The most important element in building a successful start-up is, naturally, to have a good basic idea. But how do you get this idea not just to take off, but to stay aloft long into the future? How do you create a successful, long-lived start-up?
At the start of a creative process (which a start-up usually is), there is seldom a lack of enthusiasm and commitment. It’s like a love affair – the possibilities seem to be endless and it is impossible to imagine that it will not always be that way. Usually, there are several people involved at the start of the process – or other people join in along the way. What happens when the enthusiasm wanes and all the work, which didn’t feel like much at the start, wears on geniality and relationships?
The best advice is to stay one step ahead. If the company is started by one or more partners, you should draft a joint-ownership agreement, e.g. a shareholders’ agreement. A shareholders’ agreement is like a prenuptial agreement. It should be written when everyone is committed and enthusiastic, quite simply, when you are “newly in love”. Make sure to discuss how you want to resolve the problems that may actually arise along the way. Even difficult topics should be discussed. What happens if someone gets divorced? What happens if someone dies or becomes seriously ill? What happens if you can’t agree on how the company should be run? If something happens that makes cooperation difficult or impossible, it is always better to have talked about it in advance, and to have agreed on solutions.
Next, make sure that the company is run “by the book” from the very beginning. Carefully, document the board decisions and resolutions adopted by the general meeting. It is easy to solve the problems over a cup of coffee, but to maintain the value of the company you need to be able to show documentation. Any investor who might invest in the company will examine all documents related to the company. If something that should be there is missing, chances are that it will negatively affect the value of the company.
What about the good idea, the one on which the entire company is based? Make sure to exploit that, but not until you secure the rights related to it. Don’t start producing marketing materials, websites or products before you know you can register trade marks and business names. The cost of registering intellectual property rights is relatively low – the cost of starting over with websites and signage at the office is much greater. In short – when you know for sure that you want to start a company with a fantastic new idea, protect the rights involved first. Then you can start working.
A valuable start-up is one that has an idea that will last over time and that can be developed further. The value of the company consists not only of the turnover generated, but also in how it is run. If you make sure that board processes are documented, rights affecting the company are secured, and that there are good (and written) agreements, both between owners and between the company and customers/suppliers, it will reduce the risks that may exist in a company. If the risk is low, the value of the company will be higher. Consequently, from the outset, act as if an investor can be welcomed in at any time. The start-up company will then be like a happy, long and successful marriage.
Do you have questions about start-ups?
Contact Senior Associate Sara Malmgren
sara.malmgren@foyen.se
