While Karim went on to an athletic scholarship that morphed into an executive sales position in the consumer electronics sector, Bill parlayed his undergraduate software engineering degree into a master's degree and now has a research and development position.
The pair always wanted to start a business together, and feel the time is right. Bill's entire R&D group has been offshored, and Karim can't seem to break through into upper management.
The product behind their new venture is a software and hardware product that allows users to view, manage and catalogue their movie library from their television.
But before getting started, they need some direction - we spoke with four experts in their fields to give Karim and Bill a jumpstart on their new startup.
Financing
The first step here is some serious market research. The ultimate end market for this product is a mainstream one, and this market is not for the undercapitalized. Who else is trying to penetrate the living room with solutions like this?
I have not heard anything that suggests the entrepreneurs or the business are VC-ready. So, if they go for it, they'll have to raise friends and family money to get started.
Angel and institutional investors need to see some traction in the form of an early product, and some market feedback, before they will invest.
Mark Macleod, StartupCFO Enterprises
Teamwork and decision-making
Create a common purpose and vision – Karim and Bill need to explicitly articulate and share with each other their own vision for the business, and why they have embarked upon this venture together. What are their personal and professional aspirations and how do they believe that this venture will help them to achieve these aspirations? What will be their roles and contributions?
Secondly, they should build a decision-making agreement. There are essentially two kinds of decisions that they will encounter: Shareholder decisions, and operational decisions. These need to be handled separately and distinctly. Shareholder decisions involve the "big" questions – strategic direction, distribution of equity, capital investment, retained earnings. But if ownership is 50-50 ownership split, how will unresolved disagreements be managed?
They should also develop a strategic business plan, to guide the business activities in the short and medium term. Understanding what is to be done, by whom, at what cost, and by what date will set expectations and clarify roles.
Finally, Karim and Bill should communicate regularly. Each of us has a preferred way of operating, which is strongly influenced by our personalities and preferences. Good business partnerships often grow from people with disparate personalities because together they offer a more complete perspective on the situations and challenges a business faces. However, this requires ongoing communication and testing for understanding.
Jeffrey C. Singer, president, Transitions Resources Group
Legal
Karim and Bill should take the long view – entrepreneurship is an iterative process, and successful founders learn by actively testing and validating their ideas, sharing information with their industry peers and successfully applying that knowledge to business ideas.
In this case, the business concept is still pretty nascent, but it represents a great excuse for Karim and Bill to network with a bunch of interesting folks (potential first customers, distributors, investors and employees) that can help refine the idea into something truly special. For many entrepreneurs, this early genesis stuff is the best, most rewarding part of the experience.
Momentum is the key behind every successful venture, and over-negotiating valuation or other terms with each other, key employees or potential investors can retard the good business karma that follows from a fully and emotionally engaged group of stakeholders. Especially if it's your first farm, worry more about building an absolutely great one, rather than giving too much of it away at each and every step.
Certain things often have to be done fairly early on in the game after the founders validate their basic business premise - incorporating a company, providing for a proper IP chain of title and basic inter-founder shareholder agreements, and doing some basic tax planning, for example. Other things can likely wait for the budget – registered IP protection is often one area that has to wait, and broader, investor-friendly shareholder agreements is another.
James Smith, partner, Labarge Weinstein
Build or sell?
This dynamic duo have an intense and fun journey ahead of them. There will be days of euphoria, and days of despair. During the ride, they need to develop the corporate and product strategies while staying focused on execution - no easy job.
As soon as the starting pistol fires, it's a mad dash to revenue and then profitability - don't get side-tracked. Don't forget. Don't slow down. Don't sleep. Get to revenue. Get to profitability.
Karim and Bill need to understand their competitors' offerings, then they need to understand how they are going to differentiate. A common mistake is to compete on the same basis as everyone else. If Karim and Bill were to do that, they would see their profits quickly eroding just before they are eaten alive.
Strategy is rooted in the financial statements of a company. Karim and Bill need to understand how the company's finances work today, and in the future. In particular, what are the key financial metrics upon which the success or failure of the company depends? For example, if they plan to charge a subscription fee, they'll probably need to finance the first few months for each customer. One of their barriers to growth will be the availability of cash.
Also, no matter how good the product idea, it needs to be tested first with real, paying customers. They also need to attract a strong advisory board, and locate the exits before takeoff - if they have an exit targeted in their minds, they'll structure the company accordingly.
If they don't know, the simplest thing is to run the company as if they wanted to take it public. Then they keep all options available.
Jim Roche, president & CEO, Stratford Managers Corp.
