17. June 2019
7 Questions Your Startup Should Be Able to Answer
The fundamental principle of startups is to grow quickly. This often means postponing other seemingly less important tasks for later. In our March interview with Přemysl Líbal, we talked about how this approach does not always pay off and that it is often better to build a company on solid foundations. This time, we asked our co-pilot about all the legal aspects that every startup should take care of.
Even though every company is different and every product or service has its own specifics, all startups should spend time thinking about these seven questions:
Is our idea unique? If yes, in what way?
Can we protect our idea?
What type of company will we found and where?
Who will do what?
What, to whom and how will we sell?
From whom, what and how will we buy?
What's our worst-case scenario?
Let’s go through these questions one by one.
1. Is our idea unique? If yes, in what way?
The answer to this question will determine the answers to all the other questions. Copying a successful foreign model can bring you success – after all, there are many such companies in the Czech Republic – but you will probably not be able to grow globally or persuade investors interested in global scaling. If you do think your idea is unique, it usually consists of approaches that people have used elsewhere. If that is the case, it is wise to verify you are not breaching anyone’s rights, such as patents or intellectual property rights.
2. Can we protect our idea?
If you are sure that your solution, product or service is unique, it is necessary to protect it from potential copycats. You should definitely check out whether your solution can be patented or protected as a registered design (see Geschmackmuster). You should also register a trademark and domain and think about how you can protect your idea as a trade secret or confidential information in a Non-Disclosure Agreement.
3. What type of company will we found and where?
Do you want to start locally, use your own resources, or go to local angel investors or incubators? If one of these, you can create a local legal entity and then scale from your own country. If, however, you want to negotiate with foreign investors, consider founding your company abroad.
I have experience with a couple of companies that registered in the Czech Republic and became successful abroad as well as with companies that registered in the United States or in Great Britain, then spent a lot of money managing their foreign entity and eventually crashed. Therefore, it is important to think through where you should found your company and take into account both business as well as budget aspects.
4. Who will do what?
Everybody knows the deal already, right? Distributing titles is startuppers’ favorite pastime, as in, “I will be the CEO, you will be the CTO and Adam will be the CFO.” But that is not the answer to this question. What is more important than distributing titles is determining what each person will do and how much time and energy they will dedicate to it.
Clarify what you will do in case someone does not fulfill their duties or is not able to manage them and how you will dismiss that person from your company. Think about how the essential decision-making processes of the company will work, as well as what the most essential things to decide are, from your point of view. And of course, tell the other co-founder(s) what your vision of the company’s future development and possible exit is.
Agreements and deals are made for times when problems appear, and believe it or not, problems will appear. Therefore, write down everything in the Shareholders’ Agreement.
5. What, to whom and how will we sell?
Is your company’s model B2B (Business to Business), B2C (Business to Customer), B2B2C (Business to Business to Customer), or is it something completely different because your way of doing things is unique? Each of these models has its own specifics. Contract terms are different depending on whether you sell to corporations, small and medium companies or end customers.
Based on your model, you will either have General Terms and Conditions and simple agreements, or orders, or everything will run online. Each startup, however, will need to have General Terms and Conditions, sample agreements and personal data processing in accordance with General Data Protection Regulation.
6. From whom, what and how will we buy?
Suppliers, contractors and employees. These are the people that you will be in touch with daily, and if you want to have everything as it should be, you should sign agreements with each of these parties. Make sure that everything developed for you, internally and externally, is your property and that you own the copyright. Protect your business secrets and take precautions against anyone who might not deliver what they promised to you on time. In general, try to take care of all the possible risks.
7. What's our worst-case scenario?
What first comes to people’s mind are accusations, fines, and lawsuits. This is quite understandable because if you have thought the previous questions through, there are so many things to do that if you want to resolve them all at once, you will most likely want to stop running a business. But that would definitely not be a good decision.First off, don’t panic! Try to think about all the must-do activities and imagine what the worst possible thing that can happen to you is and how it could threaten your project. Then start to prioritize individual tasks based on the subsequent risks and resolve tasks one by one.
And my last piece of advice:
Choose your relationships carefully and check up on people’s real motivations whenever possible. Find experienced mentors and coaches who will help you avoid pointless mistakes and, if they happen, minimize their impact.
Přemysl Líbal is a lawyer, advisor, mentor and coach with more than 30 years of experience in the fields of information technology, contractual relations, business modeling, copyrights, electronic publishing and digital advertising. He has participated in various projects worldwide, including the continents of Europe, Africa, Asia, and North and South America. He has worked for major multinational technology companies, small and medium-sized businesses, and start-ups alike. He enjoys helping companies get things moving and find solutions.