The Complete 35-Step Guide for Entrepreneurs Starting a Business

Starting a business entails understanding and dealing with many issues—legal, financing, sales and marketing, intellectual property protection, liability protection, human resources, and more. But interest in entrepreneurship is at an all-time high. And there have been spectacular success stories of early stage startups growing to be multi-billion-dollar companies, such as Uber, Facebook, WhatsApp, Airbnb, and many others.

In this article, I give an overview of 35 key steps for entrepreneurs who are starting a business, with links to additional articles addressing some of the topics in more depth.

1. Understand the Commitment and Challenges Involved in Starting a Business

Starting a business is a huge commitment. Entrepreneurs often fail to appreciate the significant amount of time, resources, and energy needed to start and grow a business.

Here are some of the biggest challenges to starting and growing a business:

• Coming up with a great and unique product or service
• Having a strong plan and vision for the business
• Having sufficient capital and cash flow
• Finding great employees
• Firing bad employees quickly in a way that doesn’t result in legal liability
• Working more than you expected
• Not getting discouraged by rejections from customers
• Managing your time efficiently
• Maintaining a reasonable work/life balance
• Knowing when to pivot your strategy
• Maintaining the stamina to keep going even when it’s tough

2. Protect Your Personal Assets by Forming the Business as a Corporation or LLC

Never start a business as a “sole proprietorship,” which can result in your personal assets being at risk for the debts and liabilities of the business. You will almost always want to start the business as an S corporation (giving you favorable flow through tax treatment), a C corporation (which is what most venture capital investors expect to see), or a limited liability company (LLC). None of those are particularly expensive or difficult to set up. My personal preference is to start the business as an S corporation, which can then easily be converted to a C corporation as you bring in investors and issue multiple classes of stock.

Many business owners, however, are under the mistaken impression that they are completely protected from personal liability by filing a Certificate of Incorporation for a corporation. This is not true. The mere process of incorporating does not completely protect the business owners. To lessen the likelihood of such personal or shareholder liability, you should make sure to adhere to certain procedures:

• Always use the corporate name. The name of the corporation should be used in full, including “Inc.” or “Corp.” on all contracts, invoices, or documents used by the corporation. This clearly indicates the existence of the corporation as a separate entity.
• Always use proper signature. This means that you will sign on behalf of the corporation, using the name of the corporation and your title. You should typically use the following format when signing contracts on behalf of the corporation:

CORPORATION NAME

By: ___________________________________

Your name – authorized signing officer and corporate title

• Follow all corporate formalities. This includes following bylaws, issuing stock properly, holding meetings of the Board of Directors, recording the meeting minutes, and following other corporate formalities.
• Make sure to keep funds separate. Corporate funds and the funds of individual shareholders should not be in the same accounts or combined for any reason.
• Make sure to keep taxation separate. The company taxes should be paid entirely from corporate accounts and separate tax returns filed for the corporation.
• All transactions made by the corporation should be clearly separate from any individual transactions. Essentially, by never blurring the line between individual shareholders, owners or the Board of Directors, and the company (which stands as a separate entity), you run less risk of any personal liabilities for the debts of the business.

See An Overview for Incorporating a Business and 10 Key Issues in Setting up an LLC.

3. Come Up With a Great Name for Your Business

Selecting the right name for your startup can have a significant impact on your business success. The wrong name could result in insurmountable legal and business hurdles. Here are some basic tips on how to name your startup:

• Avoid hard-to-spell names.
• Don’t pick a name that could be limiting as your business grows.
• Conduct a thorough Internet search on a proposed name.
• Get a “.com” domain name (as opposed to “.net” or another variant).
• Conduct a thorough trademark search.
• Make sure you and your employees will be happy saying the name.
• Come up with five names you like and test market the name with prospective employees, partners, investors, and potential customers.

For more advice, see 12 Tips for Naming Your Startup Business.

4. Focus on Building a Great Product—But Don’t Take Forever to Launch

When starting out, your product or service has to be at least good if not great. It must be differentiated in some meaningful and important way from the offerings of your competition‎. Everything else follows from this key principle. Don’t drag your feet on getting your product out to market, since early customer feedback is one of the best ways to help improve your product. Of course, you want a “minimum viable product” (MVP) to begin with, but even that product should be good and differentiated from the competition. Having a “beta” test product works for many startups as they work the bugs out from user reactions. As Sheryl Sandberg, COO of Facebook has said, “Done is better than perfect.”

5. Build a Great Website for Your Company

You should devote time and effort to building a great website for your business. Prospective investors, customers, and partners are going to check out your site, and you want to impress them with a professional product. Here are some tips for building a great company website:

• Check out competitor sites.
• Start by sketching out a template for your site.
• Come up with five or six sites you can share with your web site developer to convey what you like.
• Be sure the site is search engine optimized (and thus more likely to show up early on Google search results).
• Produce high-quality original content.
• Make sure your site is optimized for mobile devices.
• Make sure the site loads quickly.
• Keep it clean and simple; visual clutter will drive visitors away.
• Make sure you have a Terms of Use Agreement and Privacy Policy (and comply with the European GDPR rules).
• Make the navigation bars prominent.
• Obtain and use a memorable “.com” domain name.
• Make the site visually interesting.
• Make sure it’s easy for site visitors to contact you or buy your product.

6. Perfect Your Elevator Pitch

An “elevator” pitch is intended to be a concise, compelling introduction to your business. You should be able to slightly modify your elevator pitch depending on whether you are pitching to prospective investors, customers, employees, or partners. Here are a few tips for developing and delivering a great elevator pitch:

• Start out strong.
• Be positive and enthusiastic in your delivery.
• Remember that practice makes perfect.
• Keep it to 60 seconds in length.
• Avoid using industry jargon.
• Convey why your business is unique.
• Pitch the problem you are solving.
• Invite participation or interruption by the listener—this shows they are interested and engaged.

7. Make the Deal Clear With Co-Founders

If you start your company with co-founders, you should agree early on about the details of your business relationship. Not doing so can potentially cause significant legal problems down the road (a good example of this is the infamous Zuckerberg/Winklevoss Facebook litigation). In a way, think of the founder agreement as a form of “pre-nuptial agreement.” Here are the key deal terms your written founder agreement needs to address:

• How is the equity split among the founders?
• Is the percentage of ownership subject to vesting based on continued participation in the business?
• What are the roles and responsibilities of the founders?
• If one founder leaves, does the company or the other founder have the right to buy back that founder’s shares? At what price?
• How much time commitment to the business is expected of each founder?
• What salaries (if any) are the founders entitled to? How can that be changed?
• How are key decisions and day-to-day decisions of the business to be made? (by majority vote, unanimous vote, or are certain decisions solely in the hands of the CEO?)
• Under what circumstances can a founder be removed as an employee of the business? (usually, this would be a Board decision)
• What assets or cash does each founder contribute or invest into the business?
• How will a sale of the business be decided?
• What happens if one founder isn’t living up to expectations under the founder agreement? How will it be resolved?
• What is the overall goal and vision for the business?
• If one founder wants to leave the business, does the company have the right to buy back his or her shares? At what price?

8. Obtain a Tax ID

In most instances, you will need to get a tax ID from the IRS for your company. This is also known as an “Employer Identification Number” (EIN), and it’s similar to a Social Security number, but for businesses. Banks will ask for your EIN when you open a company bank account. You can get an EIN online through the IRS website.

In some states, a state tax ID may be necessary as well (for example, California, New York, and Texas require a state ID, which can be obtained online).

9. Set Up a Good Accounting and Bookkeeping System

You will need to set up a bookkeeping/accounting system to keep track of your finances—income, expenses, capital expenditures, EBITDA, profit and loss, etc. This is important in order to understand your business’s cash flow situation and also for tax-filing purposes.

There are a number of online software solutions that can be helpful in this regard, such as QuickBooks, Zoho, FreshBooks, and Xero.

10. Perform a Comprehensive Reference Check Before You Hire an Employee

Many employers conduct a limited and incomplete reference check when interviewing job candidates, which can result in hiring people who are unable to perform their required duties or who don’t work well with others. A comprehensive reference check includes:

• Verification of job titles and dates of employment
• Verification of educational degrees and dates of attendance at schools
• Verification of starting and ending salary
• Verification of prior job role and responsibilities
• Inquiry as to why the applicant left the prior employer
• Conversations with prior supervisors as to the applicant’s strengths and weaknesses
• Inquiry as to the applicant’s ability to get along well with other employees and customers
• Inquiry as to the applicant’s ability to take on the new role
• Inquiry as to punctuality or absenteeism issues
• Reference checks with other people not listed by the applicant as a reference

The purpose of these checks is to make sure that the applicant will fit into the company’s culture and to ensure that they have been truthful and accurate in their resume and employment application. However, the process is carefully regulated by the federal government (through the Fair Credit Reporting Act) and the laws of many states; failure to follow the highly technical process can lead to class action lawsuits. Consider consulting legal counsel and, for general information, see the EEOC’s Background Checks: What Employers Need to Know.

It is also useful to require all prospective employees to complete an employment application.

11. Use a Good Form of Employee Offer Letter or Employment Agreement

Oral agreements often lead to misunderstandings. If you plan to hire a prospective employee, use a carefully drafted offer letter, which the employee should be encouraged to review carefully before signing. For senior executives, a more detailed employment agreement often makes sense. A good offer letter or employment agreement will address the following key items:

• The job title and role of the employee
• Whether the job is full time or part time
• When the job will commence
• The salary, benefits, and any potential bonuses
• Whether the position is “at will” employment, meaning either party is free to terminate the relationship at any time without penalty (although employers may not terminate employees for legally prohibited reasons, such as for age discrimination or retaliation from sexual harassment allegations, etc.)
• Confirmation that the “at will” agreement may not be changed unless signed by an authorized officer of the company
• Confirmation that the employee will need to sign a separate Confidentiality and Invention Assignment Agreement (described below)
• If the company chooses, a statement that any disputes between the parties will be resolved solely and exclusively by confidential binding arbitration (also discussed below)
• Any stock options to be granted to the employee and the terms of any vesting (details usually laid out in a separate Stock Option Agreement)
• The supervisor to whom the employee will report
• Protective language stating that the offer letter constitutes the entire agreement and understanding of the parties with respect to the employment relationship, and that there are no other agreements or benefits expected (unless additional provisions are laid out in a handbook, which should be referenced if applicable)

Companies should ensure that the employee and the company sign the letter, the Confidentiality and Invention Assignment Agreement, any Stock Option Agreement, and any first-day paperwork (such as the IRS W-4 Form for withholding and the I-9 form mandated by law).

For a good sample employee offer letter, see 13 Key Employment Issues for Startup and Emerging Companies.

12. Make Sure All Employees Sign a Confidentiality and Invention Assignment Agreement

Companies pay employees to come up with ideas, work product, and inventions that may be useful to the business. Employees have access to a good deal of their company’s confidential information, which can be very valuable, especially in technology companies.

One basic way to protect proprietary company information is through the use of a Confidentiality and Invention Assignment Agreement. This type of agreement deals with confidentiality issues, but can also ensure that the ideas, work product, and inventions the employee creates that are related to company business belong to the company—not the employee.

A good Employee Confidentiality and Invention Assignment Agreement will cover the following key points:

• The employee may not use or disclose any of the company’s confidential information for their own benefit or use, or for the benefit of others, without authorization.
• The employee must promptly disclose to the company any inventions, ideas, discoveries, and work product related to the company’s business that they make during the period of employment.
• The company is the owner of such inventions, ideas, discoveries, and work product, which the employee must assign to the company.
• The employee’s employment with the company does not and will not breach any agreement or duty that the employee has with anyone else, nor may the employee disclose to the company or use on its behalf any confidential information belonging to others.
• Upon termination of employment, the employee must return any and all confidential information and company property.
• While employed, the employee will not compete with the company or perform any services for any competitor of the company.
• The employee’s confidentiality and invention assignment obligations under the agreement will continue after termination of employment.
• The agreement does not by itself represent any guarantee of continued employment.

Venture capitalists and other investors in startups expect to see that all employees of the company have signed these kinds of agreements. In an M&A transaction in which the company is sold, the buyer’s due diligence team will also be looking for these agreements signed by all employees.

A sample form of Employee Confidentiality and Invention Assignment Agreement can be found at the Forms & Agreements section of AllBusiness.com.

Similarly, it will be appropriate that all consultants of the company also sign a Confidentiality and Invention Assignment Agreement. See Key Issues with Confidentiality and Invention Assignment Agreements with Consultants.

13. Consider the Steps You Should Take to Protect Your Intellectual Property

It is important to protect your company’s intellectual property (IP). Ever wary of minimizing burn rate, startups may be tempted to defer investment in intellectual property protection. To those who have not tried to protect intellectual property, it feels complex and expensive. Too often, startups end up forfeiting intellectual property rights by neglecting to protect their ideas and inventions.

Some simple and cost-effective techniques can minimize the anxiety, yet help protect core assets.

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