Starting your business is like a pilot flying a plane for the first time – the only difference is that pilots have experienced multiple flight simulation rounds before their first real flight. They have made countless mistakes and learnt from them, without having to face any costs for the mistakes (such as plane crashes, passenger and crew injuries, etc.) These are the benefits of training in a mock environment.

Unfortunately, entrepreneurs haven’t had the benefit of mock training. When they start the business, it may just be their own (and co-founders’) careers at stake, but as the business expands, what is at stake is much larger, and the risk keeps growing with every stage. Small mistakes can have magnified adverse consequences later on for the business.

Yes, some are very ambitious, and have made use of any opportunity they got in their environment to sharpen their business skills. For example, there are some who perform extremely well in B-Plan competitions. Some even advise friends in writing winning B-Plans. All this is done for the love and thrill of starting up and to ensure that you have enough preparedness to handle real-life situations when you take the plunge and start out on your own.

Now, imagine that it’s your turn to churn up a real business from your business plan. The thought of starting a real business comes to every B-plan writers mind and some even execute the same very successfully. What kind of mock training is important? Would you prefer having more exposure to real-life situations and practical scenarios? Participation or victory in B-plan competitions and hackathons is a great start, but do these events get you what you need?

The decision-making challenge

Let’s say you are a B-plan competition champion. Recall what skills that you have acquired as a B-Plan competition participant or winner. One major skill you had to develop and exercise was the ability to clearly think and put down your business idea in detail on paper, so that you can start executing it. This is definitely going to help you in a big way while planning your business.

However, executing the plan in the real world will require much more than just this. You will need others to help you in building the business – nobody today builds a business or a product all alone from scratch. You will need to develop the ability to try out things, measure outcomes, learn from failure, iterate or adapt and repeat the process, till you succeed. There will be humongous hurdles you will face on the way, starting from persuading and convincing people, getting licences, handling partners, collaborators employees, vendors and government agencies and so on, which will stand in the way of your dream, even if you have fantastic technical or coding skills.

The ability to convert a business idea or business plan into successful businesses is what distinguishes successful entrepreneurs from those who don’t start, or who give up immediately in the face of their initial failures.  In the process of trying different things and transforming your business plan into a workable business, you will need to take ‘decisions’. It is necessary to protect one’s interest (even if there is limited information), so that an unlikely turn of events in future does not put us at a disadvantage. Time, ability and resources are all scarce and lack of knowledge (largely about areas which do not relate to your domain expertise) will keep pulling you back at all stages. As an entrepreneur, you ought to know or be able to manage things that you don’t know, without your business suffering the cost of your ignorance.

Let’s work on the knowledge barrier

In this article I will mention four crucial roadblocks that must be tackled by any early-stage entrepreneur and the skillsets necessary in tackling these obstacles. While it may not be necessary for you to know all the answers, being aware of these will help you in the following ways:

• Take important decisions about business strategy on your own, much faster
• Find someone (for example, a CA or a lawyer) to implement your strategy
• Work with a professional more effectively due to your knowledge and understanding of the problems.

Most entrepreneurs in India will be lost and frustrated with the system, and a large number will give up. However, if you can master the legal and regulatory aspect of doing business in India, you will have an unique and solid advantage. Any competitive advantage is great for survival, and this can give you a significant competitive advantage as a business owner.

Roadblock 1: Selection of a business structure and initial operational issues

As an entrepreneur, it is extremely important that your business is structured in a way that you have the ability to take out profits, it is tax efficient and attractive and legally possible for investors and bankers to provide funds. For example, Google, Microsoft and other international technology giants have created sophisticated layered structures to save tax. They transfer technology rights to a tax haven really early on to save taxes.

Some real estate and software consultancy companies in India are structured as Limited Liability Partnerships to minimize tax implications. E-commerce companies operate through multiple entities. Ventures with scalable technology ideas are almost always started as private limited companies. Some ventures adopt a combination of a for-profit entity and a non-profit trust, which enables them to access vast amounts of donations from international charities.

How should you structure your business? Answering this question in context of a specific business requires an understanding of how different business forms are owned, controlled and governed, corporate governance mechanisms, commercial intent of investors, etc. Once you decide the business structure, you need to think about structuring co-founder relationships and the various licences you need to commence business.

Preliminary action points

Your initial question at this stage is whether your business be structured as a partnership, LLP, company or a non-profit venture, which can be answered by breaking down your goals for the business, such as:

• Which business structure ensures maximum operational flexibility?
• Which is the most tax efficient business structure?

Which is the most conducive for receiving foreign investments or foreign loans?

• Which business entity should you create if you want to receive grants and foreign donations?
• How many co-founders will you take? How much equity should be given to co-founders? What happens if the co-founders leave?
• Which licences do you need to commence your business?

You may need to effectively manage a lawyer and accountant in getting the above outcomes. Prior knowledge and understanding of these issues will definitely be helpful in this.

Skillsets required to successfully overcome this roadblock – Business structuring skills, business incorporation, compliance, understanding of corporate governance mechanisms, obtaining licences and registrations.

Roadblock 2: Team building and consultant relationships

Startups cannot afford to pay the same as Fortune 500 companies, and usually can’t even pay market rates, but if they want the best talent, what can they offer employees? Stock options is the magic word – even Google’s chefs became millionaires when the company undertook an IPO. How should you incentivize your employees?

Next, how should a business protect its commercial interest vis-à-vis employees and consultants? There are ample stories where companies have sued employees and consultants who have left to work with competitors or to start their own businesses. For example, Apple prevented any former employees from working with any of its vendors for the simple reason that it did not want other companies to have similar design. Amazon was sued by Walmart when it discovered that Amazon had been poaching its employees away. (Incidentally, Flipkart was also started by ex-employees of Amazon, but there was no legal battle because there are restrictions on how comprehensive non-compete clauses can be.)

Let’s explore related questions.

• How will you remunerate and incentivize employees and administer ESOP plans?
• What restrictions will you impose to protect business secrets and intellectual property?
• How will you prevent employees from taking away your clients or starting competing businesses?
• On what terms will you hire consultants, freelancers and other vendors?

Action points

You will have to address these issues through employment agreements, confidentiality agreements, board-resolutions, stock option plans and consultancy agreements.

Skillsets required to successfully overcome this roadblock – Strategic planning, negotiation, understanding contracts, factoring commercial incentives into the legal documentation.

Roadblock 3: Revenue Model and Marketing

How will your business idea generate revenues? This may probably be answered in your business plan. You will have to ensure certain systems and documentation is in place so that your desired revenue model is established. For example, consider your core product is a content website. You will have to decide on the following:

• If you generate revenues from ads, what terms will be applicable to advertisers?
• If you allow third-parties to sell products to your community, what terms will be applicable to third-party products sold to your community?
• If you decide to co-brand products, how should you be represented in context of the product?
• If you are selling a software product, what will be the terms of the license?
• If you collect online payments and other personal information of users, how will you ensure it is secure?
• Will you collaborate with other entities for launching, marketing or branding your products? How will you capture the terms of this collaboration? What will you do if someone breaches contracts?
• How will you structure distribution and marketing arrangements?

Action points

Once you decide the answers to the above questions, you will have to address them appropriately in appropriateuser agreements, service level agreements, payment gateway agreements, terms of service and privacy policies, marketing agreements, affiliate arrangements, joint venture, collaboration and co-branding arrangements. Revenue sharing and commission-related issues will also have to be carefully addressed.

Skills required to successfully overcome this roadblock – Understanding of commercial intent, contract negotiation and operational working of a contract, dispute resolution and payment recovery strategies, regulatory framework for data security.

Roadblock 4: Intellectual Property Strategy

Intellectual property can be a heavy component of a business, especially technology businesses and can help in creating significant competitive advantage. While most entrepreneurs are aware that they must protect their intellectual property, mistakes are made in identifying the right intellectual property in the business, in selecting elements that make their intellectual property unique and different from others and in creation of monetization strategies.

For example, did you know that Ericsson does not manufacture mobile phones, yet it makes significant revenues through licensing its cellular technology? Or that Disney made more money from merchandizing (i.e. creating toys and other articles) characters of its most successful movies, than from box office sales of the movies themselves?

Questions that you need to decide at this stage are:

• What aspects of your product will you seek to protect and how? (Think product name, interface, source code, layout, copyright, trademark and patents.)
• Do you want to protect your intellectual property in international markets? (You will need to create an international level IP strategy depending on the markets you choose.)
• You will be sharing product manuals, list of features and presentations with any ad agencies and marketing companies. How will you protect these from getting copied by competitors (both online and offline)?
• Can you explore licensing and similar mechanisms can you explore to monetize intellectual property?

Action points

You will need to think through these issues carefully and create an intellectual property strategy, decide on which registrations to obtain and which authorities and countries to file necessary applications in (you can later instruct a lawyer or consultant to help you with the applications, but the responsibility for decision-making lies on you). You will also have to conceptualize necessary license agreements and IP assignment clauses.

Can you outsource these tasks?

As entrepreneurs, we want to identify and deploy the right talent for a particular job, and outsourcing something we can’t or don’t want to do seems like an attractive idea at first.

Do you think you can identify a lawyer to help you out with these issues? Most entrepreneurs end up outsourcing these issues right at the outset to a lawyer, accountant or a company secretary, and are soon disappointed when things do not work out as planned. While lawyers or other professionals may be able to guide you on specific points, the broader strategy has to be decided and pushed forward by you. In fact, several businesses fail because of inability of entrepreneurs to take decisions on these issues.

To answer the question point blank – yes, you can outsource this work, provided you know how the work is done and you can manage the person you have outsourced to. The reason serial entrepreneurs are more likely to succeed is because they have had prior experience of at least some of these issues, where most first-time entrepreneurs are stuck.

How can you equip yourself to tackle these roadblocks?

Here are some of the ways available:

• Reading books – This is the classic option. You could buy different kinds of books, but assimilating all the information will take years, especially on a subject such as this. A lot of experiences and insights are not from India, so finding an Indian parallel is difficult. Also, there is a limit to how much one can keep reading and assimilate. Would you want to spend your time reading books or doing business?
• Attending legal sessions in networking events – These are definitely a positive development in the right direction. Do you recall attending a legal session at a networking or startup event? How was the experience? Most people who have attended multiple events describe their experience in like this – they became aware of many issues the first time they attended a legal session, but then the learning never really took off to the next level. They still don’t feel very comfortable at tackling these issues at a practical level on their own, or to even manage resources to do these tasks. The reason is that experts at these events try to give you a taste of some of the crucial issues. Due to time and other constraints, structured learning does not take place – in-depth discussions and customized takeaways are not available.
• Having advisors and mentors – You should definitely have advisors and mentors. We all want to make decisions only after receiving the best advice from those who have experienced similar However, that does not eliminate your need to develop personal skills and strategic abilities. Advisors and mentors have limited time, unfortunately and if you took help from them blindly, you will never know if what they are doing is exactly what you need for your business.
• These days, universities have started developing dedicated courses focussed on different aspects of entrepreneurship. Typically, these focus on various skills such as design, marketing, financial planning, etc. For legal and strategic skills, you can see this course from a national law university. It requires a time investment of 3-4 hours a week for a year and brings these insights systematically from industry experts.

Is there any other legal hurdle you are facing in your business? Let me know if you would like me to cover something specific. I’ll be happy to hear from you at [email protected].

(Abhyudaya Agarwal is a founder of iPleaders, a legal education startup which helps universities and industry bodies build online courses.)