Entrepreneur Office Hours - Issue #122
How to get real feedback on your startup
One of the things that surprised me about the entrepreneurial community early in my startup days is how willing people are to meet with young entrepreneurs, have conversations, and give advice. If you’re even the slightest bit thoughtful with how you send emails, you can easily find yourself sipping coffee across the table from a billionaire founder of five successful companies.
However, what I didn’t realize during my earliest days of meeting with people is how unreliable a lot of the advice is. I don’t mean people are intentionally deceptive. I just mean that human nature tends to get involved in every conversation, and human nature often stops people from saying exactly what they think.
To be clear, this filter is usually a good thing. But, as I explain in this issue of Entrepreneur Office Hours, it’s a big problem when you’re trying to get honest feedback on your startup.
That can even include some of the advice you’ll get from me, which, I’m sorry to tell you, can certainly have plenty of problems. Don’t say you haven’t been warned… 😉
-Aaron
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Office Hours Q&A
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QUESTION:
Hi Aaron,
You answered a question [in a previous EOH Q&A] about filing for an LLC. At what point in the process of starting a business should I worry about LLCs or incorporating or filing with the government in some way?
My friend and I have been developing our startup for almost a year, but we’re not selling anything yet, so it didn’t seem important. At least not until we start getting customers.
Is there any benefit to incorporating before selling to customers?
Thanks,
Tim
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First… the obligatory disclaimer: I am not a legal expert, and everything you read here is just my opinion. Be sure to talk with a lawyer before making any decisions about how you proceed.
My initial response to your question was going to be something along the lines of filing an LLC is usually easy and cheap enough that I don’t see a good reason not to get one as soon as you begin working on a startup. However, the more I think about that advice, the more I’m not sure it actually makes sense.
So long as you’re just a couple people tinkering around with a startup idea, I don’t know why you’d need to incorporate or otherwise establish yourself as a legal entity. At some point you’ll want to, but, depending on what you’re doing, that point might not be now.
As for when you’ll reach that point, it’s going to vary depending on the type of company you’re starting, so I wouldn’t necessarily support what you’ve suggested, which is waiting until you’re trying to get customers. For example, if you’re building a media platform, you’ll probably have lots of free users before you can charge anyone, in which case you’ll be a publicly operating entity and you’ll want to be recognized as such, but you won’t have customers.
I guess my advice here is that you’ll probably want to create some form of separate legal entity for your startup as soon as the thing you’re developing begins requiring regular engagement with people beyond you and your co-founder. You’ll want to do this if for no other reason than to create a liability shield that helps protect you, personally, from any problems caused by what you’re building.
I want to add one other thought while I’m writing, which is to wonder why you’ve been developing your startup for almost a year without trying to sell anything. One of the best ways to test the viability of a startup idea is to try selling it. That’s true even before you have whatever “it” is. In other words, even though you’re asking about incorporating, incorporation is an easy problem to solve. The bigger issue is customer acquisition. Are you focused enough on getting customers?
Got startup questions of your own? Reply to this email with whatever you want to know, and I’ll do my best to answer!