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MBA Mondays: Starting a Business

Many of my friends from business school have started businesses.  Far more of them will fail than succeed, but that’s just how the numbers work. But some will be successful and some will even be wildly successful.  But all that feels so far away the moment you are getting started.

It’s not always clear what to do when you first want to start a business.  Most people think about writing business plans but it’s not always clear why people do that either. Don’t get me wrong, business plans are useful to organize your thoughts and present your ideas to future teammates and investors. But they don’t usually make an idea better, and they certainly don’t give a bad idea more sales.

Over the last few days, I’ve been thinking about four other things that matter a little more.

1.  Money

2. People

3. Advisor(s)

4. Overcoming fear

5. Formalities.

In the legal world, we help business people work on formalities.  We help determine organizational structure.  We organize the companies, file the paperwork and ensure they are in compliance with state law.  We help them formally create rules, which are known as Bylaws and we help them elect managers of the company, which you know as officers and directors. We do this far more seamlessly and quickly than they could by themselves.

When we do this we also help with the money and people part, where we help draft agreements when a company wants venture investments or wants to hire employees or contractors.  We also draft agreements when the person or company wants to give equity in the company to employees or investors.

This is important because the business side of money and people are critical.  All companies need budgets and deadlines and sales to be successful. They need to make more money than you spend but have to analyze cash flows, balance sheets, margins and return on investments to measure their success.  Many lawyers run as fast as they can from these things but the good ones speak the language very clearly and help business people incorporate them into their overall plan. To structure the incentives and all the agreements the company has to fit its financial strategy.

But none of this is possible unless you work with people that are smart and compliment each other.  This is the people element. This doesn’t always mean their resume, though a resume can be a good indication of what someone will contribute. But it also means their passion, attitude and track record.

Most service providers understand their element pretty well, but not the entire process. Lawyers, tend to see the legal side. Consultants know the operations or strategic aspect. And bankers tend to get the numbers.  VCs think through much of this stuff pretty well too.  But the advisor is the person that understands all of the elements. And the more of these an entrepreneur has, the more he or she will overcome the fear of starting the business.

Just a few thoughts, as I’ve been working a lot of the Formalities part recently.  It’s a big topic for one blog post. Much more to come.

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