There are a lot of bullshit posts about “lessons learned” out there. Posts that you would assume by their title should be full of helpful advice for starting and running a business, but more often than not are overloaded with rebranded self-help fluff. I think I’m supposed to be inspired, instead I always find myself wondering why there’s so much no one ever tells you about the financial, legal, and tax complications of starting a company. Why five blogs will run virtually identical stories advising founders to eat right, get plenty of sleep, and build a strong team (without ever really spelling out what that means) but no one talks about the errors that are truly startup lethal. There are screeds on hiring the best programmers, but very little on hiring a good accountant. Guides on pitching investors are published to the internet in triplicate, but good luck finding thoughts about managing corporate credit written in plain English.
So I decided to share the information I’ve gathered– in a safe, general purpose way, mind you. You shouldn’t interpret any of this as financial, legal or tax advice as I am neither a financial advisor, a lawyer or a tax expert.
But anyway, here are eight things you should definitely know as an entrepreneur.
1) Learn How to Loan Your Startup Cash
In the beginning the business will be run largely out of your own pocket. No matter what the legal structure or tax situation, more likely than not you won’t be able to pay the company’s bills without injecting cash from your own account.
Make sure you understand how to enter this in correctly in your accounting software of choice. It should be considered a loan from the owner (or shareholder loan). If you don’t specify that, it could be counted as income which the company will be taxed on.
2) Understand Revolving Credit
Best thing I ever did for Exversion was set up a separate, personal credit card for business expenses. Servers do not cost that much money; our biggest expenses are often things like my travel expenses, conference tickets, memberships to professional organizations. Things that I can easily claim as deductions on my taxes.
But these expenses were uneven too. There would be nothing for months, then suddenly I’d need to drop a grand on something. Getting a second card did two things: First, it simplified the process of itemizing those deductions for the IRS. Second, it meant instead of having some months where I had to pay thousands of dollars to avoid falling too far into debt, I could treat the debt I did have as revolving credit.
We all occasionally have expenses it will take us a month or two to pay off. This summer I moved into a new apartment and had to buy a lot of furniture for it, which got expensive. If a business trip comes up while I’m still paying that off suddenly I’m super close to maxing out my card and racking up higher interest payments. By splitting my expenses it became much easier to keep what was outstanding on each card low while making what I was paying out pretty predictable.
Plus it’s really good for your credit score.
3) Top-quality Lawyers, Accountants, and Sales People Pay for Themselves.
It’s really hard to pay thousands of dollars to a professional for something that seems so routine and boring you could do it yourself or go to a low cost alternative. But… no, a $100 accountant is not cheaper than a $500 one if he misses deductions that trim $700 off your tax burden.
4) At The Same Time, Don’t Be a Snob
H&R Block does Exversion’s corporate taxes. We’re not ready for a big accounting firm just yet and after a few experiments with independent CPAs I went back to people I trust at the Block. Finding a good accountant is without a doubt the hardest part of running a business. I’ve met so many small business owners who as their business grows think to themselves they really should stop using the McDonalds of tax prep. Real businesses don’t go to H&R Block, right?
Unfortunately, what you think is a dedicated independent professional isn’t always what’s going on. This year I spoke to two CPAs before going back to my old preparer: the first one was chronically overbooked, the second one hired interns he barely supervised to do his clients’ taxes so that he could take on as many clients as possible. In both cases I found that after the initial courtship they were impossible to contact, never followed up with me and would often refuse to answer questions or really put much time or effort into discussing options.
Meanwhile my guy at the Block would do my taxes right in front of me, explaining the consequences of each decision, and always on the lookout for a new deductions. If by some chance he screws up, H&R Block will handle the problem for me.
So don’t assume that resources that most people consider out of their reach are better than what you can find on main street.
5) Everything Important You Will Ever Do For Your Company Comes Pre-Launch
In startup land there’s a certain susceptibility to The Field of Dreams Fallacy. What’s funny about this is that almost every entrepreneur will deny it up-down-and-sideways, but when you press them for details their launch strategy starts with … well, the launch.
This was the hardest lesson I learned this year: the launch is not the beginning of the launch strategy, it’s the end. Startup mythos tells you to launch ASAP and if you don’t immediately blow up then tweak and pivot until you find the right fit.
This is incredibly stupid. Do not do this.
For one, it puts you in the position of trying to build a market, a community, and a product concurrently. You will never fully be able to determine if you’re failing to get traction because no one wants what you’ve built, because you’re missing two or three key features or because your users don’t know you exist. The fail fast mentality relies on the assumption that users will be drawn to the products and services the same way the ghosts of baseball players are drawn to a baseball field in the middle of nowhere.
So for months I’ve been working on building up our mailing list, our Twitter following, working on a little ebook to recruit contacts in a key sector … all in preparation of something new that’s in alpha testing right now. The more I work on this strategy, the more I think how stupid we were to just launch before we had established channels of communication between the people we wanted to serve.
You can still iterate fast and agile. In fact if you devote a large chunk of time in the beginning to building your userbase before you have a product, your iterations will be smarter and more accurate.
6) “Failure is not much of a thing at all. It’s mostly a point of view.”
The quote comes from Ben Pieratt’s Creative Mornings talk and nothing more poignantly sums up how I feel about the events of the last year. I’m not going to say don’t listen to advice from startup people in a blog post of advice from a startup person, but I will say don’t TAKE the advice of startup people just because you assume you will look successful or are afraid of looking like a failure. The perception of success and failure in this community is warped beyond belief. It has absolutely no relationship with reality.
Early in the year my cofounder left the company. Now, FOR MONTHS people had been suggesting to me that I really should encourage him to move on. There were different reasons why people thought that was a good idea, but the general consensus was the pros and cons of the current situation weren’t really lining up in Exversion’s favor.
But when I finally did it, nearly all of these same people suddenly started dismissing Exversion as a failure just because conventional wisdom says the loss of a cofounder signals failure. In retrospect I can’t tell you how glad I am that this decision was not made because they told me to make it. If I had I would have been pissed at this outcome.
The truth is nearly every successful company has had a period where the community labelled them a failure, a money pit, or a lost cause. I can think of two friends who had startups everyone said where “failures”, quietly working away under that terrible label until one day Google and Intel took notice and bought them. Not bad for a “failed” startup.
For a more specific example, check out what people were saying about Spotify in 2009
The startup community is a small community of entrepreneurs who understand this, and a much larger community of rubberneckers who need to generate commentary in order to stay relevant.
7) The Most Important Designs Are Empty States
What does your app/site/whatever look like when nothing’s on it? What does my account dashboard look like when I haven’t done anything? Remember that this is the user’s first impression– Not the beautiful, content-rich mockups of active users.
8) Learn to Write A Functional Spec
One of the best decisions I’ve ever made is asking a PM friend of mine to teach me how to write a spec. As a freelance developer, specs had never been a formal part of the process for me. I had no idea what a good one included or how to organize them. Now I’m a total convert, writing detailed functional specs helps me fully articulate what my expectations are, which in turn makes the experience of working with freelance, remote, and overseas developers much smoother.