Wednesday, March 24, 2010

After Bootstrapping: Preparing for the Mid Haul

Ten years ago, most bootstrapped start-ups were built for the short haul, on an 18-month plan: spend your friends' money, build a prototype and either attract investors or close doors.

Fast forward to today, and it's a different world. There are more bootstrapped, high growth innovative businesses than ever and - more importantly - most of them are surviving well past the 18-month mark.

If you are one of the many who has moved from the short haul to the next stage of growth, consider this your wake up call. It may be time to do some spring cleaning.

A start-up that reaches the mid-haul has meaningful assets: it has built goodwill in the business, acquired customers and built a core team. The manner in which you protected these assets in the early phases of business need to be appropriately upgraded.

Here are the areas where I often find there is a critical mismatch between the advancing stage of the company and its operating structures:

Employee Compensation : Companies heading into the mid haul have a fairly good sense of their growth path for the next 3-5 years. Now may be the time to consider whether options are the appropriate way to incent employee performance, or whether profit sharing plans would better match the company path for the mid haul.

Protecting the Company Brand: Your business now has an identifiable brand and goodwill to protect. Establishing usage rules so that your trademarks are not diluted is important. I will defer you to Jessica the trademark goddess for further advice on this matter, but the important note is this: you must establish corporate standards for how your brand is used in collateral, etc., so that you do not dilute any claim you have to that brand.

Equally important is controlling the way in which your company is discussed in the broader public sphere. Consider establishing company guidelines for employee use of social media, so that expectations are clear. Laso make sure that your alpha and beta testers (if appropriate) have agreed not to disparage any produucts or the company.

Intellectual Property : So many of you have gone all Frodo-in-the-shire and allowed your employees to moonlight that this bears discussion. It is one thing to permit key employees to supplement income in the early years of the business through outside jobs. It is quite another when you permit employees to start their own business on the side. For example, what happens when they start taking customer support questions during your office hours?

Business issues aside, you have no way of knowing what contracts your employees have signed with outside engagements, and these can potentially impact your own intellectual property. The mid-haul is the time to re-think your moonlighting policy,as well as the invention assignment terms your early employees agreed to.

Customers: The mid-haul phase is when your business moves beyond missionary, early-adopter customers who sucked the life blood from you to follow-on customers who may be agreeable to more balanced contract terms. Now is the time to adjust contract terms and to make sure that your contracts follow your current revenue model.

Companies who have adopted a SAAS model for some of their solutions tend to need to pay particular attention to their agreements, in my experience. Most SAAS-based contracts should have provisions that allocate risk between the customer and the business for: export controls, data security, disaster recovery, redundancy backup, sales tax treatment, among other matters. If you've cobbled together your SAAS terms from a business that does not use the same model, chances are you've missed important elements.

I'll blog about each of these items in detail in the next few weeks. Other issues for the mid haul? Let me know.

1 Comments:

Anonymous Anonymous said...

"Frodo-in-the-shire?" Hilarious!!! Awesome commentary delivered with a sense of humor. Great stuff!

12:00 AM  

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