Why Entrepreneurs Should Rely on a Trusted Advisor to Forecast What Lies Ahead
Founders of startups and leaders of young companies have plenty on their plates.
It's tempting for entrepreneurs to focus their attention on immediate priorities. Others prefer to spend their time scratching their innate itch for innovation. What gets sacrificed, however, is often what is most critical to the company achieving its long-term objectives.
Founders and entrepreneurs often profess a sense of "isolation" — even those in partnerships. What can be the best antidote to this feeling of being all alone is often trusted outside counsel. This is someone who can not only serve to keep the entrepreneur focused and accountable, but who can also be leveraged as a "sounding board."
The Entrepreneurial Mindset Shift
A common mindset among founders and young-company leaders is that they view everything through a prism of affordability. This is understandable, particularly those who may be funding their operations on a tight budget. But as the organization grows and the stakes become higher, an emphasis on simply avoiding expenses — especially those focused on strategic needs — can undermine the growth and long-term prospects of the business.
Rather than analyzing potential investments against perceived affordability, growth entrepreneurs should be assessing such questions relative to their value. Successful growth companies make decisions by correctly foreseeing the long-term impact that a decision made today will have on the company's success well into the future.
This is an area where the perspective of a third party, such as outside counsel, can deliver significant value. The right legal counsel can provide valuable insights with respect to how certain choices can impact a business's future. Legal counsel can serve as a critical sounding board and an alternate voice in the room. He or she will also bring valuable experience of having navigated issues that may seem new and novel to you but which are commonplace and intuitive to experienced counsel.
Outside Counsel as Prognosticator
One such example is in bringing on investors.
While investors are, in many cases, important contributors to the growth of a company, there are future considerations that an attorney can help you address. If not structured properly, investments can actually hinder future growth and innovation. An investor may have invested in your business based on the specific trajectory of the company at the time of investment. Later, when you are considering new innovations (perhaps requiring a pivot in direction), such change might be met with resistance by investors who are less comfortable with the idea of changing course than you are.
Seasoned counsel brings such prior experience to the table, and can offer valuable insights and forecasting to prevent decisions being made in the present from limiting the range of available options in the future.
Outside counsel can identify possible regulatory matters an inventor may face, such as FDA regulations and the protection of intellectual property, for example. During the conceptual and prototyping phase of any new development, it is important to be mindful of the future legal and compliance hurdles your product will need to clear to get to market with the least amount of cost and friction. Repeating a clinical trial for not fully and completely complying with FDA standards, for example, can add unforeseen cost and unwelcome delay to the approval process.
Better to know ahead of time what you don't know than finding out after you've made a costly omission.
Documentation and the Defense of IP and Personal Liability
The non-disclosure agreement (NDA) is a critical weapon in the arsenal of the inventor looking to protect ideas and innovations. Errors made early on in the process of protecting intellectual property (IP) can eviscerate its value. It is critical, right from the start, to adhere to the basic IP protection protocol.
Without an NDA in place, an invention might be deemed to be "in the public domain" and not eligible for patent protection, or only for patent protection in the United States. This can significantly and negatively affect the size of the product's addressable market.
Experienced outside counsel can provide advice, review and execute on the various written agreements that startups and growing technology firms will enter into. Laying a solid legal foundation from a business' inception is crucial.
Some form of limited liability entity is always recommended. A limited liability entity can provide protection for the company's members and/or stockholders from liabilities that could otherwise consume their personal assets, (e.g., a home, bank accounts, college and retirement savings). All legal liability should be placed on the entity itself, limiting the exposure of the personal assets of the founders (and others who work in the business) from legal liability or civil action.
Once the entity is formed, it's important that it operate in a way that respects the individual existence of the limited liability entity. Trusted outside counsel can help direct the company to follow the appropriate processes and procedures.
There are many risks and dangers that arise from failing to have appropriate written documentation and agreements in place. Your counsel can help you identify the problematical issues and deal with them.
Plan the Work, Then Work the Plan
Lastly, the business plan itself should be an area of focus. Many eager entrepreneurs overlook the importance of documenting a business plan on paper. This may be because of uncertainty of how best to develop one, or out of impatience with what they consider a tedious time investment. But there are several reasons why a business plan is crucial, even if it's not one hundred percent final.
For one, investors, funders and lenders will expect that you'll have one, if they are to consider contributing financially in any way to the endeavor. Most investors will expect that your first draft will be a work in progress.
What they are looking for is whether you have gone through the process of making the appropriate considerations. They will want to see that if you have made your best attempt at making forecasts that are rooted in reality, not mere stabs in the dark. It's important to have a baseline on the financial projections, and the business plan development process makes those considerations unavoidable.
Remember, a business plan is a living document that will continue to evolve as your business comes into focus. Not only will it help guide you with greater clarity and confidence, it will help investors tune into their favorite proverbial radio station, WII-FM — answering the question, "What's in it for me?"
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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
