Creating A Tech Start-up: Forty Point Checklist

This is my favourite quote by Winston Churchill:

“Success is the ability to go from one failure to another with no loss of enthusiasm.”

Unless you’re the absolute except to the rule (like the one-in-one-hundred-thousand such as Zuck) as an entrepreneur you can expect to fail repeatedly. And especially with technical innovation you have to fail day to day, to perfect your product or service.

The last thing you need, then, while surrounding yourself with the inevitable problems you will encounter while attempting something new and different, is for a known issue to be the one that becomes a major problem in your business.

With this in mind, while comment and opinion certainly has its place in this column, the key to any entrepreneurial venture is execution. So today I would like to offer a blueprint process to getting your start-up off the ground. This guide is inspired by a blog post by Basil Peters – indeed some of it is lifted verbatim, and I’m indebted to Basil for his original list.

Procrastination is just a worthy an adversary as poor planning, so let’s get started:

1. Build your start-up team.

2. If it’s still just you, repeat step one.

  • Statistically, start-ups with co-founders rather than single founders are over twice as likely to receive investment;
  • Some will work evening and weekends until you can raise capital, but do ensure they are definitely ready to leave their jobs if you do;

3. Agree that you want to start a company together. The next several dozen steps will test this.

4. Agree on an idea.

  • The idea is much less important than the team as the idea will likely change and evolve;

5. Agree on the time and money each of the founders will contribute.

6. Agree on areas of responsibility.

  • Choose a co-founder who complements your skills, not one which duplicates them;
  • Who will be on the board?

7. Agree on intellectual property ownership. This is essential.

  • The IP must reside in the company;
  • Create NDAs and employment contracts which you should ALL sign (even founders);
  • Create these even if you’re not paying yourselves anything;

8. Agree on how you will handle personal guarantees, credit cards and other personal liabilities.

  • Steer clear of personal credit card debt if you can;
  • If you rack up directors’ loans against your start-up as long term liabilities, bear in mind you may be pressured by future investors to convert these to equity;

9. Agree on founder compensation and equity allocation.

  • Allocate options to yourself and co-founder vesting (reverse vesting) over four years;
  • Include favourable terms for you the co-founders (eg six months’ redundancy pay, three months’ notice) and a three or six month probation period for staff – they may not work out;

10. Agree on the exit strategy now.

  • This does not necessarily mean running your company toward a quick sale – you should focus on creating a valuable, scalable business – and your aspirations may change, but being aligned monetarily and on life goals provides a foundation to build toward the same end game. Basil says “I know that’s not intuitive, but [not doing this] is one of the most common flaws”;

11. Agree on the capital structure at year three.

  • Create your own cap table now: a spreadsheet of how the capital structure/share register might look after two or three investment rounds. It also allows you to see what the investment will do to everyone’s equity;
  • Agree on the amount of equity for future employees and directors (create a share option pool – usually around 10 per cent but in the US it is often higher. I would recommend a minimum of 15 per cent);
  • Allocate your employees or founding team options over four years;
  • You can get away with a Options letter – include strike price, number of shares (not percentage), vesting schedule (when they have rights to each chunk of the shares);
  • If you are doing equity, not a convertible debt round, consider creating a class of non-voting shares and giving those to your angel round (if they will accept). This means that your voting rights will be different to the total ownership. Useful if, for example, your Series A is not at the stratospheric valuation you hoped and you want to avoid getting close to owning less than 51 per cent between you and your co-founder;

12. Think hard about whether the first dozen steps are fair and equitable. Try to imagine whether they will still seem fair and equitable in a year, or three years.

  • If everyone in the founding team is not absolutely in agreement, stop and try to work it out;
  • Write a letter of agreement outlining all these points. It will not be legally binding, but gets down in writing what has been agreed and makes people really think about what they are agreeing to;

13. Make sure your documents define the legal & corporate jurisdiction (choose which State if you are in the US).

14. Confirm the previous eight steps by signing:

  • Employment agreements;
  • IP assignment agreements;
  • Share options letters;
  • Non-disclosure agreements;

15. Agree on the company articles (the constitution of the business).

  • Change the standard articles so a 51 per cent vote is required to sell the company;
  • Provide for electronic communications for statutory shareholder requirements (one company I started had over 20 angel investors – chasing signed paperwork by post is a nightmare);

16. Check alignment among the founders for points 1-16.

  • If alignment is not perfect, it may now be time for the first offsite strategic planning retreat with an excellent facilitator (perhaps your mentor – see below);

17. Find a least one very experienced advisor, mentor and/or coach who can review and confirm the previous five steps and can help to be a sounding board.

  • If you are going to offer them equity, what remuneration, if any, they will have;
  • Choose someone who you both respect enough – and is strong enough – to challenge you both;
  • Sector expertise is useful as you don’t want to spend all your time explaining everything, but someone under the influence of the cool-aid can sometimes reinforce a bad decision, so get this balance right;

18. Incorporate the company.

19. Have the first board meeting to “hire” the officers and give them the authority to conduct business.

  • Have the first shareholders meeting and the first Annual General Meeting to elect the board;
  • If you do not do these things now by the book, expect a nightmare when it comes to due diligence on future funding. Admin is the last thing you want to do when you are starting a business – you want to build product! But this is not only good discipline, it is your legal responsibility as a company director;

20. Celebrate! You have have your own company!

21. Create a legal share register and issue share certificates.

  • Pay for your shares (in the UK you need to place money in the company bank for the nominal value of the shares. US Delaware companies don’t have nominal share values so check your jurisdiction on this process);
  • You must record the history of issuing shares in the company share register;

22. Have a board meeting to approve the capital structure and share register – another essential legal procedure.

23. Create an electronic minute book and an electronic Due Diligence folder.

  • Place copies of all the paperwork, agreements, NDAs etc in the DD folder (you’ll thank yourself later);
  • Have a folder for board meeting minutes AND record minutes for board meetings. These can initially summarise the main points, you don’t need to quote every word. This attention to process will give comfort to investors at DD time and help demonstrate you have some grip of how to run a business;

24. Create a 12 month budget and five year financial projections.

  • Many people just ask for three, but some ask for five. The worst thing in the world is having to add two years to projections you have already spent way too long on. Just do five from the start;
  • All the projections are complete rubbish. They will all be wrong. Give it your best shot anyway. It will help you understand short term capital requirements – and hopefully give your investors the big carrot of oodles of cash at the end of the rainbow;
  • Assume you will spend more than you will. Easy things to forget (for a UK start-up) include: directors indemnity insurance, employee AND employers’ National Insurance, VAT on sales and the accountant’s and legal bills;

25. Check that your projected capital structure still makes sense now that you have thought more about the numbers – update if necessary – at this stage you still can.

26. Check again that you still have team alignment on all the previous 25 points.

27. If you have not already, write a business plan.

  • A PowerPoint (or Keynote!) deck is fine. The list of slide headings on Sequoia’s web site is as good as any;
  • This is as much to clarify to you and your team plans and direction, as it is for investors;
  • No more than three points on each slide, it is a sales tool, not an exhaustive biography of your product or market analysis;

28. Appoint an accountant.

  • Early stage bootstrapping is all about saving money, but a rubbish accountant now will cost you money later;
  • Appoint an accountancy firm which is large enough to know what they are doing but small enough to care. If you’re in Shoreditch, London, is a great example of experience combined with boutique size;

29. Open a bank account.

  • Agree on signing authorities for financial management;
  • If co-founders, allow single signatory but only up to a sensible cap (eg £5,000 or $10,000) with dual signatures required above that;
  • Make sure you have good online banking which ideally interfaces with your accountant’s software;

30. Check again the team is in alignment with last 29 items. Sometimes small disagreements can be a sign of a deeper disagreement.

  • Schedule an offsite strategic planning retreat to perfect alignment if necessary. (Choose an excellent, experienced facilitator to maximise chances of success – perhaps you mentor if he or she is capable);

31. Celebrate achieving the last 30 items!

  • It may not seem important, but it is for psychological reasons and bonding;

32. Get a simple subscription agreement for the founders’ investment.

  • Pay for your start-up equity by transferring the par value cash into the bank;

33. Learn about all of the taxes your company will have to pay.

  • Do not rely on your accountant to make the decisions; they cannot understand your business well enough to do this entirely themselves. You must understand taxes well enough to ensure you are paying all of the taxes the company owes and that you are not creating personal liability for your directors;
  • As directors, pay for anything you can get away with as expenses – all your travel (provided it doesn’t say on the ticket it’s to Disneyland). It is the most efficient way to get money out of the business. Don’t be fraudulent, just be tax efficient;
  • Use an electronic expenses tool (Xpenser, or Expensify) to collate your own and team accounts – all expenses are tax deductible;

34. Make sure none of your employees think they can be contractors outside of working on your start-up.

35. Understand the R&D tax credits program.

  • This allows you to claim back a large percentage of PAYE tax (this is an excellent R&D tax rebate available in the UK, others are available in Canada and other countries);

36. Get insurance (the insurance you really need, not what the broker wants to sell you).

37. Get an alarm system or check security before you move the computers into your office (unless you all have laptops). Two of the offices I had (including a shared one) were burgled.

38. Start planning you investment round and reaching out to investors. Make sure you adhere to EIS for angel investors – Google it – or in the US any legalities for private securities investing.

39. Agree on a fair valuation.

  • Get your external advisor to check and correct the capital structure and share register if necessary. (It’s still easy to fix this but that window is closing fast);
  • Don’t state your valuation in your first conversation with angel investors;
  • Consider convertible debt (offering a discount on the valuation at the next round);

40. Celebrate completing all of the absolutely necessary steps in building a successful start-up!

And then, as soon as the hangover clears, start working on the product, marketing, sales, recruiting, strategic relationships and exit strategy. Good luck…!

Note: This post was previously written by me for publication as an article in The Kernel magazine, an excellent deep-dive blog on the start-up scene. Think The Economist for technology. 

New MySpace Design Makes Facebook Look Old

Back in December 2010 I predicted that there would be a design shift the following year, toward cleaner lines, sharper less fussy – less “Web 2.0” – designs.

It’s taken longer than I thought but apparently we’re still moving in that direction!

The imminent Windows 8 is all about this, continuing the theme from it’s elegant (if a little Ux flawed) younger Windows Phone UI cousin. But also, MySpace is joining the fray, as my office neighbours at VentureBeat have just demonstrated publishing a video of the new MySpace UI.

As you can see it’s remarkably clean and utilises the vast screen real-estate which most desktop computers and many laptops now have. Why people are still designing for 1024 width is beyond me; or at least they should have sites which shrink gracefully and optimise for at least 1366+ and as an aside, there are some startling similarities to our new UI design for The Taploid (launching next week)… great minds think a like perhaps!

But I digress…

In terms of colours I’m unsure whether the darker shades may become tiresome after a while – certainly I find that the Adobe CS5 and CS6 suit which has switched to a dark style UI can be annoying. That said many Adobe Air products ended up like this, such as Tweetdeck and I was happy using them.

The whole MySpace UI video can be seen here.

I wonder what is next, a return to IBM PC Green?

The Next Generation Tech Conferences

I think we’ve all been there. Sat in a conference room, probably with no wifi, wondering how long the jabbering idiot on stage will take to finish what amounts to a sales pitch for his company.

Credit to photography

Of course not all events are like this, but many are. At risk of never being invited to speak at one again I find the worst offenders are those who should be the best at creating conferences – the conferencing companies who have created conferences for years and specialise in doing so.

Marcus Evans and Informa should be experts in this field, leading innovation and producing the most engaging events. Sadly that is not the case.

The dinosaurs of the corporate conferencing business suffer the same stagnation of ideas and lack of evolution as the lumbering incumbents of so many industries. Unable or unwilling to escape the confines of their tried and trusted product, have been doing the same thing with increasingly diminishing returns to the attendees for far too long.

In 2008 I was invited to an old Munich hotel on a mountain side. Stuck in this rather shabby excuse for accommodation with 14 others (it had not been open for business in 15 years) we were gathered there at the invitation of Harald Neidhardt.

Harold chose 15 people he found inspiring, who respected and liked, from the burgeoning mobile industry and persuaded them to stay in a remote building in the German countryside for a weekend with no pre-conceived agenda, other than to create what he called “MLOVE”.

An abbreviation of “Mobile Love” Harald wanted to harness the energy and innovation he repeatedly stumbled across in the tech industry (he’s currently CMO at Smaato) to create a group whose collective ability and enthusiasm would be greater than it’s whole, toward a goal he had yet to define.

Over the next 18 months, with contribution from that 15 (including Peter Giblin, Jonathan McDonald, Stefanie Hoffman, René Bellack, the Roeder brothers Philip and Michael, Mark “nobody calls him Mark” Schmöger) and some other key people, the MLOVE collective decided that a next generation conference was the best vehicle to execute the chosen mission of: inspiring people to inspire others in the mobile industry through telling stories and sharing experience.

With help from a core team and Director of the first conference, Pete Giblin (a veteran conference Director, Curator and consultant) MLOVE appeared for the first time in June of 2010. Pete’s contribution to the vibe and feel of the event should not be underestimated; he reached into his wide network to find truly inspirational presenters and created a program which represented something truly different – from a budist monk as opening keynote to one of the worlds biggest ever augmented building projection shows (impossible to experience properly on a computer screen) by Projektil.

Jonathan McDonald added his exuberant MCing alongside Pete and Harald and even I pitched in (OK so yes I’m bias) and the schloss became a hive of digital mobile activity. Features.

Since then, the first MLOVE Confestival (a word which everyone felt better represented the highly interactive nature of the event than simple a ‘conference’) has continued to be held in an old East German Schloss (castle) each early Summer.

I then summed up that perhaps MLOVE aspires to take the inspiration, education and high fidelity of the TED conference series and combine it with the trusted community, freedom of expression and environmental consciousness of the Burning Man festival.  With a modest 150 attendees reporting back unanimously with “wow” and “best event I’ve been to this year” in 2010 I think we succeeded in doing that.

Mobile IS the Internet, it’s the future of us all. In 10 years, we’ll scarcely remember the days of tapping at our desktop PC … and MLOVE’s re-imagining of the conference concept seems timely.

As celebrated in the collective conscious theory of French sociologist Émile Durkheim, unique ideas are seldom entirely unique – springing up at a similar time in disparate parts of the globe and in isolation.  In the same way as internet or mobile start-ups, or indeed any business idea, the secret sauce is actually in execution, in other words, talk is cheap.

Thus across in the United States an industry friend introduced me in 2010 to The Future of Storytelling which was a new invite-only conference being held in June in New York. She describes FST as being “..inspired by conferences such as TED, Pop!Tech, and PICNIC, it will gather presenters, performers and educators. The speakers will be a mix of artists, authors, educators, designers, performers, programmers, and inventors, who will share best practices, inspiring creations, and powerful, moving stories.”

Then there was Summit Series – a new invite only conference held on a cruise ship, in a ski resort, the partying (thus building of bonds and connections) being as important as the speakers on the stage.

Seeing the arrival and evolution of Summit Series and other new events reassures me that both those and MLOVE are on the right track; there is an audience and business community readier than ever to engage on a more human level than the dry corporate format of traditional events.

Convergence is not just rife within mobile, online and other technologies but amongst business verticals themselves. An overlap of interests, cultures and profits is being fuelled by rabid globalisation and the ubiquitous information age.

With everything from computing power, to social networks and supermarkets getting bigger and better, more people strive for a personal connection – the irony of the connected, IM, SMS, newsfeed ridden “social” enabled revolution. People are yearning for more meaningful relationships in the real world.

MLOVE is not a big event at around 200 people, but the likes of TED and Summit Series (both of which have a few more years under their belt) have grown steadily as the clammer for access to these unique experiences and the people who attend them, increases.

I believe it’s not so much a matter of conscious elitism by organisers to take the “invite only” route, moreover a profound need to not break the event – not to smother the personal trusted environment they strive to create. It helps create an atmosphere of a temporary “community” where relationships can be forged and ultimately deals done either to stir the capitalist cauldron or the philanthropist’s pot.

Sea Summit, started 6 years ago with a gathering of just 20 people, in 2011 took around 1000 invited people onto a massive cruise ship – dubiously called the Celebrity X – for a 4 days cruise out of Miami, stopping at a Bahamas island for the day in the progress.

I’ve been struggling to describe Sea Summit since attending – it was a hedonistic mix of inspirational speakers, partying, shark tagging (for conservation tracking) partying to Swedish House Mafia DJ Axwel, free booze and a lot of talking. Perhaps then “extreme networking” might be the best description.

At $4000 and up such an event doesn’t come cheap, but it does give you unfettered access to a wealth of knowledge, new relationships and have fun in the process. Shai Agani spoke of his revolutionising the electric car, rolling out a unique but ubiquitous charging network in Denmark and Israel. I met an Astronaut called Scott (no relation) who has flown up and literally fixed the international space station, climbed mount Everest and is now curing cancer with nano technology.

Rob Stewart and I talked about the horror of shark fin soup and his next documentary which is about saving the human race from itself.

Summit Series made me feel on the one hand like a complete under achiever but on the other that I could perhaps contribute value to many of the projects and people from industries outside my realm who need my experience and expertise.

My biggest criticism was Summit Series it would likely benefit from a better geography of attendees (many were from San Francisco or New York) if only as when trying to change the world, it would be good to hear from more of the world.

No event is perfect though and the eager team at Sea Summit have created something from which the momentum is tangible and if the comments on twitter post conference are to be believed, blew many of the attendees expectations out of the water. I’ll certainly be back for more in 2012.

At the more intimate extreme you have the , which have been quietly breaking the mould since 1996. They have a cult following and demand is extremely high. Alan Moore <> introduced me to DO, saying “Just go”.

Inevitably, the world is full of events the many of which I’m likely not aware of. The few I’ve mentioned represent the future of “conference” events as I would like to see them and I hope they will help banish the un-interactive one-to-many talk-at-me sessions of old.

Rather than lengthen the red carpet, TED have recently widened it introducing TED-X 24 months ago, democratising it’s brand. It’s a model which I suspect others are likely to follow (MLOVE has similar future plans).

In April TED proper also ran a campaign asking potential new speakers to submit a 1 minute YouTube video to be considered for a full audition in New York to potentially speak at the main event. It’s great to see them thinking differently to maintain the flow of disruptive content. If you haven’t already, check out where there is a library of free videos which will lose you for hours.

Back here in the Old World, LIFT in Geneva has a proven heritage of throwing disparate disciplines into a giant melting fondue of a conference. I attended in 2011 after a 2 year hiatus and it didn’t disappoint. LIFT also have a TED-style outreach program – last year I found myself with 25 others squeezed into a LIFT Living Room session in North London – bloody good it was too. (The pic below is from LIFT’s giant

Whether you’re working in tech, social enterprise, non-profit, film or elsewhere, all these conferences will provide value, connections and inspiration. The best test is to ask those who have been.

I write this while I’m at MLOVE Europe 2012. As ever it’s a disparate group of wonderful people in a castle in the middle of nowhere. The rustic adhoc vibe creates an environment ripe for building relationships which last – and the free bar fuelled by the eccentric owner Armin doesn’t hurt either. The next MLOVE Confestival is in Japan Q4 2012. Sign up now and hope to see you there!

..oh and if you want a conference curated, you could do yourself a favour if you give Pete a shout. He’s a bit of an expert 😉

STOPPRESS: And if you’re in to PRODUCT? There’s not question you should track down ProductTank / Mind The Product event 🙂

NB: Lastly, apologies if I missed anyone off this blog post – the MLOVE team over the years has had the support and assistance from so many great people it was not possible to list everyone here!

Will Facebook Ever Hit 2 Billion Users?

I just read Jason Hesse’s recent article on the falling stock price of Facebook. It makes some good points and generally I agree with it’s conclusions around the execution of the IPO and possibly today’s valuation. The multiples on revenue were after all, many times that of Google at IPO, for example.

Some of the other conclusions around future growth, I feel hold less water. Jason states:

“More than 900 million people is enormous, but could the company realistically double its monthly users? Anecdotal evidence would suggest not. ” …. “Naturally, the company’s growth could come from new sign ups. Facebook’s largest market is Europe, with more than 230 million users. This means more than one in four people in Europe are signed up to and use the social network. So realistically, there is little scope for this to grow significantly – if you’re not on Facebook already, the chances are you just don’t care and won’t join anytime soon.”

I don’t think I agree with this statement. Why won’t people care any time soon? I consider Facebook and social networking as a part of our lives, to be similar to the take up of email and other new technology, like the web itself. Even my Dad has a profile now, although admittedly for a 75 year old he is pretty well connected with PC’s, tablets and Android phones!

I also can’t help feel the sentiment of this statement is similar to the naysayers of the web 10 yrs ago; I would conclude social networking is following a very similar growth path.

With 1.5+ billion people on the regular internet but with 5 billion mobile subscribers, who are all fast moving to Smartphones with internet, the numbers also don’t support this statement.

And why would more than 1 in 4 people in Europe not want to join Facebook?

It’s taken just two years for Facebook to nearly double it’s user base.

The real issue IMHO is not that Facebook will stop growing because people don’t want to be on a social network and embrace the sweeping social change which those services is causing, but whether Facebook can maintain and evolve a service which captures that growth.

Given that a lot of the growth will be users who access the service by mobile, this is the second issue which faces Facebook (no pun intended). Can a service routed online historically successfully transform it self to become the stalwart of the mobile world?

In summary then the -in my view inevitable- growth of users numbers in Facebook is theirs to screw. They must:

1) Continue to innovate their product and maintain existing users attention
2) Navigate the cultural preferences of the untapped developing markets
3) Become a truly mobile orientated company, with the same level of UI/Ux on mobile as they demonstrate online.

Arguably they are currently failing at no.3

Finally, there is the spectre of “Privacy”. Jason says:

“If anything, as privacy concerns continue to grow, more people will leave the social network.”

I think this is also unlikely UNLESS Facebook makes a very serious faux pas. Radical transparency is not for everyone but there is good evidence to suggest the trend is in that direction. I can’t help feel this argument, that social networking has a limited growth due to privacy fears, is akin to the talk about e-commerce never taking off online for the mass market because of fears of credit cards not being secure online. In other words, it’s a red herring.

Compuserve was my first ever email address back in the mid to late 1990’s. It then slowly died over a period of years, as destination closed wall portals were trumped by the world wide web. Facebook, if it doesn’t continue to aggressively become more open, may risk it’s position as the ultimate social graph and silo of social data. (BTW, that little button in the top bar,  a globe with two striped lines, took you out onto the ‘scary’ WWW)

Facebook must get it’s future strategy right and that strategy must be around becoming more a platform and less a destination site, if it wants to maintain it’s position as the biggest silo of social data on the web. If it doesn’t do this fast enough, it will likely go the way of AOL and Compuserve before it, or be out manoeuvred by a future more open and yet to exist mobile competitor.

How Social Media is Changing Customer Service

After my little experiment in social media and customer service back in May 2010, I thought I’d follow up with this fantastic infographic on the topic (below) showing how brands which don’t embrace the new communication mediums are going to be losing customers and damaging their market presence in the future.

There are some great start-ups in this space, helping companies do a better job of managing their presence – not least Conversocial, run by my good buddy @joshuamarch