| Introduction | | | | pressures to all manner of other obstacles. When |
| Why become a founder? What are some things | | | | you get past all of this, or at least most it, you |
| you can do to become a successful founder? | | | | will have built "good will" -- that is, a going concern |
| Having worked extensively with founders as a | | | | value for your venture. Good will is really nothing |
| startup business lawyer in Silicon Valley for many | | | | more than the advantages you gain from the |
| years now, and having built my own business as | | | | blood you have spilled. It is a huge plus that |
| well, I have a few tips to share on these points. | | | | makes your business better than others. But you |
| Tips on Why You Should Become a Founder | | | | will have to spill blood over it. Understand this up |
| Why become a founder? | | | | front and be prepared to pay the necessary |
| 1. If you succeed as a founder, you will make far | | | | costs. |
| more than you would as an employee. Obvious, | | | | It follows, of course, that if you are not ready to |
| but worth repeating. | | | | pay the costs you should stick with the steady |
| Founders want the large upside that will come | | | | job. |
| from a successful venture. The goal is very hard | | | | 3. When you launch, try to do so with a |
| to achieve but the rewards can be great. | | | | multi-talented team. |
| 2. If you succeed as a founder, you keep more | | | | There is no fixed rule here. Experience confirms, |
| of what you earn. | | | | though, that a team will be far more likely to |
| As an employee, you will get hit with | | | | succeed than will a sole founder. This may be just |
| ever-increasing taxes on your compensation. | | | | another way of saying that, if something is truly |
| Forget about the rich. It is the average employee | | | | good, others will be drawn to it. More likely, it is |
| who gets soaked. You pay, say, up to a third of | | | | another way of saying that launching and building |
| what you earn for federal, state, and local income | | | | a successful venture is hard to do and you need |
| taxes. Add another nearly 10% for payroll taxes. | | | | a multi-talented team to make it happen. Where |
| Now assume that inflation bumps you into higher | | | | you cannot supply everything, others will supply |
| tax brackets. Rates are then raised for those | | | | what you lack. |
| brackets. Then payroll tax rates go up. And the | | | | 4. Make sure you have a sound business model. |
| social security cap lifted. And new taxes added to | | | | Technical innovations are great but, in themselves, |
| fund future health benefits. You will be left with an | | | | cannot normally sustain a venture. Sometimes, |
| ever-diminishing net amount from your pay. | | | | they can be sold or licensed to a large company. |
| Welcome to being the employee of the future. | | | | Nothing wrong with that. In most cases, though |
| As a founder, however, your largest reward by | | | | technology will not be enough. |
| far will come not from salary but from a liquidity | | | | With or without key technology, if a venture is to |
| event at which you cash in your chips. At that | | | | be successful, it must have a sound business |
| point, you pay a one-time capital gains tax for the | | | | model that allows it to build and sustain a |
| vast part of the economic reward you derive | | | | meaningful competitive advantage that makes it |
| from your venture. You pay less income tax | | | | consistently profitable. |
| because the capital-gains rate is lower. And you | | | | Without that, you will go nowhere, no matter how |
| pay no employment taxes at all. With capital gains, | | | | innovative this or that element of your venture |
| you also control timing somewhat and this can | | | | may be. |
| further help minimize what you pay. | | | | 5. Watch your expenses. |
| It all comes from the same effort. You sweat for | | | | Wasteful spending is perhaps the single biggest |
| what you earn. You can take your reward as | | | | fault of early-stage companies. |
| ordinary income or, as a founder, convert a big | | | | Small business entrepreneurs have far less |
| part of it into far more advantageous equity | | | | difficulty with this than do startup founders. Why? |
| gains. With success, you not only earn more but | | | | Because they usually are dealing with their own |
| you keep more as well. | | | | money. If you know what it took to earn it in the |
| 3. Being a founder can be not only financially but | | | | first place, the odds of your being profligate with |
| also psychologically rewarding. | | | | it are greatly reduced. |
| When you venture out, you get the chance to | | | | One aspect of wasteful spending is simply |
| realize a vision for your company and to benefit | | | | extravagance. You get funded and you go out |
| not only yourself but also your co-founders, your | | | | and get the best that money can buy. Expensive |
| investors, your employees, your customers and | | | | offices. Extravagant salaries. Lavish parties. And |
| the public generally. You get to watch your | | | | on and on. In early-stage companies, you will |
| enterprise grow and prosper. You get to watch it | | | | regret such spending when you hit the bumps in |
| have an impact on others for good. | | | | the road where you wish you had that cash. |
| The satisfaction you can derive from success is a | | | | Inevitably, you will hit such bumps. Plan accordingly. |
| great intangible reward. | | | | Another side to wasteful spending, though, comes |
| 4. Finally, being a founder gives you the | | | | from not focusing your efforts properly in the |
| independence of being your own boss. You will | | | | early stages. You have ten great things you want |
| rise or fall by your own merits. This is a great | | | | to do as a company. You don't make good |
| opportunity and a great challenge. This is the one | | | | judgments about which of these to focus on. You |
| advantage that most entrepreneurs will ultimately | | | | spend on all of them. In short order, your funds |
| say they value most. | | | | are dissipated before you can build a reasonable |
| Tips for Becoming a Successful Founder | | | | revenue stream. |
| What does it take to be successful as a founder? | | | | Use good judgment about where you can best |
| Here are a few thoughts. | | | | use your limited funds and use them wisely. |
| 1. Above all else, build from strength. | | | | 6. Plan your legal roll-out carefully. |
| Be prepared before you venture out. Get a | | | | Don't front-load unnecessary legal expenses. |
| strong education. Work with the best to get | | | | When you are ready for a meaningful launch, |
| excellent training in your field. Master your craft. | | | | though, do your setup properly. |
| Build relationships. Take what you do best and | | | | If you have a founding team, make sure you give |
| improve upon it. That is the key to innovation. | | | | serious thought to using restricted stock as |
| And this is the best path for most founders. | | | | opposed to outright stock grants when making |
| Or you might build on the strength of exceptional | | | | grants to founders. In other words, keep strings |
| entrepreneurial talent alone. Or a specialized skill | | | | on the stock until it is earned unless there is some |
| that lets you team with others who supply what | | | | exceptional reason not to. Use cheap stock to |
| you might lack. Nothing formulaic here. But you do | | | | avoid tax problems. Get the IP into the company. |
| need to build on some form of strength. | | | | Get employment and consulting agreements in |
| This also means that you do not venture out | | | | place, making sure all IP from such arrangements |
| based on a bare idea. Try this one from the | | | | goes to the company. Review your trademark |
| bubble era: "I have worked one year in | | | | issues in connection with any branding you will do. |
| manufacturing and know how to revolutionize that | | | | File provisional patents as applicable. When you are |
| field through an idea I have for a website." Sorry, | | | | ready to bring on a broader team, set up an |
| but abstract ideas get you nowhere. | | | | equity incentive plan. |
| It also means you do not do something just | | | | Work closely with a good business lawyer to do |
| because you are tired of something else. Think | | | | the legal steps right. |
| twice about that romantic little tea shop. That is, | | | | 7. Fund your company incrementally where |
| unless you know about the business of tea shops. | | | | possible. |
| Others do, and they will make you pay. Know | | | | The worst trap an early-stage company can fall |
| what you are doing before you step into | | | | into is one where it gets over-extended. Plan |
| something. | | | | intelligently to avoid this trap. |
| No one will carry you when you go out on your | | | | Work with early-stage investors or have a |
| own. Therefore, be ready to build on something | | | | reserve of your own funds to carry you through |
| you do exceptionally well. That is your primary | | | | the phases before you have meaningful revenues. |
| key to success as a founder. | | | | Don't put yourself in a position where you are out |
| 2. Count the cost before you venture out. | | | | of options except for shopping your opportunity |
| You need the right temperament to go into | | | | to VCs. You will either not get funded (the most |
| business for yourself. If you crave security and | | | | likely outcome) or you will get slaughtered in the |
| certainty, being a founder is not for you. | | | | terms of the funding. |
| Don't romanticize the process either. Business is | | | | Conclusion |
| tough. You will lose the certainty of a regular | | | | Think carefully before venturing forth as a |
| paycheck. You will have bills to pay, whether or | | | | founder. The rewards can be great but you need |
| not you are making money. You will face a | | | | to be ready to deal with the challenges. If you |
| non-stop array of challenges, everything from | | | | believe you are, a big, open world of opportunity |
| people issues to financial pressures to competitor | | | | awaits you. |
| challenges to legal disputes to huge psychological | | | | |