How to Start a Successful Business

August 9, 2022

How to Start a Successful Business: A Lawyer’s Perspective

By: Melissa Balocca, Esq.

“In the end, a vision without the ability to execute it is probably a hallucination.”

– Steve Case, co-founder AOL

As a corporate attorney I have had a front row seat to the operation and management of successful companies. I have seen meteoric rises, as well as catastrophic falls and have learned a lot about what it takes to succeed as a new business. In this article, I will list out, step-by-step, the initial actions that I would take if I were to be launching a new business. Here is what I would do and the order I would do it in:

Step 1. Develop a Business Plan. Business modeling and strategic planning can be one of the most underutilized steps in starting a business! So many entrepreneurs make the mistake of putting the cart before the horse; they take out a loan, they lease an expensive space, or they purchase a massive quantity of inventory without any consideration of (a) target market demographics, (b), their local competitors, (c) possible sources of equity financing, or (d) their biggest areas of liability exposure. When you think about it, this is one of the lowest cost ways to get started on your new business venture: MAKE A PLAN! Answer the following questions to get the ball rolling:

• Who are your key partners and what activities will they perform?

• What product or service are you providing and what are your sources of revenue?

• What resource do you need to provide the product or service?

• What problem in the market is your product or service solving?

• How are you establishing a relationship with your customer base?

• How will you reach your target market?

Step 2. Form a Legal Entity. Personally, I would not want to be responsible for the debts and obligation of my business. I know that without a properly formed, maintained, and separate legal entity, my house, car, or other personal property could all be on the line if my business were to be sued or otherwise have creditors. One of my favorite vehicles for a new business (or even for housing real property) is the limited liability company. That is because it is the most cost-effective to maintain and gives you the most flexibility in the management and ownership structure of a business. Also, there is pass-through taxation, so you can avoid the “double tax” of a corporation. The only caveat is that if I expected to have serious cash flow or venture capital financing, then I would much prefer the corporate form. There are a lot of reasons for this, but I won’t be going into detail on that in this article.

Step 2. Create Contracts. Every successful business I know has solid contracts in place for matters arising in the usual course of their business. I am not a 17th century Quaker, therefore I would not enter into agreements based on a handshake or verbal confirmation, whether with partners, vendors, employees, or customers. You cannot put the cat back in the bag, so I would not put myself and my business out into the world without the best contracts that I could afford in place. The contracts that I would create from day one are:

i. Partnership Agreement. This agreement can have different names depending on whether you are a partnership, LLC (Operating Agreement), or corporation (Bylaws) but they all essentially establish the management rules of the business and the obligations of the owners. I would also ensure that “buy-sell” provisions are included, which cover what happens if a partner passes away, becomes disabled, or decides to leave the business.

ii. Confidentiality Agreement. Even a generalized confidentiality agreement is very useful! Anytime you want to share information about your business with a potential investor, distributor, or key employee, you should have your Confidentiality Agreement signed to protect your trade secrets and other confidential information.

iii. Independent Contractor Agreement. Almost all businesses engage with an independent contractor (“IC”) in one form or another. With California’s AB5 signed into law in 2019, there is no way I would engage with an IC without a rock-solid agreement in place. Misclassification claims can be brutal, so you want an IC Agreement whose terms are both a shield and GUIDE for you to ensure you are following the rules.

iv. Distributor Agreement. Any business that is selling a product will likely work with distributors. Whether working with other retailers or with independent contractors, I would want a Distribution Agreement in place which controls the risk of loss, the potential for product liability, and exit strategies in case a distributor acts in a way that is harmful to your business.

v. Employee Handbook. Okay, this is NOT a contract, but an important written document nonetheless! If I were to start a business with employees I would definitely have a state-compliant handbook in place. Both to act as a guide for management on state laws such as minimum wage, meal/rest breaks, and paid sick leave, and also to set up the culture of the business. The handbook is a great way to connect with employees and show them what your business is all about. Plus, there are certain laws that employees need to be made aware of and a handbook is a great place to maintain this information.

Step 4. Develop the Brand. Brand is everything! I would be very thoughtful about my business name and any artwork that would be associated with my brand. Keep in mind, the legal name of your entity does not need to be the same as the name you use for marketing purposes. Once I established my brand, I would apply for trademark registration with the USPTO to ensure that the value I create around my brand is protected by federal law.

There is so much that goes into starting a successful business and this article only scratches the surface. I do believe, however, that these initial steps would set up any entrepreneur for success. If you have a solid business plan and are protected against liability via a legal entity and effective contracts, then you are free to venture out into the market and take risks that could result in huge returns!

At Balocca Law, I have helped countless entrepreneurs get started on the right foot and it has been my great pleasure to watch so many of them grow into more sophisticated ventures. If you are ready to Do Business Better, contact Balocca Law today! Questions or comments? Contact Melissa Balocca, melissa@baloccalaw.com.

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