If You’ve Got a Business, You Didn’t Build That
It’s all over the internet. On July 17th, in Irwin, PA, President Obama said, “If you’ve got a business, you didn’t build that.” I have to tell you, this is the thing I hate the most about politics and it touches on one of the things I hate most about entrepreneurship.
First the politics. It’s too bad that we take one sentence out of context and run with it. It’s too bad that instead of talking about how we can support entrepreneurship we are talking about this one line. Nothing constructive is going to come from this internet meme. But it’s easier than figuring out how to build a thriving economy. Talking about the real issues is hard and to most of us, it’s boring. The 24 hour news cycle has turned the news into entertainment. I’m not the first to point it out and I will admit that watching Fox News followed by MSNBC is one of my guilty pleasures. I hate to admit that there is a part of me that finds the whole thing very entertaining. Unfortunately, it never enlightens me.
And now on to entrepreneurship. Here is a link to what President Obama said in context — please read it (it will open in a new window). His summary point is this, “When we succeed, we succeed because of our individual initiative, but also because we do things together.” Do any of us actually disagree with that? Unfortunately, I think perhaps too many entrepreneurs do disagree.
I have supported my family through entrepreneurship for years. I love it. But how arrogant is it of me to ignore the people who worked alongside me? I have had success and failures and those successes and failures have been a result of my individual initiative, but also to a large degree because I was working with other people. Perhaps my risk was different, but so was my potential reward. The thing is that entrepreneurship doesn’t work in a vacuum. If you are doing it alone, you are doing it wrong.
I’m a Romney supporter. I plan on voting for him in the fall. But if he took off his political hat for a second and stopped looking at Obama’s statement as a gaffe that he could jump all over, I believe that he too would agree that he relied on others as he built Bain. I cannot think of a successful business that was built without any investors, without any employees, without any debtors, vendors, or customers.
I am indebted to people who have invested in my ideas and to business partners who have helped me. I’m indebted to customers who let me build my business on their dime. I’m indebted to employees who took risks they probably didn’t realize they were taking as employees of a startup. I am indebted to people who have loaned me money. I’m indebted to vendors who let me pay them when the business was able to pay them. I’m indebted to my wife who has been unbelievably supportive of me throughout the process. I did it, but I didn’t do it alone.
I would like to believe that most entrepreneurs feel the same way. We are rightfully proud of what we build. But only the truly arrogant think they did it alone.
Tips for Your Startup
In the comments on my Startup Technology Stack post, Joe asked the following questions:
1. What are your top 5 tips for incorporation for someone who is new to the process?
2. What would be your top 10 “need to knows” or advice before starting your own company?
I tried to answer the first question here. This post will answer the second question. Let’s see if I can make it to 10:
1. Get started. What’s stopping you? There are business ideas that will require a lot of capital and all of your attention. If you don’t have the time or money to do one of those, do something else. I kept my full time job when I started Sharp Analytics and I worked nights and weekends until I felt like I could make the switch. There are a lot of investors who will tell you not to do this. I understand why they say it, but in most cases I don’t agree.
2. Your idea is less important than your execution. I discuss ideas vs. execution in this post and my thoughts on the subject haven’t changed much. This is important if you want to start a new business because a lot of entrepreneurs spend too much time fine tuning the idea and not enough time executing. A good idea with great execution has more value than a great idea with crappy execution.
3. It’s hard to fly solo. I like having a partner. There are a lot of drawbacks to having a partner too — for one, you can’t just do whatever you want. But that’s the point. A good partner will hold you accountable and help you see holes in your reasoning. And there’s a lot of work to do. It’s nice to have someone share the load and make up for your weaknesses.
4. Sell early. There are at least two schools of thought on this. I subscribe to the idea that you need to sell early and often. Entrepreneurs, especially technology entrepreneurs, tend to wait too long to sell. If you are a technology entrepreneur, take advantage of the iterative development processes that have replaced traditional systems development. Your iterations should be short and inexpensive. Start selling as soon as you have a prototype and then use the iterative development process to deliver value to your customers. I read a book recently called “Nail It Then Scale It” recently. It was written by a couple of smart people but they advocate that entrepreneurs should “stop selling” and spend time interviewing potential customers. There are two problems with this. The first is that you should never stop selling, the second is that customers see things as they are, not as they could be. Innovation requires you to see things as they could be and then you have to sell that to your customers. The Innovator’s Dilemma addresses this quite well. Read it.
5. Make sure your spouse is on board. On more than one occasion, I have had entrepreneurs ask me what they should do if their spouse isn’t sold on the idea of entrepreneurship. I tell them not to do it. It’s not worth it. I’m not saying it isn’t worth trying to persuade your spouse, but it isn’t worth doing unless you have your spouse’s full support. Entrepreneurship is very rewarding, but it’s also a challenge that affects your whole family. I absolutely love being a business owner but it really isn’t for everyone and if things get rough (which they will) you will want the full support of your family.
I’m not sure I’m going to make it to 10 tips tonight, but that’s a start. Here are a couple of posts from the archive that might be useful:
1. A post on uncertainty: http://www.crappytogood.com/2011/06/uncertainty/
2. A post about the difference between a good entrepreneur and a crappy one: http://www.crappytogood.com/2009/05/the-yo-yo-entrepreneur/
Incorporating Your Startup
In the comments on my Startup Technology Stack post, Joe asked the following questions:
1. What are your top 5 tips for incorporation for someone who is new to the process?
2. What would be your top 10 “need to knows” or advice before starting your own company?
Great questions. I’m not sure I have 5 tips about incorporation and 10 need to knows, but I’ll give it a shot. This post will answer the first question regarding incorporation.
Incorporation
There is a lot of good information on the web about the various types of entities available to you. Some of the specifics depend on the state you live in but the general principles of LLCs, S Corps, C Corps, etc. are similar in all 50 states. Each type of corporation has its advantages and its disadvantages and you could make a case for any of them. I think the most common mistake is to just start a business without creating the corporation (regardless of the corporation type). You can do this and you will be treated as either a sole proprietorship or a partnership (if you are partnering with someone). Without a corporation you have no good liability protection and generally very few tax advantages. Resist the temptation to get started without spending the money to create your corporation.
In general, I prefer the LLC structure because it’s simple and governed almost exclusively by your operating agreement. Profits and losses flow through to your personal tax return. I would probably choose an S Corporation (or create an LLC and opt to be taxed as an S Corporation) if I wanted to pay myself a wage and take distributions. And I would choose a C Corporation if I was seeking outside investment.
A couple things to keep in mind:
1. Generally, I would start simple and move to something more complex as the situation demands. You can start as an LLC, make an S election if you need to and later convert to a C corporation as your situation changes. You may lose some carry forward losses in a transition, but it’s usually not the end of the world.
2. You should really consult with an accountant or an attorney as you make this decision because your individual situation may vary. There are a lot of variables and you should be able to get the consulting and filing done for about $300 – $500. In the grand scheme of things, this is a relatively small price to pay for protection and potential tax advantages.
And again, whatever you decide, decide to incorporate if you want to build a business. And open a separate checking account, for heaven’s sake.
