Startup Acts

What are the things that you must do or consider doing in the early stages of your venture. Assuming that you have already started developing and validating your idea, the following are some activities that should be high on your priority list:

  • Find a partner
  • Incorporate and open bank account
  • Trademark your brand and register your web domain
  • Office and related infrastructure
  • Network
  • Take notes

Of course, these can happen in parallel with developing your idea…the point is to act.

Act I: Partner in Crime (or Sleeping Partner, because you will share a hotel room with them at some point)

You aren’t going to be able to save the world or change it just by yourself. You might need a partner in crime (or partners). Lots of successful collaborations have relied on this partnership formula before (Page & Brin at Google, Yang & Filo at Yahoo, Gates & Allen at Microsoft to name just three high profile successes). Here are some advantages to having a partner:

  • Sounding board
  • Complementary skill set
  • Share the workload
  • Network

What skills should you look for in a partner? Well given that nobody matches janampatris to see if your business partner will be compatible to you, in the very least I would suggest you consider the following:

  • Openness: Can you be transparent with each other
  • Wavelength: Are you on the same wavelength and do you understand each other, or are you getting stuck in “I heard what you said, but I thought you meant something else….”
  • DNA: Do you have shared values? Do you have radically different standards and ethics
  • Work ethic: Does your partner share your zeal for hard work to build your start-up, or is he/she going to be watching TV or gaming all day?
  • Shared goals: Why are you doing this? What is your end goal? Do you each agree with the purpose and end goal of what you are doing

Before the curtain comes down on Act 1, lets also discuss some of the important items that you must discuss with your partner or prospective partner.

  • What are you respective roles going to be? Are you going to be able to do the things you are each interested in doing and that move the venture forward, or will you forever be duplicating and stepping on each others toes
  • How do you plan to share the economics of the value that you hope to create? Who is going to get what share? On what basis are you going to decide? These things are best discussed very transparently upfront lest they lead to a misunderstanding later on
  • How will you decide to move forward in case of differences in opinion or strategic direction – if the best ideas win, how do you know who has the best idea. How are you going to resolve an impasse?
  • Clarify what your respective expectations are. Some implicit agreement that you will try this for at least X months or years before you decide to try something new – can you give each other some commitment, which might not have any legal binding, but at least gives you some moral binding to at least stick it out together for a while rather than jump ship if something better comes your way next week

Act 2: Of Mems and Arts and Account Numbers

Your business is probably being formed around some kind of entity. You can choose to be any one of the following:

  • Sole proprietorship
  • Partnership
  • Private Limited Company

Of the above three, the Company option is the one that is most common for various reasons, not least because if you are raising institutional funding, your investor will want some share ownership in the company, and this is most easily possible in a company. Here is what you need to do to form a company:

  • File an application with the Registrar of Companies (ROC). They claim that the process can happen start to finish in 1 hour. If you believe that, then you are the type of person who believes that India will win the FIFA World Cup in South Africa in 2010. More likely, the process will take up to a month, with lots of interruptions in the middle that you will find irrational and that you will be wholly unprepared for. Try not to break objects around you when you get frustrated with the process
  • Find a name that no one else has taken. The ROC has its own strange rules on what is and is not allowed in your company name (you can’t use the word ‘The’, using the word ‘International’ will cost you more, the activity of your business has to be stated in the name…..). You might not have the opportunity to use your chosen brand name because someone else has already taken the name. Finding a name that is acceptable to the ROC, who’s domain name is available on the web, who’s trademark is available at the trademark registry and that is desired by you for your brand was one of the tougher things that I have experienced in India. I have no answers for you, except to say that you be better be good at finding a name and have a lot of patience. Continue to try not breaking objects around you when your frustration with the process increases
  • Draft your company’s Memorandum and Articles of Association. These are legal documents that are like the Constitution of your company and are filed with the ROC. They describe the scope of business that you will conduct, what your obligations are to the other shareholders/investors and how you will govern the company. You will get delayed if you don’t have these documents ready. While you are applying for a name with the ROC etc., have some accountant or lawyer work on your Mems and Arts. Once the ROC approves these documents, you might want to make at least 30 hard copies of each, because you will need them for every little thing like opening your office, opening a bank account, getting a telephone line, investing your company’s money in a Fixed Deposit and so on
  • Get your Certificate of Incorporation. At the end of the company formation process, you will be given a document with an official ROC seal on it, like a birth certificate, except it is for your new company (and not for your cutest baby on earth). Along with your Mems and Arts, you will also need to produce a certified copy of your Certificate of Incorporation for most activities that your company does
  • Make a rubber stamp and company seal. You’ll need this for almost all documents that your directors will sign

You will have to put some capital into the company, so you will also need money to incorporate you business. Typically, you need to capitalize a private limited company in India at a minimum of Rs 1 lakh of issued and paid up capital. Authorized capital can be higher depending upon your needs, and this will require you to pay additional duties and registration charges at the time of incorporation. For the minimum Rs 1 lakh of capitalization, the ROC registration and stamping fees amountto at least Rs 15,000. You might have professional charges associated with incorporating a company that should not run you more than Rs 8,000 – Rs 10,000 per company.

Once you have the company incorporated, you must open a bank account for the company. Keep your personal accounts separate from those of the company. The bank, apart from not paying any attention to your fledgling start-up, will demand the following:

  • Company PAN Card
  • Certificate of Incorporation, Memo and Articles
  • Board resolution authorizing you to open a bank account
  • Copies of your signature, proof of registered address of the business
  • Usual bureaucratic stuff that banks want and never use

Act 3: “I love your name, I didn’t know it was still available”

By now you should have at least thought about a name for your product, service or business. You must be sure that it is not being used by anyone else in India and that you are not breaching anyone’s intellectual property rights.

You can check at the trademark registry whether your chosen brand name has been taken up or not. Any trademark and patent lawyer can do this research for you within ten days for a small fee. If the name is available, then file a trademark for it along with your logo. It will take you at least 18 months to get the trademark (don’t grumble, this is better than many western countries). But you can start using your chosen brand name and logo with the superscript TM once you have filed your application. This will give you some protection against someone using your company’s name. But, given IP violations that we see in India, don’t rest easy that no one will abuse your company’s goodwill or try and pass off as your company by using your identity.

The tougher challenge for you might come in the way of making sure that this brand name is also available for a web address, to the extent your business needs a web identity that is similar to your offline identity. I would highly recommend it, but then again your chosen name might not be available. You might struggle with domain name squatters and others who captured these domains before you. All the best in getting this domain transferred to you at a cheap price. It took us three months to track down and buy the www.iTrust.in domain name from the person who owned it.

Act 4: Office or the local internet cafe

Your business might be of the type where you needn’t get out your chaddis and can operate from the comfort of your home. All power to you (but remember that hygiene does matter).

Or, your business might need some more people who bring additional skills to the team. Not all of them will be comfortable seeing you in your chaddis or working out of your home. Where are you planning on seating all these people?

This is a very practical issue, one that will consume a lot of your emotional energy. I also believe that this is one of the toughest operating challenges that any start-up business in India will experience. India is just not a start-up friendly country as far as office availability goes. Real estate markets are very local, but generally speaking, there are very few cheap options for start-ups in India.

What you need to figure out is how you will grow out of your basement at home or the office that some friend or uncle agreed to let you use for a few months. How are you going to be able to manage any business disruption during this process?

There is this notion of start-ups operating in grungy loft-like environments which is quite true for many parts of the world. So, could you just take some space in some ramshackle structure that you could renovate on the cheap, get an internet connection and be off? Certainly sounds very romanticized, but as a practical matter it sucks. It can and will affect your hiring plans if you need to build a team.

India is not like the US where the idea of two guys or an entire team working out of a garage is a part of our cultural fabric and is idolized. On the contrary, many people will be snooty and feel disgusted at the thought of working in the type of grungy facility that you prudently think is the right thing for your business at this early stage. Most people in India want fancy offices. They couldn’t care less if a fancy office is a bad use of a start-up’s limited capital.

If you feel you are at a stage where your business needs a formal feel for your employees, vendors, customers etc., you might want to consider taking a few workstations at a business centre, where you can put your own name on the door and have a personalized phone answering service. There are enough of these sprouting up in large and medium sized cities. While they are a good short-term option, they will be expensive (as high as Rs 30,000 – Rs 40,000 per seat plus incidentals). You will reach a point where paying for that extra seat at a business centre will make it uneconomical when compared to paying rent at a leased office. Do the calculations to get a feel for what that crossover point is going to be for you.

Act 5: Our Network Lets You Talk All Over India

Ideally, instead of hanging out with your beer buddies, try to interact with people who can help you in the following ways:

  • Increase your commercial sense and awareness about the idea (everything we discussed last week about the target market, the competitive dynamics in the industry, economics et al)
  • Increase your credibility among your vendors, potential employees/investors/clients
  • Open doors for you to make progress in your business

Don’t be shy. It will only hurt you. The worst that can happen to you is that the other person might not give you time. Learn to handle this rejection. Its not going to kill you. Before you know it, you’ll get better at cold calling than you thought you were. You’ll also get better at using your network.

The following is a brief list of the kinds of people who can help

  • Former colleagues and mentors at work
  • College professors
  • That uncle of yours who is very business savvy
  • Industry experts who write for magazines, appear at conferences etc.
  • Alumni network and peers from college
  • Anyone on your wishlist of people who can help your venture progress

The more you talk, the more that you will find yourself getting lucky enough to get introduced to interesting people, or find the right break that helps you take your idea to the next level.

Act 6: Point Noted

Keep a diary or notebook where you can take notes of the thoughts that are coming into your head, the highlights or key points of meetings/conferences that you attend or themes that you must think about as you develop your idea.

Remember that good ideas, like death and flatulence, can occur at any time. You better have a way of capturing your ideas. Your mind is going to be full of thoughts and you might reach a point where your short-term memory is overloaded. There’s no shame in taking down notes in meetings, or summarizing your thoughts into your notebook quickly after a meeting. This is particularly useful for actionable items coming out of meetings.

Things To Remember

  • Find a partner. Tune into the same hertz. Discuss respective roles, economics and commitment to each other
  • Incorporate early. Save time and emotional energy later
  • Trademark your brand and register your domain names (variants thereof like .com, .in and .co.in) asap. Curse domain name squatters
  • Identify your office needs and related infrastructure. Solve. Quickly
  • Meet people. Don’t be shy
  • Take notes. Often and diligently

Anything else that you think should have been discussed? What else have you done that has turned out to be useful as your start-up has grown? Do share….curious minds want to know.

If you have any questions or comments, don’t be shy! Feel free to send them to startup@iTrust.in. Next week we are going to talk about money and lots of it.

Interesting Links

http://www.mca.gov.in/

(OK, this link is not interesting, but trust me you will be using this if you need to incorporate your company. The ‘Other Services’ section on the left has a database of existing company names. You can also get the status of your application online.)

http://www.laws4india.com/corporatelaws.asp

(You can find sample Memo and Articles on this site. I have not used this)

http://lifehacker.com/software/note-taking/geek-to-live–take-great-notes-167307.php

http://www.michaelhyatt.com/fromwhereisit/2005/04/recovering_the_.html

(These are some interesting posts on the art of effective note taking.)

http://www.richardwiseman.com/resources/The_Luck_Factor.pdf

(Recently, I have been reading a lot on Creativity, Chance and Opportunism….We are not going to talk about the role that luck plays in entrepreneurship and how to create luck. But, I think you will enjoy reading this note – it reviews a 10-year study on the role of luck in life.)

The author is a co-founder of a financial services start-up, www.iTrust.in.

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