Legal Articles Covering Legal Topics

By Gary D. Williams
Brigham Young University
Business owners are bombarded with information on what to do to be successful. Scores of books have been written on topics like "25 Tips for Successful Marketing," "Ten Rules to Grow a Business" or "Five Ways to Beat the Competition."
While that kind of information is important and can be very useful to entrepreneurs, it is just as important to know what mistakes not to make and what not to do when starting a new venture.

A few years ago, I was asked by a close friend to visit a company in which he had invested along with a venture capital firm. The company had raised more than $1 million in capital to take the company's product line from prototype to market introduction. The products were unique and innovative, the price point was competitive and the intellectual property was protected.

The challenge faced by the company was that the invested capital had been spent; the products had been manufactured and were in transit from China on the day that I visited with the entrepreneur. But no investment had been made in marketing or sales, no channel for distribution had been developed. The owner was so convinced that the product would sell itself that he had done nothing to develop his markets.

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Here are five mistakes to avoid when building your business:
• Waiting too long to build your team. Many companies are founded by the "inventor," the mastermind behind the product. The skills to develop a product are often very different from those needed to develop markets, sell product or acquire needed capital. Take an audit of your team. What is missing and what can you do to fill the gaps? At a minimum, you are going to need marketing/sales, finance and production expertise.

• Underestimating the amount of capital needed. It almost always takes more money and more time to start a business than originally estimated. Do not cheat the business with too few assets. A business today needs a legal and proper form of organization, computers, a Web presence, a place to conduct the affairs of the business, etc.

• Focusing on your core strengths. New startups often struggle to take on all of the activities required by a new firm: finance, marketing/sales, production, human resources, etc. Take a few minutes to identify what you do best, and what you do that makes your company unique. If your strength is in your intellectual property (IP), you may want to consider either licensing your IP or outsourcing production until you can scale the business. Focus on your core competencies; translate this vision into tasks that will increase your probability of success.

• Acquiring outside expertise. An outside advisory board can make the difference between learning the hard way by making mistakes or quickly adapting your firm to the opportunities in the market. Advisers will provide mentoring at little or no cost. In addition, legal assistance, insurance brokers and others can help you avoid problems.

• Doing things "right" from the beginning. A professional in the health-care industry had developed remarkable improvements in devices for physical therapy professionals. As he built the company, he acquired capital without proper documentation and without legal assistance. After raising more than a million dollars, he was prepared to move to a market expansion phase in growing the business. The professional investors that he approached were not willing to back the enterprise due to early investor problems and the liability that would need to be assumed by new equity partners. His business eventually folded and he moved out of state. Listen to your advisers and take the time to do things right from day one.

One-third of small businesses fail in their first two years, according to the Small Business Administration. Many of these fatalities could be avoided by not only following the steps for success, but also by not making mistakes.

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Gary D. Williams is affiliated with the BYU Center for Entrepreneurship. He can be reached via e-mail at cfe@byu.edu.