Avoid these major pitfalls to secure your startup

By Henry Brown

To an early-stage business, there are a lot of pitfalls to avoid. That most startups never grow beyond the first five years is common knowledge, and most business owners know the ins and outs of planning, analyzing, and preparing their business idea for the big launch. Yet, even with the right amount of planning and a brilliant idea, many early-stage companies continue to fail and commit fatal mistakes long before they have the chance to experience any growth.

Here are the most common mistakes entrepreneurs make in early-stage businesses, sending the businesses tumbling downhill, and causing the founders to wish they had listened to their attorneys in the first place.

They don’t address the ownership rights

When you get into business with someone, you’re all in the same boat, right? It’s about those long nights, working together, and building something from the ground-up. When you have secured the early-stage founders of your company without any clarifications to the ownership, you risk seeing them fall away and not provide the kind of benefits you had in mind – while they still hold the ownership that could have been reserved for more productive ones.

The sooner you sort out the ownership and vesting rights, the more confident you can feel about the fate of your company. Think about the dramatic scene with “The Social Network” about Facebook’s coming of age; an early-stage deal should be determined early, defined by time and roles to avoid any massive legal disputes later on. Neglecting it could cost you your company.

They don’t carefully consider who their teammates should be

Getting into business with someone is risky – we all know that. Yet, too many startup companies are formed by people who should never have agreed on a deal together because they lack the ability to play as a team and don’t have the commitment to weather those early storms a startup must go through.

The first and most important business decision you make is choosing who your partners are. They should have the determination to cope and to work together as a team, who are able to stay cool even if it looks like everything is going under. Every startup goes through a rough phase, and your company won’t be any different, so choose with care.

They don’t use experienced financial advisors

When you think about how your early-stage investors took all possible measures to protect governance, preferences in the financial structure and the liquidation rights, it makes little sense that you, as the entrepreneur, should enter the agreements without a full understanding these nuances. Just like you would never launch a new product without sufficient shopper research and planning, you should always get in touch with professional, experienced financial advisors to explain all the details of the financial agreements you’re about to enter into with your investors. The knowledge professional counsel is able to provide you with can save you from embarking on a financial journey you know very little about.

It’s difficult to pinpoint the exact reason so many startups fail these days, but it usually has to do with the lack of planning. Everything that happens in the early-stage of your business and how realistic you are with regards to long-term planning and budgeting can give you the push you need to establish yourself on the market, grow, and succeed.

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Henry Brown is an online marketing executive. When he isn’t talking shop he’s roaming the streets of London, uncovering the extra-ordinary in the ordinary.

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