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Why become a founder? What are some things you can do to become succeed founding father?
Having worked extensively with founders as startup business attorneys in Silicon Valley for many years now, and having built my own business as well, I have a few tips to share on these points.
Tips Why You Should Be a Founder
Why become a founder?
1. If you are successful as a founder, you will earn far more than as an employee. Obvious, but worth repeating.
Founders want the huge profits that will come from a successful venture. The goal is very difficult to achieve but the rewards can be huge.
2. If you are successful as a founder, you keep more of what you earn.
As an employee, you will be subject to ever-increasing taxes on your compensation.
Forget the rich. The average employee is drenched. You pay, say, up to a third of what you earn on federal, state, and local income taxes. Add another nearly 10% for payroll taxes. Now assume that inflation crashes you into a higher tax bracket. Rates are then increased for those brackets. Then the payroll tax rate went up. And the social security limit was lifted. And new taxes were added to fund future health benefits. You will be left with a net amount that keeps decreasing from your paycheck. Congratulations on being a future employee.
As a founder, however, your biggest reward by far will not come from a salary but from a liquidity event where you cash out your chips. At that point, you pay a one-time capital gains tax for most of the economic rewards you earn from your efforts. You pay less income tax because the capital gain rate is lower. And you pay no employment taxes at all. With capital gains, you also have some control over time and this can further help minimize what you pay.
All from the same endeavor. You sweat for what you make. You can take your gifts as regular income or, as a founder, turn a large portion of them into much more profitable equity gains. With success, you not only earn more but also save more.
3. Becoming a founder is not only financially rewarding but psychologically as well.
As you explore, you get the opportunity to realize your company’s vision and benefit not only yourself but your co-founders, your investors, your employees, your customers, and society at large. You can watch your company grow and develop. You can see it impacting other people forever.
The satisfaction you can derive from success is a great intangible reward.
4. Finally, being a founder gives you the freedom to be your own boss. You will go up or down because of your own merit. This is a great opportunity and a great challenge. This is the one advantage that most entrepreneurs will ultimately say is most valuable.
Tips for Becoming a Successful Founder
What does it take to be successful as a founder? Here are some thoughts.
1. Above all, wake up from strength.
Get ready before you venture out. Get a solid education. Work with the best to get excellent training in your field. Master your skills. Build relationships. Take what you do best and improve on that. That’s the key to innovation. And this is the best path for most founders.
Or you might just build on an extraordinary strength of entrepreneurial talent. Or a special skill that allows you to work with others to give you what you may lack. Nothing is formulated here. But you need to build a number of form of strength.
It also means you do no venture out based on an empty idea. Try this one from the bubble era: “I’ve worked for a year in manufacturing and know how to revolutionize that field with the idea I had for a website.” Sorry, but abstract ideas get you nowhere.
It also means you did no do something just because you are bored with something else. Think twice about that romantic little tea shop. That is, unless you know about the teahouse business. Someone else does, and they will make you pay. Know what you are doing before you step into something.
No one will take you when you go alone. Therefore, be prepared to build on something you do very well. That’s your main key to success as a founder.
2. Calculate the cost before you go out.
You need the right temperament to start your own business. If you crave security and certainty, being a founder is not for you.
Don’t romanticize the process either. Business is tough. You will lose the certainty of a regular salary. You will have bills to pay, whether you make money or not. You will face an endless array of challenges, from people problems to financial stress to competitor challenges to legal disputes to enormous psychological stress to all sorts of other obstacles. When you go through all of these, or at least most of them, you will build “goodwill” — that is, your going concern value. Goodwill is really nothing more than the profit you get from the blood you have shed. This is a big plus that makes your business better than others. But you will had to shed blood on it. Understand this in advance and be prepared to pay the necessary fees.
Therefore, of course, if you are not ready to pay the fees, you should stick to a regular job.
3. When you start out, try to do it with a multi-talented team.
There are no fixed rules here. Experience confirms, however, that a team is much more likely to succeed than a single founder. This might just be another way of saying that, if something is really good, other people will be attracted to it. More than likely, this is another way of saying that launching and building a successful business is difficult and you need a multi-talented team to make it happen. Where you can’t provide everything, someone else will provide what you lack.
4. Make sure you have a sound business model.
Technical innovation is great but, by itself, usually cannot sustain a business. Sometimes, they can be sold or licensed to large companies. nothing wrong with that. In most cases, though, technology won’t be enough.
With or without key technologies, if a business is to succeed, it is must has a sound business model that allows it to build and maintain a meaningful competitive advantage that makes it consistently profitable.
Without it, you’re not going anywhere, no matter how innovative this or that element of your business is.
5. Watch your expenses.
Wasteful spending is perhaps the biggest mistake of early-stage companies.
Small business entrepreneurs have far less difficulty with this than startup founders. Why? Because they usually deal with their own money. If you know what it takes to get it in the first place, the chances of you being wasteful with it are greatly reduced.
One aspect of wasteful spending is simply waste. You get the funds and you go out and get the best money can buy. Expensive office. Great salary. Luxurious party. And on and on. In early-stage companies, you’ll regret spending like that when you hit a roadblock down the road where you wished you had the cash. Inevitably, you will hit bumps like that. Plan accordingly.
The flip side to extravagant spending, however, comes from not focusing your efforts properly in the early stages. You have ten great things you want to do as a company. You are not making a good judgment on which to focus on. You spend it all. In no time, your funds are depleted before you can build a reasonable income stream.
Use good judgment about where you can best use your limited funds and use them wisely.
6. Plan your legal rollout carefully.
Don’t incur unnecessary legal fees. However, when you’re ready for a meaningful launch, set it up right.
If you have a founding team, make sure you give serious thought to using restricted stock as opposed to outright stock grants when providing grants to founders. In other words, hold stock until it is acquired unless there is an exceptional reason not to. Use cheap stock to avoid tax problems. Get the IP to the company. Get a work agreement and consultation, make sure all IP from the arrangement goes to the company. Review your trademark issues in relation to any brand you are about to do. Apply for temporary patents as applicable. When you are ready to bring in a wider team, create an equity incentive plan.
Work with a good business attorney to get the legal steps right.
7. Fund your company in stages if possible.
The worst pitfall that can happen to an early-stage company is a trap that is too long. Plan smartly to avoid this trap.
Work with early-stage investors or have your own reserve fund to get you through the phases before you have a meaningful income.
Don’t put yourself in a position where you’re running out of options except to shop your chances at a VC. You will not get funding (most likely outcome) or you will be slaughtered in terms of funding.
Conclusion
Think carefully before venturing out as a founder. The rewards can be great but you have to be up for the challenge. If you believe so, a huge and open world of opportunities awaits you.