Monday, September 08, 2014

Smart Startups Exhaust Free Resources Before Paying Anything

I periodically meet entrepreneurs in and around San Francisco.  I share important lessons with them from my years of attending free seminars and conferences.  I might as well share my genius with the world, free of charge.  Entrepreneurs grow into more complex business needs as they expand.  Leverage the free resources first, and pay for more complex services later.

Outsourcing some basic administrative housekeeping is possible in the middle stages of a startup's growth, but I don't see the sense in hiring a benefits consulting firm in the earliest stage when the headcount can be numbered on one hand.  Browsing a few HR websites provides all the free help a cash-strapped startup needs.  The Society for Human Resource Management (SHRM) has free how-to guides and forms ready for a multi-hat CEO to download.  The CEO can handle such duties until corporate growth drives structural expansion past one managerial level.  I personally know an HR chief at a major VC-backed startup.  She did not come on board until their HR needs expanded past a few functional silos and one level of supervision.

Free legal help is plentiful.  Nolo has free basic legal guidelines and free forms for routine actions.  I looked for a form where one could disown their nosy mother-in-law but found nothing.  Royse Law Incorporator is a fast alternative to DIY documents; yes, I know the owner, and no, he does not pay me anything at all to mention it.  A Google search for "free term sheet generator" brings up several law firm sites where entrepreneurs can automatically generate customized term sheets for their first investors.  No startup should pay a penny for term sheet services, until of course they've secured their first round of investment and need an attorney to track their cap table.

Good lawyers like to share handy tips on managing a contracted legal relationship.  Defining exactly who in a startup can contact a lawyer reduces both confusion and billable hours.  I totally agree with anyone, lawyer or otherwise, who advocates parsimony in handing out startup equity.  Attorneys will work for sweat equity but giving away such a big chunk too early limits the founders' upside at the exit event.

I've always considered funding, financing, and marketing to be like three lanes on a highway where the milestones all have to match.  Startups must be nimble enough to switch back and forth between these lanes at high speeds.  Moving back any milestone for one lane - a delayed product rollout, a late payment from a customer, a dithering decision from an investor - pushes back progress in the other lanes.

The due diligence on funding techniques here at Alfidi Capital is rapidly becoming legendary in the San Francisco Bay Area.  Check out what I found.  The Angel Capital Association (ACA) and National Venture Capital Association (NVCA) created free due diligence checklists for their respective investor groups to use.   Startups can use them to de-risk their own operations before they make contact with investors.  Just go to town with the "resources" on the ACA and NVCA sites.

Setting milestones for progress ultimately means delivering a product to market.  Startups that make things must measure their technology readiness levels (TRLs).  They are free to go the extra mile and use Uncle Sam's manufacturing readiness levels (MRLs) to further define their maturation.  Uncle Sam comes through for us again with more MRL reference material than you can shake a stick at, if you have access to a stick.  A Google search for "TRL and MRL Maturity Planning Worksheet" brings up several links to this free DOD planning tool and its references.

Using free services and resources means saving cash for important spending, like a marketing ramp-up after securing a beachhead among early adopters.  Reducing cash burn grants more time for things to go right.  Entrepreneurs increase their chance of success by lengthening their startups' lives.  I am a big fan of free stuff, so entrepreneurs who like my knowledge should tell me where I can get free food, booze, and babes.

Nota bene:  None of this discussion constitutes legal or financial advice.  It is impossible for me to have fiduciary relationships with my readers because I don't know who you people are, nor do I desire to know you.  Nyah-nyah-nyah.