Bite-Sized Bits of Knowledge

Non Legal Formation Advice

Starting a Business: Non-Legal Formation Advice

While you will certainly have to traverse many complex legal facets when starting a business, the broad platform for a healthy business also encompasses many non-legal pieces of common sense. Having certain practical foundations in place can make the difference between struggle and success, profit and loss – and a rocky first five years that end in closure or a doorway to future growth. 

What are some of these pragmatic basics that you need to consider as a responsible potential business owner?

An Overview of Business Formation

 

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Hi. This is Barry Haimo. Thanks for tuning in to another dose of Bite-sized Bits of Knowledge where we give you meaningful information in a short amount of time. Before we get into formation and all of the different types of entities, I want to take a few minutes to first talk about nonlegal business guidance. I want to give you some insight into just general business stuff.

So, when you have a product or service, obviously it’s a starting point, but you got to think it through. And to do so, I would generally recommend a business plan. Now a business plan doesn’t have to be a novel, but it definitely should not be a napkin. It has to be somewhere in between. It needs to be enough.

It needs to be a reasonable reflection of thoroughly doing your homework in a lot of different areas. So I want to give you kind of an idea as to what those areas are. 

A business plan will typically include the product or service, but more specifically, your value proposition. What really are you offering people? What are you really selling beyond the product or service?

Because people are usually buying something else. They’re not buying a shiny product. They’re buying an adventure. They’re buying an experience. They’re buying a feeling.

They’re not really buying a product or a service. So that’s really important when it comes to, I mean, the customer. So you have to really understand who your customer is. Understanding customer identity is super important because you want to make sure that your offering is narrowly tailored to that particular customer. 

Now I recommend you know everything about your customer. Their wants, desires, needs, where they play, where they work, what they read, what they watch, et cetera. Create like an avatar and really cater everything about your messaging to that customer. 

Now sometimes we get business plans where we’re looking at them, and they have a $1 billion market, and they’re going to capture .0001%. And that’s the goal. I mean, it’s big enough. We’re going to capture such a small nominal matter. That is the worst idea ever. It is a common rookie entrepreneurial mistake. You cannot be a thing to everyone. You cannot go after a wide market.

You got to be narrow. You gotta be focused. You gotta be developing a niche. And then once you exploit that niche, and you kind of become the main competitor in that niche, then you can expand beyond that. But you really got to be specific – and to the exclusion of other opportunities – because don’t forget, you can drown in opportunity. You can drown and fail because you’re too successful, just as much as you can fail because you’re not successful. So it’s really important: just remain focused, identify a customer, understand your value proposition.

So a couple of other things you’ll find in a business plan would include your distribution channels. How are you going to get the product or service to the marketplace? To the customer specifically. How are they going to buy it? Understanding that process is really important. And your costs are critical to understand, because it’s going to cost you money to get from A to B to C. 

So understand your costs, understanding how you’re going to scale, understanding how your costs will change as you scale in terms of all of your expenses on your PNL: your payroll expenses, your insurance expenses, your vendors, everything. It comes down to – rents. software, will talk about that in a little bit – you got to understand exactly your costs, because then you can’t you need to understand how to make a profit.

Okay. Your business plan will also include a competitive landscape, which is an analysis of your competitors. Who they are, what they’re offering, what their messaging looks like, their pricing model, their website, their advertising, everything. You want to understand your competitors. You want to know them almost better than you know yourself.

You want to really understand how you are different from them. Your competitive advantage is important to understand. What do we have that they don’t? What are we doing that they don’t? And more importantly, what are we doing that they don’t?

Or what do we have that they don’t have that we can exclude them from doing? Or we can exclude them from having? And that’s where understanding our intellectual property comes into play. Those are Rights of Exclusion. To exclude others from using your copyright protected materials, your trademark names, slogans, logos, images, et cetera.

Or your patterns on inventions. You need to have something that prevents others from competing or else they will compete. There’s an old saying that imitation is the biggest flattery. And it’s true. But it’s not good in business.

You don’t want to necessarily have a lot of competition, so you have to innovate – so you can create yourself a subcategory. It eliminates competition. There’s a lot of books on that you should read. So understanding your capital structure is the next thing on my list. Understanding your equity.

Partners or debt? Who are you raising debt from if you so choose to do so? Understanding your tap. Table. It’s important to understand your legal liability exposure, as well.

Lemonade stand is very different from a pharmaceutical company vs. selling candy on a school bus vs. a CPA performing professional services. You need to understand what your exposure is so you can plan accordingly. There’s a lot of things that go into that beyond just forming a company. I would recommend that you find an executive team that has credibility and experience and can contribute and can put some skin in the game. That’s really important. I think that leadership and the people on your executive team are super important, because it’s better to have a mediocre plan with a better team than the opposite. 

I’d recommend that you invest your attention and develop a strong business model. A business model is more than we’re going to sell it online. For that reason, I recommend you look up something called the VRIN model. VRIN model. VRIN – or I’m sorry, the VRIN framework.

And it can give you a really good idea as to how to develop that plan. It really could make you a strong differentiator if you develop it. In your business plan, you really need to have realistic forecasts. You want to have your assumptions built out and how you arrive at your decisionmaking in your forecast, because every VC and angel investor knows that likely you’re overstating it significantly. So just demonstrate that you’re thorough and you’re responsible and you’re diligent by giving them reasonable numbers with data and assumptions. They’ll appreciate it very much.

So with that all being said, there’s a lot of information online about business models and marketing and marketing plans and all that kind of stuff. I’d recommend, in my opinion, that you pick up The Startup Owners Manual. Liam Startup and Blue Ocean Strategy. I found this to be very influential. I have a ton of those on my list, but those are the three I think I’d like to share with you.

I think as well you should find everything that Jim Collins ever wrote or published or recorded. He’s a really articulate business mind. I think you’ll get a lot out of it. Start with his book, Good to Great.

It’s definitely made an impact on my life and my businesses. I’ll have a link in my description about this video to somebody who I’d recommend as a consultant to help you develop your business model and your marketing strategy, to help you go linearly from where you want to go – instead of going and winding paths with wasting a lot of time and money learning. I highly recommend you do that. And overall, I just wanted to tell you, just think it through. Put the time and put the effort into your homework. It will pay for it. It will pay you back. It’ll pay dividends. 

So, before we wrap up this video, please download our free Florida Entity Chart and our free Business Planning Stress Test. The links are in the description.

I want to thank you for stopping by, and stay tuned for more.

Okay, now let’s break some of those concepts down into a more manageable list.

Business Plan, Plan, Plan

For this list, we’re really pretending you’re starting from scratch. If you feel like you’re already past some of these steps, feel free to skip ahead.

Figure Out What Your Business Is

Sounds obvious, right? But some people genuinely don’t know. They want to become a business owner, but they don’t have a specific idea for a product or service they want to provide. And even for those who do, it can be helpful to ask some of these questions.

  1.  Do you have an idea for a product? Is there something you particularly love/are good at/that people come to you for advice about?
  2. How much time/money do you have to invest in this business? Will you be partnering with someone else? 

Research the Market

Market research involves compiling information about businesses that are already engaging in the kind of work you want to do. You will also want to look into potential customers so you can learn whether your business idea is viable and how to make it successful.

Put Together a Business Plan

Think of this as two things: 

1) How your business should be structured, run, and grown and, 

2) As a sales document to convince people to work with or invest in you.

A good business plan should include:

  • Executive summary
  • Company description
  • Market analysis
  • Organization and structure
  • Mission and goals
  • Products or services
  • Background summary
  • Marketing plan
  • Financial plan

Fund the Business

Every business needs money to get started and to run. Your business plan should detail how much. 

The next question is whether you have that much money on hand or not and if you want to use your own capital. If you don’t have enough or don’t want to risk your own money, you’ll need to research ways to borrow or raise the capital.

Pick a Name

It’s not just about finding the perfect name that reflects who you are and what you do – you also need to make sure that the name in question isn’t already being used.

Choose a Structure

We’re really starting to venture into areas where it would be beneficial to work with a trusted legal advisor, but at the very least you can certainly start doing some research on the various types of business structures and seeing which ones feel like more of a fit.

Register Your Business

You don’t officially have a business until you register it with whichever agency handles business in your state. In Florida, that means registering both with the Department of State and with the Department of Revenue. You’ll also want to apply for an EIN and any licenses or certificates that are required for your line of work.

Open Business Accounts

Last but not least, your business will need its own financial accounts. While not necessarily required, it is a horrible idea to mix in business purchases with our own personal accounts.

You will likely want a business checking account and a business credit card at minimum.

Need help getting started with your business planning? Consider using a VRIN framework.

What’s a VRIN Framework?

Created by an American professor in 1991, the VRIN model was designed to help companies pinpoint the resources that will help them succeed and set them apart from the competition. There are four main qualities highlighted:

  1. Value
  2. Rare
  3. Inimitable
  4. Non-Substitutable

Does your resource bring value to consumers and give you a competitive advantage? Is that resource rare? Are other businesses unable to mimic your resource? Is it difficult to substitute your resource with alternatives? 

This model is an attempt to evaluate your resources and determine if they provide you with an advantage over other businesses’ resources. It takes into account your strengths, weaknesses, threats, and opportunities in regards to what sets your business apart.

Don’t Dive into Business without Strong Legal Advice

Starting a business is hard. Building a successful business that stands the test of time is astronomically more difficult. 

Set yourself up for success by creating a strong foundation. Contact us today.

Originally published 10/14/2021. Updated 03/01/2024.

Author:
Barry E. Haimo, Esq.
Haimo Law
Strategic Planning With Purpose®
Email: barry@haimolaw.com
YouTube: http://www.youtube.com/user/haimolawtv

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YOU ARE NOT OUR CLIENT UNLESS WE EXECUTE A WRITTEN AGREEMENT TO THAT EFFECT. MOREOVER, THE INFORMATION CONTAINED HEREIN IS INTENDED FOR INFORMATIONAL PURPOSES ONLY. EACH SITUATION IS HIGHLY FACT SPECIFIC AND EXCEPTIONS OFTEN EXIST TO GENERAL RULES. DO NOT RELY ON THIS INFORMATION, AS A CONSULTATION TO UNDERSTAND THE FACTS AND THE CLIENT’S NEEDS AND GOALS IS NECESSARY. ULTIMATELY WE MUST BE RETAINED TO PROVIDE LEGAL ADVICE AND REPRESENTATION. THIS INFORMATION IS PROVIDED AS A COURTESY AND, ACCORDINGLY, DOES NOT CONSTITUTE LEGAL ADVICE.

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