Looking out for the Pitfalls

Following your dreams is inherently risky. What happens if things don’t work out? This is one question many entrepreneurs ask as they begin their ventures. But what happens about the passion that motivates you to start your business? It must be followed.

Part of developing a winning and healthy business is to manage your risks. What could possibly go wrong? One needn’t be pedantic about looking out for pitfalls, but, you need to have a sensible outlook on what your business environment looks like. You are not expected to mitigate all risks because that is impossible, but looking out for risks is a healthy exercise. I often get requests from young entrepreneurs to help them take their business to the next level.  Except the correct request I believe should be, “How do I maximize my value?”

Don’t put your Personal Assets at Risk

You could find yourself overwhelmed in day-to-day tasks of managing a business. In the beginning, you will be looking to save as much as you can. Or you could choose not to formalize your business because, well, you may not have customers. I heard one person say, they would like to put all systems in place before they pursue new clients. That is dangerous because you could lose out on opportunities while you wait to get ready. Perhaps, you are so excited that you choose to jump in and swim. However, if you don’t put some systems in place you could spend a lot of money and lose your credibility, because you don’t have the capacity to deliver. Quite confusing huh? But don’t get discouraged. The key here is to find a balance.

No Handshake or Gentleman Agreements

The first place to begin is to register your venture as an entity. There are several types; sole proprietorships, limited liability companies, companies limited by guarantee or trusts and so on. A lawyer would be best placed to advice what entity suits your venture.

The second step is to put agreements in place. When you embark on a venture, your passion drives you. It is very easy to fall into the trap of making agreements based on a hand shake with co-founders or co-investors. What if your partner decides to go rogue? You can’t afford to put your dream at risk. If need be patent your ideas.

Who owns Intellectual Property (IP)?

You may have been employed at one time or other. I am sure you remember signing agreements about how you were to handle your employers work. If you developed new business or ideas while under someone’s employ, most likely you relinquished all ownership to your employer, in the employment agreement.

You should apply the same principle as you employ people. This is fundamental because you could work with contractors on a number of occasions; paying for that work does not necessarily mean you own the outputs. Your agreements with contractors should have language stating that you own the work they create.

Similarly, you need to understand IP and have a strategy to ensure you don’t infringe on others IP.

Financial Projections

This is a crucial component for any possible investor. Be realistic rather than optimistically enthusiastic. I have pointed this out before; I have seen young entrepreneurs become wildly optimistic without looking at the bottom line from a realistic point of view.

Disclosure

You will need to consider how much you are willing to disclose about your business idea. If you source funding from several investors as the case may be, how much will you expose yourself, to the extent that is necessary to get buy-in from an investor? Consider having non-disclosure agreements with potential investors. But more than anything, make sure you have your patents in place.

The secret to being successful is to be effectively motivated. Motivation can be both intrinsic and extrinsic, meaning you could be driven by your passions and other external factors could also motivate you like making the right decision and succeeding. However, having clarity about your vision and the path you want to take is very important in keeping you motivated. Take some time out to assess the potential risks your business is facing. Having a clear understanding of what is at risk will give you the courage to face them.

Stay motivated.

Darshan Chandaria #transforminglives