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7 Painful and Costly Startup Mistakes

Startup growth mistakes

The early days of a startup are exciting. Not only are you hustling to find customers and investors, but you’re charting the future of your brand.

Unfortunately, in the haste of starting a company, many people overlook the less glamorous side of building a business. It’s easy to make painful and costly mistakes as you focus on building, growing and scaling an early stage company.

Learn how you can avoid these common roadblocks with a trusted business advisor.

1.     Co-founding clarity

Your cofounder might be your best friend or even a family member, but that doesn’t mean you can operate a business on a handshake. Too often companies are split apart by feuding cofounders.

The best thing you can do for yourself and your cofounders is to draw up a formal agreement with a seasoned business lawyer. Your lawyer will write a legal document outlining who owns what percentage of the company, vesting schedules, job responsibilities, how to operate if a co-founder wants to leave and a vision for the business.

2.     Business filing

No matter the size of your company, you need to form a legal entity if you want to scale in the future. Filing as a legal entity protects your personal finances from liability in case the company is sued.

You can file as a sole proprietorship, partnership, C corp, S corp, or an LLC. The right entity depends on your goals for the future, so don’t be afraid to think big. Filing incorrectly now will give you headaches down the road.

Of course, will your taxes and operations may get more complex so consult with a legal and business experts to make sure your company selects the optimal business structure.

3.     Contracts

Early stage companies don’t always create proper contracts when they should. When you’re in the business of growing your company, a contract protects your business.

Minimize liability by drawing up contracts for vendors, clients, and employees. A lawyer can help you draft a standard, templated contract that will help you minimize your liability.

However, you do not want the legal process to slow down your business growth. To avoid this outcome, you must streamline the contract process and develop a playbook of common negotiation issues that can be addressed upfront.

You must minimize and shorten the negotiation phase so you can focus on delivering your products and services. Consult with a business advisory firm like The Hollines Group to minimize this cycle and implement a process for the fastest path to revenue.

4.     Intellectual property

It’s likely that your company has built something the world has never seen before. Early stage companies live and breathe by their innovative products and processes.

How would you feel if another business got wind of your idea, copied it, and made millions? Unless you’re guarding your intellectual property through the legal system, you have little recourse for dealing with copycats or thieves.

File patents, copyrights, and trademarks to protect your valuable ideas. Patents protect physical products while copyrights cover authorship or art. A trademark is essential to guard your business name or tagline.

You must also implement Non-Disclosure Agreements (NDAs) to cover yourself. This gives you legal recourse if someone shares your proprietary information.

Additionally, one of the critical components to building a repeatable and scalable business is implementing a licensing scheme and framework that aligns with the goals and objectives of the business. This is critical if you want to create a recurring revenue business and garner the highest valuation multiples.

5.     Taxes

Business taxes are very different from paying taxes as an individual. When you’re in the thick of starting a new company, the tax implications can be overwhelming and even paralyzing.

This is why it’s so critical to choose the right entity for your business. You’ll have different requirements for taxes on the federal and local level. Sales tax, payroll taxes, tax credits, and deductions play a role in your company’s success.

Partner with a stellar lawyer and sharp accountant to do the heavy lifting. You want your company to stay compliant as you scale, or risk toppling your hard work.

6.     Employment

Hiring employees is a monumental step in your journey to growth as an early stage company. But many startups fumble the employment process.

So many companies fail to properly classify employees. They don’t require identification, forms, or contracts when they hire and onboard new employees.

The most common legal employment issue for startups is incorrectly classifying workers. Many startups want to avoid the cost of full-time employees, so they hire “contractors.” However, the law is very clear about the difference between an employee and a contractor.

This is a recipe for legal and tax problems down the road. Don’t get in hot water because you aren’t following employment guidelines.

7.     Naming

You probably already have a name for your startup. However, naming can be a legal minefield, and it should be taken seriously.

Just as you protect your business legally, other business entities do the same. It can be difficult to know if your name is legally free and clear. If you don’t do your due diligence, you can get into hot water for violating trademarks.

The worst part is that I’ve seen startups decide on a name and then realize it’s taken. They’ve already spent thousands on materials and a website, only to receive a cease and desist letter.

Hire a business advisory service to start on the right foot and engage a lawyer to do professional background research on potential names to avoid legal problems.

The bottom line

Startups are no strangers to bootstrapping, especially when it comes to hiring outside resources. It’s tempting to hire a friend of a friend for free advice. However, not all advisors, mentors or coaches are equal. Select an advisor that has decades of experience dealing with these issues and working inside startup and early stage companies.

Choose someone who specializes in the competitive startup environment. The Hollines Group offers end-to-end assistance with your early stage company. Start right and give us a call now.