Startup Pitfalls?

I got this question recently on Twitter and I usually ignore most DMs, but, I felt like it was worth giving an honest answer:

Too many to list…

I really do believe that company building is a life-long process and there’s never any end to it. Although I clearly do not stumble on a number of things in the process of putting things together in the very early-stages of a new project the number of things that are the same is really, really small.

For instance, registering a Delaware C-Corp is what you should do if you plan on building a company that may take on venture capital and finding a great cofounder(s) to work with are table stakes.

After that…? Anything is fair game. Literally. That’s really where the similarities end.

I’ve put a lot of project together but not all of them (i.e. most of them) do not mature into a scalable, venture-funded business. And, the few that do, they all started (and ended) very differently (and even one started as an LLC… breaking my rule above!).

Even now I’m still learning… and sometimes I feel like I’m not learning fast enough. I shared a vlog the other day about my role as the CEO of a new venture and how I’m still learning a ton of new stuff every single day:

But, here’s a better answer to the gentleman’s question: Most of the pitfalls in startup world sit in two distinct buckets, the first which are formation-related and the second which are heuristic-related, or rather, empirical data / firsthand experience.

Formation-centric pitfalls are making sure that get all your legal, accounting, and tax work figured out the right way before it ends up costing you. For instance, if you’re based in San Francisco, California and need to create a Delaware C-Corp, you will need to do the following:

  • Pay annual DE registered agent fees of $50-100.
  • Pay annual DE minimum franchise tax of $400+.
  • Register for an EIN.
  • Register as a foreign entity in CA and pay a $100 fee. You’ll need a certificate of good standing from DE for ~$99.
  • Pay annual CA minimum franchise tax of $800+.
  • Hold annual board meetings. It is possible for one person to hold every seat.
  • Corporate tax preparation.
  • And a few other things…

Oh, and if you’re classified as an employer, you’ll need to:

  • Open a bank account.
  • Register as an employer, register your employees and contractors, and pay payroll taxes to the state.
  • Register with the state EDD and UI and pay into those. Systems like Gusto can help, but they are definitely not perfect… trust me on that.
  • Concern yourself with insurance and benefits if you have 4+ people working for the business, including yourself. If you have less than that then programs like Covered California can help unless you have coverage from a spouse.
  • Track expenses, good accounting hygiene, etc…
  • And… a few other things.

I’d also throw in other “formation-related” things like:

  • Not going it solo… finding a great cofounder (or two).
  • Building something that people really want (this is really hard).
  • Ensuring that you’re in tip-top shape, mentally, spiritually, psychologically, and physically to endure the hardship of a startup. I can’t emphasize this point enough.
  • A great relationship support system when the going gets rough (these folks are not your partners, cofounders, or hired team).
  • Knowing your own financial limitations and budget. This is also super-important and most folks never truly do a real, let-us-count-pennies-accounting (as I call it) to understand what it might take to get the ship off the ground.
  • And… a few other things.

If you have these so-called “pitfalls” covered… then, you can begin putting things together.

But, I’ll be honest… I fucked all of these things up all over the place the first few times I went to bat, so, it’s not like I knew what I was doing either. That’s why the heuristic-centric learning must also be part of the “pitfall” discussion because there are some things that money simply cannot buy.

In other words, experience will teach you very quickly what this will all take and most things you will have to learn for yourself. But, the effort is entirely worth it.

Thanks Alex.