The seedy side of entrepreneurship
Everybody loves entrepreneurship: the geek in the garage making stuff that will change the world, the excitement, the freedom, the lure. Entrepreneurship is sexy as a career choice. Entrepreneurs surmount the odds and create something from nothing; they not afraid to fly in cross-winds. They are persistent, brave and pathologically optimistic.
But the qualities that makes an entrepreneur are contrary to many of the activities necessary to get a venture off the ground. These activities, what I call the daily atrocities, are the seedy side of entrepreneurship. Nobody talks about this ugly side of entrepreneurship. But the daily atrocities are essential. For example, a just-graduated (PhD from a major technical institution) former student of mine recently lamented, “I got funded so I can finally pay myself; except that I can’t pay myself because I literally don’t know how!”
Banking, payroll, insurance, workers compensation, contracts, employee agreements, terms of service – these are some of the daily atrocities that get in the way of the entrepreneur moving forward his/her venture. Yet these things MUST be done to allow you and your team the space and time to work on changing the world and creating value.
A good example is Dropbox co-founder, Drew Houston, talking at Stanford. He tells the audience that he is going to reveal what he wishes he knew when he started out, “It would be awesome if someone had sat me down and told me what the journey would be like.” He relates the story of how, when Sequoia Capital decided to invest, they asked for wiring instructions. Drew thought that only happened in James Bond movies. Drew laments that there is no startup manual, “you just have to figure it out.” It would make life easier if there was a Startup Manual because this shouldn’t be the hard stuff.
Let’s develop a Startup Manual/Toolkit. This post is meant to stimulate a dialog from the community of entrepreneurs – you – to help create a Startup Manual through comments, suggestions, and ideas. So please comment on this post or email us: firstname.lastname@example.org; Twitter: @babscarryer. Please send us resources that you use that help you address the daily atrocities. Please send us stories of this seedy side of entrepreneurship – the issues that you faced, how you coped, new issues that arose, and advice that you want to impart to other entrepreneurs. We will publish!
Top 7. Here is a list of seven things that entrepreneurs love to ignore but which are important to do and get right:
- Bank. You need a bank that that has dealt with startups before. Ideally, you want a relationship with a business banker so that you can call him/her for particular questions or issues that arise. It’s much easier to talk to one person than to talk to a random person who has to look up all of your information. You also need a bank that does not charge for wire fees – or you will be mailing checks! If you are a venture funded startup, you should look for banks that will not charge large amounts for being wired large sums of money. Silicon Valley Bank and Square One Bank are good for this. US Bank and PNC are good on wiring options if you are not venture funded. Simple is a new banking alternative. Look for a bank with a good interface, mobile app, and one where you can deposit checks on the mobile app if you need.
- Finance. How are you tracking finances? Are you using your bank interface? Or other software that can aggregate accounts, tag expenses, etc? Quickbooks is the classic choice, but there are other options. If you are looking for a super simple version – you could use Mint in the early stages.
- Employees. Recruiting and hiring staff, negotiating salary, and implementing the logistics of payroll and benefits are challenging activities. Getting the right help is really important. And you need to account for the 30% or so on top of salary for taxes and other expenses. If, like most startups, your budget primarily consists of salaries, then you need almost a third more than anticipated. How do you advertise for employees? Where do you post for jobs? Jobsites, Angel List, email list serves, Twitter, on your own website? A few key recommendations:
- Outsource payroll. There are lots of services that do this, like inDinero
- Figure out the percentage that payroll taxes and other deductions will be needed and make sure that amount is included in your projected expenses.
- Determine your benefits policy, what is included now, and determine what you want for the future. If you are a small company, it may not make sense for you to have a company retirement plan. However, you can probably implement a plan where the employees put aside money for retirement. Or, you can have employees find their own plan and add the cost onto their payroll each month.
- Learn what you can do legally around interviewing, hiring, and employee agreements. Develop some simple guidelines that you can follow. Get your lawyer to draft a boiler plate employment letter.
- Figure out employment policies, eg, your holiday period, office hours, vacations, etc. This should go into an employee handbook.
- Space. It is hard to manage your space needs when you are in the dynamic situation of growing rapidly on limited funds. Space is everywhere and it is often cheap; even so, most landlords want to tie you to a lease. It can happen that your landlord ends up being your largest creditor in a bad situation. Get a landlord who is flexible, and insist on terms that don’t tie you to a long-term lease. Shared space has become common, but look for one that can enrich your startup. If you are going to be working from home, or moving office spaces as you grow, you don’t want to be changing addresses with the bank, IRS etc. You need a stable physical address. This could be a USPO mailbox; it’s worth paying for.
- Insurance. Getting worker’s comp, health, product liability insurance sounds easy, but wait until you have to evaluate multiple plans. The flavors of insurance are many, and in the Baskin Robbins insurance store you have to take into account a whole host of variables that most entrepreneurs don’t understand. Use your network to find an insurance broker who can help you sort it all out. They get paid by the companies so it doesn’t cost you, and they will spend the time to evaluate plans and make recommendations because they want your business for the long term. Also, be aware that you need worker’s comp for each state your employees are working in.
- Taxes. Do you understand what your tax liability is and how you will pay it? Who actually will figure out what you owe and when? Think about different states – are you incorporated in Delaware? With some employees in PA and some in CA? You will need to file in all three states. Find an expert who can deal with this quickly and correctly for you.
- Get someone to help. One thing I have done often in my own startups is on-board someone early who can deal with the daily atrocities. Someone who can either be a CFO-type or a highly efficient office manager. You don’t need to do this alone.
Lessons learned. You need to deal with the daily atrocities but you don’t to be ruled by them. You don’t want them to distract you from your goals. Don’t put your head in the sand and hope that these issues will solve themselves. Outsourcing is a great way to deal with many of them. Good luck and hope to hear from you about your lessons learned!