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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

copyright

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

How To Turn Your Side Hustle Into A Full-Time Gig

It will be scary, but also incredibly rewarding.

Nicolette Amarillas

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Few people are lucky enough love their 9-to-5s, and more and more people are finding themselves doing something else on the side, either to add to their income or to feed their passion. Sometimes, those “side hustles” start to feel more and more like “the real thing,” and suddenly these people are dreaming about running a business of their own. Sound familiar? If you’re one of the thousands of people dreaming about turning your side hustle into a true business, you’re not alone.

Moving away from a steady, full-time position to being on your own is the scariest, yet most invigorating feeling in the world. I’ve found most people consider entrepreneurship either unattainable or, honesty, highly romanticised. The reality is that neither is correct. Being an entrepreneur is a ton of work, but it’s also completely possible.

1. Be clear and honest with yourself about when it’s time to make the jump

Giving up the benefits and security that come with a full-time job is scary, and sometimes unrealistic, but it’s also dangerous to keep waiting until the time “feels right.” Ask yourself exactly what you need to have before you can make your side gig your new reality. A good rule of thumb is to have enough savings to live for about six months without income, and/or with the income you already have from your side clients.You should also have a clear idea of who your potential clients might be and how to connect with them.

Related: 20 South African Side-Hustles You Can Start This Weekend

After taking care of the logistical considerations, try to avoid dragging your feet. According to the British Psychological Society, you’re 91 percent more likely to accomplish something if you give yourself a deadline. So do it! Hold yourself accountable. Maybe you’re not willing to stay at your current job beyond a certain date, or maybe there will be other indicators that will make you certain that it’s time to go.

If your current role isn’t fulfilling and the passion is gone, it may be the perfect catalyst for making the jump.

Both of my businesses came to fruition because of my own realisation that I wasn’t flourishing in my current roles. I wasn’t the best, I wasn’t seeing the success I wanted and instead of feeling defeated, I changed directions. For me, the clearest signal that it was time to leave was that I didn’t believe in the goals I was supposed to be working toward.

2. Before you quit, put the processes in place to help your side gig scale

Early on, business organization and strategizing is a huge component of success. You’ll need to limit stress and create as much efficiency and ease as possible in your daily systems. This could mean scheduling things carefully, or using free software to make your work more effective. I try to divide the week into days assigned to different businesses tasks. Try as best you can to not switch back and forth between your different focus areas within the same day. Going back and forth between tasks that are not related is inefficient and breaks focus. Give your brain a break and keep yourself on one straight road each day.

Digitising your work can help, too. According to Accenture, companies that use cloud collaboration tools with their teams improve productivity, have greater clarity about what’s going on in their business and save money. When you first start out, it can feel silly to keep documents in a shareable cloud space (like Google Drive, DropBox or whatever option you like best), but you need to have the structures in place so that you’re organised and ready for the time if/when you hire a team to support you. This is a good thing to play around with before you quit your main gig. Having the tools and processes you know work well for you ready to go when you make the switch can make ramp up time easier.

It’s long hours, it’s always being “on,” its wearing too many hats, but it’s also incredibly rewarding. So, how do you successfully turn your side project or passion into a prosperous business? What are the steps? We all want the “1, 2, 3 and voila, here it is, a company of our own,” but realistically, how can we make it happen? I can only speak to my own experience, failures or what I like to call “directional pivots” and successes. There have been a few true catalysts that have helped me turn my two side gigs into full-time gigs.

3. Work hard, and be humble

Your time is valuable, but as new entrepreneur you can’t treat it like currency. What I mean is, be prepared to put in lots of hours with minimal return. Initially, time may not correlate with financial success; this is an incredibly important mindset to remember. Your time isn’t money, yet. It’s groundwork. Building a side gig up from the ground requires wearing a lot of different hats. If you want your business to succeed, you have to be ready to play customer service rep, salesperson, individual contributor and HR.

Related: 50 Jobs, Gigs And Side Hustles You Can Do From Home

If you’re feeling overwhelmed, break the work down further. Spend more time working on the day to day tasks, checking things off the to-do list. These are all working toward your big vision, but in small doable pieces rather than hefty overwhelming ones. Try not to consider any task “beneath you” and take some time to truly understand what goes into each part of your business.

You won’t have a boss telling you what’s right or wrong, so you’ll need to build a sense of self-accountability – one of the toughest parts of being an entrepreneur. Take notes about the challenges you face in each aspect of your business so that you’ll know what anyone you might hire will have to cope with. It’s your best chance to uncover important considerations and think about what resources might need to go where, down the line.

4. Surround yourself with smart people – even if you never plan to work with them

As much as entrepreneurship can be a solitary job, especially in the beginning, it’s vital to your success to remember how others can help you thrive. Invest your time in like-minded people. Take time to get to know others and their stories and create valuable relationships. So much of success is built from opportunities or inspiration from people we know.

Find people you connect with to talk about your ideas, write about your ideas online and build a community that empowers you. Take advantage of those around you who want to see you succeed. You’ll be surprised at how much people want to help!

Related: 3 Ways To Set Your Side Hustle Up For Success

The number of new startups and small businesses has dropped dramatically in recent years, nearing a 40-year low in 2016. The landscape has gotten tougher, which makes being an entrepreneur scarier. Turning a side hustle into the real thing is not easy, and I’d be lying if I said I loved every minute of it. But, just as with most other big decisions in life, there are always lessons to be learned no matter what happens. Be thoughtful, take smart risks and see where your “side hustle” can go.

This article was originally posted here on Entrepreneur.com.

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How To Keep Big Ideas From Being Big Failures

Simple, Yet Effective Business Advice from Clients on Demand Founder, Russ Ruffino.

Jeff Broth

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As an entrepreneur, it’s not uncommon to have big ideas. Ideas that, if worked properly, can take your business to higher levels.

Maybe you’ve came up with a way to enhance your products or services that would advance your company lightyears ahead of your competitors. Or perhaps you’ve thought up a new gadget or tool that, once developed and released, could potentially change the world as it exists today.

The problem with having these big ideas is that sometimes they fail. And they can fail hard.

Big Ideas Can Equal Big Failures

Take Coca-Cola, for instance. On April 23, 1985, this well-known company announced that it was changing its formula and releasing the “new Coke.” While its goal was to update a soft drink that had been 99 years in the making, it actually had the opposite effect. Consumers were mad. Real mad.

People had grown to know and love the taste of Coke, so the thought of it changing didn’t sit right with their taste buds. Many protested the company’s actions, creating such a stir that, in addition to being picked up by news sources everywhere on that day, it is still being talked about today.

Ultimately, Coke recovered and is still loved by many. However, it easily could have went the other way, potentially causing a revolt big enough to force them to close their doors.

So, what can you do to take your big ideas and turn them into wins versus risking them becoming huge failures capable of sinking your business? According to one entrepreneur, you simply do a numbers test.

Related: 3 Companies With Memorable Slogans, And How To Create Your Own

The Numbers Test

In a People Stack Podcast, Russ Ruffino shares that his company, Clients on Demand, is on track to earn $20 million this year. This number is up from $4.5 million in 2016, just two short years ago, and Ruffino says that one thing has helped him reach this level of success is that he and his team use data to help them decide what to do. “We always run the numbers,” says Ruffino.

For instance, if your big idea is to recreate one of your current products, how much will it cost your company to make and test a prototype? What about manufacturing costs on a larger scale?

Think also about expenses related to marketing the updated product line and costs associated with creating enough buzz to get it to really sell. Put them all together and see what the numbers are telling you.

Sometimes New Isn’t Better

You may just find that newer isn’t always better. In fact, Ruffino says this is typically the case as, usually what he finds at Clients on Demand is they can typically “get to our income goals faster by just getting a little bit better at what we’re already doing.”

Benjamin P. Hardy, a former top writer for Medium.com in the self-improvement and entrepreneurship space, agrees and adds, “It doesn’t matter how good your strategy is, if you’re not skilled at what you do, that strategy won’t take you very far.”

That’s why Hardy recommends that you put yourself in challenging situations. “This is how you evolve,” he says. And be sure to follow your own path and keep your why’s in front of you along the way to remind you of what is driving you forward. Let these motivate you when times get tough.

It’s only natural to come up with big ideas in business. That’s what being an entrepreneur is about. Just make sure you follow your numbers and those big ideas can potentially become big successes.

Read next: 10 Business Ideas Ready To Launch!

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Start-up Advice

6 Tips For Launching Your Global Brand

Here are six tips to help launch your business into exciting new markets.

Gary Webb

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Since sanctions ended, South African businesses have been spreading their wings and taking the plunge into global markets. South African brands are strong way beyond national borders and out of a list of 25 most valued African brands, 13 are South African, 11 are Nigerian and one is Kenyan.

But for businesses that have been restricted to domestic markets, making the transition to access global markets can present a number of challenges. Commonly, these include, but are no means limited to cultural differences, local tax laws, hr and payroll.

1. Keep you scope realistic

As a brand new to the global market, you are not going to be able to take advantage of every opportunity that comes your way. You are better served focusing your limited resources on markets that can provide a substantial customer base, cost efficiencies via less expensive labour and materials, or a business-friendly environment.

If an opportunity offers one or more of those advantages, it is worth pursuing. Above all, remain focused on your international business goals and do not go chasing after every opportunity that presents itself.

2. Build up a strong infrastructure with technology

Powerful personal technology allows regional teams or individuals to manage their workloads remotely from their laptop and smart phone.

Cloud technology allows overseas staff to work as effectively as if they were in the head office. Being able to provide service support at local times, in the customer’s own language gives you a huge edge on other small businesses and even allows you to compete for business from local competitors.

However, you’re dipping your toe into the international arena. Don’t buy expensive software systems that may not be needed until much later down the line. Look for simple cost-effective support for your in-country personnel. This strategy is much more cost efficient as you make your early transition into new markets.

You must also take into consideration that, as you grow globally, your data has the potential to be stored in more and more disparate places. Unifying your data stores and managing a globally standardized policy of data storage will keep you secure as your business expands.

3. Understand the obstacles and opportunities of overseas regulation

For companies looking to expand into European markets, the General Data Protection Regulations (GDPR) will need to be taken into consideration. These data security regulations put very specific duties upon any company that holds the data of EU citizens. This includes EU customers and any local EU staff you may choose to engage to do work for you on the ground.

There are also many options available to investors looking to do business in overseas markets. Many countries are excited about receiving foreign investment and have tax breaks and structures in place to make it easy for companies to enter the market. Having an understanding of these opportunities and the benefits you can help yield the direction of your investment.

4. Take advantage of foreign expertise

There’s no need to waste time learning the language, culture and legislative complexities in every country. Work smart and pick up experts to enrich your talent pool and give you a head start in global markets. Once you’re established, you can roll out a more in-depth training programme.

Picking up local talent is the quickest way to get unlock knowledge and understanding of the local business environment. Having boots on the ground, even one pair, can give you a huge edge in many markets, and help establish your international business.

5. Get a grip on paying staff overseas

The most straightforward way to enter a new country is to establish a commercial presence inside its borders by registering with applicable authorities, acquiring a local taxpayer ID, and putting overseas employees on an in-country payroll.

This option obviously comes with a significant upfront cost and may not be suitable for all businesses. However, there are many options available, including secondment to allied business interest, immigration or local affiliates. Part of the challenge in launching your market overseas is establishing a cohesive HR structure to ensure smooth running of your business all over the world.

On average, you need 14 pieces of employee information to process global payroll. These include employee name, age, pay scale, tax code, bank details and so on. More data means more complexity. In addition, you have to consider any regional reporting obligations you may face.

This is why France has the most complex payroll in the world. As well as needing 16 separate pieces of data to even pay someone in France, the French government demands much more detailed reporting than other countries.

Some payrolls change on a regular basis, so you need to keep up. Take Italy, for example. Collective Labour Agreements change frequently, seemingly randomly and are all unique. Contribution amounts, legal work hours, overtime rules and the number of pay cheques per year all vary according to CLAs. If that wasn’t complex enough, CLAs are renewed and renegotiated every 4 or 5 years. 25% of them are renewed annually. This means that pay runs can potentially differ massively year after year.

Getting a handle on these complex aspects of payroll compliance are essential if you want to start expanding into global markets with boots on the ground.

6. Immerse yourself in the culture

Every culture has a different approach to doing business. In order to cultivate lasting relationships with business partners and clients, you need to walk a mile in their shoes and embrace the way they do things.

For instance, the formality of address is a big consideration when meeting people for the first time. Do they prefer titles and surnames or is being on the first-name basis acceptable? While it can vary across organisations, Asian countries such as South Korea, China, and Singapore tend to use formal “Mr./Ms. Surname,” while Americans and Canadians tend to use first names.

The concept of punctuality can also differ between cultures in an international business environment. Different ideas of what constitutes being “on time” can often lead to misunderstandings or negative cultural perceptions.

For example, where an American may arrive at a meeting a few minutes early, an Italian or Mexican colleague may arrive several minutes after the scheduled start-time and still be considered “on time.”

Local companies looking to maintain growth rates will often expand into adjacent activities or verticals to avoid the natural limitation that comes with a singular focus in one geographic market.

Going global is an alternative that can allow you to retain your specialism and grow at the same time. Specialist companies exposed to large markets are valued highly by investors. So maybe it’s time your business made the transition into the global marketplace.

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