10 Pitfalls to Avoid to Make Your Business A Success
In 11 years of growing the law firm, I realised as a founder, early on, mistakes are inevitable. However, what you learn from those mistakes; the advice you take and how you shake yourself off is what counts. You are more likely to succeed in business if you anticipate and thus navigate the pitfalls. Juggling commercial, legal, financial and practical advice alone is not easy so surround yourself with good people, sound advice and all the resources to avoid the traps many fall into. This article not only celebrates our survival and growth but explores the hurdles we, like many businesses, went through in a hope it will inspire and forewarn those on the same path.
1. Failing to discuss, formulate and document the plan, with co-founders
I intended to founder my business with 3 others, but I soon realised that our goals were not aligned; our work ethics were very different and our long-term motivations out of sync. Luckily, I had drafted a very good partnership agreement so managed to break free from what would have been a disastrous relationship. Luckily this enabled me to continue with A City Law Firm with me solely at the helm, but not all businesses can say the same.
You not only have to be careful to choose the right partners, but you need to clearly document your goals in a shareholder’s agreement so as founders you can build upon the platform you have created together, but if it goes wrong you have a means to address the problem not just wind up the company. The key is choosing the right partners, talking candidly and asking the tough questions at the beginning.
2. Under-estimating your cashflow
You need to understand your market place, your competitors and what you need financially to grow. It’s a juggling act of charging enough to afford to expand and grow, whilst showing client’s your true value, whilst attracting a new market.
Cashflow though is king, it is what makes or breaks a business, so don’t over extend credit to clients, don’t sell too cheap, have monitors in place for debtors and creditors, don’t be afraid to chase for payment, be realistic with budgets and prices and ensure your contracts protect you, with clients, suppliers and contractors. Its also important you pay yourself a reasonable salary, especially when you seek investment, otherwise if the founder is distracted the business is not going to progress, an investor will want to see this factored into any business plans and financial models.
3. Not valuing your work force and/or protecting your business
A large part of any company’s budget will be put towards recruitment, training and retention of its employee’s. Despite this, there is a real risk that, those key people could walk out of the door leaving you without the requisite skill pool you need, but worse there’s a real possibility that they may also take all their knowledge of your business and pass it to competitor. Many businesses focus on many things but staff retention and protection against staff competition is often neglected.
- Incentivise and look after you team. If you can communicate your vision to the team, so they are working side by side you, this inspires loyalty and dedication as you are all working from the same plan with the same goal.
- EMI options can give staff the feeling of being part of the fabric of the firm and as you succeed so do the in terms of profit sharing, without actual cost in the short term to you. If you can align the actual success of the company with the financial rewards of those that grow it with you, I have seen not only enhanced performance, but the attrition rates seriously drop.
- However, to protect yourself you have tight employment contracts protecting your IP and confidentiality and importantly restrictive covenants to avoid them taking your know-how, clients, IP or staff to a competitor or setting up on their own.
4. Intellectual Property & the mistake of that ‘handshake deal’
IP ownership can only be granted / assigned in writing. As such if your coder or developer has no contract with your business, then they could own the IP they have helped design, not you. If there is a dispute, they could hold this to ransom causing a costly dispute or loss of your code or design. You need to ensure you have checked these contracts carefully and that you actually have one carefully drafted in your favour. Many tech companies work with friends and often make arrangements based on goodwill, but when a dispute arises without a contract you are at the mercy of the designer.
Also, many companies fail to check that their proposed company name is free to trademark. This should be carefully checked before a large budget is set aside for branding and marketing as otherwise you may find yourself having to start all over again.
5. Rushing to Investment
I managed to self-finance my business throughout without taking in partners or investors. I did consider these, at points along the way, even offers of mergers and partners coming into the business but having carried out checks into these entities I often found hidden skeletons and things I was too anxious to continue to explore. If you are seeking investment, which is often a necessity for tech companies scaling up, carry out your due diligence on what’s available, what the risks are and who the investor is.
- Do they understand the sector?
- Have they the resources to add more money, at a later date, if that’s what you need?
- Can you approach them if things go wrong?
- Do they have competing interests in the market place
Many are often dazzled by the cheque, but that’s just the start of the journey, don’t get involved unless you are certain of the aligned goals, the exit plan and how you would handle a crisis together.
6. Not getting good advisors on board early enough
A good lawyer and tax advisor can save you money and so much pain at a later stage, especially if they secure EIS or another favourable structure.
7. Admit Your Weaknesses
Never be afraid to admit your weaknesses so you can recruit and fill those gaps with experts. Trying to juggle everything will hinder your growth and a tech expert is not expected to be a finance director and help with a sound financial model will place you in good stead.
8. Be Prepared!
Be prepared when you go to an investor or to market – be investment ready. Many business have misconceptions that cripple them:
- 'This is unique to the market, no one else is doing this', is often a bold statement that isn’t upheld.
- 'I don’t need a salary for 1-2 years, I can use 100% investment on the business'. Wrong! No one will invest in someone who can’t eat and pay their bills.
- 'My business is valued as 10 million because it’s going to be worth that in 2 years', when we build our tech, can you support that with figures and market research? Be realistic.
- 'I have not put any money in/nor have family friends', why would an investor give you money if no one else will? Skin in the game is key.
- 'I don’t need advanced EIS assurance', then how do you know your investor will get the tax back if that’s what you’re selling them?
- 'My 3-page pitch deck with dazzling tech will secure a partner they don’t need to know the figures yet, or exit plan, or who the team is'. Wrong! They are fundamental things they do need.
9. Regulatory Considerations
Many Fintech or ICO companies need to be regulated and choose to risk investment or token raises prior to this advice/process. This exposes you to an FCA investigation. This advice is essential advice prior to this public offering.
10. Don’t be so rigid and set in your goals
Those that can adapt, reinvent themselves if necessary, accordingly are the ones that survive. Always revive and up date your processes, business plans and outlook, as nothing will ever go to plan and of you are not making mistakes or changing things you are failing to innovate therefore failing to grow.
Karen Holden - Founder of A City Law Firm