send you their stuff, and you can take them and tweak them, and you are done. This is where I mention that I have seen startups in India working with documents that state their jurisdiction as England and Wales. They certainly found a template for free! But is it serving them and their purposes?

The ability to make sense of legal documents is not for everybody. The inability to make sense of legal documents could however be quite expensive. The advice of a competent, experienced startup lawyer is something founders would do well to pay for.

Here is why.

A good lawyer will not just write you legalese and lots of documentation but she will build you the scaffold for a future of success and high growth. It is something to plan for now, because let’s face it, when you are blazingly successful, you won’t have time to come back and re-do the paperwork assembled from a random assortment of templates.

One of the first decisions in a startup is about location and structure. A competent lawyer, equipped with adequate tax advice if necessary, will help set up the most optimal structure for future growth and in a location that works for you. “But I am incorporating in India,” you may say. Fair point, but a good lawyer, who understands the competing jurisdictions you could incorporate in, such as Singapore, will explain the options to you, thus helping you think more broadly and globally about your business right from the start. Tax is not the only consideration, of course. A location can often beat your default location on the entrepreneurial ecosystem, the ease of finding and hiring talent including from other countries, and most crucially, the ease of doing business.

With cofounders on board, you will need a watertight shareholding rights agreement everyone agrees to sign. A shareholding rights agreement outlines founder shares of equity, but more importantly, outlines important issues that may come up including cofounders wanting to leave, resolving matters in a going concern, potential conflicts arising and so on. I have lost count of how many founder conflicts could have just been avoided or resolved more easily, had someone thought of writing a sensible shareholding rights agreement up front.

As you build the business, you will need to think about several other contracts e.g. with service providers and partners. Service providers may send you their own contracts on which it would be wise to get legal eyes so you know what you are signing up to and what recourse is available to you if things don’t pan out as expected. Next come employees and their employment contracts, which for startups may be different from those offered by BigCo employers. A major difference, for instance, may be the inclusion of stock options in the employment contract, as well as termination clauses and what happens to unvested or unexercised options in different scenarios. Especially if your startup is a success, this is an important matter to not deal with in an amateurish manner.

Whether your website is transactional or not, it is an essential for business and brings responsibility. A good startup lawyer will help write the right policies governing the use of your website for the visitors, and policies disclosing how you will treat data you may collect on their visit, their interaction and their transactions with your business.

These considerations are common across startups. Some specific startups may need specialist advice.

For instance, if you are creating a startup in a regulated industry, such as FinTech, in which none of the founders has adequate deep experience, the importance of a lawyer with industry specialisation cannot be overstated. A competent lawyer can advise you on compliance and regulatory challenges arising from, say, your business model.

In case, you are creating a social enterprise or a non-profit, correct legal advice would save you much heartache. Can you set up a trading arm? Who can and cannot donate to your organisation? What tax benefits are and are not allowable? How do you ensure adequate transparency, disclosure and compliance?

And of course, if you are creating a startup with a patented product, you will have already dealt with a lawyer specialising in intellectual property, and the advice here would dovetail with your experience.

Ignorance of the law, in no jurisdiction, is an admissible excuse for violations or non-compliance. Ignorance is definitely an expensive indulgence should anyone, from your cofounders to your customers, bring about a lawsuit against your startup.

Be smart.

Startup on a shoestring: a heuristic for thinking

This article is the seventh in the Startup Series on FirstPost’s Tech2 section and first appeared on Dec the 1st, 2016.

A startup, while it works to make revenue with its product or service, incurs essential costs. A shoestring budget calls for resourcefulness and creativity in building the business.

An earlier column discussed building the MVP on a small to vanishing budget. The Tl; Dr for this column is as follows: You pay for some things, you do not pay for some things; you should take your time to understand which is which.

The advice applies whether you are bootstrapping or playing with someone else’s, i.e. an investor’s or a VC’s, money.

How to know which is which? There is a thumb rule for that too.

For all startup related decisions, ask yourself: “Is this expense helping me advance our startup’s objectives?”. If the answer is “yes” then go for it, provided the cash in your bank account allows for it. If the answer is “no”, just stop and reconsider.

If you fear this will take all the joy out of your life, there is a third possibility: re-purpose some of your treats and desirable experiences such that they serve both your startup and to enhance your personal joy. Founders, rightly or wrongly, are not often able to separate work and non-work in ways others can. The approaches that work often address this peculiarity of the founders’ existence. Some call it leveraging, I call it maximising several of your life’s purposes in one go.

But since life is less than black and white, this week we have some tips, gathered from the trenches, which will hopefully give you a spur to more creative ideas. Some of these tips may not be new to the more experienced founder.

First off, we cannot manage what we do not understand or measure. The very first thing to measure and track is your weekly spend. Tracking gives us data, and data can help us make smarter choices in many instances. I once asked a founder, with a professed love of a specific drink at Starbucks, to estimate how much money she spent on Starbucks annually. The number was eye-watering. She then chose a two-pronged strategy: she now makes her coffee at home using ground coffee and a cafetière, and she holds work meetings in Starbucks so she can occasionally treat herself, while writing off the expense as a legitimate business expense (check business expense rules in your country with your accountant before applying this blindly).

Second, get creative, and discover “free” or “freemium”. Identify the business costs that you can keep low. Do you really need that co-working office space, or can you work from your home or shed in early days? Communication costs can be reduced to quite low with generous free minutes on mobile plans but it may be wise to keep them for making those calls, where you cannot use Skype or WhatsApp-to-Whatsapp calling. Identity the business-critical stuff you cannot afford to lose and make backups. Some of the best established project management tools such as Asana and Basecamp get you started with a free account, sometimes with limited features and you can then upgrade to a paid plan for additional features and more projects. New tools come along with free offerings, but be alert to their data export policies in case they go bust and you need to move to a different platform. Did I say make backups?

Third, manage your costs of training, learning, and staying up to date with stuff essential to your business. Most publications these days tweet out their best pieces. The web gives access to a lot of materials on software skills to business news. This column series is a good example of such materials. Find libraries, ask friends to give you their subscription copies once they are done.

Fourth, in doing all this, do not be penny-wise and pound-foolish. Do not scrimp on coming across as a professional, whether it is how you dress when you meet a potential customer, advisor or financier, or whether you turn up on time. I can see some of you rolling your eyes at this. Perfectly fine, if you feel comfortable turning up to meetings with a customer, while not showered, wearing clothes that smell, and late! Remember in the early days, founders are always selling. Choose the impression you want people to take away.

Finally, get a grip on tax rules for business expenses. Ask your accountant. Write off every single legitimate expense. This should not be hard if you have paid attention to the point at the beginning. Getting a grip on what you are spending is essential to staying within a shoestring budget.

In the next column, I will address a question I hear very often, my advice on the issue, and the reasons for it.

Startup on a shoestring: building the MVP

This article is the sixth in the Startup Series on FirstPost’s Tech2 section and first appeared on Nov the 15th, 2016.

“You may be a business man or some high-degree thief,
They may call you doctor or they may call you chief,
But you’re gonna have to serve somebody”.

Nobel Laureate Bob Dylan is not known as a business advisor but his words are worth pondering.

A startup may be your dream, your personal pain point, your vision but unless you find enough people to say “yes, we share this pain too” and “yes, we will pay for the pain to go away”, there will be no startup beyond your dream. This is where building the Minimum Viable Product (MVP) comes in.

An MVP, as founders will know, is a bare-bones prototype that can be used to test if the dream should remain a dream or if some elbow grease may help its realisation. Its value in getting early adopters in is significant.

Early adopters are different beasts, psychologically speaking, from later adopters. They get your drift, your vision; they will use a less than perfect product and give you feedback; and you will gain several things. You will gain some early champions, you will get to see how the product works in the hands of actual users not just the people who designed it and how it needs to change, and you will get a better idea of what you need by way of talent to drive the startup.

Open source tools and cloud services enable quick building up of MVP for web based services. But not all startups are building web services or apps. How does one build an MVP for a physical product? As the following examples show, the web can be immensely useful in these contexts too.

Svaha-USA makes STEAM-themed clothing for children. Some mums asked them for STEAM themed dresses. Before swinging into action based on some feedback. Svaha-USA chose to test the wider market by setting up a crownfunding campaign for their first such collection. Not only was the campaign oversubscribed, they built a new following and now STEAM themed dresses for mothers are an integral part of their offering.

The founders of Onnix Bags in London, aiming to offer customisable, handcrafted bags at affordable prices, started by building a community first. Practising artist Austin Kleon’s advice, Show Your Work, they shared their process of design and building supplier relations with the community. This community came through in a big way when they ran their crowdfunding campaign, and you guessed it! They benefited other founders in their community by sharing in great detail how they went about their campaign. Where markets are finicky and unforgiving, such as in fashion and personal goods, building an MVP could go hand-in-hand with early marketing and brand building as Onnix successfully did.

Similarly, Que Bottle, the Bay Area based makers of collapsible, food grade silicone bottle, tested the concept in a secret but global group of founders, before launching their crowdfunding campaign which was swiftly successful.

Of course, one could always develop and distribute a finite number of prototype product or devices and collect feedback but the upfront capital investment may be substantial. Founders with a track record and solid social capital, such as Jo Aggarwal and Ramakant Vempati, who founded Touchkin, a mobile predictive healthcare startup in India, may find the path to raising funding eased somewhat.

You may have noticed the emerging theme here. To ease the path to success, it helps if one is plugged into the entrepreneurship ecosystem, and both ask for help and share your learnings. While entrepreneurship ecosystems may differ slightly in their cultural origins, the core values of paying it forward and helping one another are notable in both the Silicon Valley and London ecosystems. As the Indian entrepreneurial ecosystem matures, these values are already taking hold and helping strengthen the ecosystem.

Many founders see themselves as outliers or iconoclasts. But in reality, most of us are ordinary with extraordinary dreams. That iconoclast bit is true only for a minuscule number. And even those would benefit from knowing about, joining, and participating in the local founder ecosystem. Many ideas are tossed around in these communities, but only some make it to the MVP stage and even fewer become successful businesses. There is, of course, no better cure for founder loneliness, more on which later in this series, than to see a whole community, who understands you and empathises with your pain and helps you deal with it.

There are two angles to the startup on a shoestring budget. This column focused on building an MVP before going big, the existential aspect of building a startup on a shoestring budget. In a later column we will discuss how founders can keep costs low.

Slicing up the equity pie

This article is the fifth in the Startup Series on FirstPost’s Tech2 section and first appeared on Nov the 2nd, 2016.

Cofounder conflict over equity sharing can often cause a startup to be aborted before launch or otherwise fail quickly, as many of us who work with founders in very early stages know well. Some founders do not want to share equity. It is fine as long as they understand what is needed to grow the startup and can buy that talent in. Early stage ventures often cannot afford to pay people market rates, nor can they risk core talent walking away easily. Giving equity to cofounders, who bring key talent, helps address these concerns.

Founders often ask, “how much equity should I give my cofounder for the amount of work she will be putting in?”. My brisk answer to this “how long is a piece of string?” question is: “it is what you negotiate and what all cofounders are happy with”. Inevitably it leads to a further question whether there is a formula to make this negotiation easy and the answer to that is “No”.

Founder experiences show that a long term and successful cofounder relationship is predicated not so much on the slices of the equity pie but on the sense of perceived fairness in the arrangement, including in the course of the relationship.

To facilitate the equity sharing discussion, I start by advising potential cofounders to develop their vision for the venture together. Creating a shared vision and defining broad strategic goals then help them understand better the contribution expected of each of the cofounders in shaping the startup. More importantly, they develop some appreciation of how much weight each cofounder is pulling, and how their roles and contributions may evolve over the life cycle of the startup. At this point, I often see relatively inexperienced founders starting to relax and then I remind them to consider probable contingencies.

Roles and responsibilities aren’t cast in stone. Scope creep can and does happen. What happens, for instance, when the person, who was in charge of customer development and marketing, ends up leading on user experience design, developing the product roadmap, and owning all revenue generation and operations, because they appear to stack together naturally? How would the cofounders deal if she wants to return to the drawing board and renegotiate the slicing of the equity pie?

People and their priorities change over time. What happens if the chief technical architect develops the core product and then wishes to leave for a job with more income security and predictable hours because her family is growing, but wishes to retain her equity in the business? How would the remaining cofounders deal with that negotiation while also ensuring that the future of the core product is not jeopardised?

What about unforeseeable things? What if the business runs out of money before lining up the next round of funding? What if, in the virtual team, one of the cofounders becomes unresponsive while holding the business to ransom? What if a cofounder becomes unwell or dies unexpectedly, bringing her partner or family into the picture in the way nobody has quite imagined? These are a fraction of the scenarios that I have seen played out in cofounded startups where the cofounders were caught unawares.

Envisioning these possible scenarios is a squirm inducing exercise for most founders. But it also makes clear that the relationship the founders are about to enter is an evolving entity with uncertainties and potential conflicts in the future, not an immutable one. Cofounders also start to realise that fairness as accepted by all sides matters.

They also realise that above all, at all times, a focus on the business is crucial. It is not beyond possibility that a cofounder decides that not only will she leave the startup she will also ensure the startup does not survive after her. It is uncomfortable to think of such a scenario but it must be considered in advance.

How do we ensure fairness then, if things are going to chop and change, and people are going to behave unpredictably, even maliciously?

Here let’s draw upon some common sense. While resolving a cake dispute, a parent friend of mine uses a trick. She lets one child slice the cake, and the other children pick the slices first. The resulting dynamic is fascinating and instructive. Stretched to a cofounder negotiation, one of the tests of fairness would be, if you were doing all that any given cofounder is doing, would you be happy with the share she is getting?

It is also important to understand that fairness must be perceived and seen as fairness by all parties. And that perfect fairness is an asymptotic goal, albeit one worth working towards.

In a later column, we shall discuss embedding these negotiations into formal agreements and what it means for the startup.

On fancy job titles

This article is the fourth in the Startup Series on FirstPost’s Tech2 section and first appeared on Oct the 19th, 2016.

In one of my corporate venturing roles with a large Indian conglomerate, I served as the country manager of a European country. That was also the job title on my card and in my email signature file. The important sounding title was not just about sitting in a fancy office overlooking Zurich lake. I made a lot of calls and set up my meetings with prospective clients for business development purposes. I also went daily to the post office to collect our mail, printed and sent and filed my own faxes, made coffee and washed my own coffee cup, took out our recycling, and did a whole bunch of administrative work that people in large companies do not even think about or farm out to secretaries and assistants.

It was, after all, a new and small operation albeit with a BigCo parent company.

Startups are no different. In the early days of a startup, founders do everything from washing cups to taking and making calls to filing papers to paying bills. They do VAT returns, meet account filing deadlines, minute board meetings, keep an eye on the cash in the bank and so on. They pack products and take those packages to the post office for mailing. They also go out and represent the company to customers, partners, vendors, media and financiers. There is nobody else to talk about the brand, the company, the product but the founders who created the business. In other words, early days are when the startup founders are always selling, trying to sell or fulfilling orders.

Is there a need for startup founders have important sounding titles? Some even argue over them!

Titles serve a purpose.

Titles are useful in signalling to customers, partners, vendors and other third parties about the roles of the individuals they are dealing with. Giving such comfort and confidence is an outward facing utility of titles. Yo can go the ego-boosting heavy title route, or take a leaf from Craig Newmark’s book. He is the founder of Craigslist and calls himself “customer service rep”.

Inside the startup, roles and titles can help start a useful and essential conversation about allocation of responsibilities as the early rapid growth forces functional specialisation within the founding team. The CEO should ensure there is enough cash, that the company is heading in the right direction, and that there are enough people on the team — or from vendors and partners — to do what is necessary. The COO’s role may be defined by the context often spanning revenue ownership, supply chain, operations and other processes. The CMO takes charge of all marketing and communications with an aim to establish the brand as well as drive inbound inquiries and sales.

Then there are the future employees. As founders, you sell the vision to future employees so they consider working with you. Some of these employees then actually want big corporate-sounding titles e.g. VP. In an early stage and relatively flat organisation, a title such as VP may mean little. But what it can do is catalyse the thought process required to develop an organisational structure that will support future growth including growing numbers of employees, their roles and their career trajectories.

I am no fan of hierarchical organisations but equally the evidence from holacracy as implemented by Zappos and others following their lead, and from self management structures as implemented by Buffer is mixed. So, for now, even for startups, organisation design for growth remains an active challenge on the table. Titles are not essential but they could bring much needed clarity as jobs evolve away from the traditional functional bases of design to other philosophies including customer at the centre of the organisation.

During my country manager stint, I had several meetings with big-cheese type persons in prospective client organisations. It was not uncommon, when I turned up, to be asked by the gatekeeper to the said big-cheese, “Wo ist der Geschaeftsfuehrer?” (Where is the boss?).

I was, after all, a petite and young Indian woman, turning up to meet an important man in their company!

Handing over my card with a smile, I would reply, “Ich bin die Geschaeftsfuehrerin, bitte.” (I am the boss, please!).

The big title? It always worked.