I wrote the De-Risk Your Biz Series during the second half of 2023. I note the date for reference since I know some of the information in the Series will become outdated. But the concepts, the frameworks – those should hold up for a while.
The De-Risk Your Biz Series was my attempt at memorializing some of the many conversations I’ve had over the years advising start-up founders and small business owners. I’ve tried to point out key risks upfront to help folks not need me to clean up messes for them later down the line. It’s my simplified “here’s how to do this properly” start-up memo for clients.
I’m sure when I read through it later on, I’ll find things to change. Edits to be made. But generally, I think I’ve illustrated the key points.
Like most things administrative, I’ve found that my de-risk recommendations aren’t often heeded. We all seem to hate doing administrative things, even those that seem important. It’s easy to punt necessary admin work because it seems boring at the moment, only to create greater headaches for oneself in the future.
Why are we so hard-headed? Because it takes us humans to get bumped on the head a few times before we learn. Humans don’t change until they feel pain.
Similarly, most business people have to screw something up before they understand how to do it properly. They have to pay the price. They have to lose money. They have to stumble operationally and hit ceilings in the growth of their business. They have to feel pain. And, in some extreme examples, like the story in Part 2 of the Series, the pain can be catastrophic.
This doesn’t have to be the case. It’s a matter of shifting perspective – from looking at these business administrative tasks as boring and unnecessary, to looking at them for what they are: business risk insurance.
None of us would drive around in our cars uninsured (or at least, very few of us). We’d constantly be worried about whether we were going to get in an accident, and how much it would hit our wallet if that happened.
The same concept should be applied to how you manage your business risks.
As I laid out in the Intro, and I repeat the concept here: the recommendations in the Series are a form of insurance, and any costs associated with implementing them are the premium.
The purpose of the Series is to help you protect your business for the foreseeable future, and insure against the legitimate risks that so often pop up in real-life situations.
With that in mind, here’s a final run through the risks identified in the Series, with a few thoughts on each:
| Risk Area – Post | Risk Level* | Thoughts |
| Company Set-Up Basics – Part 3 | MEDIUM | This post is more of a primer to think about how to structure a company and select an entity type. This is a medium risk in that it’s great to get this right upfront, but not usually fatal if you need to change it later. Entity types can change, and should, as circumstances change. Boards and officers shuffle, as they should, as circumstances change. Ultimately, the owners of the company can adjust entity type, directors/officers and the like. |
| Minimum Company Set-Up Documentation Required – Part 4 | HIGH | This post identifies arguably the biggest risk on the list, since this is where you codify the governance structure between yourself and your business partners. Remember: the project is usually easier than the people. Your company set-up documentation must be in order if you want to capture your fair share of the upside in any business. Thus, this risk should be handled with patience and caution. |
| Finance Department – The Three-Headed Monster – Part 5 | MEDIUM | This post covers a topic that is not a day 1 concern for many company owners. Once you start putting together your first tax filings, you have to put the basics of a finance department in place – bookkeeping and the like. Then, once there’s a need for a financing plan – say for a bank or an investor – the full three-headed monster becomes fundamental. |
| Intellectual Property – The Four Buckets – Part 6 | HIGH | This post covers a high risk because of the importance of first understanding what kind of IP you have. Most people don’t understand the difference between trademarks and copyright, for example. These simple concepts should be de-mystified so you can clearly understand your IP, which in modern-day businesses has become a core asset of any company. Once you know what your IP is, you can figure out how to protect it, and then commercialize it. |
| Intellectual Property – Registration & Titling – Part 7 | MEDIUM | Per above, this post is marked as medium risk simply because it’s not always a day 1 concern. But, don’t wait too long to get your IP registered. The law provides some minimum protections for your IP prior to registration, but you won’t be able to fully protect your IP assets – especially if you need to prosecute or defend yourself in IP disputes – without having your IP properly registered & titled. |
| Small Business Licensing & Insurance – Part 8 | MEDIUM | This final post covers an often overlooked set of risks. Licensing is mandated by the government (i.e. the rules you must follow to operate) and the need for it typically scales in parallel with the complexity of the company’s products/services. Insurance is cost-effective no-brainer and serves as a catch-all for risk containment. |
*You’ll notice that none of the risks identified were assigned a “LOW” risk level. The reason for this is simple: if I considered any of these a low risk, I wouldn’t have included them in the list.
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I’ve often said, entrepreneurs are the artists of business. They like to create new things and make them come to life, in commerce. With that thought, I’ll give one final analogy:
I’ve spent some time in my professional career advising musicians. I sort of stumbled into the role. In part, I followed my curiosity. I really love music (perhaps an ode to my father, and probably my favorite artform) and have tended to point my legal career towards subjects that I like. Early in my career, I hustled my way into a stint working under a prominent NYC entertainment attorney and got a crash course on the music business. This set me on a path of mentoring musicians from time to time throughout my career and trying to help them navigate the music industry.
One of the most frequent problems I’ve seen doing that work is that musicians don’t want to talk business when it’s time to create. I get it. Noone wants to chat about money and numbers in the middle of a recording studio when there are more fun things to do like make music.
“We’ll get around to all that business-y stuff later,” they say.
But they don’t get around to it later. They don’t have the administrative conversations about who did what, and who gets what. They don’t button up the paperwork. They have a few casual conversations, often lacking detail, but don’t write down what they talked about. They avoid the “boring” stuff.
They just listen to the music they made and bask in the warm feeling of creativity.
And then, the song becomes successful. Yay! Congratulations! You have a hit song!
But, the paperwork isn’t done. The song isn’t registered. The money doesn’t flow properly.
And so, there you are with a hit song… and no money. Happens all the time.
The entrepreneurs who fail to de-risk their biz, as described in this Series, are the equivalent of those musicians. They are just getting started with a new business, excited about their prospects. They want to focus on how great their product or service is and talk to customers. They don’t want to think about legal stuff – or accounting stuff – or boring stuff like paying taxes.
And then, the business grows and starts making money. The relationships between the business partners change. People conveniently forget what they said in those early conversations about how they would split up the money. The paperwork isn’t clear. People get greedy. Chaos ensues. The lawyers are called in to try to clean up the mess, but the damage is already done.
This Series isn’t just a cautionary tale. It’s a cautionary tale with a solution: buy the insurance.
De-Risk Your Biz: Minimum Small Business Legal Requirements
- Part 1: Introduction
- Part 2: Penny Wise & Pound Foolish – A True Story
- Part 3: Company Set-Up Basics
- Part 4: Minimum Company Set-Up Documentation Required
- Part 5: Finance Department – The Three-Headed Monster
- Part 6: Intellectual Property – The Four Buckets
- Part 7: Intellectual Property – Registration & Titling
- Part 8: Small Business Licensing & Insurance: Quick Overview
- Part 9: Wrap-Up