You Don’t Need Delaware to Start Your Company

It used to be true that “everyone” incorporated in Delaware due to its more favorable terms, but many of these terms simply don’t apply to startups, or the differences don’t exist anymore. Most business professionals now recommend that your first choice should be your home state, or the state where your startup resides.

I live in Arizona, so I’ll use that state as an example. If your home state is Arizona, and you plan to do business there, following is a list of five key advantages of incorporating your business in Arizona:

• Incorporation fees are low.
• The process is simple, including the convenience of geographical proximity.
• Local attorneys, if required, are more familiar with Arizona laws.
• Your startup automatically gets an intrastate securities law exemption.
• No need to register as a "foreign" corporation in the state of operation.

There are still business considerations which might override low cost and simplicity. For example, if your business is likely to get venture capital soon, have a large number of shareholders, or you have a high probability of going public, it might still be a good idea to incorporate in Delaware or Nevada due to these two states more size-friendly laws. The same applies if you are a foreign startup which needs to incorporate in the US to operate with American customers.

For the rest of us, there are distinct advantages to staying close to home. Let’s take a closer look at some of these advantages:

1. Arizona incorporation fees are low. Filing fees vary from state to state, but will fall anywhere from $50 in Mississippi to $410 in Nevada, including administration fees. Arizona is close to the bottom, with statutory fees of only $60. Even if you choose to add the expedite fee of $35, and consider another $100 for publication requirements, the costs to incorporate in Arizona are very reasonable.

2. The process is simple, including the convenience of geographical proximity. To incorporate a corporation in Arizona requires that you file Articles of Incorporation with the Arizona Corporation Commission, publish the incorporation filing in a newspaper of general circulation three times, and submit an affidavit of publication back to the Commission. Visit their offices in Phoenix or Tucson for personal service.

3. Local attorneys, if required, are more familiar with Arizona laws. If your company needs a complex structure, organizationally or financially, the assistance of a local attorney may be required. He will be familiar with any unique Arizona requirements for organizational structures, record keeping, capitalization, debt financing, role of shareholders, distributions, personal liability, and state tax considerations.

4. Your startup automatically gets an intrastate securities law exemption. To qualify for the intrastate offering exemption, a company must be incorporated in the same state where it is offering the securities and carry out a very significant amount of its business in that state. If you incorporate and do business in Arizona, this item alone can save you a significant amount of management time, paperwork, and legal fees.

5. No need to register as a "foreign" corporation in the state of operation. Most states have laws that require entrepreneurs to re-register a Delaware company in the state where it is actually doing business, and unfortunately, re-registration involves more than a few hours of paper work.

But don’t forget that forming the new corporation is just the "tip of the iceberg" with respect to operating a business in the corporate form. Although it is relatively easy and inexpensive to incorporate a business in Arizona, I recommend that you don’t hesitate to consult an Arizona corporate attorney when incorporating for issues that may require legal advice and action.

Now is the time to get started. With a little luck, your new startup should be up and running in 30 to 60 days.

Marty Zwilling

Business Plan Writers - Know Your Audience

By Mahesh Raj Mohan

Writing a business plan can be a difficult process. Even if you know your product/service suite down cold, understand the strengths/weaknesses of the competition, and have built pro forma financials that are sane ... you still have to write the plan for a particular audience. What does that mean? A loan officer, angel investor, and venture capitalist are all looking for different things in a business plan. Your business plan’s writing style should take their preferences into account.

So what writing styles should you use for these very different audiences?

Bank Loan Officer: A business plan for bank lending should reflect a “meat and potatoes” writing style. Clarity is the name of the game. Avoid conversational, first-person writing. (“Hi, I’m writing this plan because ...” “I’ve put a lot of blood, sweat, and tears into this idea ...” “Funding is important to me because ...”) Avoid personal pronouns like, “my, our, we, and us,” in general.

The Executive Summary for a bank lending plan should be a literal summary of the entire business plan, with a paragraph roughly devoted to the product/service, market, industry, marketing, and management. Make the repayment terms as clear as possible at either the beginning or end of the Executive Summary. Keep in mind that a Small Business Administration-backed loan requires certain sections for a business plan. (You can read more about that here.)

Angel Investor: Writing a business plan for angel investors can be tricky. If you’re pitching your plan to Aunt Mary or Uncle Butch, then a conversational tone is probably okay. If you’re pitching to a member of an organized angel group, then a business-like tone is in order. For many angel investors, letting them know “What’s In It For Me” (WIIFM) is critical.

Applying a narrative approach to the problem you’re solving can also be helpful. (“According to XYZ Research, 30,000 people expressed a desire for Widget. However, there are no Widgets available. Until now.”) More stringent analyses of your competitors (through a Porter’s Five Forces model or SWOT analysis) are also helpful. They let an angel investor know why your idea is worth their hard-earned dollars.

Venture Capitalist: As you probably know, venture capitalists are extremely busy individuals. They will likely only read your plan’s Executive Summary – at first. Make it compelling, free of typos, compelling, concise, and, oh yes ... compelling. As with angel investment plans, it’s important to “lead with the need” in the opening paragraphs, stating the problem you are intending to solve. Alternatively, a strong opening that focuses on the “total addressable market” in clear and concise language is also appropriate.

Make sure the venture capitalist understands you’ve done your homework, but avoid making grandstanding statements (“The Widget will revolutionize the world.”) The latest market research is crucial – but choose carefully. A report projecting a sector will achieve $70 billion in revenue by 2014 will make you look like an amateur. Focus on your designated market area instead.

Always keep in mind that a business plan is a “living document.” The content and financials within can change as you see fit. Conversely, you may want to keep the fundamentals of the plan, but focus on a different audience. For example, if you decide outside investment is more appropriate for your concept than a bank loan, then the writing style should change accordingly.

A writing style that presents your idea attractively can pay dividends in other ways. Your investor will realize you care about attention to detail. The investor will certainly appreciate the effort you put into creating a professionally-written business plan.

The way your plan is written can give you the edge you need when pitching your dream.

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Today’s guest blog post is by Mahesh Raj Mohan, a freelance writer and editor based in Portland, Oregon. He possesses 15 years of experience as a professional writer. He has written or edited thousands of business plans and served as a business plan consultant for numerous entrepreneurs. You can reach him directly by email or via his website.

Changes are Inevitable, But Don’t Lose Your Focus

By Ernst Gemassmer

As an entrepreneur, you know the world changes constantly, and you know the value of being able to adapt quickly. But changes to your startup need to be done for cause, well thought out, and communicated effectively to all impacted parties. Don’t lose your focus, or allow your operation to descend into chaos.

Here are a few principles that I recommend to guide you in the change process, and keep you on track and focused:

• Customers and competition must be the driving force. Too many founders make costly changes to their product and operation based on random comments from friends, family, and potential investors. Stay focused on solving a specific customer problem, and don’t get whiplashed by the whims of informal advisors.

• Listen to the team, but drive the vision yourself. Your challenge is to be able to separate the ideas that hone your vision from those that redirect it. Of course, all ideas need to be evaluated for relevance to the plan, cost to implement, and impact on the overall potential. There is a big difference between a plan adjustment and a new vision.

• Carefully evaluate and measure impact before adopting changes. Use data to evaluate alternatives whenever possible, rather than gut-level decisions, emotions, and personal agendas. Good questions you should ask yourself would include:

  1)  What amount of time, money and human resources are needed to implement the additions/modifications?

  2)  Are the changes essential from a competitive point of view?

  3)  What is the financial effect of not carrying out these additions/modifications?

  4)  What is the overall benefit if the additions/modifications are made?

• Change is not always about product and features. The primary issues are often not building the right product, but getting the attention of the right customers. Focus is critical here. By focusing on the needs of a small subset of the potential market and specific customers, change decisions become much easier.

• If investors funded your plan, include them in change discussions. All outside investors need to be included in plan change discussions. Remember that they funded a specific plan, with specific financial projections, and specific milestones. Changes to these without consultation will jeopardize your relationship and future funding.

• Obtain Board approval before implementing changes. Do your assessment of alternatives, but don’t act without approval by the Board of Directors. In addition, you should ensure that the entire senior management team is fully supporting your recommendations. This may seem like a burden, but it’s really a good reality check.

• Closely monitor plan execution. You and funding partners have a vested interest in the success of your startup. In most cases, the financial commitment is not allocated in a single amount, but rather in tranches based on meeting specific quantifiable milestones. For your own decision making, and to maintain an open and constructive relationship with funding partners, there should be no surprises.

Too many startups try to enter the market with an end-to-end product, which is the large company approach, and obviously ideal from some customers perspective. But startups should focus on innovation and breakthrough offerings, not end-to-end solutions. After some initial traction, you can always add features. Change should not mean adding more, but tuning the entry product and the entry process, with the full support of your team and your investors. Keep your eye on the target.

Today’s article is presented by one of the founders of our Startup Professionals team, Ernst H. Gemassmer. He resides on the West Coast, and has long helped entrepreneurs there, as well as providing turn-around assistance as interim CEO, and International coaching. You can contact him directly at ernst@startupprofessionals.com .

Don Estridge, IBM PC Father, Startup Role Model

My introduction to startups really came when I first worked in IBM with Philip Donald Estridge back in 1981. Known as Don Estridge, he led development of the original IBM Personal Computer, and thus is known as "father of the IBM PC". He’s gone now, but I still remember him fondly.

He and Bill Lowe somehow managed to convince then CEO Frank Cary to give them a dozen engineers, a small budget, and a few months, to set up a small skunk-works called Entry Level Systems in Boca Raton, Florida, to develop a low-cost personal computer (code name “Acorn”). This was to compete against increasingly popular offerings from the likes of Apple Computer, Commodore International, and Radio Shack.

He was an engineer, so his first act was to buy one of each of these computers, and disassemble them in his office (a practice frowned on in IBM at the time – due to lawsuits). He then brought in the engineers and challenged them to do better in each of the functional areas, or find a cheaper solution with parts off the shelf. That was pure Don Estridge – always challenging the team to push beyond their comfort zone.

IBM had traditionally done all its own vertical technology development, so this outside vendor thing broke all the rules. He went to vendors for common hardware parts, went to outside software developers for the operating system and application software, and acted as an independent business unit. This caused great consternation within IBM at the time, but ultimately set the standard against which all IBM technology had to compete.

These changes enabled his team to develop and announce the IBM PC in 12 months -- at that time faster than any other hardware product in IBM's history. Estridge also then published the specifications of the IBM PC, allowing a booming third-party aftermarket hardware business to take advantage of the machine's expansion card slots.

The startup process and the importance of founders with a vision and energy hasn’t changed much in the last 30 years, but the technology has improved by orders of magnitude. Here are a few PC-related examples:

• CPU speed was 4.77 mHz, now 3.0 GHz dual processors, a factor of at least 1000x
• Minimum memory shipped increased from 16K to 2G, a factor of 125000x
• Disk space was a floppy disk holding 160K, now hard disk of 500GB, a factor of 3000x
• Telecommunications speed of 300 bps to 1.6 Mbps, a factor of 5000x

As with many successful entrepreneurs, Don Estridge was a humble man, who was actually embarrassed by the size of his office, as his stature and rank grew in IBM. It is said that Steve Jobs offered Estridge a multi-million dollar job as president of Apple Computers, which he turned down. He had an excellent relationship with Bill Gates, who probably extended him a similar opportunity, but Don was too proud of his IBM heritage.

His leadership dramatically changed both IBM and the computer industry, resulting in a vast increase in the number of personal computers sold and bought, thus creating an entire industry of hardware manufacturers of IBM PCs. He immediately was asked by top executives to apply that leadership to the mainstream business of IBM mainframes.

Unfortunately, before very long he was killed in the tragic crash of Delta 191 at DFW airport (wind shear), along with his wife, Mary Ann, on August 2, 1985, so we will never know what additional legacies he might have left.

But like every true leader, he left a great legacy with everyone he worked with, a conviction that anything is possible in business if you believe in it and work hard. He was a role model we can all aspire to, and rare true entrepreneur.

Marty Zwilling