Startups love to get stuff done. As an entrepreneur I live to tick stuff off my list. However, the number of “housekeeping” tasks can be overwhelming. Sadly, skipping steps that are not as sexy as product development and customer focus groups hampers your chance for success. You run the risk of losing, or not being able to monetize, your valuable strategic assets and forget about attracting financing or investment!
Years spent talking to entrepreneurs has unearthed the following five myths that need busting:
Myth 1: Go-to-market first, boring Ppaperwork second
Everyone on the path to funding or innovating wants traction as soon as possible to demonstrate viability. The boring paperwork and tedious system setup are often ignored in favor of rushing to a minimum viable product or prototype. Those early steps with your venture lay the foundation just like building a home. The same need for groundwork applies with a mature business and new product lines.
Investors want to minimize risk and are leery of companies that have skipped having contracts and agreements in place. Do not operate on a handshake because without a proper contract you may not own your product, even if you paid for it.
Myth 2: A patent will protect our company from all competitors
Many founders think that a patent is a shield from other companies. Unfortunately, while you have the right to exclude others from creating your patented item, it is costly business to do so.
That said, provisional patents and patents are still important but you have to first identify your potential patents. Next, you should have a professional help assess the patentability and whether you should use other intellectual property (IP) protection like trade secrets. Even having done your homework to understand that the patent will need to be enforced to have your monopoly is a good start.
Myth 3: We will be co-founders forever
Like many marriages, the initial co-founder bliss can fade or explode and sadly, it regularly does. Without a proper agreement on how the founder divorce will unfold, you are likely in for trouble. For example, do you have a co-founder leave with the intellectual property that they brought to the business, or do you purchase it? Do you have the right to buy the person out of the company, or do they continue on as a silent partner?
Entrepreneurs and small businesses need to focus on running their business—fighting patent infringement or co-founder lawsuits will be a horrible distraction. Have a written co-founder agreement with buy-sell provisions from the beginning.
Myth 4: It doesn’t matter employee or contractor
Once you start to need additional help outside of your co-founders, startups often think that the employee or contractor is always a choice. It’s actually not and your lawyer or CPA can help you figure out that potential landmine.
When you have anyone helping you, it’s similar to the co-founder situation—sign a contract or agreement that spells out who is doing what for whom. With contractors, you need to make sure that you receive the full rights and ownership of anything created. You can try to manage this yourself, but having a professional review contracts is money well spent, particularly for large purchases like software development or website design.
Myth 5: Crowdfund first, protect later
A popular method to raise funds and validate your market is rewards-based crowdfunding. An Indiegogo or Kickstarter campaign can be very lucrative; however, it can also be your company’s’ downfall if you do not protect your product and brand before launching your campaign.
It’s one thing to pitch accredited investors or groups with an IP strategy and no IP filings or registrations. On the other hand, launching a public crowdfunding campaign without IP protection not only leads to copycats but can also impact your rights to patent in the US and internationally. Protect before you pitch!
Is your business at risk? Have you skipped steps? Check out Traklight’s special offer to assess upfront risks for free. Use a special code for Rocket Lawyer customers only to identify your valuable intellectual property for just $99.
We’ve got answers. As a Rocket Lawyer member, you can ask a lawyer any questions that you may have, easily incorporate your business online, and set your business up for success with our “How to Start a Business” guide.