Читать книгу Secrets to a Successful Startup - Trevor Blake - Страница 14
ОглавлениеTurn a Winning Idea into a Winning Company
Don’t keep your dreams in your eyes, they may fall as tears. Keep them in your heart so that every heartbeat may remind you to convert them into reality.
— NISHAN PANWAR
When people have a winning idea and do nothing about it, the idea soon fades until it is forgotten. That is, until one day they encounter someone who has turned a very similar idea into a great company. Then there follows that sinking feeling in the pit of the stomach: That person could have been living a successful entrepreneurial life, if only. . .they had done something about their idea. What stopped them? Why didn’t they follow through?
People talk themselves out of great business ideas all the time and for many reasons, but fear, negative thoughts, and a lack of self-confidence are the prime culprits. Like a kid touching a hot stove, people will convince themselves that any bad economic news, like a dip in the stock market, means that it’s the wrong time to start a new business. But running a business is never risk-free, the economy will never be perfect, and waiting for the ideal conditions only risks letting your idea die from neglect.
Don’t do that. Instead, immediately take action to make your business a reality, which builds momentum in the opposite direction. Once you discover your winning idea, incorporate it as a company. Online companies make the process simple and inexpensive (replacing the need for expensive attorney fees), and I consider this to be one of the simplest, least costly, and most effective things an entrepreneur can do. In fact, in 2018, according to the Small Business Administration, 70 percent of all businesses in the United States are sole proprietorships, and 99 percent never register their business, which is crazy given all the benefits. The legal protection alone is worth the small cost, but where it really pays off is psychologically and emotionally.
The benefit of reacting forward cannot be overstated. Once you incorporate your company, you have set your idea in motion. You have established a business, one that you own. You are the boss, and you have the paperwork to prove it. Doesn’t that feel exciting? Doesn’t that build self-confidence? Doesn’t that add to awe?
Now every time you see the paperwork, you cannot help but plan the next step, which is figuring out all the nitty-gritty details for how you will accomplish the business you’ve just created (which I discuss in the next chapter).
The RAS Conundrum: We Focus on What’s Urgent and Important for Survival
Every second, our brains are bombarded with about two million bits of data from our senses and nervous system. That’s more information than we can process into conscious thoughts, and so our brains have developed a system for filtering and prioritizing information. If our brains didn’t do this, our consciousness would be overwhelmed, and we’d be too overloaded to make decisions.
The part of the brain that handles this function is called the reticular activating system, or RAS. Psychologist Jerome Bruner said the “inhibitory system” of the RAS “routinely and automatically removes from perception, reason, and judgment over 99 percent of available fact.”
Through various neural paths, the RAS connects the brain stem to the cerebral cortex. The brain stem controls many involuntary functions and bodily reflexes, while the cerebral cortex is believed to be the seat of consciousness and thinking abilities. The RAS links these two regions and helps our consciousness focus on what’s most important or urgent in any particular moment according to the belief system we have developed since birth. This is essential, but it’s also a double-edged sword.
Out of those 2 million bits of data we receive every second, we only have the capacity to process around 147 bits. Pause for a second to digest that. As Bruner said, our RAS filters out nearly everything we experience, more than 99.99 percent, and hides it from our awareness. This is a conundrum: In every moment, we are blissfully unaware of almost all of the world around us. The RAS filters out whatever we have decided, through learned beliefs or mental habit, is not important, and it allows into consciousness only whatever seems most relevant or needs immediate action. What does this mean for a first-time entrepreneur who wants to start a business? If we believe, for whatever reason, that it is the wrong time to start a company or that we lack the talent or ability to run a company, the RAS will let through information that supports these beliefs and filter out any contrary evidence. Any established negative habits or thought patterns will be reinforced, and in order to change them, we have to decide to change them and consciously choose to expose ourselves to new sources of data. In other words, we have to alert the RAS that it needs to focus on something new that’s more urgent and important.
For instance, the RAS is the reason that, every time you learn a new word, you then start hearing it everywhere. It’s why you can tune out a crowd full of talking people, yet immediately snap to attention when someone says your name. Advertising tries to hook the RAS: When you see a new car commercial that causes an emotional response, you tend to notice that car whenever you see it next.
Normally, all of this happens without us noticing. The RAS filters the world through the parameters we give it, which includes our philosophical, religious, and political beliefs, as well as our beliefs about ourselves. This helps to explain why we repeat negative behaviors even if they hurt us. If we expect failure, the RAS reinforces that by filtering out any contradictory information. On the other hand, if we feel empowered or expect success, the RAS will focus on data that confirms and supports this.
Because of the way the RAS functions, it’s difficult to change repetitive or habitual thoughts, behaviors, and experiences. Yet it’s possible by deliberately changing what we focus on. Bit by bit, we can reprogram our RAS and gradually change the world we experience. Instead of letting a winning idea fade, we deliberately feed the RAS a new goal by incorporating the idea immediately. This is not positive thinking. It’s positive reaction, and that makes all the difference.
Positive Reaction: The Psychological Benefits of Incorporation
Maybe the most important benefit of incorporating your winning idea is that it immediately starts to retrain your RAS. Once you take action and make an emotional commitment to the idea, you are saying to your RAS: I am serious, this is important, and I want this. Obviously, your incorporated company will not have much substance to it yet and maybe not for a while. That is not important. What is important is that you are acting on your intentions. You are breathing life into your winning idea and taking the first tangible steps to creating your own business.
Below, I explain how to complete the process of incorporation online. Usually only a few days after you do so, the paperwork will arrive in the mail. If seeing your company name in a bold header, with your name and title as owner and CEO, doesn’t give you a thrill and make your stomach flutter, maybe you shouldn’t start a business after all. If it does, this will give you a massive emotional and psychological boost. Your RAS will shift gears and start gathering all the information it can to help you succeed, as if it were saying: Hang on a minute. This is real. This is no longer just a crazy idea. Red alert. Time to reconfigure our pathways. Looking for complementary sensory data now!
Continue to support this positive reinforcement in every way you can think of. Make copies of your incorporation papers, and populate your life with them. Keep copies on your desk, next to the bed, in your wallet, in the car, in front of the TV, and just about anywhere you spend time. Create letterhead and business cards with your company name (and a logo; see pages 215–16), and take them with you everywhere you go.
This is essential. Every time you notice these, it will make you think about your business, and each thought will inspire you further and retrain your RAS. The more you do this, the more you rewire your brain to a new way of thinking. The more you rewire the brain, the more attention you place on the company. And what we pay attention to. . .grows.
While you commute to work, as you think about the paperwork in your briefcase, you might start to imagine how your company will be structured, who will manufacture the product, and who the ideal customers will be. Your RAS takes all this on board, and before long your attention will be drawn to billboards, articles, and commercials that you somehow missed before but which now help you continue the process of reacting forward. This launches what feels like a magical process of serendipity, as things fall into place, but it is simply the power of your attention. Your RAS is helping change the 147 bits of data to include your successful company and filtering out the rest. It takes time, but it works. . .always.
Read the paperwork again before going to sleep, and your dreams might help you solve difficult problems, like how to raise finances and what the final product will look like. You might fantasize about the difference your company will make in the lives of others or even what it will feel like to sell the company for millions.
As you sit in yet another mind-numbing work meeting or are doing the laundry, sneak peeks at the incorporation paperwork. Every glance gives you a psychological boost, and every boost increases your level of self-confidence that you can make your company real. Every glance rewires your brain to a new way of thinking, builds momentum, and keeps you on the path to startup success.
The Positive Effects of Reacting Forward
I recently observed firsthand the practical effects when someone reacts forward and when they don’t. During a remodeling job at my home, I was impressed by the quality of the work of the three-person team, but Anne stood out. She was the youngest and newest to the company, but she went the furthest to ensure that I was a satisfied customer. She seemed to be the main source of inspiration for the other two, and she was also the one who had the most innovative solutions to problems.
I asked her if she had ever thought about starting her own company. Her eyes lit up, and she confessed that she was always thinking about it. But just as quickly the light faded in her eyes, as she said she didn’t think she could pursue her dream.
I pushed a little and asked what she had done to try, beyond just having an idea, and Anne reeled off a list of reasons why she had done nothing. She thought she did not have sufficient savings, and the economy was too shaky. She felt she might be too young and inexperienced. She lacked self-confidence, which wasn’t surprising to me given the content of her thoughts. She was stuck in negative expectations, which reinforced themselves, since her RAS obediently identified all the reasons she couldn’t start a company, rather than helping her solve the problem of starting one and taking the next step.
When I suggested that Anne incorporate her business and turn her idea into a real thing, her expression changed to confusion, then fear. This is a common enough reaction. To Anne, this sounded complicated and daunting. I explained it was neither of those things, and I described the positive psychological effects of reacting forward, but she didn’t act on the advice. Even today, she still dreams of being her own boss but has yet to take action to start her own company.
Fred demonstrated the opposite reaction. He worked as a software engineer for a well-known company, and he was always coming up with interesting product ideas. Acting on my advice, he incorporated his best idea as a company, and every time he glanced at the corporate paperwork, he became more enthusiastic. He said to me, “I started to think that perhaps it was not such a crazy idea. At first, I tried to shake the idea out of my mind. Who was I to think I could run a company? Seeing the documents everywhere I went somehow made it seem less and less crazy, until I knew I had to do it. It got to the point where I knew I’d never be able to forgive myself if I didn’t try to do something with it. I know if I had not made the idea into a legal company, and kept reading the paperwork, I never would have had the confidence to try it out.”
Fred fleshed out a business plan during his spare time, and he asked one of his best clients for some feedback. Fred really just wanted reassurance, but the client loved the idea, and as chance would have it, he also had investor friends who were equally impressed. In the end, Fred was able to attract $5 million in investor funds, and he is now the CEO of his own company. When I saw him recently, his confidence astonished me. He still has no business training, but he rewired his way of thinking, and now he thinks and acts like a CEO.
This is what reacting forward can do: It builds the self-confidence to pursue our dreams. Once we take the first concrete steps down the path, and put ourselves in motion, it reinforces all the next steps we need to take.
Other Options for Reacting Forward
There can be other ways to move forward with your winning idea without incorporating. The simplest way is to just start conducting business. When you do that without incorporating, you are what’s called a sole proprietorship, which is the simplest and most common business structure. This refers to a business owned and run by one individual with no legal distinction between the business and you, the owner. You are entitled to all profits and are responsible for all your business’s debts, losses, and liabilities. You do not have to take any formal action to form a sole proprietorship. As long as you are the only owner, this status automatically comes from your business activities.
But like all businesses, you need to obtain the necessary licenses and permits, and regulations vary by industry, state, and locality.
A sole proprietorship, however, is legally vulnerable. As I discuss later, even sole proprietorships should take the step of incorporation, especially since the process is so simple and inexpensive.
You might also form a partnership agreement if you are going into business with one or more others, but again, this is risky without the legal protection afforded by incorporation. You will get some of the same psychological benefits by doing either of these, but I still always recommend that people incorporate their winning idea.
A winning idea is likely to require investors, manufacturers, suppliers, and other formally structured entities. These entities are typically incorporated businesses themselves, and for legal reasons, they can be restricted in working or contracting with unincorporated businesses.
The Practical Benefits of Incorporation
Still not convinced? Beyond the psychological benefits, how does incorporation help? Glad you asked.
As I say, when an idea is incorporated, it becomes its own legal business. This new business entity transforms the way the business is seen through the eyes of the law, and it often has more credibility with potential customers, vendors, employees, banks, and investors.
For instance, consider Google’s cofounders, Larry Page and Sergey Brin. For two years they ran Google without incorporating, since they didn’t see any need to and it was an expense they felt they could do without. Then one day Sun cofounder Andy Bechtolsheim decided he wanted to become an investor, but he wanted to invest in a company, not two guys. So Bechtolsheim wrote a $100,000 check to Google Inc., an entity that did not then exist, and handed it to Page and Brin, who got the message. On September 4, 1999, they filed for incorporation in California as Google Inc., opened a bank account in the newly established company’s name, and deposited Andy Bechtolsheim’s check.
Andy Bechtolsheim wasn’t teaching them a lesson in the power of reacting forward, since they were already working on the business. He was teaching them a lesson in common sense. With a sole proprietor or partnership, there is unlimited personal liability for business debts or lawsuits. That means if you went out of business, creditors could target your personal assets, such as your home or vehicle, as well as the personal assets of any investors who, by investing, become partners in the business. When you incorporate, you are responsible only for what you have invested in the corporation. That advantage alone is worth the few dollars it costs to incorporate.
Here are some other practical advantages to incorporation:
Legal Protection for a Purchaser
That asset protection is also important if you ever decide to sell your company. The purchaser of an incorporated business will not be personally liable if the seller did something unlawful, whereas if someone buys a sole proprietorship, they can be held liable for what happened in the past. Many successful small businesses are purchased by larger businesses, so the investment in the paperwork is essential to make that a smooth transaction.
Tax Savings
There are several tax advantages to incorporation. Your company becomes a distinct legal entity, even if it remains no more than just a file on your desk. That means that any business-related expenses, including some home-office operating costs, become tax deductible. Sole proprietors can deduct business-related expenses, too, but the benefit is often less. Sole proprietors report their business income on their own personal tax returns (Schedule C), and they also pay self-employment tax on the profit (Schedule SE), which at the time of writing is over 13 percent. In some cases, sole proprietors end up paying more in taxes due to self-employment taxes, and they are said to have some of the highest audit rates with the IRS.
Credibility
The abbreviation “Inc.” or “LLC” after your company’s name adds a touch of professionalism and credibility on any company stationery, especially with customers and lenders. Image is important, and customer confidence is tied to perceptions of your company.
The Simple Process of Incorporation
Incorporating a company is easy, takes only a few minutes, and costs less than a couple of hundred bucks. Costs and registration requirements can vary by state. However, dozens of online companies specialize in incorporation and have all this information, and the entire process can be completed by yourself online. Simply search in your browser “how to incorporate a company.”
Be aware that some companies, particularly larger outfits that advertise regularly on TV, will sting you with add-on services and unnecessary monthly-maintenance fees. Their online narrative is also designed to make the process sound complicated and fill you with fear so that you will hand over a bigger check. Don’t fall for this trick. Read the small print or avoid these firms. Seek out a company that makes the process transparent and effortless, since it absolutely should be.
Though filling out the forms is easy, incorporation does require you to make some initial, important decisions about your company. These require some advance consideration, which are as follows:
•Which state will you incorporate in?
•What is your company name?
•What type of corporation is it?
•Who is the registered agent?
•What are the articles of incorporation?
Which State Will You Incorporate In?
Most single-person corporations choose to incorporate in the state where the owner lives and works, and that’s what I recommend except in a few rare cases.
One reason some people choose incorporation in a state other than the one they live in is because tax rates vary from state to state. Some states, like California and Hawaii, have tax rates around 10 percent. States like Florida, Nevada, and Washington currently have no state income tax, and that can be advantageous in certain situations, especially if you plan to sell your company at some point.
However, if you’re operating your business in a different state, incorporating in a tax-free state won’t excuse you from paying business taxes in your home state. Every state requires businesses operating within its borders to pay tax on sales or revenue that originates within the state.
Some large companies incorporate in other states that are particularly pro-business, like Delaware. The Delaware General Corporation Law is considered one of the most advanced and flexible corporation statutes in the United States, and for that reason, over a million companies, including half of Fortune 500 firms, choose Delaware. However, if you are still at the stage of simply incorporating an idea, I recommend just using your home state.
What Is Your Company Name?
This is probably the hardest question to answer, since many people drive themselves crazy trying to come up with a catchy name for their company. Choosing your business name is obviously important, but it’s less important than people think. In short, my advice is to spend no more than a few hours considering possible names, and do not pay good money to hire anyone to do this for you.
During the online incorporation process, the service will run a company name search to ensure that your choice is unique in your selected state, and then you register the name.
Here are my tips for naming your company:
•The more the name reflects your product or service, the easier it is for the customer to remember.
•Trust your instincts. If it feels right to you, go with it.
•If you’re unsure, take a plain piece of paper and scrawl out a series of words and names, playing an association game. Keep going till certain words and ideas stand out. Go with it.
Don’t stress about or get stuck trying to come up with a memorable company name. Remember: A successful product or service is what turns a company into a household name, and a great name can’t hide a lousy product or poor service. Your winning idea is going to make or break your company, not what you call it. That said, if your business provides a service, the name should reflect that service, so it’s easy for customers to remember when they need you.
For instance, who can deny that the name PayPal describes its service well? You might be surprised to learn, however, that the company was founded in 1998 as Field Link, and it was soon renamed Confinity. Only when Confinity was acquired by X.com and went public was the firm renamed PayPal. What about eBay, the company that acquired PayPal for $1.5 billion in stock in 2002? eBay was originally called AuctionWeb. Obviously, weak original names did not stop either company from succeeding.
Companies with great names like Circuit City fail as much as ones with nonsense names like Flooz.com, and yet nonsense names don’t stand in the way of success, either. I have heard management consultants wax lyrical about the brilliance of the Amazon name, but founder Jeff Bezos actually came up with it on the fly. He wanted a name that was at the head of the alphabet, so it would show up first on list services when he started as an internet book retailer.
Many successful companies change their names over time as their businesses evolve. For instance, Google was originally called BackRub. Then a year later, after a simple brainstorming exercise between the two founders, they changed the name to Google. Even Microsoft started out as two words, Micro and Soft.
In the end, choose a name that works right now. If you decide to change the name, it’s easy to do and does not cost anything. You do not have to go through another incorporation process. You simply update the information online through the state website where you are registered.
What Type of Corporation Is It?
Like choosing a company name, choosing a corporate structure can seem daunting and intimidating. Every type carries different tax implications, has different rules, and can be preferred depending on your situation. However, for individuals who intend to own and run their own business, with no or few other employees, there is really only one structure I recommend: a limited liability company (LLC).
In the United States, LLC registrations outpace other corporate structures. For their simplicity alone, they suit most entrepreneurs’ startup needs. In 2017, according to the National Small Business Association, the majority of small businesses it surveyed are LLCs (35 percent), followed by S corporations (33 percent), corporations (19 percent), sole proprietorships (12 percent registered, most unregistered), and partnerships (2 percent).
In addition, just like your company name, you can alter your company structure at a later date if it makes sense as your company expands.
If you’re unsure what’s best or how incorporation will affect your taxes, consult with an accountant or other financial professional. And remember: Whatever decision you make doesn’t have to be permanent. You can switch from one business structure to another (though it does require more paperwork and more fees). Here is a quick overview of US corporate structures:
General Corporation
Also known as a “C” corporation, this structure allows as many shareholders as you want and is more typical of large public companies. If your company is in an industry that typically needs a lot of startup capital, like tech firms often do, or if you have aspirations of eventually holding an IPO, then a C corporation might be a better choice.
The problem with the C corporation is double taxation, since it is taxed at both the federal and state levels. Profit distributions are also taxed at the federal and state levels. If you are planning a small business with at most one or two other partners or investors, then avoid this structure.
Close Corporation
Shareholders are limited in number to thirty. Not all states recognize close corporations, so most small businesses choose an alternative structure.
Subchapter S Corporation
An “S” corporation is a type of general corporation that has a special tax status with the IRS that permits business owners and entrepreneurs to be taxed as if they were sole proprietors. S corporations avoid the double taxation of a general corporation, but there are some restrictions to ownership. Only citizens or permanent residents of the United States can be involved, and the shareholder limit is set at seventy-five. For single-person and small businesses, other restrictions make it a complicated structure that can be distracting when someone is starting as a sole owner.
Limited Liability Company
This structure provides the limited liability protection of a corporation with the “pass through” taxation of a sole proprietorship (all revenue and expenses pass through the business to become the owner’s personal income). Also, members of an LLC are able to divide company profits in any manner, regardless of ownership in the company. This flexibility allows an LLC to allocate profits and losses to the greatest tax benefit of the company’s members. Every state recognizes the structure, and there is greater flexibility in how they can be organized and managed.
Limited liability companies can usually sell “stakes” in the business, which act a lot like the standard shares of a corporation. The difference is that anyone who buys a stake, no matter how small, will have as much decision-making power as any other member of the LLC.
Certain types of businesses that provide professional services requiring a state professional license, such as legal or medical services, may not form an LLC, but they use a very similar form called a professional limited liability company (PLLC). In Europe and Asia the LLC structure is replaced by the Limited (Ltd.) entity. They are not exactly the same, but the liability of members or subscribers of the company is limited to what they have invested or guaranteed to the company.
Who Is the Registered Agent?
You are required to name a “registered agent” in the state of incorporation. A registered agent is simply someone who is available during normal business hours to receive legal and tax mail for the company. Designate yourself as the registered agent because you are the one who collects the mail. Most online companies do not explain this, and they can trick you into paying unnecessary fees to act as the registered agent for your company.
What Are the Articles of Incorporation?
All new LLCs must file articles of incorporation, which are also called “articles of organization,” with their secretary of state’s office. That sounds intimidating, but it is just a short form that records the names of the LLC and its members, along with their contact information. A single-person entity has one member who is also a manager, and that person becomes known as a member-manager.
Although this is often not required by law, you will be offered the chance to draft an operating agreement for your LLC that spells out the details of the business arrangement, including percentage ownership for you and any other shareholders, along with roles, rights, and responsibilities. For most single-person companies, you simply assign 100 percent of the share of ownership to yourself. If others are involved, the online form isn’t much more complicated than filling in their names and mailing addresses.
