At MyDomaine, we know how challenging it is to turn your passion into a thriving business. Making that leap of faith takes courage and confidence, but seeing your dreams become a reality is more than worth the effort. One question, however, remains: Where do you begin? How do you transform that small and often simple idea into a profitable company? Well, we want to help. So we partnered with Above the Glass to give young entrepreneurs the knowledge, tools, and edge to own their working lives. In the first installment of this series, we take you through step one: writing a business plan. Here, ATG’s two founders, Heather Serden (previous investment strategy analyst) and Danielle Yadegar (former fashion editor), guide you through their personal process. Be sure to download their legal checklist at the end.
For startup founders, money is tight. We need to weigh all of our options and decide how to best spend our limited cash. While finding friends and family members who are lawyers may be the most convenient solution, some of us are not so lucky to have these connections or the finances. If you can afford it, try to secure a little money to find a lawyer you trust, or at the very least, put your feelers out to find one when you need it. The last thing you want is to lose control of your company, get sued, have your idea stolen, or get in trouble for infringing on someone else’s name.
While all first-time founders, ourselves included, are bound to make mistakes, it costs more to repair legal missteps than it does to do things correctly the first time. Learn about some important legal documents we’ve drafted along the way to protect ourselves from the worst-case scenario, and be sure to download our checklist at the end.
A Founders’ Agreement is essentially a prenup for your business. What happens if it all goes south? You need to sit down with your co-founder, create a document that outlines what each person is bringing to the table, what your roles and expectations of one another are, and exactly what happens if your partnership dissolves; envision the worst-case scenario.
Once you have that in writing, you can move on to the fun part of things. If the sensitive issues covered in a Founders’ Agreement are too difficult to get through with your business partner, this may spell trouble for you two down the road, and your partner may not be the right person for you to go into business with in the first place.
Non-disclosure agreements are important to use when meeting with potential employees, business partners, or anyone who can potentially steal and replicate your idea. The one exception to this rule would be exempting potential investors from signing an NDA; investors are not inclined to sign non-disclosure agreements because it would prevent them from properly doing their job.
Part of an investor’s competitive advantage is the fact they know everything that is going on in their market of expertise. If they were to sign non-disclosure agreements, they would be limiting their ability to use the expertise they gained from meeting with you in any other deal they may be looking at. By signing an NDA, they would be setting themselves up for potential lawsuits in very ambiguous situations.
Unfortunately, the people who control the purse strings call the shots, so if you are looking for investor funds, you just need to take the risk of sharing your idea without the legal guarantee that it won’t be replicated. For many people, the possibility of getting funded outweighs the risks of not having an NDA.
Plan It Right:
There are two types of employment agreements you will want to have when you are setting up your business: one to use when hiring your own employees and one to use when you want clients to hire you. When a client hires you, it may be worthwhile to have a much simpler agreement in place, to lower the friction of getting business. If you are a contractor or performing work for hire on your own property in your own time, then it is commonplace for the client to own what you produce—that is what they are paying you for.
When hiring your own employees, you want to make sure every safeguard is in place. You should do everything in your power to own their work-product, protect your assets, and limit the liability and harm they can cause to your company. To lessen the liability, you can hire these people as contractors instead of full-time employees, but then you have less control and ownership over what they do. Taking on an employee is a huge responsibility, with many associated costs. Make sure you have an ironclad employment agreement as a starting point for negotiations.
After going through the trouble of finding a name for your business, you better make sure that you own that name. We have already discussed how influential your name can be in shaping the path of your company, but now we dive deeper into how you go about making that name entirely yours.
The best way to own your name is to file a trademark—a name or sign that may be used exclusively in relation to the sale of your propriety goods or services. We thought filing for a trademark would be simple, but the whole thing surprisingly threw us for a loop. Use the following tips to make the process a whole lot easier:
1. Read up on what you need to know for trademarking your business, and try to determine which class of good or services your business will fall into.
2. Make sure no one else is already operating under that same name by visiting trademarkia.com, confirm the URL is available on godaddy.com, and check for all of the social media handles you need on the most commonly used social channels.
3. If the path is clear on trademarkia.com, godaddy.com, and social media, then it is time to run a thorough a U.S. Comprehensive Trademark Search. A company like Corsearch will run this search for you for about $750, but applying for a trademark and getting rejected could end up costing more in the long run.
4. If the comprehensive search comes back clear, it is now time to prepare a trademark application. You may want to work with a lawyer on this step since they will advise you which words to include, how to describe your offerings, and how to best prepare an application that will likely get approved by the U.S. Patent & Trademark Office Examiner (the person who accepts or rejects your application).
For the majority of entrepreneurs out there, one resource they don’t have is cash. Unfortunately, the more money you raise and the more investors you take on, the more equity you must give away. Cap tables are the perfect tools for understanding equity dilution under different scenarios and all the different things you can do in your company to keep or lose control of it. You can download one on our website.
Advisers provide advice, introductions, or social proof of your business concept. The best kinds of advisers are ones who have experience that can help you in the industry you are launching in, and a strong understanding of your market. Challenges are bound to arise in any startup, so having a board of advisers for feedback and support is invaluable. Having legal documents in place that outline their responsibilities and compensation is the best way to make sure everyone’s incentives are aligned and that the advisers are being properly rewarded for the value they bring to your business.
Advisers usually get paid in equity. This aligns their motives with your own, so they have a financial interest in the long-term success of your company. Advisers can take different levels of involvement in your company and should get paid accordingly.
Now that you’ve read through the tips, be sure to download the legal precaution checklist below, tick off each step as you go, and let us know how it goes!