daily articles for founders

Here are 10 quality posts from the Founder's Library:

How to: register a company in the UK

Every Saturday, I'll try to post an article that covers some practical aspect of starting a business which is essential, and necessarily all that complicated, but which many people shy away from simply because they don't know the steps involved. This is not a "how to run a successful business" - the whole of swombat.com is not enough to explain that wholly. The idea is to take away a lot of the uncertainty from specific aspects of starting and running a business that might be putting people off not because they're difficult, but simply because they don't know.

As I argued last year, step 1 in starting a business is, quite simply, to register your business. However, there are also a number of responsibilities that you need to be aware of if you want to do this safely, and not end up being deemed irresponsible and fined by Companies House, HMRC, and other friendly government bodies.

1. Registering the business

Contrary to some people's opinions, registering a business in the UK is straightforward and cheap. There are many sites that automate the process of interacting with Companies House. I've used two of them, the last one being Companies Made Simple, specifically this subpage.

2. A Limited Company

If you're trying to create a business, rather than just create a legal outlet for your freelancing, you will need a Limited Company. The only reason to create any other type of trading entity (Sole Trader, Partnership, Limited Liability Partnership, PLC) is because your accountant advises you to. But even if they do, typically it is possible to transition your business affairs to whatever more complicated setup they propose - and often that setup will involve at least one Limited Company anyway, so there's no good reason not to registed a Limited Company, or Ltd for short.

But before you can do that, you need to figure out which package you want. The crucial factor is that in order to open a bank account, you will need a printed Certificate of Incorporation. God only knows why that is, but it seems to be the standard amongst most banks. This means you need the Bronze Plus package at a highly affordable £29.99.

Update: It seems that banks no longer require a printed certificate.

Why not get one of the other packages? Because the only thing of value there is, maybe, the registered address - but that is mostly useless unless you also get the mail forwarding, so just go with Bronze Plus.

Finally, I haven't tried it myself, but you can also register directly with Companies House here. That costs £18, so it's even cheaper, and is probably just as straightforward. If someone can try it out and let me know, I'll update this post.

Update: it seems that CompaniesHouse is indeed more straightforward, but if you use the bank account offers from a place like CompaniesMadeSimple, it works out in your favour financially.

3. What's in a name?

Before you can buy the package, you need to choose a company name. This can be anything you like, but shouldn't be rude, or you might be forced to change it. You should name your company something generic enough that it will cover what you plan to do with it, but specific enough that it conveys what you plan to do with it. So, unless you're creating a joke company or operating in a dynamic, youthful market like Ruby on Rails consultancies, avoid exotic names like "Rapid Lobstersnake Ltd".

What's a good name? It's related to your intended trade, it's pronounceable, it doesn't bring to mind something stupid or negative, even when pronounced rapidly (a very early idea of a name for GrantTree was WeClaim... which, on the phone, comes across as WeakLame; no good); it should convey the right impression when spoken on the phone, so that you actually get through to people you want to speak to. If you're struggling to find a great name, don't worry about it. Not only you can change the name later (it's only a minor hassle), but you can also trade under a different name than your company name. So, for example, Irrelevant Ltd could have a website relevant.co.uk and sell a product called iAmRelevant.

One final note about names: they can't duplicate someone else's company name, and there are some words (like UK) which don't count as a difference, so that, for example, Example Ltd and Example UK Ltd are the same company name, as is Example UK Limited.

4. Shares, shareholders, directors

As part of the company registration process, you might be tempted to come up with a lofty valuation for your shares. Don't. You'll only cause yourself hassle. Create 100 shares of £1 each and assign 1 share to each equal cofounder. You can change those numbers to reflect however you decided to set up the company. If you want to implement vesting, close this web page and get in touch with a solicitor.

Directors - anyone who should be able to speak for the company legally should be a director. You need at least one Director, and since a few years back you no longer need a Company Secretary (that was previously required). Contrary to what you may think, being a Director of a company is not all that glamorous. It just means you can be fined or put in jail for fraud if you really screw up badly. So, before you name half your family Directors to make them feel good, consider that they could end up in jail because of it. Scary? It should be. Whoever is a Director is responsible for making sure the company doesn't screw up its legal obligations to the government. It's worth adding that making someone a legal Director of the company and printing "Director" on their business card are two completely different and independent matters.

5. Registered address?

Contrary to what some people will tell you, you can have your business registered at your home address. You can do so even if your tenancy agreement doesn't allow it (obviously, don't actually go out of your way to tell your landlord about it). I don't know anyone who has gotten in trouble because of this (though I'm sure you can find some rare examples if you try).

In theory, you're supposed to display the company name somewhere in the entrance of the building, or outside your flat. In practice, nobody cares and they're unlikely to ever check that unless you've screwed up something else really badly (like not fulfilling the obligations described in the next section). So, basically, you can use your home address. That's the easiest thing to do, and recommended unless you have a reason to do otherwise.

What's a good reason to do otherwise? Well, if you're planning to deal with other businesses, being registered at "123 Nowhere Grove, Holington, SE31 TLD" doesn't quite carry the same prestige as being registered at "123 St James Street, London W3 456" or the like. The latter will be more convincing, so if you need it for your public image, you may wish to set up a registered office at a different address - but this can be done separately.

There should not be any other difficult questions in the registration process. Just complete it, and the company should be created within a few working days. You'll get the Certificate of Incorporation soon after. Don't frame it yet - you'll need it to open a bank account.

6. Well done, you now have legal obligations

The main effect of going through these steps is to end up legally liable for an entity other than yourself. You know how buying a car means that suddenly you need to sort out insurance, MOTs, tax discs and all that? The same is true for a business (but it's a hell of a lot cheaper than a car!).

The main obligations that you've taken on are to file what's called an Annual Return, to file your accounts, and to file a Corporation Tax Return (affectionately known as CT600).

If your company isn't trading, you may get away with not filing some of those, but you should probably keep it active anyway since it doesn't cost much and looks better if, 3 years down the line, you decide that having a 3-year old company is useful to your credibility.

The Annual Return is basically a form where you confirm to Companies House that the directors/shareholders/registered address/etc details of your company are still correct. It's a quick formality, takes a few minutes a year, and costs, if I recall correctly, about £14 to file.

The Accounts need to be prepared twice: once abbreviated, and once full. You need abbreviated accounts, because otherwise Companies House will publish your full accounts (including turnover figures, etc). Abbreviated accounts give away a lot less about your company. Full accounts give away more, and are lengthier to prepare. If you have a decent accounting system in place, preparing your accounts should be straighforward, and contrary to common belief, you don't actually need an accountant to do it for you (though it can help if you want to do complicated stuff).

Finally, the CT600 can also be generated automatically by any decent online accounting system, such as FreeAgent (includes referral link). We'll cover getting the accounting set up in a later article (in the next few weeks).

All those things can be filed either via CompaniesMadeSimple, or via HMRC's and Companies House's own online systems. I recommend signing up for Companies House and HMRC directly. Be aware that it take a few weeks for them to send you the various authentication tokens, so register there as soon as you can. The pages to register are: HMRC, Companies House.

That's enough for today. Congratulations, presumably, on setting up your first company! It wasn't that hard, was it?

The series so far:

1. How to register a company in the UK

2. How to: deal with your Corporation Tax (UK)

3. How to: track your expenses (UK)

Why blog?  

Gabriel Weinberg on why and whether he should blogs:

It's not an easy decision, and one that is constantly in your face, simply because blogging takes a lot of time. A good post may take 3-5 hours when all is said and done. That time (for me) is often directly taken away from other professional activity, so the opportunity cost is quite high. In other words, I must have a good reason for doing so or else I really shouldn't be doing it.

Gabriel lists 4 key reasons:

  • Writing leads to understanding: writing things down forces you to think through them more logically.
  • Writing blogs helps you get over your fears of putting your opinion out there: in this, it's very much like public speaking.
  • You can reach the right people: building a following will help you reach an audience with other things you have to say.
  • You can stand out: having a popular blog is a great way to stand out in your field.

I agree with all these reasons and they are great reasons to blog. Personally, I have a few other reasons:

  • I just enjoy it. I love writing, expressing thoughts in the written medium. Throughout my life, I've always spent a good amount of time each day writing things. Whether it has been fiction writing, posting on message boards, commenting on HN, chatting on IRC or even blogging, writing my thoughts out is something that I can't help doing each and every day.
  • Blogging is an opportunity generator. A lot of really excellent opportunities have come my way because of blog posts I'd written. This ranges from coverage from sites like LifeHacker, Slashdot or TechCrunch, to essential business deals that made a big difference to one of my business ventures.
  • It serves a purpose. I like to share useful lessons with others. I'm a big believer that when good ideas spread, we (humans) all benefit. It makes sense to take part in the spreading of good ideas.
  • It's as essential as having business cards: although this is changing these days, with Twitter taking the place of a blog, I still feel like an entrepreneur without any kind of personal or startup blog is a bit strange and incomplete.

I'm sure there are many other reasons to blog. Fundamentally, I think the best reason is because it's just fun.

A simple point that shouldn't need to be made  

Chris Dixon:

It would be great to think that in the startup industry, people would realize that today’s junior person could become “big time” tomorrow, and that you should therefore be meritocratic and respectful to everyone. But that’s not my experience.

In my experience, people who look down on more junior people in the startup industry are either douchebags, or outsiders. Everyone in the industry understands that where someone is today is often uncorrelated to where they will be tomorrow, and acts accordingly.

Starting out? clone threewords.me  

Gabriel Weinberg suggests, quite rightly, that aiming to build something like threewords.me is a great approach to startups for a new entrepreneur.

I couldn't agree more. It's the "throw things to the wall and see what sticks" approach, and also what I would recommend to myself if I could travel back in time. This impatient approach may not be the best for building a great startup, but it is the best for building a great entrepreneur.

People, processes and tools

Some years ago, one of my managers used to repeat this "Accenture truism" (or so he designated it): to fix or improve something, first you need the right people, then you need the right processes to help those people work together, then finally you need the right tools to support those processes. People, processes, and tools - in that order.

This is even more true for tech startups than for corporations. As geeks, whenever we face a problem, we often start by looking for a tool to fix it. "Our team isn't communicating properly - let's set up Campfire." "But I don't like Campfire, why don't we use Yammer?" "Yammer and Campfire are so lame, let's just use good old IRC."

This is the wrong approach. Tools by themselves rarely resolve problems in your business. If your team isn't communicating, you need to solve that problem step by step.

First you need to figure out if that's because of a "people" problem. Maybe one member of your team just doesn't want to talk to the others. If that's the case, no tools or processes are going to fix that. For example, many sales organisations try to get their salespeople to communicate everything they know about every client - but salespeople don't want to do that, because it makes them more easily replaceable. Setting up a CRM tool doesn't solve that problem, until you fix the people, by giving them the right incentives to do what you want (or, if that's impossible, either changing what you want or changing the people).

Then, you need to look at the "processes" part of the problem. For example, assuming your team wants to communicate with each other, maybe they can't because they tend to sleep at random schedules in different parts of the world. That's a process problem that can be fixed by, for example, declaring a certain time each day "team time". For example, you can anoint the period between 2pm and 4pm in some timezone as "team time", and require everyone to be available to chat at that time every weekday.

Finally, once you've got the right people and they have the right processes in place to support them, then you can start looking for tools to support those processes. Depending on what you actually want "team time" to look like, you might choose campfire, GTalk, IRC, or any number of other tools. But by now, you can select the tool based on whether or not it supports your processes, rather than whether or not it's the sexy SaaS app of the month.

Sell the emotional benefits first  

Paul Hontz of The Startup Foundry makes an excellent point:

I’ve discovered that’s it not your products features that sell people on your software, it’s their perceived experience with your app. Users are more concerned with “How will buying this app make my life better?”, than “Our new version benchmarks 6% faster”. Giving people an emotional connection with your app is paramount in gaining users.

That's an excellent point, and one that is worth repeating and rephrasing.

People don't buy features, they buy benefits. Moreover, they don't buy practical benefits (most of the time), they buy a promise of an emotional benefit. People buy OmniFocus because it will finally get them organised (and thus give them peace of mind). They buy Fogbugz because finally, the pile of bugs they're not tracking properly will be taken care of. They buy GitHub because they want to be part of the awesome crowd. They bought Tweetie (back when it existed) because it was just damn nice.

All of those are emotional benefits. The most powerful selling points, the most convincing benefits, appeal not to the rational mind, but to emotions.

So, when you build a landing page or even homepage, make sure that your very first message is focused on capturing the visitor's emotions. Make sure you answer that question of "How will this make my life better?"

Once that question is answered, the visitor will stay (at least another 15 seconds...) and there'll be time to tell them about the features then. First, hook them by the emotions.

Worth noting that this applies to both B2B and B2C - after all, even in the business world, you can only ever sell to people.

Core peer groups  

This post by Brian Balfour appeared on Hacker News under the title "How I found a cofounder, built a prototype and raised $5M in less than 4 weeks", a title which sounds like it came straight out of Daniel B Markham's linkbait headline generator, but, surprisingly:

  1. it's got very little to do with raising money or building prototypes, and
  2. it's an excellent article about a general strategy for improving your odds of startup success.

The key point of the article is that a great way to boost your success is to surround yourself with a "close peer group" of people who are more or less at the same stage in life, with whom you can develop deep relationships, who will be brutally honest with each other, and who have reasonably complementary skill sets. The effect of that:

They help raise funding faster, find co-founders and early employees, and acquire your early customers. These are often considered the toughest items in starting a company.

The unanswered question is, how do you find such core peer groups to join? Is the answer something like TechHub (in London)?

How to scale a development team  

Here's an interesting article by Heroku founder Adam Wiggins on managing the expansion of a startup's development team through its life, using Heroku as an example.

Some thoughts:

  • The light touch approach early on feels right to me based on my management experience. More formal processes are more likely to hurt a small team than help it. That said, that depends on the team, and also on whether that team is distributed. If you don't get to be in the same room every day, even with just 3 people you probably need to put in place some kinds of processes to keep everyone in sync.
  • The split into functional streams in "stage 3" is just one option. Many other companies find that cross-functional teams focused around specific features or subprojects work better as an organisational approach. Being a very technical product with very heavy infrastructure demands, a functional split may have worked well for Heroku, but be sure to consider cross-functional teams too.
How to sell your company  

Jacques Mattheij, who posted a guest post here earlier this week, has been working, for a while now, on an in-depth article on how to sell your company.

This is the kind of situation one rarely finds oneself in, but when it does happen, it's worth playing the game in full knowledge of the tricks of the trade (and inexperienced founders are often playing against people who have a lot of mileage at managing company acquisitions). If you're in that position, you'll want to read this guide before making any moves that could cost you.

The value of time, or not  

Here's an interesting article by Jack Groetzinger, making a relatively elaborate argument for how to value one's time.

Every person at every company has an implicit hourly rate of value they create for the business. Perhaps Bob, our traveling salesman, provides $150 of value for every hour that he’s working [1]. If Bob catches the flu and is forced to spend a day hunched over a toilet rather on the road selling, then the DCF of future SeatGeek earnings decreases by $1,500 [2].

However, Jack then rightly undermines this point later (though doesn't go far enough in getting rid of it):

The rate at which you value your time value your time is not static; it’s constantly changing. If I’m stuck on a plane with no internet, the rate at which I’m creating value for SeatGeek is low. On the other hand, suppose it’s 3am in the morning and I’m feverishly working on a presentation for a massive client. The presentation will take place in five hours. Here, the rate at which I’m creating value quite high. If two hours magically disappeared from the clock, it could destroy a meaningful amount of SeatGeek’s enterprise value. So I feel justified in, say, asking my girlfriend to get me a Diet Coke so that I don’t have to break my concentration (thankfully she’s an economics student, so she understands).

Jack then continues with a comparison of the value of someone's time to the company and their wage, but I'll stop here for an important tangent to a point which I think is crucial to the discussion.

Time is worthless

Time is the most valuable thing in the world, and yet by itself it is worthless. Time well used is valuable. As John Gruber said of Jobs in this article:

Late last night, long hours after the news broke that he was gone, my thoughts returned to those grass stains on his shoes back in June. I realize only now why they caught my eye. Those grass stained sneakers were the product of limited time, well spent.

We all have limited time, and we can't buy more of it, so philosophically, we might say it's all priceless. So why do I say it's worthless? Because unless you spend it well, that time does not have any intrinsic value to your business (though it is probably still worth something to you personally).

I believe and have believed for a while that time is not the right thing to measure or preserve. Buying a $700 computer instead of spending an hour searching for an equivalent $640 computer (the example Jack uses) is a valid trade-off, but not because of the time being saved.

What makes the trade-off valid is the energy, the attention that's being saved.

We each have a limited amount of attention and energy (two sides of the same coin) to spend on a vast number of potential attention sinks each day. We can only care about so many different things each day, every day, before our very ability to give a damn gives up and we just don't care anymore and can't bring ourselves to care.

Spending energy caring about saving $60 on the purchase of a new computer is not worth Jack's limited supply of energy.

Whenever you're about to engage in chasing down some rabbit-hole distraction, think of this - if there are only 10 things that you have space to properly care about today, should this be one of them?

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