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daily articles for founders

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

How to choose a cofounder  

Excellent article by Elad Gil, outlining many points that are worth thinking about before deciding to work with someone. As I've mentioned in an earlier article, starting up with someone else can be fraught with peril, particularly if they're a friend. Together with my article, this checklist of questions could save you a lot of pain.

Here are the high-level points, but please read the full article to get the substance:

Key criteria for selecting a cofounder:

  1. Ability to communicate with each other. Can you have an honest and frank conversation with your cofounder?
  2. Alignment on key questions. What are their objectives? Why a startup? What do they care about in company culture? Who do they want to hire? How do they view investors? How ethical are they? What is your role versus theirs?

Elad also points out that you should be clear about who's in charge, or else your disagreements will freeze the company, that you should avoid starting up with someone with strongly overlapping skills, and that it's a big bonus to have known them for a few years and even worked together before.

Venture capital basics  

This is a good, relatively brief overview of the basics of looking for money from VCs.

If you're not familiar with any of the concepts in it, it's worth a read. Covered:

  • What VCs are looking for
  • The difference between VCs and angels
  • Asking for the right amount
  • Planning on future rounds of investment
  • Understanding pre-money, post-money and % ownership
  • Negotiating
  • Comps
  • % ownership
  • Exit strategy (with example)
  • Understanding how a VC fund works
  • VC maths
  • The fallacy of taking other people's money

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)


Working over capacity  

Gabriel Weinberg:

For the last month, I've been running at, over, or near capacity. I hate this state of being, and am glad it is over for a while (I think!). I try hard to avoid it, though it is not always avoidable in the short-term without consequences.

I hate it because I feel it gets you farther away from serendipity, which is at least for me the most surefire input to innovation. Without the extra capacity to grab startup micro-opportunities and generally mess around, I feel I'm missing out.

Interestingly, I have been working "at or over capacity" for the last month or so too. I have a different conclusion than Gabriel though.

Working at or over capacity feels good because you feel like you're getting things done. However, it is not sustainable. And yet it is a necessary step towards getting more done. What happens when I work at or over capacity is, in fact, similar to what Gabriel describes: I try to get away from the feeling of working over capacity. And the methods I use are similar:

  • Figuring out what is critical and what is not
  • Focusing on the long term
  • Delegating

There are a number of other techniques, but those are probably the key ones. What's important to note about those techniques is that two of them are about getting rid of workload that doesn't have a good enough return on energy invested, and the third one is about creating capacity.

And that is the right way to deal with working over your capacity: do less useless stuff and create more capacity.

So, for the same reasons, with the same observations as Gabriel, I come to a different conclusion:

Working over capacity is a symptom that I'm about to increase my capacity and improve my discernment about what is worth doing.

In other words, working over capacity (which unsustainable) is a precursor of personal growth. I guess that's why I like it. The more often I do it, the more I grow.

How to find a technical cofounder  

Jeffrey Talajic discusses how to find a technical cofounder. In short, go to the relevant networking events, talk to people, discuss your project, let them self-select, and bring them on slowly while testing out the relationship. Oh, and be picky about who you select.

Decent advice, apart from one thing: I believe that if you've started your business already, it's probably too late to find a technical cofounder for this one (though you can find a good CTO-for-hire). But you can find a tech cofounder for your next business.

You shouldn't start a business with someone you've just met. Let the relationship evolve, grow, and solidify, and then consider starting a business with them.

Freely available programming books  

I personally find printed books more handy for learning a programming language, but if you need to learn and you don't have the money to buy them, or if you prefer to read books electronically, this collection might well do it for you.

If you have no programming experience whatsoever, I recommend starting with this one.

How to ask for introductions  

Elad Gil on how to ask for intros:

One of the key things you learn when building a consumer product is to make things as easy, streamlined, and friction free as possible for your users. When asking an angel, advisor, or other person to make an introduction for you, the same rule applies. The structure below saves a lot of pain & back and forth for you, as well as for the person being asked to make an introduction on your behalf.

(...)

By spending a little bit of time up front you can make life dramatically easier for the person doing you a favor / offering an introduction. It also increases the likelihood dramatically that an introduction will actually occur and yield a follow-on conversation.

Elad rips into a couple of templates (good and bad intros) to show how it should be done. As someone who has frequently both been asked to make intros, and asked others for intros, I can only agree with his approach.

Make it easy for people to help you, and they're much more likely to do so! Worth also consulting this article, this presentation from Founder-Centric, and the "Reaching Out" section of this article for additional perspective (thanks Sal for the suggestions!).

How to work as a CEO/COO team  

Sometimes, the best solutions are the simplest.

Joel Gascoigne:

I asked Leo to become COO in November last year. (...) The problem we found, was that it was almost impossible to clearly separate these two processes. If Leo was working with someone to try and set goals and keep to them, he inevitably had to make decisions which affected our direction.

It felt like with the new structure we were suddenly both involved in every decision. The goal of the new role for Leo was to speed things up, but with both of us discussing every decision, things were sometimes grinding to a halt, especially in cases where we didn't immediately agree.

The solution? Split the CEO responsibilities across the two roles, with each doing what they do best!

This may seem really simple in hindsight, but it's the kind of solution that's just not all that obvious when you're first going through it. The article is well worth a read.

Concept to launch in 24 hours  

Kyle Bragger, creator of Forrst, an exclusive community for designers, talks about his approach for building and launching something in 24 hours.

A rapid prototyping/launch workflow can certainly help with figuring out which product to focus your energies on. As Kyle puts it:

There's nothing more fulfilling than creating something out of nothing, and in my opinion there is no better time to transform yourself into someone who can produce something from a mere idea. It doesn't have to be perfect, or even refined. The ability to create a working prototype of an idea is invaluable. It's not a mockup, it's not a powerpoint deck, it's a real, living, breathing thing that real users can interact with now. If you're a developer or designer but lacking in the opposite discipline, what are you waiting for? You could be hacking on a cool idea as we speak. If you're a business guy/woman, or "ideas person", why spend any more time relying on other people** to build your ideas?

Cold calling versus AdWords  

Here's a great article by Robert Graham, where he explains how he developed a cold-calling approach to generate early leads and enable himself to figure out what his intended customers wanted.

Robert takes us through the evolution of his cold call pitch, culminating with a win-win approach that worked out for him:

Sure enough, each and every prospect, skeptical or not, I used this pitch on agreed to have me out. I booked a week of appointments in a handful of calls. I was so successful, I was forced to start telling people I would contact them the following month to set a date. I had too many appointments and too many blog posts to write. Making the pitch a true win for both of us was the magic that generated the 100% conversion to the next step, but each small piece of experience and learning contributed to that success. I learned a lot about my business from each visit. I didn't close 100% to sales, but those relationships have yielded a lot more than a simple close. Many people have contacted me weeks or months after our first conversation and ask if I'm still solving the problems we talked about.

It's worth noting that this specific approach won't necessarily work for all industries. For example, it would be disingenuous for GrantTree to start posting reviews of tech companies and use that as a bait to get companies talking to us. That being said, looking for a genuine win-win is a great idea.

Read the whole article here.

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