What are some good books on starting a business?

Before you start a business, it is critically important to think about what type of business you’re trying to start. All businesses begin small. All businesses start up. But there is a big difference between a “small independent business” and a “high-growth startup”.

A Small Independent Business typically…

  • Is the heart of American enterprise
  • Accounts for a large majority of all new companies
  • Is formed as a Limited Liability Company (LLC)
  • Is incorporated in its home state
  • Is owned by one or two founders
  • Has no investors other than the founders
  • Has few, if any, employees
  • Does not provide equity to employees
  • Operates out of a physical location
  • Begins generating sales soon after starting
  • May or may not deal primarily as a cash business
  • Avoids double taxation; passes taxes through to owner
  • Is managed by the founder/owner
  • Grows to ongoing profitability that supports the owner
  • Levels out once profitable and then maintains its size

A High-Growth Startup typically…

  • Is the beginning point for companies that will likely be acquired or go public
  • Accounts for only 10-15% of all startups
  • Is formed as a C Corporation
  • Is incorporated in Delaware, with foreign qualification in its home state
  • May have multiple co-founders
  • Is funded by friends and family, angel investors and venture capitalists
  • Has employees and independent contractors
  • Offers most employees equity in the form of restricted stock or stock options
  • Operates online, aiming at a global audience
  • May take months, or even years, before profitability—or even revenues—starts
  • Transacts all payables and receivables electronically
  • Can start as a taxable pass-through, but eventually will pay corporate taxes
  • Separates the concepts of ownership and management
  • From the start, aims for an exit through a sale to a larger company or an IPO
  • Never levels out, continues to grow (employees, revenues, investment)

The most important question you therefore need to answer is “which type of business am I planning to be?” because that will fundamentally affect your approach to setting up your new entity. While it is not impossible to change from one path to the other, it is very difficult and expensive.

As a very quick and dirty test to help you figure out which one you are, ask yourself “within two years of starting up, will I likely want to issue any stock options to any employees, or will I try to raise money from anyone I don’t already know?” If the answer to either part is yes, then you should consider the “high growth” route.

Fortunately, there are excellent books available for both paths:

Small Time Operator: How to Start Your Own Business, Keep Your Books, Pay Your Taxes, and Stay Out of Trouble, by Bernard B. Kamoroff C.P.A.

As noted in a previous answer, this is a great book written for someone intending to start a small, independent business. It covers a lot of the nuts and bolts about incorporation, bookkeeping, taxes, etc.

The Startup Checklist: 25 Steps to a Scalable, High-Growth Business, by David S. Rose

As you may assume [cough] I’m a bit biased about this one, since I wrote it. But it actually is exactly what the question is asking for, IF your goal is to launch a high-growth business. It goes through all the nuts and bolts of this kind of enterprise, which are really non-trivial.

For example, you will likely be a Delaware C corporation so that you can sell stock and grant options, but that means filing fees and taxes both in Delaware and in your home state, and it means thinking through things like corporate bylaws, board structure and a bunch of other legal stuff around starting up. It means managing your company’s capitalization table, establishing and managing an Employee Stock Option plan, seeking (and, if fortunate, dealing with) investors, and much more. To give you an idea of what it covers, here’s the Table of Contents:

PREFACE

Why Every Entrepreneur Needs This Book…instead of the other 93,210 books on Entrepreneurship

INTRODUCTION

25 Key Action Steps for Every Entrepreneur

PART ONE: PREPARE TO LAUNCH

1. Translate Your Idea into a Compelling Business Model

2. Craft a Business Plan to Serve as Your “Plan A” Roadmap

3. Find and Know Your Competitors

4. Draft your Founding Dream Team

5. Allocate the Equity in Your Startup

6. Build a Minimum Viable Product and Validate Your Plan with Customers

7. Establish Your Brand with Online Public Profiles

8. Network Effectively within the Entrepreneurial Ecosystem

PART TWO: LAUNCH AND BUILD YOUR COMPANY

9. Incorporate as a Delaware “C” Corporation for Protection and Investment

10. “Lawyer Up” the Right Way

11. Recruit your Boards of Directors and Advisors

12. Select an Accountant and an Accounting System

13. Establish and Manage your Credit Profile

14. Open Bank, Credit Card and Merchant Accounts

15. Choose Your Key Technologies, Platforms and Vendors

16. Measure Your Business with Data Analytics

17. Round Out Your Team with Employees and Freelancers

18. Establish a Stock Option Plan to Incentivize Your Team

PART THREE: RAISE FUNDS; COLLABORATE WITH INVESTORS; PLAN FOR YOUR EXIT

19. Understand the Funding Process and What Investors Want to See

20. Nurture Your Investor Pipeline

21. Fundraise with Online Platforms

22. Survive the Term Sheet Negotiation and Investor Due Diligence

23. Get the Most from Your Investors, Now and in the Future

24. Understand Your Company’s Valuation for Funding vs. Option Grants

25. Keep Your Eye on the Exit and Reap the Benefits of Success

APPENDICES

  • The Startup Reading List
  • The Investment Due Diligence Checklist
  • Starting a US Corporation from a Foreign Country
  • Convertible Preferred Term Sheet
  • Convertible Note Term Sheet
  • The Founders Accord

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