By: Christopher Poe
When co-founders ask me to form their startup, I tell the founders they need to have two discussions with each other. These two very necessary dialogues are opposite sides of the same coin and often are overlooked in the excitement of getting your company off the ground.
The first discussion is easy: what does this company look like if it’s as successful as you can possibly imagine?
The founders and their counsel need to have a clear picture of success. The first step is figuring out where you want to go. Does success mean getting bought out in three years, or does it mean growing the business for thirty years and then passing it down to your children? For a founder, does success mean that you are the CEO and are handling all of the day-to-day operations, or does it mean that you focus on the big picture or on your product and hire someone else to handle operations? Does your business have two locations or twenty? Five employees or five hundred?
Another part of this discussion is deciding on the best way to get there. Can you grow by boot-strapping or will you need venture capital? Do you need to hire people in the near term to address any skillsets that you don’t have? How will you become profitable?
The second discussion founders need to have is harder: what happens if everything falls apart?
How do you resolve a dispute if the founders can’t agree on the company’s direction? What happens if one founder wants to leave the business? Can a founder be fired? It’s never easy to answer these questions, but it’s essential to talk about them as early as possible in the formation process.
No one wants to have this hard discussion on the front end, when things are going well and everyone is happy. But doing things correctly now can save you heartburn (and lots of dollars!) down the road, and a good lawyer can help. Your attorney can prompt and guide this discussion, providing a level of structure that can prevent the conversation from getting overly emotional.
Once you’ve had those two discussions, I suggest sitting down with your attorney and an accountant. Each answer will affect their guidance and help determine how they organize your business. It’s a good idea to have those service providers in the picture from the start.
Christopher Poe is an attorney at Wyrick Robbins. His practice focuses on startups, helping businesses of all sizes and in all stages of development, from organization to exit. He assists startups with financings, including angel and venture fundings, and advises them on securities issues.
The purpose of this brief is to provide general information, and it is not intended to provide, and should not be relied upon as, legal advice.