I recently read Wild by Cheryl Strayed, the adventurous tale of her journey down the Pacific Crest Trail. In some strange way, it reminded me of a founder’s journey to starting a company. Ms. Strayed didn’t know what she was doing when she started the journey, but she felt the calling to achieve something great. Founders will often give the impression that they know what they’re doing and are certain of their company’s success. However, in reality, founders often don’t truly know their path. Ms. Strayed’s journey was transformative and successful, but she made critical errors along the way and the trip was not as she had envisioned.
Here are her errors and how her lessons could be applied to startups:
Ms. Strayed chose her shoes spontaneously and later realized that she should have followed advice from more experienced hikers. New founders should look at that example and realize that veteran law firms and CFO’s can give invaluable counsel. Some of the premier full-service law firms in the valley are DLA Piper, Fenwick&West, and Perkins Coie. The reason to choose a premier firm is that they have experience working with many VCs and startups so they understand the terms of term sheets, bridge loans, etc. and the associated risks and benefits. There are many good CFO advisors (consultants such as myself) or firms such as tempCFO who will guide you through your planning and board presentations.
Ms. Strayed decided to carry a bag that was too heavy for her and the bag hindered her journey. If a founder tries to do too many things at once, they will find that they are too busy trying to carry the “bag” and will be distracted, rather than focusing on the journey. Or, if they hire too many functions internally, they will be spending their funding on these resources too quickly.
Nine times out of 10, a startup doesn’t need to hire an accountant, payroll manager, HR & benefits manager, or insurance manager internally. There are plenty of great resources for those functions and even more reasons to choose to outsource them.
You need to plan ahead to ensure that your books are in order for a successful exit or IPO. In the near term, your investors will require monthly or quarterly reports and your CEO will need dependable data for board presentations. Investors want to know how you’re spending their money and project cash reserves out to date. It’s critical that the data is reliable – everyone knows that data is extremely important. Garbage in is garbage out. However, a hired accountant is not necessary for a startup. Use a firm such as Accelcia for a fraction of the cost of hiring an internal accountant. They will pay your bills on time and categorize expenses for you.
This is a very critical function as the laws are always changing and it is important to be in compliance. If you fail to comply, you can be charged heavy fines by the government and being out of compliance could impact your funding, acquisition, or IPO. You also need to file quarterly and annual payroll reports on time and report new employees and consultants to the states. The consequences of failing to do so can actually have personal impacts as officers (i.e. Founders) of a company hold full liability of employee wages and taxes. This means that you can actually get a lien on your home for unpaid wages and payroll taxes. Additionally, payroll impacts all of your employees and consultants, so it needs to be user-friendly. Gusto (formerly ZenPayroll) does an excellent job on all fronts and employees actually enjoy using it.
3. Medical benefits
Just as you need to comply with payroll laws, you will also need to comply with laws regarding benefits such as HIPAA. In my experience, signing up for a plan online or going with a large firm meant I wasn’t offered the highest level of service. Personally, I like to refer my clients to Dan Michelini’s group at Filice Benefits, where they will act as your outsourced benefits manager. Inevitably, your employees will need help with their benefits and you don’t want issues to distract you or your employees. Your employees will likely appreciate the increased privacy and personalization of a small, specialized firm.
Most states will require you to get workers’ compensation insurance and, if not, you should get it regardless to protect your company. If you’re renting office space, most landlords will require you to get insurance to protect their assets. You may even need to get D&O insurance depending on your corporation’s funding, or E&O insurance for some contracts. Ron Sortino of Archway Insurance or Dan Berry of Woodruff Sawyer are dependable choices from my experience.
5. Retirement and other benefits
Your employees will want to take advantages of tax laws to save for retirement. Help them by setting up employee retirement plans (but don’t try to do it yourself). Keep in mind that there are compliance tests for those as well. In addition to retirement benefits, startups are offering a myriad of benefits to their employees to attract and retain talent. A few of my favorites include housecleaning, gym memberships, TaskRabbit credits, and using ZeroCater or EAT Club to take care of company lunches.
The critical traits that brought Ms. Strayed through the journey were perseverance, ethical consideration, and friendliness to all. All startups have discouraging periods where success may seem futile and unattainable. Just keep hiking along; behave ethically, help others, trust others to help you, and make some friends. Make your journey a good one. Success may not always happen, but you should be proud of how you behaved during your journey.