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Six Key Business Principles for Tech Startups

By JOHN BLAKE, CPA

December 26, 2019

You might have an excellent idea for a new app, device, or service, but if you do not invest the time and resources to set up a company properly, you might not reap the benefits. As in any industry, tech startups should pay close attention to six fundamental business principles to build the foundation for a successful venture:

  • Financial – There is much more to the financial side of the business than setting up QuickBooks or another accounting system. You must decide on the right structure for your business (Sole Proprietor, Partnership, Limited Liability Corporation, C Corporation, etc.), how much funding you need to adequately launch and operate the company for at least two to five years, and who will provide the financial resources (you, potential partners, family, friends, banks, other lenders). You will need to determine how much cash inflow is necessary to meet payroll, operating expenses, and loan covenants. You will also need to consider financial reporting and tax matters.
  • Human Resources –Assess whether you have the right combination of leadership and management skills to be successful. Do the same for the individuals you are considering as partners, as well as members of your management team. Ensure that you have the right talent in-house or can outsource work to freelancers or businesses as needed. Avoid hiring family members and friends if they do not have the right skills for the job.
  • Marketing/Sales – The lifeblood of your business depends on how well you market your technology and its acceptance in the market. You will not have a business unless you can establish a demand for the technology you created. Invest wisely in strategic marketing instead of experimenting with costly techniques that may not be effective. Conduct focus groups before launching your technology to ensure that there is a demand for what you are offering. If not, make the appropriate adjustments. Study what your competitors are doing and how they are positioning their products or services. Develop a unique selling proposition that demonstrates the value customers will receive from your technology. Establish joint venture partnerships to accelerate breaking into the market. Invest in a sales force and business development.
  • Production – Avoid rushing to launch a product or service that is not ready. This is especially important to establish credibility in the minds of consumers. Ensure that you can meet the potential demand.
  • Distribution – Decide if it is in your best interest to collaborate or compete with other companies that either serve your target market or have a complementary product or service. You might be able to turn a profit much faster if you collaborate with a company or industry sector that is already established. This is a strategy that has been successfully implemented by companies, such as Intel with computers and Dolby with sound systems.
  • Legal – Hiring and working with a lawyer can seem like a daunting task, but when you are starting a business, it is crucial. Among other issues, you will want to protect your intellectual property. Ensure that everyone on your team signs a non-disclosure agreement and, when appropriate, a non-compete agreement. Work with a lawyer on these agreements instead of merely pulling one off the internet. You should also hire a lawyer to file for trademark or service mark protection. Do not assume that you are protected without taking the proper precautions. It is always recommended to work with a team of professional advisors (lawyer, accountant, financial advisor, banker, etc.) with experience in the technology industry. Doing so will ensure that you establish your business properly and are positioned for growth. There is a lot to consider, and a competent team of advisors can provide the guidance needed to help avoid critical and costly mistakes.

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If you have questions about these principles or would like to know more about tax strategies for your particular tech company, Klatzkin can help. For additional information, call us at 609-890-9189 or click here to contact us. We look forward to speaking with you soon.

 

About the Author

John focuses on helping with the tax needs of real estate, technology and manufacturing, distribution, and wholesale companies. He works with management and business owners to review their business plan, tax planning process, identify additional saving opportunities, and ensure compliance and reporting deadlines are met. Also, John helps educate clients about the new opportunities available...

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