As a new venture team you can make tremendous progress without forming a legal entity. You can start doing business immediately as a sole proprietorship – that is how a lot of small business owners (such as general contractors, electricians, etc) do business. This preserves flexibility. However, at some point, you will know for sure that you are building the business for the next few years. At that point it will make sense to file to become a legal entity. The primary driver is that the legal entity protects the personal assets of the cofounders – keeping church and state separate.

There are several common legal entities you can choose from:

• A Limited Liability Company (LLC)
• An S-Corporation (S-Corp)
• A C-Corporation (C-Corp)
• A B-Corporation (B-Corp)

Goodwin Procter has a great article explaining the basics of company formation. Read on to learn more.

Also check out the Company Formation section of our searchable knowledgebase.

One very important consideration when incorporating your entity is to have a thoughtful process to determine founder equity split. Make sure to check out the Founder Dilemmas section of this page for more information.

While there are a variety of legal entities you can choose from, if you are building a growth style startup and have the intention of raising money from institutional investors (i.e. venture capital firms) at some point, you will almost always be best served by forming a C-Corp in Delaware.

Upcounsel has a good article on why Delaware is the place to go for classic growth-style startups.  

Read on to learn more.

If you are building a classic growth-style startup and intend to raise money from institutional investors (i.e. VC’s) you will need to understand how stock and stock options work. Some key concepts you need to learn include:

• The difference between stock and stock options
• The idea of “vesting” (i.e. granting stock over a period of typically 4 years, with a 1 year “cliff” to incentivize people to stay long enough to help build the venture)
• The idea of the “cap table” (capitalization table) which outlines who owns what part of your company after you raise money

Check out the section of our searchable knowledgebase on stock and stock options.

Also check out the book “Venture Deals: Be Smarter than your Lawyer and Venture Capitalist” by Brad Feld.

When people hear “IP” they often think of just patents that cover technologies or inventions. That is actually only one of several types of IP that a new venture may own and want to protect. Here is a short list of common intellectual properties that you may want to consider.

• Utility patents
• Trademarks
• Copyright
• Proprietary technologies

This is a big topic and you really should speak to an intellectual property expert to learn more. To get a lay of the land before you do so, check out the IP section of our searchable knowledgebase.

Entrepreneurs who are building new ventures (either standalone or in an existing company) need to have a basic level of financial literacy where it comes to managing money for the new venture. At the most basic level you need to understand:

• Revenue: How do you model your revenue streams over a period of time (e.g. 1 month, 1 year, 5 years)? This is the money you make.
• Expenses: What are the top 3-5 types of expenses for your venture over the same period of time? This is the money you spend.

With revenue and expenses, you basically can use arithmetic to get a rough sense of how much money you are making / losing by subtracting expenses from revenue. A common mistake for first time entrepreneurs is to spend too much time on the expenses and not enough time thinking about how to generate revenue in the 3-5 year timeframe. It is very much worth the investment to think about possible ways to generate revenue early on, because it affects how you will build out your business Check out our Module 5 for pro tips on revenue models.

Now, to truly understand how to operate your business you will need a little bit more than arithmetic – there are a lot of basic concepts that can help you become effective. Read this Venture Beat article on financial terms to learn more. Also check out the financial scoreboard section of our searchable knowledgebase.

Once you get the basic terms down, you need to actually understand how to model how much money you will make (revenue) and how much money you will spend (expenses).

When you plan out your business, it is generally a good idea to think directionally about how your revenue and expenses might look in the 3-5 year time frame – and put deep thought into the specific details of how your next 3-6 months might look like. The long term thinking helps you structurally consider your assumptions and gives you the ability to do scenario planning that can help you make strategic decisions about go to market strategy. The short term thinking is a roadmap that guides what you do right now.

The further out the timeline the less accurate the plan is, but the value is to think about your assumptions and your parameters which will help you get a sense of the nature of the business you are building. We always recommend you to take a bottom up approach to modeling revenue and expenses (e.g. if you are selling lettuce to grocery stores, rather than saying “we will capture 1% of the lettuce market” – which is a top down approach, we recommend you think about “we will reach x number of small neighborhood grocery stores and farm stands in Y1 via such-and-such mechanism and we will also expect to ship y boxes of lettuce directly to customers” – which is a bottom up approach). The bottom up approach forces you to be realistic about the amount of business each of your channels can support and also gives you a roadmap to start building out these channels.

We already covered revenue models in Module 5. As for operating expenses, the most common expense categories for a new venture are: Headcount; prototyping cost (if hardware/consumer packaged goods); server costs (if software); IP/legal (if you have any intellectual property to cover); marketing & sales (e.g. Google Ad budget); general & administrative (e.g. the computers you will buy for your staff, the coffee you drink, your business software subscriptions).

To get started, read our knowledgebase article on revenue models and revenue forecast, and also this second article about modeling your operating expenses.

A high LTV can be intentionally cultivated by working on your customer satisfaction. A satisfied customer will stay with you for longer periods of time, and will buy more products and services from you, and may even promote you to their friends.

Neil Patel has a great article about tactics to increase customer engagement to generate a higher customer LTV.

There are three financial statements that businesses use to keep track of their finances:

• Profit and loss statement  (“P&L”) or income statement: This is the most common format entrepreneurs need to learn
• Cash flow statement: This is the most critical format to help you avoid running out of money, because cash is oxygen.
• Balance sheet: This is a statement that lists all the assets that your business owns (like equipment, buildings, cars… and also the cash in your bank, etc) this is of less relative interest as you have very little assets to start with.

Of the three, the P&L is the financial statement that is the most important in planning out your business, especially if you plan on raising money. The Blueprint, a Motley Fool service, has a great article that demystifies how to build your first P&L.

Hiring for a new venture is very different from hiring for, say, Google. You do not have the cash compensation to offer. How might you attract the best talent? The answer is very simple: You attract people who resonate with your mission and want to achieve the same goals you want to achieve, so the compensation package alone is not the reason they are coming to work for you. You can also offer learning opportunities and flexibilities big companies cannot offer. Lastly you can offer equity for upside.

Angel List has a great article about how to hire your first 10 employees. Read more here.

Also read Professor Elaine Chen’s article on the E.I.E.I.O. Hiring Test.

General Assembly has a great article on how to think about startup compensation. Read more here.

Also read our Knowledgebase article about how much to pay your employees here.

The first step in recruiting great employees is to have a good job description to describe the role you are trying to fill and what qualities and qualifications you are looking for.

Do note that for a new venture, the roles and responsibilities may not always map to traditional roles in larger organizations – you can certainly start with a template for a role (e.g. Technical Lead, Product Manager) but make sure you think deeply about what else you need the person to do and make sure those are represented.

Indeed has a great article on how to write job descriptions.

Simon Sinek said: “A team is not a group of people who work together. A team is a group of people who trust each other.”

A high performance team with people who trust each other can be cultivated intentionally. Forbes has a good article on 5 ways to build high performing teams.  Read more here.

Also read Professor Linda Hill’s classic case on Harvard Business Review titled “A note on team process”.

In the focus to achieve their vision, it is easy for founders of new ventures to lose sight of their own need for personal and professional growth. That does not mean they need this growth any less than if they were working in an existing organization – in fact, they need to grow even faster and in more areas.

Founders do not have the structured mentorship that a traditional corporate job offers so they have to create their own support system to foster this growth. Forbes has a great article that outlines how to do this well. Read more here.

For a first time founder, there can be a lot of firsts- first hire, first customer ship… and sometimes, first fire. Firing someone is difficult no matter what and firing someone for the first time is very stressful.  Professor Elaine Chen of Tufts University has an article on things to think about when firing someone. Read more here.

Culture is something that first time founders often do not pay enough attention about – but they should. A company’s culture defines how team members relate and how people get things done. It can guide decision making at all levels.

It behooves founders to define their company’s culture and values, and write it down for current and future employees so that leaders and team members can all work together to cultivate and nurture an intentional culture.

Read Forbes Magazine’s 2020 article on startup culture here.

Hubspot has one of the most well known culture codes in the Boston startup ecosystem. While there are detractors, Hubspot was voted #4 Best Places to work in 2021 by the Glassdoor’s Employee Choice Awards.

Zappos, the company known for its customer obsession, also has a well known Culture Book that you can download here.

These two companies have extensive culture codes that were developed over years of iteration. You don’t need to have such a comprehensive culture code on Day 1. Just start by articulating your company’s why and your values and build it up from there – any definition of your culture will help.

Sue Siegel, a CEO, Board Director, Investor, Advisor and Lecturer at MIT, guides her team via a short framework called Ways of Working

The best source of cash for an early stage venture is revenue from customers. Revenue serves two purposes: First, it brings in cash to help float the enterprise; but second and more importantly, it is an important validation point that you are able to attract the attention of paying customers who will vote for you by opening their wallet.

Sometimes new ventures need a bit more incubation before they are ready to develop revenue streams from paying customers. For student entrepreneurs, university level competitions and prizes can be a good fit.

For student entrepreneurs in the greater Boston area, check out the Boston Innovation Guide for student ecosystem players who offer competitions and prizes.

Tufts students can explore both the competitions and prizes offered by the Derby Entrepreneurship Center as well as prizes offered by other schools and colleges, such as the Fletcher School’s D-Prize. or the Friedman School’s Food and Nutrition Innovation Institute Prize.

For tough tech ventures that need help hardening their technology before developing products and services, the US Small Business Administration offers two options: SBIR (Small Business Innovation Research) and STTR (Small Business Technology Transfer) grants. Check out our Knowledgebase section on these and other government grants.

For entrepreneurs starting non-profit ventures, VC investments are not appropriate. Instead, the most common sources of capital are philanthropic gifts and foundation grants. The latter can be a substantive source of cash and it is worth exploring which foundations support causes that resonate with your new venture.

For example, the Cummings Foundation distributes $25 Million per year to local non-profits serving the community in Massachusetts, largely in the area of food insecurity and mental health.  VentureWell is another source of grants targeting inventors and innovators.

Crowdfunding is another way to raise cash for your venture. Check out our knowledgebase section on crowdfunding.