Q. Early stage companies face a number of daunting problems and challenges. What are some of the actions young companies can take to avoid or mitigate some of these problems and challenges?

by Robert C. White Jr. on July 23, 2010

1.  Choose the correct business entity. You need to ensure that you are operating your business through the correct entity. There is no set answer here, as a number of legal, tax, financial, accounting, business and personal issues must be addressed.

2.  Confirm Ownership. This has been the source of significant problems for companies.  Confirm all ownership percentages and rights up front and what each person is contributing to get that percentage. This is important in early stage companies because people normally contribute different things (such as cash, services and technology). All of these items are valuable, but it’s amazing how perceptions of the value of these contributions change over time depending on circumstances.

3.  Document Equity Holders’ Rights and Obligations. This is crucial to both the company and the equity holders. This means getting a document in place up front that clearly establishes and documents each equity holder’s rights and obligations.

4.  Protect Intellectual Property. This is an important step, especially if your business is built on certain intellectual property that will have increasing value as the business grows. There is no right answer here because there are so many permutations, but the key is to get on top of this situation and take all necessary steps to protect your intellectual property as early as possible.

5.  Document all Employment and Consulting Relationships. These relationships can cause substantial harm to a company if not properly documented. The use of proper restrictive provisions, which may include noncompetition, nonsolicitation, nondisparagement and confidentiality restrictions among others, can provide substantial protection to your company.

6.  Networking. Regular and effective networking is important for almost every business situation, and it is essential for the marketing and branding of almost every company. Failure to network is one of the most common flaws that I see in early stage companies.

7.  Utilize Social Media. Most small or early stage companies just don’t use social media productively and efficiently. Social media can be a hugely productive marketing and branding tool when used correctly. A good social media presence is expected in most industries now, and this will only intensify going forward.

It is always better to resolve these items up front. The participants in a business are normally all on good terms with a consistent vision in the early stages, and thus it is almost always easier to get agreement on difficult items and to get these items documented and in place. The key here is to avoid or minimize controversy – it’s hard enough to develop and grow a business when everything’s going well, and you don’t need a fight or litigation to complicate the situation.

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