There is a fundamental mistake most Tech Entrepreneurs make, we pay far too much attention to the tech part of our startups and fail to put proper business structures in place for our startups, especially one-man or two-men skunkworks operation.
If you have been involved in the startup community or you’ve been reading about startups then you’ll probably know that most startups are seen as experiments and most startups dont survive after 2 years.
This is probably the reason why startup guys dont put in place proper structures to protect their work. The question they fail to ask themselves is: What if this experiment succeeds? What if this project gets a billion dollar evaluation tomorrow?
We need to realise that ultimately, a startup’s end game is to become a sustainable business. It is useless to come up with cool tech solutions and then fail to maximize profits from it.
If you are having extra hands work on your startup with you, ensure that everything is defined upfront and you have written agreements signed by both parties (this is especially useful for students doing dorm room startups where close friends volunteer their spare time).
Also, when people are joining your ‘little’ project dont be forced to start dashing out equity stake in the project. You need to ensure that they will be with you for the long haul, there is nothing worse than having some one leave your startup after a 6 month stint and then turn up 5 years later to say He has a 20% stake in your business.
Starting a business is frequently compared to getting married, which can lull partners into forgetting to protect themselves correctly. A good attorney (and even an accountant) can help create partnership documents and stock vesting schedules that protect both the company and it’s founders.
You may argue that at the earliest stages, this can be an overkill. But it isnt – You just need to come up with smart ways of structuring the business side of your startup so that you dont ultimately get ripped off in the long run.