Being an entrepreneur can be one of the most rewarding, frustrating, and downright scary experiences a person can have. When times are good, they're great. When times are bad, they're beyond awful. To help your business be successful over the long term, you should leave as little to chance as you can by consciously minimizing common risks that all small businesses face.
Over the years, I've noticed three things that consistently impact the success of small businesses: the CEO/leader’s ability to mentally recover from the pitfalls and joys of building a business, whether the business uses written employee documents, and whether the business uses written agreements with its business partners.
All of those things are within an entrepreneur's control, and yet, some business owners are so busy chasing opportunities, they fail to manage these risks adequately. Then, after the business fails or a lawsuit arises, it becomes clear that some simple precautions would have made a significant difference.
Take Care of #1, Keeping Your Mind Clear as the Leader of a Small Business
Every entrepreneur experiences a constant stream of ups and downs. Even if you're unusually resilient, the emotional rollercoaster can eventually get the best of you and beat you down over time.
The good days can make you feel invincible, and the bad days can be worse than you can imagine. To keep from getting beaten down over time it’s important that you find your own personal release to escape and give yourself rest for the cycle of ups and downs sure to come. Make sure you do whatever it takes to clear your head. Go for a run, play your guitar, spend time with your kids. Do whatever works best for you.
How well you manage to keep your head clear day in and day out will at least partially determine the success or failure of your business.
Use Written Employee Documents
Every employer should have written employment documents for all their employees and independent contractors. These written documents should be given to and signed by all employees and independent contractors at the start of their term with the company.
A solid bundle of employee documents includes the following:
· Confidentiality or non-disclosure provisions that prohibits the employee from disclosing sensitive information;
· Non-solicitation and non-competition provisions that prohibit the employee from stealing your customers or working for a competing business;
· Intellectual property (IP) assignment provisions that define IP ownership as well as ensure that the IP vests with the company; and
· A compensation plan that clearly describes when employees are entitled salary, commission, bonuses, and/or stock options, if applicable.
If you fail to state your policies in writing, defending your position will be much more difficult later.
Use Written Agreements with Business Partners and Contract Service Providers
No matter how well you know someone or how familiar you are with a company, have a written agreement that clearly defines the roles, what's expected, what happens when IP is created, and who owns or has rights to any IP created. Similar to employee documents, include a confidentiality agreement or NDA. If you're sending samples to someone, make sure you have a materials transfer agreement that specifies for which purposes the samples can and can't be used. If equity is involved, what milestone triggered it to be granted? When does it vest? What's being exchanged for in return for equity? Does the equity revert back to the company? If so, under what circumstances?
Some entrepreneurs enter into business arrangements without written agreements either because they think they're unnecessary or because they think written agreements convey a lack of trust. Without such agreements, business owners can face legal fees, damages, and time away from the business they hadn't anticipated. In the worst cases, such disputes can be fatal to the business.
Bottom Line
Don't leave your business vulnerable to chance when a few simple things can make the difference between order and chaos. If you're serious about building your business, invest a few hours working with an attorney who can review and draft agreements for you. That person can ensure that the language included in the agreement does, in fact, protect your interests.
Legal Disclaimer: The information contained in this blog post is intended for informational and educational purposes only, and does not constitute legal advice.