Registering Your Company

I open the letter from Delaware and my jaw dropped. What in the world is a franchise tax? And why do we owe Delaware so much?? So I called up the people at the Corporations office, only to find out that our decision to authorize 100,000 shares would cost us more than $500 more than it would have if we had authorized the minimum. I thought to myself, “Man am I glad I didn’t go for 1,000,000 shares!”

So now that you know you want to create a company, there are a lot of logistics to deal with. What’s funny is that while you can hear and read a great deal of advice on startup strategy, there doesn’t seem to be quite as much on startup logistics. Perhaps it’s because this is the more “boring” side of things. But doing things right can really save you some serious money — and right now, there’s not really much that’s more important. So this blog post is on logistical issues you should tackle immediately.

(1) Registering your company: LLC or Corporation?

You will hear a great deal of advice talking about the pros and cons of each. So there is no need to go into great detail here. Really quickly, an LLC (limited liability corporation) does not allow the offering of shares, while a C-Corp or S-Corp (Corporation) does. There are other differences, but let’s keep it short.

So which one is best for you? The C-Corp. Why? Because if you’re still reading this blog, you’re trying to figure out how to bootstrap the company to success. In future blogs, we will talk about different ways to raise money. But for now, know that anyone interested in giving you money in the future will want to have an equity stake in your company. So as a result, you will want to be incorporated.

(2) Where should you register your company?

Once again, there is a ton of advice for different types of companies out there. Let’s assume that you are a startup looking to be more than a “lifestyle business”. You want to be able to raise real capital. In this case, the answer is simple: Delaware.

You may ask, why Delaware? Is it cheaper? No, it’s actually more expensive. But once again, you are trying to raise funding quickly. This will be one of the hardest things you’ve had to do to date. Fortunately, you are starting your company at an exciting time where the idea of “accelerators (or incubators)” have arisen. We will talk about this more in the future, but for now- it’s important to know that typically angels and accelerators are looking for their classes to acquiesce to one standard set of state laws. As a result, you may find some that accept your state, and you may not. But you most definitely will find those who accept Delaware incorporation. So you may as well incorporate now.

(3) Ok, anything else to know?

Yes, tons! First thing’s first: As  I mentioned earlier, incorporating in Delaware will be more expensive — for several reasons. (1) The tend to have pretty high fees, (2) you will need to hire a registered agent in Delaware (registered agents accept a service of process in case you get sued). I would recommend Harvard Business Services. They charge around $50/year and their rates seem to stay steady, unlike others who will charge you a low first-year rate and then jack the prices up in ensuing years. They are also really good if you want a hassle-free option for incorporating. Oh yeah, the third reason. (3) You will have to register as well in your home state as a foreign corporation. Why? Because to operate a business entity primarily in a different state, most states require you to be registered there. This also means you will have to pay a separate foreign registration fee. But remember, this is hopefully an investment that will pay off in the not-so-long term.

Second: Take care to think about the number of shares that you want to authorize for your company.  Delaware charges by the number of shares you have authorized for your company. As of today’s writing, the difference between authorizing 5,000 shares and 5,000,000 shares is nearly $4000 in taxes. And the shares (at this stage in your company) have no real impact other than to say you have more shares. So start small (5,000 shares or less), and when needed, just execute a stock split.

Finally, make sure you pick a name for your company that is not already trademarked, and that you can actually protect with IP protections. At Upswing, we struggled a great deal with this. However, because our initial URL was www.upswi.ng, we registered using The Upswi.ng Group, LTD. There were several bad ideas in this endeavor. First, domain hacks (anything that uses the extension to spell the URL) are not very favorable among search engines. So rather than picking up the word upswing, Google only noticed upswi. Also the .ng domain was country specific, meaning that no one in the US would see our .ng URL. We have since changed our URL to www.upswing.io, but our official name has not changed yet in Delaware. The second issue was that we thought it would be cool to use the term LTD (“limited”) as an ending. Well, different states view LTD differently, and many see that as an ending similar to LLC rather than INC. This tended to cause us issues as well when registered with banks, etc. So think through these issues as well.

Using Your Ace in the Hole… Your Drive

It was the Christmas holiday season. I was home with my folks, and despite being in a different location I found myself glued to my computer. There were just too many things to do! Not least of which was trying to convince an understandably skeptical advisor and potential investor that we were worth investing in. What made the moment even more crucial was that we had only a few days to close the deal.
Finally, after an untold number of messages, calls and emails back and forth, I had succeeded in getting him on board. “Finally!” I thought, as I closed my laptop. As I laid on my parents’ couch, thinking of different movies I’d watch, places I’d go to and people I would see over the next week, I couldn’t help but revel in my temporary accomplishment. Maybe I will check out Twitter and see what’s going on in the world, I thought. And that’s when I saw this tweet from one of my closest advisors:

Sighing, I put down the remote, and opened back up the laptop.
It is difficult to overstate the work involved in running a startup if you are doing it correctly. But it is precisely this work which differentiates you from your competitors. Put simply, as a startup, you succeed by being willing to do the things your competitors are not. Just about any other non-patentable advantage you think you have can be completed by competitors. There are many examples:
Groupon before Amazon Local

Pebble before Galaxy Gear

Path before Google Plus

Vonage before Google Voice
So what is it that causes the Airbnbs and Ubers of the world to break through the clutter and establish a brand dominance among so many competitors? They are willing and able to do things their competitors aren’t. For both of these companies, it was actually tackling the hurdles around rental and travel regulations that the bigger guys simply did not feel the need to waste their time on. And suddenly, you’re looking at the next eBay and Amazon.
This doesn’t mean you should throw knowledge out the window. Clearly it is important to have a well-devised plan, strong team, and a passion for the business you are in. But at the end of the day, the one ace in the hole that differentiates you and the bigger guys is your drive.
Don’t take that for granted.

Failing Your Way to Not Failing

There I was, taken aback by the question I received. I was talking to a former colleague at my former job, and explaining some of the things we are doing with different colleges in and around the area. After looking confused, he stopped me and asked, “Wait, I thought you were working with high schools?”

I hadn’t really spoken to him since I left, and though that was only 6 months earlier, it was like a lifetime in startup years. I told him about some of the transitions we’d made, and what caused us to target colleges instead. “Wow, sounds like you’ve jumped around a lot. Is that good?”

As you work on your idea, remember this one key point: The idea that caused you to make the plunge is likely not the idea that will be successful.

Hopefully by now, you have heard and/or read about The Lean Startup method. If you haven’t this is something you and your co-founders should read before really getting started in investing time and resources. These experiments, for example, can focus on which product to offer, how much a customer would be willing to pay for an item or service, the design of the site and more.

It helps to provide a roadmap toward success. With one caveat: for those of us bootstrapping to success, you will soon find that the “experiments” you would like to run as part of The Lean Startup are just too expensive. If you run a mobile or web startup, this can definitely be a drain on finances. Luckily, there are sites that allow you to create such experiments cheaply. There are two sites I would recommend:

(1) Optimizely- I really like this site because you can type in your URL, and begin with what your site looks like that that moment. You can then play with different variations and use Optimizely to conduct A/B testing to your audience. I haven’t found another site to date that works that easily.

(2) Unbounce – I also like Unbounce because it offers a lot of the same features as Optimezly, but the pricing is more affordable. So if you are very budget-conscious, Unbounce would be the better options.

In order to drive people to these tests, I would recommend doing a Google Ad campaign. This is because, unlike friends and family who want to see you succeed and will tell you what you want to hear, Google Ad campaigns bring people in who have no connection to you (Google ads are not the way to go for building your company, just for testing purposes. Here is a great read on why you should not depend solely on Google for customer acquisition.)

Remember, the idea of the initial few months is to keep on iterating. Iterate while it’s cheap, instead of building a product and then realizing that it was the wrong product. I can tell you, we did not follow this mantra. We thought we were the only ones to do our idea, and that we knew everything about how to get it done. Fortunately for us, we werebroke. This little concern caused us to default to creating cheaply and then putting our idea out there quickly. As a result, our first site was built using — of all things — WordPress. Our tutors were all Math tutors, and were based in India to save on costs. Everything we did was a hodge-podge of third party applications, strung together to create a semblance of a website for less than $1000 (including tutor costs!)

However, what we learned from that experience could not be understated. We quickly understood the needs of institutions vs. individuals, the value of data collection and reporting, the importance of 24/7 access to tutors, mentors and coaches, and much more. By the time we arrived with platform 2.0, our entire approach was different.

And today we are still learning, improving and iterating. Today, our iterations are smaller, and hopefully that means we are on the right track. But there is nothing that really replaces those initial learnings, so keep an open mind, understand that mistakes are part of the learning process, and prepare to stumble your way to potentially something great.

Check out this video from Climate Corporation founder David Friedberg. I love this quote he makes: “It’s easy to see the startup experience as iterative failure rather than iterative success, because you’re constantly failing until you’re just barely not.”

You Have the Vision, What about the Team?

I woke up and could not stop smiling. Seriously… I could not. stop. smiling. This was my first day working full-time for my startup, and it felt so great to not go to work that day. In fact, it almost felt like I was playing hooky. Now came the million dollar question: what do I do now?

Before we talk about that part, let’s talk about getting your startup to the greatest potential for success early on. From the day you start your business you have a burn rate. Your burn rate is the amount of money you “burn” each month. In the beginning it will feel – and likely be – negligible. But it is what you do prior to walking out the office of your full-time job for the last time that really sets your company up for success.

First thing you need to consider is your team. In the startup world, it seems people really love statistics, so I’ll just quote people smarter than me on this subject: The most common reason early startups fail is because of founder issues. But wait, you say. We will be different. Alright, well ask yourself this question. Are you starting the company with a friend of yours? Possibly a family member? Then you’re even more likely to fail.

This is because of two reasons: (1) You don’t want to hurt their feelings, and (2) You don’t expect them to hurt yours. However, you have some serious hurdles to get through that will make it difficult to come out completely unscathed. If you are starting to get worried, don’t be. Just be prepared to handle these situations. I’ve so far been on both the prepared and unprepared side of the table and here is what I have learned:

Use the Ultimate Airport Test Here: In consulting, there is what is called the airport test. Essentially, if you were stuck in an airport because of a plane delay, would you mind being with this person? We here tons of idolatries of leaders who weren’t very personable, but the truth is that if you are doing your startup right, you will see this person more than any other person in your life. And at least in the beginning, you will have equal say. So make sure this is a person you can really get along with.

  • Find Founders with Passion: In case I haven’t mentioned this before, startups are hard. You are determined to do something that will definitely pay you less, offer you less benefits, and require more of your time than working for someone else (if you’re doing it right). There is one thing that gets you through that – passion. If you or your co-founders feel as if you deserve something simply because you quit your job or started the company, you are already on the wrong foot. Seriously, change the attitude or change the founder.
  • Decide the Equity Split Early: Don’t delay on this point, and please don’t say you are splitting down the middle. If you do hit an impasse, try this site. It’s fun and you can blame a third party for arguing what you should get. Remember you are essentially marrying this person, so if you have the upper hand, screwing your partners this early on will lead to bad blood or at least hurt feelings later down the road.
  • Choose Titles When You Need to Choose Titles: In the very beginning, it is very easy to get swept up into the title game. In the beginning however, there are so many more important things. You really aren’t a company yet. You are a living set of experiments trying to find a niche and eventually become a company. Until you find that fit, just use “co-founder”. Now, once you find your fit, you need to very quickly determine who will be doing what within the company, so beware not to delay the conversation too long.

One final note: It is always good to have a skilled developer on the team. However, all of us aren’t quite that lucky. There are plenty of ways to get around that, as I will share in future post.

Introduction: Why I Started this Blog

There I was, looking at the phone in disbelief.
The car mechanic on the other end asks if I’m still there. Yeah I’m there, but is he crazy? $2000 to get my car fixed. That left me with a conundrum: I could either pay to fix my car (which also doubles as my transportation to the dozens of meetings I planned over the coming weeks) or have money to pay my student loans.

This is the part in the movies that they don’t show you about creating a startup. Eric Ries said it best: the movies typically feature a protagonist with an amazing idea. Next comes the montage of events that occur over a 2 minute period, followed by a party being hosted at a company retreat in the not-to-distant future, featuring — you guessed it — the protagonist. What you quickly learn is that the montage is the most important part.

This brings me to why I decided to create this blog. Too many times, startup blogs are written assuming you either (1) have ample funding, (2) have ample time, (3) have wealthy friends and family or (4) all of the above. The fact is that most of us have little more than a dream and the passion to pursue that dream.

Unfortunately, dreams and passion aren’t enough to even get you out of the gate. When I first began Upswing, I spoke with a colleague who took great admiration in the fact that he left his six-figure job to pursue his startup. That is, actually, pretty admirable. But it gets you no further than anyone else.

Here’s the starting point you should keep in mind: Most startups fail.

Statistically, yours will too. Statistically, mine will as well.

In fact, if you go to any bank and ask for any amount of money, they will ask you one question – how old are you? That’s because most startups fail within the first two years.

So here’s the question you should ask yourself every. single. day. What am I going to do today to not fail?

Your first year is about not failing. It’s about creating a long enough runway to exist on. It’s about doing a whole lot with very, very little. My blog is an effort to show new entrepreneurs WITHOUT rich uncles, WITHOUT major initial funding, and even without the greatest resources how to survive, and get to the point where both customers and investors are interested in knowing more about you.

It’s not the easiest road, but it is very, very possible.

Hope you enjoy!