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Start-up Advice

5 Common Legal Mistakes Start-Ups Make – And How To Avoid Them

5 Common legal mistakes start-ups make when launching their business — and how to avoid them.

Kyle Torrington

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Getting your start-up off the ground will be one of the hardest things you ever do. All the lingo about being nimble, agile and lean certainly holds water, but when executed too casually, could scupper your venture by creating unintended legal loopholes that come back to bite you many months, or years later.

To equip your start-up for the unforgiving world of business, let’s explore five common legal mistakes start-ups tend to make when launching their business.

1. Nail down your founding documents

As early as possible, you need to secure all founding documents and agreements to govern the relationship between the company and its shareholders and directors. The most important of these documents are the Shareholders Agreement and Memorandum of Incorporation.

When your start-up is making the big moola — which we all hope it does — issues between shareholders become very real.

Related: 6 Common Mistakes First-Time Business Owners Should Avoid

Ensuring that you have the right mechanisms in place to solve shareholder or director issues will give your company a fighting chance to recover from such an event, or even help to avoid it entirely.

One powerful element to include in any Shareholders Agreement, for example, is a vesting schedule, best explained by bringing our typical start-up co-founder, Oom Piet into the mix. Oom Piet, as mentioned in a previous article of mine, is working hard at his entrepreneurial vision of creating an online peer-to-peer lending platform, Peer Lending R Us. Oom Piet’s co-founder, and 50% shareholder in the business, is Frikkie van Rensburg.

After a year of slaving away to make this vision a reality, Frikkie is forced to take cognisance of the commercial realities of starting and supporting a family, and Peer Lending R Us, although looking positive, is not doing well enough to support Frikkie and his family financially. Accordingly, Frikkie makes the tough decision to take up a job in the corporate world with a salary and no longer be actively involved in Peer Lending R Us.

Frikkie thus resigns as a director, but says that he will remain a 50% shareholder of Peer Lending R Us. This enrages Oom Piet, to the point where he considers shutting shop, as the burden to grow and run Peer Lending R Us is now all on his shoulders, despite Frikkie having and retaining the same equity stake in the business. Short of making Frikkie an offer to purchase his shares, without a vesting schedule, Oom Piet is stuck with this ‘deadweight equity’.

Avoid ‘deadweight’ equity

If provision had been made in their Shareholders Agreement for a five-year vesting schedule, for example, the situation would have been more palatable for Oom Piet.

This five-year vesting schedule could have stated that Frikkie’s 50% shareholding would divest to him in equal portions of 10% per year over the five-year period, which means that when he left after a year, Frikkie would only be entitled to 10% shareholding, and not the full 50%.

Related: 6 Costly Mistakes People Make When Starting a Business

2. Register your brand as a trademark

register-your-brand-as-a-trademark

Due to the trademark process taking around 24 to 36 months to complete, start-ups really cannot afford to waste time building their brand over a number of years, only to discover at a later stage in the lifetime of the company, that their company name is not available to be registered as a trademark.

The energy, cost and lost goodwill associated with re-branding can often cripple an established company, let alone a fledgling start-up.

Another reason to trademark, which is growing ever more important these days, is Google keyword poaching. Take Oom Piet’s Peer Lending R Us for example.

One day, Oom Piet decides to search to see how high Peer Lending R Us is ranked on Google’s search results. He soon notices that, when searching ‘Peer Lending R Us’, their competitor, RocketLend, shows up as the highest Google Adwords result.

Oom Piet is horrified to learn that RocketLend is using Peer Lending R Us as a keyword to show RocketLend’s own Google adverts. In approaching Google to remove the offending keyword for RocketLend’s campaign, he learns that, unfortunately, without a registered trademark, Google won’t even entertain his complaint.

This is a sad reality, but Google allows for keyword poaching to continue unabated unless you can prove that you have a registered trademark that comprises the offending keyword/keywords.

Related: 21 Steps To Start-Up

3. If you have invented a new product or process, patent it

If you think that you have invented an entirely new and unique product or process, filing a patent needs to be done before making the invention public. This is particularly important since public disclosure of an invention in terms of the Patent Act of 1978 voids any possibility of the patent being registered.

This obviously carries with it the huge risk of copycats, simply reverse-engineering your invention, and exploiting it for their own financial gain, should you not obtain a patent for it.

Oom Piet, for example, only realised that his method of compressing and analysing the creditworthiness of potential borrowers on Peer Lending R Us, was unique enough to patent once he had been running Peer Lending R Us for a year.

Making the invention available in the public domain, i.e. through his platform, unfortunately rendered it unable to be patented, with the result that RocketLend was able to reverse engineer his invention and use it without any adverse consequences.

4. Securing your copyright over outsourced works

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Software and Internet start-ups face an added burden, imposed by virtue of the Copyright Act of 1978, where outsourcing the creation of any works of art, such as logo design and software development, will entail that the subcontractor will own the copyright to that work, unless a Copyright Assignment Agreement has been entered into with the subcontractor.

If, for example, the software development of Peer Lending R Us was outsourced to a developer in India, the copyright to the code, allowing for Peer Lending R Us to function, in the absence of a Copyright Assignment Agreement, would be owned by the developer in India.

Related: 5 Steps To Protecting Your IP

5. Entering into contracts without fully considering them

Start-ups need to be flexible and be able to quickly respond to market changes. Entering into a contract without fully considering the terms of it could serve to drag your company down to the point that it can’t operate.

Peer Lending R Us, for example, enters into a lease agreement with a pre-furbished office rental company for a 24-month lease with an in-built 15% rental escalation clause, thinking it was a month to month agreement that Oom Piet could quite easily get out of. After one year of operating Peer Lending R Us, Oom Piet realises that he cannot afford the rental payments any longer, and tries to terminate the lease, only to discover that he is in for the full 24 months.

This cripples his company to the point that he can longer carry on trading, and has to shut shop. If only he was able to get out of the lease earlier and run the business from home, he might have been able to save his business.

These are just a few of the legal mistakes and misconceptions entrepreneurs face, and hopefully you are now better equipped to avoid such mistakes on your journey to becoming a unicorn.

Kyle Torrington is the co-founder of Legal Legends, a company that aims to revolutionise the legal industry by being Africa’s first eCommerce website for quality legal services aimed specifically at start-ups and entrepreneurs

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Start-up Advice

9 Quotes Every Entrepreneur Should Live By

Entrepreneurship takes great perseverance. Failure is common. In fact, it is expected. Over 75% of venture-backed start-ups fail.

Jennifer Keithson

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Entrepreneurship takes great perseverance. Failure is common. In fact, it is expected. Over 75% of venture-backed start-ups fail.

There are great learning opportunities that present themselves when we fail, but we must be willing to continue on and try again in order to learn anything at all.

It can be quite an arduous task to strive for your own means, to create your own vision and to rally the support within yourself that starting and running your own business requires.

Thankfully, we’re not in it alone. The wisdom of others can greatly ameliorate the process learning from our missteps and hiccups.

Taking from sagacious investors, inventors and thinkers can help you pick yourself up and make something meaningful out of your quest to become a successful entrepreneur.

By studying the thought processes of other entrepreneurs, we can become more enriched and more aware of how to approach the challenges we face in business and in life.

Here are 9 quotes every entrepreneur should live by:

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4 Tips To Secure Funding For Your Start-up

Here are 4 tips to help you secure funding for your start-up.

Ellie Martin

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Entrepreneurs seek to create new and ingenious ideas. Successful business owners are adept at looking at things in new and interesting ways. Their creativity fuels everything they do. Blazing through the initial steps of opening your own start-up can seem like a breeze if you’re endowed with this creative mojo, but you still may find yourself stuck at the very last step of starting your business.

Finding funding is undoubtedly the most difficult part of starting a business, and securing it requires the most creativity of all. Still, you can only stretch your creativity so far. Luckily, there are a few ways you can improve your chances of getting the money you need, regardless of whether you decide to attract angel investors or venture capitalists, or if you decide to apply for small business loans and grants.

Here are 4 tips to help you secure funding for your start-up:

1. Seek alternative funding opportunities

Before taking out a massive bank loan, consider these other funding options:

The vast majority of entrepreneurs either use their own funds to start their business or borrow money from friends and family. According to Forbes, 90% of start-ups fail, with 25% of them failing within their first year of operation. Due to this rate of failure, if it really is impossible for you to attract investors or secure venture capital, it is still best to avoid putting up your own money. Before draining your personal savings account, look into other options, such as crowdfunding. Research small business grants as well, as these can help cover gaps in funding.

2. Write a top-of-the-line business plan

If you’re interested in attracting investors, you’ll need a solid business plan to lure them in. Regardless of how wonderful your idea is, you must communicate that idea effectively and back up your claims with thorough research. A tightly organised business plan has the ability to assure investors of your industry know-how. It will give them a picture of how you plan to run your business and how accurately you can assess and address risks.

An entrepreneur who has a business plan with a punchy executive summary and a precise market analysis in hand is more likely to attract shrewd investors than one with only an inspired (and undeveloped) idea.

Related: Business Plan Format Guide

3. Network, network, network

The absolute best way to find investors is to network. Generally, you never want to cold call investors with your business ideas. You want to build relationships naturally with those in your industry and in your local community. Talk with other business leaders and go to local events. Offer to help other entrepreneurs and established business owners. They may return the favour by introducing you to reliable angel investors or they may steer you to a venture capital firm that helped launch their start-up. They may even offer to pitch in some of their own cash, if they really take to your idea.

Moreover, to make sure your networking efforts are effective, try to pinpoint the audience who would be most interested in your idea.

“Network selectively,” advises American author and entrepreneur, Steve Pavlina. “Take the time to build a profile of your ideal customers, and target your networking activities to reach them. Speak to those who are already predisposed to want what you offer.”

Building connections is a vital part of creating your business. You’ll need to build new ones and strengthen existing ones, not only to get the funding you need in the short term, but also to survive as a business in the long term. 

4. Be prepared to compromise

Asking for funding for your startup means experiencing failure time and time again. Most of the investors you’ll encounter will pass on your idea. You shouldn’t take this to heart. It’s all a part of the process. You may find that in order to get the funding you need you’ll have to give a small piece of the business over to an angel investor.

Your first crowdfunding effort may fall short, and you might have to incorporate feedback from backers and implement changes to the core of your idea to crowdfund successfully the next go around. Don’t be too rigid with your vision. If you’re willing to make some slight changes, you could have a much better shot at landing a deal.

Securing funding for your start-up is no easy task, but it is certainly not one you have to do alone. Enlist the help of friends, family, and business associates to help you craft a superb business plan, meet other entrepreneurs and investors, and make revisions to your idea. Use their input to help you find other ways to fund your start-up, such as small business grants and crowdfunding. Use these 4 tips for securing funding for your start-up, continue researching your target market and refining the way you approach investors. Without a shadow of a doubt, if you’re willing to seek the advice of others and compromise when necessary, you’ll find a way to fund your start-up.

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Start-up Advice

7 Strategies For Development As An Entrepreneur

What follows are seven simplified yet key strategies to develop yourself as an entrepreneur which are a hybrid of the authors’ practical experience and what he has learnt from very successful entrepreneurs, coaches, and consultants over several years.

Dirk Coetsee

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What lies behind you and what lies in front of you are tiny matters compared to what lies inside of you” – Ralph Waldo Emmerson


I am an entrepreneur, I surround myself with business minded people, I am privileged enough to be mentored by great leaders. I speak to visionaries, I write about them and learn from them.

What follows are seven simplified yet key strategies to develop yourself as an entrepreneur which are a hybrid of the authors’ practical experience and what he has learnt from very successful entrepreneurs, coaches, and consultants over several years.

A wise man once told me, “A higher level of consciousness does not mean you are better than anybody else it just means your mind sees from a higher vantage point and therefore you see clearer than most.”

Related: 8 Entrepreneurs Share Their Best Advice For When The Going Gets Tough

Those wise words lead us into explaining the first strategy:

1. Expand your consciousness

Simply put your consciousness is nothing but what you are aware of. By increasing what you are aware of through experience, study and honest self-reflection and by inquiring deeply into every aspect of your business as to increase the quality of your awareness you are enhancing the quality of your experience as an entrepreneur.

The second strategy often referred to as priming or framing is commonly used by successful entrepreneurs:

2. Priming or framing

Priming or framing is creating a positive mindset first thing in the morning which builds mental strength and the capacity to face the day with a very good attitude. This is, in essence, done by creating a morning ritual or habit for yourself which can take whatever form you prefer, as long as the outcome of it is a stronger and better you.

Some prefer meditation and/or prayer. Others repeat affirmations in the mirror. Some take the quiet early morning hours as the opportune time to read and learn more about their craft. Exercise is another way to start your day in a positive way. See this exercise of Priming or framing as an investment earning compound interest over a period of time.

nelson-mandelaGoogle whom any famous leader or entrepreneurs’ mentor was and a name or many will most certainly pop up. Nelson Mandela’s’ mentor was Oliver Tambo, Warren Buffet holds the Dale Carnegie certificate proudly displayed on his office wall in high regard, the famous investor Ray Dalio is still coached by Tony Robbins.

Related: (Podcast) Being An Entrepreneur Is Painful

That explains why you should:

3. Be willing to be mentored

When I facilitate training or a coaching session a common objection to being mentored is: “ Yes , but I do not know anyone that could mentor me.”

Honestly, what a lame excuse. Most servant leaders understand that it is part of their duty to society by leaving other servant leaders and/or entrepreneurs behind and are actually just waiting for your call.

It is really as simple as that, make your list of people that you look up to and want to be mentored by and call them, sincerely tell them how much you admire them and ask for guidance and mentorship. To those whom knock sincerely a door will be opened.

There is no such thing as a “self-made man” as everyone has received some help in some shape or form along their journey of entrepreneurship.

It is much harder to give up on something that you really have worked hard for over a long period of time as opposed to something that you have approached with half-hearted intent and little effort.

Therefore:

4. Hard work compounded by smart work

Hard work is not only something that you should do to stay ahead of the competition but a necessity in order to build resilience.

When you have lost sight of your purpose and vision as an entrepreneur decision making becomes drastically harder, your morale might be affected negatively, and your bank balance might suffer as a consequence.

So:

5. Ensure that you have constancy of purpose and a clear Vision

A very effective way of priming and/or framing is to remind yourself of your purpose and vision every morning. Make your Vision and purpose visual by displaying it clearly at your office. An entrepreneur cannot talk regularly nor enthusiastically enough about his or her vision and purpose. When you have not wholeheartedly bought into a vision and purpose how can you expect your team to?

ian-fuhrThose whom embody servant leadership of which the founder of Sorbet, Ian Fuhr is a prime example know that unconditional giving as a principle not only builds character but empowers others so that we can not only grow as businesses but as people.

Related: 10 Young Entrepreneurs Under 30 Share Their Start-Up Secrets

That is the reason for:

6. Giving without expecting anything in return

When you give of yourself unconditionally you have a true servant heart and your clients will not only be loyal, but they will love you in general. Giving unconditionally feels good and receiving unconditionally places no burden on you and creates a wonderful and vibrant work atmosphere, generally speaking.

When you only take a stand on your principles and values during good times yet allow them to crumble in the face of challenging times “your house is divided and cannot stand”.  Your principles and values must become ingrained practises and not just frivolous words.

Taking the aforementioned into account:

7. Have non-negotiable principles and values that you live by

As an example, if when respect is a non-negotiable value that you live by you will refrain from losing emotional control and will be willing to walk away from a conversation where someone dis-respects you.

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