Ten Founding Principles Start-up promoters should pay attention to
India has the third largest community of start-ups and with the announcements made on Start-up India by the Prime Minister Narendra Modi in January 2016, the movement has gained further impetus and every young mind is working on some innovative idea or the other with young India embracing Entrepreneurship in a big way. Many start-up ideas usually originate in the minds of an individual, which are in turn discussed with close friends or associates. By the time, the idea is discussed and it takes the form of a business plan, the start-up would have identified some people who are interested to work together as a group and commit their time and monetary resources to further strengthen the idea and grow it into a business. As the team starts working on the implementation of business plan, they start facing the initial hurdles on one hand. On the other hand the initial capital raised from friends and relatives starts dwindling down and the team see the strain in relationship building among founding members and this leads to mistrust, blame game and eventually it could lead to collapse of the business even before it takes off.
As everyone knows, setting up a business usually comes with associated challenges and it requires a united team to weather the initial turbulence and take it to a sustainable level. It requires bringing in clarity at the beginning of the journey so that every team member has a clear understanding of the expectations placed on him or her.
Ten Founding Priniciples, if addressed right at the beginning of setting-up the enterprise, will make it a successful association until the goal is reached. The following are the ten founding principles start-up promoters should pay attention to.
1. Have a detailed discussion to check if everyone subscribes to the business idea and are equally convinced of its success and the road-map that is prepared for the business
2. Have an agreement on the roles of each person
3. Set a mutually acceptable objective monitoring mechanism. Communicate at regular intervals through an agreed method..
4. Clearly set the partnership share / share-holding pattern based on the expected roles / contributions
5. Have a formal agreement among partners in place. Seek professional help for drafting the agreement.
6. Set a method for awarding additional share / equity based on the contribution made to the business. This usually takes the form of sweat equity.
7. Some people may not be interested in taking active part in the business but may be interested in supporting the idea through investments. Keep interacting with them at regular intervals and post the progress of business.
8. Build a mechanism to address the differences that may arise, if any, during the course of execution of plan. This may take the form of voting if there are more no. of partners to seeking mentors support where required.
9. Leading partner / active partner / or the one who initiates the idea / who enjoys high equity stake would like to push his way through in all the cases, but remember that the initial buy-in is from this set of people who have subscribed to his idea / role and supported him and he has to take a rationale and objective path to present his cases.
10. Exit Options: One should always build a clause for exit if the going gets tough and the partners have to part ways amicably.
Not much attention is paid in the initial stages, as the primary objective is to make the business a success and to prove to the world that they have arrived. However, as the reality sets in, even minor irritants are blown out of proportion and in that process the businesses take a back-seat. With some clarity on the roles of various stakeholders, together with an effective communication mechanism and some professional support, the start-ups can avoid this unpleasant and uncomfortable situation for everybody and make their business a success. Hence, start-up promoters use these founding principles for successful association.
About the author: PVS Prakasam is Director of Prajwal Business Services Private Limited, a management consulting and professional services firm for Start-ups and SMEs.
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