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Five cardinal rules for launching a business
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Seek simplicity. Avoid chaos. Pick the right partners. That’s the proper recipe for starting a new company, according to one business financing and legal expert.
Ryan Naftulin, partner-in-charge at Cooley LLP’s Washington office, presented his five business-launching “cardinal rules” to a collection of entrepreneurs and angel investors Tuesday as part of D.C. Entrepreneurship Week. Naftulin, whose firm works on several dozen financing rounds and mergers each year, opened by emphasizing that chaos — a not-so-rare component of many young businesses — typically looks “fishy” to outsiders.
“When investors or buyers come in and look at your company, the level of organization will tell them a lot about you from a business standpoint,” he said, adding that young companies often overlook tasks like signing and saving documents. “Entrepreneurs often get too busy to take care of business, but you really have to resist the temptation to get so busy you forget to pay attention to detail and stay organized.”
Naftulin suggested for owners to pursue expert advice in the early startups stages and to keep the business model simple. Entrepreneurs who think their startups are different from all the rest often overlook the latter suggestion — a point he explained with a rather blunt analogy.
“So you have a kidney stone, and you tell me it hurts worst than everyone else’s kidney stones, but still, the doctor is going to treat every single kidney stone the same,” he said. “Entrepreneurs like to tell investors that their startup is totally different, but while the company is unique, the tools and solutions for starting a business are not.”
Naftulin advised those in the room to emphasize the success of the organization, because future investors won’t care whether previous ventures failed because “it was someone else’s fault.” Individualistic mentalities among entrepreneurs also send a poor message to clients and investors and often lead to what he called the “infamous disgruntled ex-co-founder problem.”
His final suggestion was to “partner right.” Early-stage entrepreneurs, Naftulin said, should carefully select people they can see themselves working well alongside for many years, especially when vetting co-founders, advisers, lawyers, and of course, venture capitalists.
“Whereas M&A is like a divorce, in that everyone is going their separate ways, venture is like a polygamous prenuptial,” he said. “You’re going to live with these people for a very long time and you’ve got to establish rules that will make those business relationships successful.”
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