Encyclopedia Entrepreneuria

Strategy
Internal (Biz Ops)
External (Biz Dev)

OVERALL VISION & BUSINESS PLAN

Vision & strategy

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Business plans have gone out of fashion with investors, so most startups only build a pitch deck. However, the effort of writing a business plan is valuable as it forces you to think more deeply about your assumptions, why the company should exist, and what needs to go right to succeed. VCs have to write a detailed and thoughtful investment memo upon investment. You should go through at least as much effort regarding why your company needs to exist.
There are dozens of great tools and frameworks including the Business Model Canvas, The Lean Startup, Disciplined Entrepreneurship, etc. The more of these you do, the better.
Traditional venture-backed startups are usually software companies that must drive enormous returns by growing fast with high margins and potentially reaching billion dollar valuations. There is absolutely nothing wrong with building a different type of business that won't generate the same returns and economics, but then don't raise money from VCs. If you do want to go on this journey, be thoughtful about the grand vision of what you eventually want to build and the first step along that path.
Contemplate how processes and structures need to evolve over time. These include headcount, market, organizational structure, office space, fundraising, etc. Almost everything will be different than what you imagine, but having a plan in place to build off of is far superior to having no plan at all. It is more about being thoughtful and considering what needs to happen versus knowing exactly how.
Understand the resources you have (especially those integral to your competitive advantage) and what you need. Be thoughtful about how to best leverage your strengths and to plug up any gaps.
Try to use as many free resources as possible. Get as much advice from experienced people as you can. This doesn’t just mean advisors, lots of people are happy to offer advice an help out a burgeoning entrepreneur.

problem & solution

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The best problems to solve are the ones that you have experienced personally or care deeply about. This adds credibility in the eyes of investors and customers, and will help motivate you when you’re dealing with a seemingly impossible problem at 3 am.
Do your homework to understand if the problem you’re solving is actually a big problem. Oftentimes what seems like a big problem is a slight inconvenience that nobody will pay to solve.
Do as many customer interviews as possible. Don’t prime the interviewee by explaining your product. You want them to organically tell you about their problems instead of saying, “is (my product) something you need?” You won’t get honest answers that way.
Painkillers are almost always more valuable than pleasure creators. This isn’t a hard or fast rule, and there are obvious examples like the iPhone, but in general, people are more willing to pay for something that solves a problem they have today.
Put a dollar amount on how much the problem is costing a potential customer. You’ll need this answer for sales purposes, so try to get to the bottom of this during customer interviews. This can help you determine pricing.
Even if you’re starting with a solution (technology), do not focus on what the technology does when talking to customers or thinking about the product. It’s too easy to jump to conclusions instead of creating what customers actually need.
When thinking about the solution, contemplate why this problem still exists and nobody has solved it yet. In general, any good idea will have a moment in time or technology making something possible (e.g., smartphones for Uber) and when you start doing research, finding competition is a good thing. If there isn't another company trying to solve the problem, that might be a sign that this isn’t a real problem or that you’re too early to market, and being too early is just as deadly as being too late.
When communicating your company to others, frame it as a solution to the specific problem you’re solving. If it isn’t clear to a potential customer that you're exactly what they need, they won’t buy your product. In short, make it about them, not about you.

initial target market

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Even though you (and your investors) will want you to build a multi-billion dollar business, you need to start somewhere. The TAM (total available market) shouldn’t be tiny but find a concentrated, identifiable, and clear market you can capture. Too often startups don’t focus, and it leads to vague messaging and ineffective sales and marketing campaigns. Your customers want to know that you’re solving THEIR problem, so speaking directly to their industry and/or problem is key.
Use a bottom-up approach to determine your TAM. Think about how many customers there are in the market, how much you can sell your product for, and how many actually need your product today. Realistic estimates about how many real customers exist in the next 3-12 months are critical to getting your business off of the ground.
Your initial market should contain some economies of scale, meaning that selling to one customer makes it easier to sell to the next. That might be because the customer provides references, suggests leads, or through FOMO (“your competition has it, don’t you want it?”). If this doesn’t exist, you don’t have a target market.
Ideally, your first market will emerge naturally through your interviews. If multiple customers within the same segment say they need exactly what you’re building unprovoked, you have product-market fit.
Create a customer persona. More on this in the Sales section. You should know who you’re selling to and they should share many characteristics.
Let your initial market help determine your product roadmap and development. This is true for requested features but also for expansion purposes (upsell, cross-sell, or new verticals).

competition

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Competition is a good thing. It means you are building something that other (smart) people have identified as an opportunity. You still want to be wary of competition since only one or two companies will emerge as the winners in any given category.
Focus on your differentiation as opposed to everything for everybody. Similar to not picking a target market, trying to be the best at everything early on leads to mediocrity and too many balls in the air. Over time, you will expand your product offerings and might become the perfect solution for all, but not at first.
Watch your customers to see what they are doing well and poorly. Don’t be obsessed and be sure to focus on what you can control, but don’t stick your head in the sand. But this will help with differentiation. Have differentiation and competitor information ready to share for any sales and marketing conversations. Finally, don’t be afraid to copy best practices (as long as it is within legal bounds).
Understand why customers leave you for your competition and vice versa. They won’t always give you the truth but ask anyway.
Be clear about the difference between competition and substitutes. Often, substitutes will be larger, legacy players and the solution potential customers are using. Inertia is a difficult thing to overcome, so your product must be significantly better, faster, and/or cheaper.
Ideally, you want to avoid price wars with the competition. That will generally lead everybody pricing at marginal cost (sometimes even “free”). Have confidence in your product and differentiation and charge a fair price for you and your customers.

mvp

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First impressions are important but don’t wait too long to release your product. It won’t be perfect on the first release and delaying will give your competition an opening.
Use your MVP and continued iterations to learn from your customers. There is no better way to understand what works and what doesn’t plus what your customers actually want than putting something in their hands. The customers are an integral part of the development process.
Be sure to have a plan of release when your MVP is ready to go. Ideally, you’ll have some customers (or Beta users) lined up, but you also need a release strategy on your website and other owned media, PR strategy including articles on your own blogs and ideally external publications, plus websites such as Product Hunt.
Don’t fall in love with your MVP. This is minimally viable, not the end product, so don’t be afraid to change parts (or nearly everything) about the product over time.
Keep your audience in mind and make sure that the MVP and release strategy (including the language and where you release) is relevant for your initial target market.
If possible, AB test features in your product. Test only one at a time so you can attribute different responses to a single change.
Discuss your target metrics ahead of time so that you know what you’re tracking, why, and what your goals are. Without benchmarks, you will not be able to determine what a successful MVP release entails and will be liable to do some “goal post moving.”
Understand specifically what assumptions about your product (features, customers, pricing) are unclear and use the MVP as a testing ground. This is also known as a RAT (Riskiest Assumptions Test).

business model

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The business model (or revenue strategy) is often overlooked in startups. If you want to be in a business, you have to make money somehow, and though some are more obvious models (like SaaS), even social networks and apps need to have a monetization strategy.
Know what your customers are willing to pay and how. This is a good opportunity to see what competitors and substitutes are doing regarding pricing, payments, and delivery.
Map out the stack (or value chain) and where your company sits. This includes customers, suppliers, buyers, competition. This allows you to understand how much total value is being created, who you’re reliant on, who is reliant on you, and how valuable you are to the broader ecosystem.
If you are not generating revenue right off of the bat, have a very clear path to revenue whether it be turning on payments (freemium), advertising, consulting, data usage, etc.
Your business model should be aligned with how much your product costs and the type of relationship you have with your customer. Self-service is going to be cheaper than a product that needs an entire dedicated team to support the customer.
This also relates to deciding sales channels. Channels can be direct, self-service, affiliate, etc. Just be thoughtful about everything aligns between product, sales, marketing, and support.
Additionally, the go-to-market strategy should align with the business model. Understanding of your customer will help direct this process.

team

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In the earliest days, everybody will take on many roles. However, be sure to focus on roles and tasks that are imperative for the product development, go to market, and differentiation. This is different for every company, but the core team should have some secret sauce or experience that makes you the absolute best people to solve the problem you’re solving.
Know who is responsible for each department and follow through. If nobody has the ability or bandwidth to manage a task, decide if it is mission-critical or temporary. If it’s the former, bring someone to join the team. If it’s the latter, consider finding an intern, a temp, or outsourcing entirely.
Everybody should be fairly compensated. That does not mean that everybody gets the same amount of salary and equity, but it does mean that people are motivated and satisfied. Intrinsic motivation for the love of the problem is necessary, but not enough on its own.
Ideally, the founding team should all be passionate about the problem you’re solving. Not everybody will have the perfect experience or expertise, but dedication and passion are critical.
In a perfect world, the founding team should have worked together in the past. If not, get to know each other before embarking on this journey. Startups are intense, and you’ll be around your founders more than your family, especially in the early days, and things do not always go smoothly.

expansion

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Don’t expand in too many directions too early. This is just as damaging as not picking a specific initial target market. Go to a market that is adjacent or similar enough to what you have already done. You want economies of scale and transferable knowledge from the early lessons learned.
In general, you can either expand vertically or horizontally. Vertical expansion is within the same industry or value chain either by adding new features or selling to new customers in the same industry. Horizontal expansion is selling into a new industry. Usually expanding vertically is easier but expanding horizontally is a larger opportunity and less limiting.
Prior to expanding into new markets or selling new products, know if you still have room to grow within your initial market. Often, continuing to grow within a known market has a higher ROI than trying to grow a new market.
Don’t neglect your original customers (or market) after expansion. Losing a foothold in your original market is trouble.
Determine if your product is viable for a new market before moving into that market. You should either have validated through interviews or have received inquiries from that market.
Be sure that you have the resources internally to handle the expansion process. You don’t want to overhire and be stuck with too many employees and need to downsize, but neither do you want to overextend and have to rush the hiring process.

growth

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“Growth” is a ambiguous yet seemingly obvious concept. You want your company to grow, which is true. However, there is a difference between good growth and bad growth just as there are healthy and unhealthy reasons for slowing growth rates. There are certain metrics for each industry that can point to sustainability. The idea of “Growth Hacking” is still popular but not as it was a few years ago because many of the strategies did not lead to viable and authentic growth.
Cohort analysis is a great way to measure the health and progress of the company. You want to measure newer cohorts of customers (broken up by a time frame or product releases/upgrades) versus initial users. You will be able to predict retention and LTV of your newer customers more accurately. Additionally, you can track progress to see if your metrics and retention are improving over time.
Different types of businesses will have different expectations and metrics. For instance, daily use is very important for a social network, but less so for a mattress company.
Growth is multidisciplinary, and all departments should be involved. Growth is related to the product, sales, marketing, customer service/success, etc. Therefore, data should be gathered from all of those groups.
Run time-bound experiments when testing new growth strategies. This could be new product features, marketing efforts, discounts/promos, etc. Be sure to be able to attribute the success or failure to a single factor.
Use customer feedback to inform your growth strategy. This is why it is critical to provide good customer service and communicate with customers.

FUNDRAISING

GENERAL principles

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Consider why you’re raising money, what it will be used for, how much you want to raise, and the minimum you’re willing to raise. Not only is taking money an obligation to your investors, but VC funds have Limited Partners as investors which include sovereign wealth funds, pension funds, and charities. So the people who benefit from those organizations are also your investors. Most startups fail and that is understood, but think about the implications of taking on investors or debt and don't be frivolous.
Attempt to map out how much money you’ll need and how long it will last. This won’t be perfectly accurate, but you must have a plan. When projections start to get really hazy (usually around a big milestone or inflection point), stop and only raise money up to that point. Investors understand the uncertainty and inevitable inaccuracy, but the thought and effort are meaningful, shows investors how you think, and provides useful benchmarks.
Your investors will own part of the company, and often will take a board seat, so take money from people that you want to work with and trust. They will have a significant impact regarding the direction of the company, and you want people who are inspired by the vision and understand the founding team.
Work with investors that can bring something besides just money to the table. They have big networks and can help introduce you to your later-stage investors and potential customers, but even better is any relevant experience from a functional or industry perspective. Put them to work if they’re willing to do so!
In a similar vein, don’t just email blast every possible funding source. Warm introductions are the best and have a short list of investors that you think are a good fit. Send personalized messages and tell them why you want to work with them specifically.
Always be honest with your investors. This is just a good principle for life, but your investors need to know what is going on so that they can help you out.
Prepare for board meetings and do your homework on how to run board meetings. You should send out a deck and agenda in advance (at least 24 hours) and focus the limited time you have on one or two of the biggest problems the company is facing. Let investors read the general updates in their own time.
Plan for your next fundraising when time is not a factor. If you only have a couple of months left of the runway, you’re in trouble.
Understand the milestones that are most important at each round. The Seed round can mean a lot of things for a lot of different businesses, but Series A is usually about generating revenue, Series B is usually about getting to scale (growth) and managing the organization, Series C is usually about profitability. In short, A is validation, B is top line growth, C is bottom line efficiency.
Dilution is important but don’t stress over it. A smaller piece of a big pie is better than a big piece of no pie.

FUNDING SOURCES

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Every funding source has pros and cons and makes sense at different stages of the company. There’s no magic bullet but match the investor and source to your needs.
Understand what you’re giving away with each type of funding and what you get in return. You should feel comfortable with both. The terms will also be very different depending on the type of financing and investor.
Know what you need and want from your investors. If you need a lot of guidance and want somewhat of a partner, more impersonal sources of financing (like crowdfunding or ICOs) are not the right fit.
Free money (like a grant) is great, but there are usually strings attached. Know what you are getting yourself into because you might have to do a bunch of work that is not aligned with the direction of your company.
If you are taking money from friends and family, you are inherently changing the nature of that relationship. It is not necessarily a bad way to go but be very clear about the risks of investing in a startup and if possible, try to have the understanding to keep these conversations away from family and social gatherings.
Know who and what is liable for each type of funding and company structure. Some structures leave you personally liable, meaning investors can come after your personal assets if things go poorly.

STORY, DECK, AND MATERIALS

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The deck is, in general, the most important document for financing (especially at the early stages), so tell the right story and make the deck comprehensible and professional. Keep it short and to the point, ideally no more than 10-12 slides. If you need more than that to pique their interest, you’re not telling the story well enough.
Think about how people will read your deck and materials when you are not in the room. In general, investors will want to see something before taking a meeting so you will need to have enough information for them to get the vision and want to meet you. These will be different versions of the deck with different amounts of text.
Investors will often ask for supplemental materials that won’t be in the main deck (due to length), so be sure to have those ready at hand to send over or show during a meeting. These include detailed financials, more technical information about the product, a hiring roadmap, or a number of other things.
Most importantly, investors are making a bet on the people more than the product or the idea. Understand your team’s strengths and weaknesses and try to be as authentic as possible. Again, you’re building a relationship with these investors, so you want them to invest in the real you and not an act.
Pitch your story by outsiders to see if they understand the vision. Investors will know more about your industry than a complete outsider, but in general, they will not be experts in your field. Find the right balance between over-explaining and assuming too much prior knowledge.
Build a logical flow into the story and don’t reinvent the wheel. There are some of preferred formats including the YC, Sequoia, and Guy Kawasaki’s 10 slides. Make it your own but start with a template.
Other materials that you can use include are; a website, business plan, videos, product demos, data/financials, and more. There is nothing better than a product demo at the earliest stages and data/financials at later stages.

TERMS & VALUATION

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Do your homework before entering into the fundraising process. Most VCs won’t try to burn you, but this is a large financial transaction, and you want to be educated.
Talk to your lawyers. They’ll be involved in terms of getting all of the paperwork exchanged and completed, but they can also offer advice.
Understand what terms are standard and what are variable. This often changes depending on the stage of the company and the round.
Negotiate wisely. Valuation is only one of the criteria you can negotiate on so be thoughtful about where else you can add or give away value to get what you want.
Have a spreadsheet to model out various contingencies based on the terms. You should consult this before signing anything and know what will happen to your stake in different scenarios.
Talk to the investors about their fund’s stage and economics. Understand they need to return money (usually in 10 years) to their investors. Hopefully, they will share with you about how they model opportunities.
Think about the downside and know what happens when things don’t go well. Investors can force you to sell your company; they can get all of the money from a sale, etc.
Get references from investors for previous investments they’ve made. You want to talk to a current portfolio company, someone who made it, and a company that failed to see how the investors act in every scenario.
Talk to your prior investors as they will have more information and have seen more than you have in the past. They will also have info on any firm you’re negotiating with.
Most importantly, don’t have an ugly negotiation. Don’t sign a bad contract but remember that if you end up signing a term sheet with someone, they are a close partner of yours for the next 2-10 years. You don’t want to start that off on a bad note.

DATA

GENERAL strategy

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A data strategy is no longer a nice to have. Even if you aren’t using machine learning, you must know what data you’re capturing and why, how you’re using data to make decisions, and layout benchmarks and measuring performance.
Collecting data is not nearly enough, you must also use the data to make smart decisions. That might mean identifying new market opportunities, new sales or marketing channels, issues with the product, etc.
Be sure that the data is not just being collected but also structured and categorized. There are software and tools that can help, but you still need to set this up ahead of time.
Integrate all of the data together and share it within the company. For example, marketing might be optimizing for the maximum number of clicks, but that doesn’t necessarily equate to sales. Look deeper into the root causes beyond the data. Strive to understand why things are the way they are.
Beyond the external data strategy, use data internally to keep track of how the organization is operating, what is and is not working, and how people and teams are performing. Data is a lot more credible than anecdotal evidence for performance reviews and decisions about promotions, fires, raises, reorgs, and processes.

KPIs

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KPIs will be different for every startup but align yours with profitability, growth, and the long-term vision. These should be set early and should be SMART (see Project and Product Management) and quantitative so that there is no goalpost moving.
Talk to your investors to understand what they have seen from successful businesses in the past and what later stage investors will be looking for.
Beyond the external facing KPIs like growth, revenue, CAC, etc, internal KPIs such as monthly burn are also very important.
Share the KPIs with the entire team and share progress as well. It is important to have transparency to ensure the entire company knows where the company is succeeding and where it could improve.
Understand how your data strategy will help you track KPIs and put processes in place to capture and track everything that needs measuring.
Think about what KPIs are important today and which ones are important down the road. You want to focus on the few most important KPIs at one time, and certain metrics are more telling at different times.

company goals & employee OKRs

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Everybody in the company should have SMART goals they are held to. Otherwise, performance will not be measured properly. Ideally, these should be quantitative because quantitative metrics are a lot more subjective. Most importantly, individual and team goals should be aligned with broader company goals.
People should also have goals on a weekly, monthly, and quarterly basis. This allows people to monitor themselves over time, stay on track, and divide up their time as they see fit. This goes for the company and teams as well.
Have conversations within the company to be sure that people feel that the objectives are fair but not too easy. This should be an open dialogue, but once they are decided, everybody (including management) needs to stick to what was decided.
Have the major goals of the company public. This helps the founding team stick to these goals and helps employees understand how their OKRs are part of the broader vision of the company.
Goals should be broken down by the department, and those responsible for each group should have a hand in setting their specific goals.

tools & software

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The most important thing is just making sure you’re capturing and tracking data in the first place. You might not need software for that, but there should be a data hub.
Ensure categorization is consistent from all different sources. If you’re using software, it should integrate accurately.
If you really have no idea where to start, there are some of ways to outsource a data strategy including bringing on a part-time person to get started, or hiring a consultancy that focuses on data strategy.
As always, be sure those who need to know how to use the software and are trained to do so otherwise it will be a waste of time and resources.
Think about the reporting and visualization aspects of how to share data with the team and with investors.

COMMUNICATION, MEETINGS, AND PROCESSES

general principles

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Whatever you decide, communication policies should be codified, shared with the whole team, and explained to new hires. We all communicate every day so formalizing best practices can seem unnatural. However, being deliberate is critical to make sure the entire organization is on the same page and will help build cohesion, set expectations, and give people something to refer back to.
The communication style needs to be aligned with the rest of the company culture. There is no right answer for how to communicate and work together, but it should be consistent.
Make sure your organizational structure is clear, and everybody knows who they report to and who reports to them. Not formalizing these roles leads to communication breakdown and things falling through the cracks.
Be clear about policies like expected hours, working from home, days off, etc. This will be really fluid and lax in the earliest days of the company but must be formal and clear later on.
Along with this, be open and transparent about “working hours” and when employees are still expected to respond to emails, when to stop sending emails, response times, etc. Everybody is different, so this might be more fluid depending on the team, but it must be talked about since we’re all reachable 24/7 but many people want to separate their personal and professional lives.
Startups need to move fast. Don’t let endless discussions delay decision making too much. You’ll need to continue to iterate but startup’s great strength is to be nimble compared to large companies so take advantage of that and move fast.
Take notes from bigger organizations you or your co-workers have been at, and those that have come before you. There are a lot of best practices for different sizes of companies and use them as your own.
At a certain stage, an HR person will be necessary in order to deal with peoples’ issues, and that person will be a safe haven. As great and close as everybody else might be, there is a point at which people don’t feel comfortable going to the CTO to complain about something that the CEO said.

meetings

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Having regularly scheduled meetings is very important. These include team meetings, project meetings, cross-functional meetings, and whole company meetings. Each one of these should have a different cadence and goal, but should all be planned out on the calendar days in advance, if not regularly set on a weekly or daily basis.
Have an agenda going into the meeting. The person who calls the meeting is most responsible for ensuring that the meeting is structured and notes are taken. Having meeting titles is an easy way to put people in the right mindset.
Truly be thoughtful about what a meeting is and what could have been an email or a group message. This is learned behavior over time, but can really drain everybody’s time.
Think about who needs to be in the meeting. Too often whole company meetings are called when it needed to be only 2-3 people with notes sent out to everybody else.
There isn’t a substitute for creative and productive meetings when people are fully engaged. They will be responsible for many breakthroughs and you have to be okay with some time being wasted.
Don’t necessarily stick to the 30 or 60-meeting windows. Sometimes it is great to set aside time to meet and discuss something face to face, but if you choose 5, 10, or 15-minute meetings, people are less likely to be late and less likely to dilly dally once in the meeting.
Most importantly, be sure to have clear takeaways following meetings. Everybody should know what the next steps are and their specific responsibilities are following a meeting. Far too often there is no discussion of next steps, and the same meeting has to happen again.

tools & software

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In addition to email, you’ll need to have a chat software (like Slack), video software (like Zoom), and data storage software (like Box). No matter what you choose, be sure that everybody in the company is using the same tools otherwise it will cause a gap in communication.
Security is really important, so make sure there is someone in charge of securing all communications or hire an outside company to help.
There are a number of free tools but don’t skimp on paying for something your company needs. The larger the organization grows, the more critical it will to have good communication software.
Consider where people are working and what tools you’ll need to facilitate meetings and communication for remote employees. The more remote people, the more critical a video conferencing system becomes.

REGISTRATION & LEGAL

incorporation & legal structure

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Understand what type of legal/entity structure is best for you (and probably just do a Delaware C Corp). Same with jurisdiction.
Make sure to pay your fees which are annual. Best advice is to keep a spreadsheet with dates for all fees and taxes with someone in charge of it. Setting reminders on your calendar is helpful as well.
Incorporate before you start to make money whether by selling or by fundraising. The IRS does not take kindly to rogue entities.
Decide what number of shares to authorize (and probably just do 10 million). You don’t need to vest all of the shares right away, but you’ll need to authorize them before you can distribute shares to the co-founders, investors, etc.
Decide if you want to incorporate yourself, have lawyers do it, or have someone in the region incorporate for you. There are plenty of services and enterprising individuals that will do this.
Make sure to get your EID (Employer ID) number from the IRS. This will be used all of the time so have it written down somewhere convenient.

lawyer

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Your lawyer isn’t formally an advisor or a board member, but you should treat them as such. Choosing a lawyer is not something to be taken lightly as they will have an enormous amount of impact on your financial and mental well-being.
Talk to other founders. You can even ask for references and try to find some references on your own. There are few well-known firms that know the industry, so all else being equal, go with one of those.
Make sure they have experience in startups. There are a lot of factors that are unique to startups that don’t apply to other corporate entities, so you want someone that understands the intricacies.
Understand the needs and if you’re looking for general counsel or something more specific like IP. Specialization will cost extra so think about the ROI of the expertise you need.
Get a file of boilerplate contracts like NDAs, employment contracts, equity purchases, options, etc. These should come standard with any lawyer’s services and will make your life a lot easier than having to figure this out on your own.
Understand the payment process and if they require 30-day standard payment, are willing to delay, require equity, etc. Think about what all of the co-founders are comfortable with because equity and money are both scarce resources.
Ask what other advice and services they will provide. Most have been around the block so can give you lessons from their experience. They might also be able to intro you to VCs when the time comes.
Be honest and talk to your lawyers. Their advice isn’t free, but it can save you a lot of time and effort down the road if you think you’re running into potential legal issues. Also be sure to send them any legal documents (including NDAs) that you sign. In general, part of their job is to store documents and check things over for you.

equity

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Have this conversation as early as possible. Talking about money and compensation can be a very uncomfortable and personal topic, but it is important to not put this off. Also, understand not every founder will get equal compensation in most scenarios. Nobody should take that personally.
If you don’t split all of the founder equity immediately, have milestones and tangible metrics set up to distribute more down the road. This is very common and makes sense in considering the importance of different skill sets as the company changes.
Make sure that all co-founders are on the same vesting schedule and don’t vest too early. In general, this will be over a four year period with a one year cliff (meaning no equity for anybody that leaves within a year) and monthly after that. Investors will usually make you do this regardless.
Leave plenty of outstanding shares for investors and the employee stock option pool (ESOP). You want at least 15% for ESOP and even more if you need to add critical team members on the executive team.
Make sure everybody has enough equity to motivate them. Keep in mind how equity will be diluted as the company raises money. There is no rule of thumb, but it will generally be less than half from what you started with. If people no longer think the equity is worth all of the hard work, that can be a problem.
Really try to get the equity right from the start. It’s really hard and messy to go back and change it and can cause irreparable damage in relationships.

insurance

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Ask your lawyer/investors/advisors. Don’t get insurance too early as it is an unnecessary cost, but get it when the time is right. Try to balance the risk and reward as it might not make sense until you grow enough.
Understand the different types of insurance and when you’ll need each. Investors might make you get “Key Person Insurance.”
Consider milestones like once you start making sales or have users, once you start hiring people outside of the core team, when you get your own office, etc.
When you need the insurance, don’t necessarily get the cheapest option available. You’ll want a reputable insurer and a policy that provides enough coverage.

contracts

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Ask your lawyers to help you put together your contracts. It will be well worth your money to have a boilerplate contract for employees, NDAs, sales, equity, and more.
Ensure you organize and have filed all signed contracts and keep them handy to access. You’ll never know when you’ll need them and you can get into serious trouble if you lose them.
In general, you can use templates you find online. No need to reinvent the wheel and most dealings for an early company will be fairly standard.
Make sure all employees and contractors are under contract. For contractors, you’ll want NDAs, non-competes, and everything that protects you from a contractor possibly coming back wanting more or divulging what you’re doing with another company.
In general, all of your sales (B2B) should be under contract, though not necessarily the case for a pilot. You especially want to have a contract if you use customer data for anything.

domain & email

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Similar to picking a name, make sure the domain/email is easy to remember and not too long. Often salespeople will have to spell the name out on the phone, and that can often lead to confusion and missed opportunities.
Pick a client that is inexpensive, common, and integrates with other software. For the most part, you can just use Gmail or Outlook.
Make sure your staff is comfortable using the software and if not, that they are trained on how to use everything from organizing their inbox to out of office emails.
In general, it’s a good idea for everybody in the company to have the same email name format and signature style. Have templates ready to go and make this easy.
Be careful with security and make sure someone is in charge of protecting emails.

intellectual property

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Don’t spend all your time on getting your IP in order. Focus on building. If the company doesn't succeed, the IP generally isn’t all that valuable.
Don’t spend a ton of money on IP lawyers. This can be a long and expensive process and can be a drain on the very limited amount of time the founding team has.
Make sure that you black box some stuff so people can’t rip off your code. Even if you have patents in the US, other countries do not have to adhere to the same laws, so you want to be very careful.
Furthermore, you need to decide if you want to get IP or go with “secret sauce.” Most companies are doing the latter these days because things are changing so rapidly and it is really hard to patent software.

ACCOUNTING

accounting system & software

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Talk to your lawyers the first time you pay taxes and have them run through all of the paperwork. Make sure you’re adherence to local, state, and national laws for everywhere you sell to, not just where you operate.
One person in the company will have to do a decent amount of homework to understand the basic tax code for your business. This is time-consuming and tedious, but someone should be educated and comfortable with this.
Know the deadlines and make sure you have the reports ready to go and enough cash in the bank to pay your fees and taxes. Have a spreadsheet to track dates and statuses and set reminders on your calendar.
Be sure to keep records, get all letters sent certified mail, and have a folder with all confirmations. You’ll never know when you need these and the consequences for not having records are enormous.
Decide if you want to manage taxes yourself or pay someone to do it for you. If you do end up using an accountant, make sure they have experience doing taxes for business and not just individuals.
Note that the info needed by the IRS will be different than what your investors will want, but you’ll need to stay up on both.
For investor reports, use a tool or have a spreadsheet that is legible and easy to update. Get recommendations from investors for what they’re used to seeing.

taxes & annual reports

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Talk to your lawyers the first time you pay taxes and have them run through all of the paperwork. Make sure you’re adherence to local, state, and national laws for everywhere you sell to, not just where you operate.
One person in the company will have to do a decent amount of homework to understand the basic tax code for your business. This is time-consuming and tedious, but someone needs to be comfortable talking to lawyers and tax people.
Know the deadlines and make sure you have the reports ready to go and cash in the bank to pay your fees and taxes. Have a spreadsheet to track dates and statuses and set reminders on your calendar.
Be sure to keep records, get all letters sent certified mail, and have a folder with all confirmations. You’ll never know when you need these and the consequences for not having records.
Decide if you want to manage taxes yourself or pay someone to do it for you. If you do end up using an accountant, make sure they have experience doing taxes for business and not just individuals.
Note that the info needed by the IRS will be different than what your investors will want, but you’ll need to stay up on both.
For investor reports, use a tool or have a spreadsheet that is legible and easy to update. Talk to your investors as they might have a resource or best practice they like to see, so you don’t have to build something from scratch.

bank accounts

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One team member must be responsible for monitoring bank accounts, payments, receiving payments, wire transfer, fees, etc. It can be really easy to lose track of what’s going on with the finances when you’re heading down the building. Understand who has check-signing authorities and have wire transfer information easily at hand.
Read your monthly statements in detail. Not only is it just smart to do in general, but you might also find a recurring payment that is no longer needed.
Ask your advisors, lawyers what kind of bank and account they recommend. Some are more startup friendly than others and if you need loans and lines of credit down the road, having a good relationship with your bank can be a huge help.
Pay attention to fees and benefits. Don’t get a fancy account you don’t need. Keep an eye out for minimum balances. In general, just understand that corporate accounts are different than personal accounts and be aware of that.
Understand your needs for a credit card, but don’t necessarily get one from your bank. There are tons of options, some of which are specifically for startups. As it is in life, credit is not free. Be very careful about the fees, the interest rate, minimum payments, etc.
Make sure all of the information is accurate and aligned with your IRS info including EIN.

accounts payable & receivable

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Someone must be responsible for paying vendors and that collecting from customers in a timely fashion. This will become exponentially more complicated and time-consuming with the growth of the company. Stay on top of it early and often.
Early on, one of the business co-founders will oversee this department, but this will most likely become a full-time job, or you can outsource to an agency.
Be sure to set reminders if you don’t have software because late fees can get expensive and many customers won’t pay you unless you remind them. Software makes this a lot easier.
Ideally, set up auto-payments for monthly expenses and try to pay for everything with a bank account and digital payments. If not, have a business checkbook just for this and cash checks from customers at least on a weekly basis.
Record everything in your spreadsheet or accounting software. If you are using cash accounting, at some point, you’ll switch to accrual and will have to backtrack, so include separate columns for when cash changes hands and when services are provided.
Even if you don’t have an accounting professional in the company, it is a good idea to check in with an accountant at some point in the first year to ensure your books are in order.
Have the right paperwork, contracts, invoices (complete with invoice numbers). Ask your lawyers or investors for these documents or find boilerplates online.

FINANCE

projections & budgets

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Initially, accurate budgeting will be a challenge, but be diligent about listing out every possible expense imaginable and add new expenses as time goes on. Over the first few months, you should be able to zero in on your monthly expenses and be relatively accurate even when adding new expenses. Strive to stay very close (within 10%) to your budget.
Understand what expenses are fixed and variable. Ideally, categorize these on your spreadsheet and know what is driving each expense. Be thoughtful about what costs change as you hire new people, take on new customers, move offices, etc.
Keep track of net sales (Sales - COGs) and gross margin ((Sales-COGs)/Sales). Then figure out your operating income which takes into account SG&A. Finally, use interest and taxes figures to drive all the way down to net income.
You can begin by only having an Income Statement, but the sooner you create the Cash Flow Statement and the Balance Sheet the easier it will be. Furthermore, those statements help provide valuable financial ratios and data not available from the Income Statement alone.
Use benchmarks of similar companies and industries for your initial projections. It will be hard to find data on private companies and public companies might not be good comps due to their size and scale, but backing up your assumptions with some data is better than nothing.
To make sales projections, use a proxy metric to predict revenue. For example, number of users, number of deliveries, or number of hours per user. Use that metric to build a bottom-up (not top-down) revenue projection that will be more sensible and practical than top-down projection.
Project your sales forecast thoughtfully. If you have been growing at 10% month over month over the last 6 months, why will that continue if you don’t change anything? What would cause that number to change that is outside of your control? You should list out your assumptions on your spreadsheet and analyze various scenarios.

cash flow management & burn rate

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Know how much money you have in the bank and how long that will should you. The truth is that it will last you less time than you assume and plan accordingly. Everything is probably going to cost 50% more than you originally planned and take 50% longer. That means you’ll need to grow revenue and/or fundraise quicker than you originally project.
Working backward, you want to initially raise more money than your budget tells you, since unpredictable expenses and delays are bound to come up. Plan for your next fundraise as soon as you close your first round. At early stages, don’t speculate that revenue will generate profit, so all of your expenses will come directly out of your bank account.
In that vein, identify what metrics your next round’s investors will be looking for whether it be revenue, customers, users, product development, etc. and stay close to deadlines for that.
Guarantee you can always clear payroll. Nothing is more stressful and will lead to higher turnover than missing salary. Once people start to sense that payroll is becoming an issue, they will assume the rest of the company is having trouble, and you’ll see a ton of turnover.
Always be looking for sources of capital beyond VC and revenue. Consider other options such as debt and grants and always have one ear to the ground for potential partnerships that can generate big cash inflows in short order.
Limit your free trials and try to hone in on the pricing. You won’t price perfectly at first but ideally, charge something. Early startups often don't charge enough to get people in the door, but it is really hard to raise prices without creating a lot of churn. Don’t sell yourself short!
Have some cash set aside for a rainy day fund. There are always unexpected expenses, and you don’t want to be left scrambling or dip into personal money to solve this issue.
Note that if you run into financial issues due to poor planning, there is a very good chance you won’t be able to raise more money. If you are able to raise more money, it will be at a heavily discounted valuation.

important financial metrics

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There are a few basic metrics every company should track. Beyond the basics, research metrics that are specific to your industry using comparable companies to set the baselines.
Don’t just treat financial metrics as something your investors want or for vanity’s sake. They are critical to determining the progress and prospects of a business by using comparisons to previous ventures. Every company is different but comparing metrics is one of the more unbiased ways to predict success.
Dig deeper beyond the numbers to determine the root causes. You especially want to examine metrics that are changing and understand why. Additionally, build plans into your strategic initiatives for improving weaknesses.
When you bring on new people or start a new initiative, predict the improvements and track what actually happens. Once you lock in on your baseline expectations for how a new hire, new feature, advertising campaign, etc. can impact the company, then you have a quantitative and objective way to measure effectiveness.
In addition to your own metrics, try to track your customers’ metrics as well. If you know how your product is helping them, saving them money, saving them time, allowing them to generate more revenue, etc. Having that data will be an enormously helpful tool in the sales process.
Financial metrics
- Gross margin (Revenue – Costs / Revenue)
- Net margin (Net profit against sales)
- Current ratio (current assets/current liabilities)
- Quick ratio (cash+AR/current liabilities)
- AP days (AP/COGS*365)
- AR days (AR/Sales*365)
- Break Even analysis
- Free cash flow
- Revenue run rate
- EBIT and EBITDA
- Revenue per employee
Startup metrics
- LTV/CAC
- Average Revenue Per User (ARPU)
- MAU and DAU
- GMV (for marketplaces)
- Conversion rate
- Payback period
- Customer savings
- Onboarding costs
- Churn rates and churn costs
- Hiring and firing costs
- Salary costs

HR & ORGANIZATIONAL MANAGEMENT

processes & software

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You will need to manage everything manually at first. Document all activities including hires, fires, and recruiting. Eventually, you will add people and software to help with your processes.
Codify your HR processes in a company handbook. Share this with all employees and make sure they have read these documents and understand company norms.
Ensure every employee’s paperwork is up to date easy to find. This is necessary for tax and possibly legal purposes.
In addition to (or in lieu of) software, consider outsourcing to a PEO (professional employer organization) if it makes sense from a financial and time-saving perspective.
Understand the features that you will need in a software and be sure you have processes in place prior to software:
- Application tracking (ATS)
- Recruitment and onboarding
- Compensation and benefits
- Employee relations
- Compliance, health, safety
- Training, development, performance management
- Payroll management
- HR information
- Organizational design

diversity & culture

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Culture is built early and starts with the founders. Hire for people that fit but don’t hire people identical to you. Diversity in all metrics including thought, opinion, point of view, discipline, as well as race, gender, culture, economic background is critical.
As you continue to grow, maintaining a strong and cohesive culture is harder and harder. Later employees will not feel as connected compared to the company as the first few employees. That is natural and to be expected, but still strive to hire people that are aligned with the mission, and make sure to provide both intrinsic and extrinsic motivations.
Live your culture and ideals. Everybody on the team, customers, and the public will look to the leaders of the organization to get a sense of the broader culture. Be honest and authentic.
Don’t get caught up hiring from all of the same sources. It might be easy to use shorthand like school, number of years experience, previous companies, etc. to determine an applicant's quality, but you will be sacrificing diversity and that strategy isn’t always correct. Be more discerning about expanding your recruit base and the interview process.
Having company dialogues about fairness and diversity is important. Additionally, talking to outsiders or bringing in experts to give you a fair and unbiased view of your culture and diversity is worthwhile.
Being mindful of diversity and culture is an important first step because it is something that can easily get lost in the shuffle of the work. Be honest with yourself and do check-ins. Don’t be afraid to change things that aren’t working. As the company grows, much is bound to change so accept it and manage it instead of letting it run wild.

recruiting

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Manage your online job openings; keep them up to date and on the brand. Have a variety of places for people to find your roles including your website, AngelList, LinkedIn, and possibly other recruiting sites.
Try to avoid websites that people can mass apply to a bunch of jobs at once. You want people that want to work with you. You’ll find this out their real interest in the interview process, but you can lose a lot of time sifting through resumes and interviewing people that don’t know or don’t care about the company.
Leverage your network including your investors and customers. In general, the best employees come from warm introductions. That being said, don’t be afraid to hire someone that reaches out to you out of the blue. They might be passionate about the company or problem and could be a perfect fit.
Have a reasonable but not too easy application process, so applicants have to put some effort in. Additionally, know who is responsible for hiring and communicating with candidates. Often with startups, the recruiting process goes cold, or companies take way too long to respond and lose out on great people.
Try to have as accurate job descriptions as possible because people will be wading through many bad options to find the right one. Be aware of what you’re looking for and don’t scare people away by asking for way more experience then you need.
Be focused on what you want out of your interview process and measure the outcomes. Too often interviews are meandering conversations and you won’t know enough relevant information about the candidate after. Be consistent with the questions across all candidates. It is much easier to compare apples to apples this way.
Have multiple members your team interview candidates to build a diversity of opinion and formulate a consensus. Be honest with yourselves about implicit biases and even take tests to understand your tendencies. However, more interviewers can help mitigate this issue.
Build a hiring roadmap but always be open to hiring stars when they come around.

reviews

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Create a process early and set expectation for review frequency and timing. It is easy to let the company grow and leaving this on the back-burner since everybody is working closely and knows each other, but as the company grows, this will become a problem. Demanding accountability and setting expectations are must
Use tangible examples and data in reviews whenever possible. It is a lot easier to give feedback if it is driven by facts.
Consider 360 performance reviews. There is a lot of data around the benefits, and your managers will get feedback on their performance as well.
Provide employees a forum to submit complaints and voice their opinions otherwise they might be unhappy, and you wouldn’t find out until it is too late.
Let the employees know ahead of time so they can prepare. Too often do reviews get put off because they are not seen as mission-critical and can be uncomfortable.
Reviews aren’t the only time to provide feedback to employees. The more you give, the better aligned the team will be.
Be aware of bias (conscious and unconscious) and try to notice if there are differences in how certain employees are reviewed and how certain managers give reviews.

compensation

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Understand the balance between salary and equity. Most employees that join an early stage startup want the possible upside. However, your equity is the most finite resource, so don’t be rash.
Consider giving new hires options for their package. Higher salary, lower equity; medium, medium; lower salary, higher equity.
Have standard compensation for hires in the same “stage” of the company for the same job. You can choose to be transparent about it, but it helps you in the negotiation if you can say this is the same that everybody gets.
Note you can trade factors other than salary and equity in the recruiting process. Providing flexibility to work at home one day a week is an option. Other selling points are amenities and meals. You can also provide a relocation package.
Use a standard vesting schedule for all equity for all employees. This can get messy down the road so be sure they have ways to cash out either by selling shares back to the company or on the secondary market.
Know your benchmarks for the region, stage, type of company, job title, etc. You might get some people that are super passionate about your company and willing to take less, but for the most part, you’ll need to be competitive.

responsibilities, outsourcing, and organizational structure

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Everybody should know their responsibilities and have them codified. One person (a founder to start) must be responsible for each department. That does not mean others don't help, but one person has to have the final say.
Know your strengths and weaknesses and hire accordingly. This is especially critical for the management team. You don’t necessarily need to bring on (for instance) a CFO right away, but if nobody on the founding team has any finance knowledge, that should be on the roadmap and set aside equity and salary space for that person.
Roles change and become more specialized as a startup grows so plan accordingly. Be realistic if you are the right person to continue to manage a department or if it makes sense to bring someone on that is more senior and experienced.
Management (mid-level and otherwise) becomes increasingly important and necessary as a company grows. Bureaucracy exists for a reason don’t wait too long to implement processes and documentation.
All employees should know who their direct boss is and who else is in their department. There should be no ambiguity about roles, responsibilities, and the hierarchy.
There should always be a healthy tension between sales/marketing and product. Use cross-functional teams to create understanding and to gather a diversity of opinion. Disagreement is a good thing, but everybody needs to commit once a final decision is made.
Outsourcing is a very valuable, yet risky, tool. In general, think about outsourcing for temporary, non-mission critical projects instead of functions that will be imperative to the day-to-day operations of the business. Have clear contracts and NDAs along with statements of work, deadlines, and expectations.