Stanislav Shalunov – one of the people I track in Tweetdeck when I’m in online network mode – tweeted an alert a moment ago to this post, “Startups – The Essential To Do List”.
Now I’m hoping like hell that its author, Dr. J. Basil Peters, was just in a fiendishly funny mood today and did this post as a send up. Dr. Peters runs an Canadian angel investment fund, has been named Entrepreneur of the Year, does speaking engagements and looks to know his stuff.
But you are better sticking a pencil two inches into your ear than following his Essential To Do List of 51 items.
“This question comes up frequently, so I started this list to help other entrepreneurs ensure they don’t miss one of the essential structural components,” Dr. Peters’ says. Let’s have a look:

  1. Build a startup team (if it’s still just you, repeat step 1).
  2. Agree on an idea (the idea is much less important than the team).

Okay, two items in and we’re in trouble.
Just as the greatest chefs in the world are not going to be able to turn mud into anything but mud, I don’t care how great your team is: a lousy idea is a lousy idea. And having a great idea – that is, finding something that people need and want – is step 1, not 2, if you think you should be in charge of either a startup, a microISV or a lemonade stand for that matter.
Onward: Steps 3 through 11 sort of make sense: figure out where you and the other founders want to be in three years, decide on a fair, equitable pan for founder compensation, equity, vesting and who gets to play with the credit cards. Not bad boxes for a checklist, but wait.
#12 is “Ensure the startup team is still in alignment.” Shareholder alignment, (unlike say tire alignment), “is all about human behavior and group psychology”, Dr. Peters says. If your team is not in alignment, Bad Things will happen. “(Get someone outside the team to do a Phase 1 alignment check. If the alignment is not perfect, consider having the first offsite strategic planning retreat with a really great facilitator.)”
Assuming you all are now facing in the same direction, pick somewhere to setup the company, your officers and corporate directors, recheck your alignment and by the way, find one very experienced advisor, mentor and/or coach who can review and confirm these steps.
Excuse me, but wouldn’t it make more sense to do that before setting up? No matter, onward:
After another strategic planning retreat with an excellent facilitator, celebrate your continued alignment. “(It looks like you really do have the ingredients of a promising company.)” (no, I did not make this up.)
Twenty steps down, 31 to go. Steps 21 through 32 cover the legal waltz known as incorporation – everything from deciding the amount of equity to give future (unaligned?) employees to hiring yourself and oh yes, doing a 12 month budget and a 3 year revenue projection before you realign in step 33 again.
Now write a business plan. Not to raise money, or even to say, plan the business, but to check founder alignment. And make sure someone can sign checks for your company. Dr. Peters thinks writing a business plan might be a bit of work: time check your alignment again (step 36) and if it’s not absolutely perfect, off you go to another punishing offsite strategic planning retreat (step 37). Don’t forget to celebrate (step 38).
No rest for the weary, so get that bank account open (39), collect checks from the founders (that’s you) and set up an accounting system (42) and learn what taxes your company will have to pay (43). Now, if it were my money, I think I’d like that accounting system in place before I hand over the cold, hard cash, but that’s a quibble. And quibbles don’t keep you in alignment. Hang in there, you’re almost done! Learn about those tax credits (apparently they’re pretty sweet in Canada), get some insurance, an alarm system (sic) and start planning how you’re going to get money from friends and family and what, if anything, your friends and family will get in return.
Got all that? “Celebrate completing all of the absolutely necessary steps in building a successful startup.” (50) Finally, “As soon as the hangover clears, start working on the product, marketing, sales, recruiting, strategic relationships and exit strategy – the fun part.”
Fun indeed.

9 Comments

  1. as the greatest chefs in the world are not going to be able to turn mud into anything but mud

    Hm, I wouldn’t bet on that if I were you. Just like Web startups, you never know what they could end up with. πŸ˜‰

  2. Bob, just to play devil’s advocate a bit here, but this really comes down to what kind of startup you’re, umm, starting up. Some thoughts about that on http://blog.markroseman.com/2008/06/a-startup-by-an.html
    The situation that I think some variation of Dr. Peter’s list would be most useful for is when you have one or more friends with limited business experience (pure tech guys or sales guys or whatever) get together and want to start a business. Naturally, a key part early on is “we’ll go raise some money” followed by “we’ll change the world and get rich in the process”. I don’t need to tell anyone how common that pattern is (and again, that’s what “startups” are expected to do…).
    What this list will do is get them an education in a hurry about what it means to have other people’s money involved, and what the obligations are. Most engineers who want to start a company want to build something cool, not generate a 5X ROI for their Series B investors. Taking money involves an understanding of what you’re giving up. Working through that list should help make that clear.
    For 95% of people (all stats accurate +-100%), working through (or thinking through) that list will be a great way to convince them that going out and looking for money would be a bad idea, and they’d be better off bootstrapping as well as rebalancing their goals. That’s a fantastic result!
    It may be easier to tell everyone up front they’re better off just not taking money and wasting their time pursuing that, but nobody believes that (again, that’s what startups do).
    For the 5% where institutional investment makes sense and can be made to align with goals, that list will help them make sure they’ve covered a lot of the essentials that really can come back to bite them on the ass, most importantly that everyone has a clear sense of priorities moving forward.

  3. Bob Walsh Reply

    Berislav – I stand corrected! That link may explain what was on my dinner plate a few months ago. πŸ™‚
    Mark – You’re absolutely right – good post by the way – there are more than a few kinds of startups/microISVs and stock advice does not fit well. What bugged me about Dr. Peters’ advice was 1) completely downplaying the importance of the idea/application/solution in the process, 2) treating agreement between the people involved as something that could be whacked into “alignment” if you hit it with a meeting enough times. Agreement is important: it’s necessary, but not sufficient. 3) Focusing on the form of a company and treating the product as an afterthought. It reminded me of the worst excesses of the dot.com go-go days – days we are beginning to resemble.

  4. Great post, Bob!
    You have me literally laughing out loud. Excellent use of two main blogging principles, be controversial and be funny. Its working – this is me typing on your blog rather than doing the fifty things on my To Do list or typing on my own blog.
    I agree with your pencil two inches into your ear comment. Imagine how I felt typing it out. It was one of those tar baby nightmares like in that childrens story our mothers told us .
    I’ve been through a few dozen startups and as a fund manager I regularly see structural deficiencies that have to be corrected. So when the entrepreneurs asked me, and I started the list, I was trapped. I had to be sure the list was reasonably complete. It kept growing like one of those science experiments in the back of your fridge.
    I admire your writing style more than my own, but I am sure you know that one of my goals was to generate some discussion – just like this.
    There is SO much to discuss about building successful startups. All opinions that get entrepreneurs thinking are valuable. I hope to have some more time to respond specifically to some of your excellent points above.
    Lets keep the dialog going.
    Best regards, Basil

  5. Basil,
    I’m sure you encounter plenty of real problems with company formation, when founders do it themselves or hire the proverbial uncle-the-divorce-attorney.
    Many angel groups encourage the founders to not incorporate at all before the seed round. And then during the seed round, they use real lawyers and standard documents. Wouldn’t you rather have founders of your portfolio companies thinking about how to change the world, not about where to put the board meeting minutes?
    — Stas

  6. Hi Stas:
    Great question. Not encorporating at all is an interesting option, but it also causes some interesting challenges – especially with payroll taxes and sales tax. But I agree its possible.
    But by the time the founders accept money from Friends and Family, there is no option in my opinion. This almost always happens before they reach the angel stage.
    To your point about which I would prefer the answer is easy… both. πŸ™‚
    Basil

  7. I think the 2 steps are crazy. Why are you getting a team and trying to agree on an idea? You will be stuck there, it will never happen. As the leader of the team you must say, this is the idea, do you want to be on this team. Then build a team that has the skills to take you where you want to go, all the time, replacing team members who can NOT take you where you want to go.
    It’s like a living organism. I thin Dr. Peters wants to insure that he ends up with the businesses that were thought up by someone else. He seems to have put in the formula for a crash.
    Dr. Wright
    http://www.wrightplacetv.com

  8. Dominic Messenger Reply

    Dr. Peters is saying “Structure is important – so here is a list that will get you there”. All of the items are *essential* but how *important* they are is left as an exercise for the reader.
    Also, he mentions an “approximate chronological sequence” not “exact chronological sequence”. #1 then #2, or #2 then #1 – that’s approximate enough for me.
    If you’re looking for investors (and that is what Dr. Peters is talking about) then this is a good starting point. I have been burned myself when some of the essentials were missing. You cannot underestimate how important structure is when it comes to the crunch.
    For me the order is #2, #33, then #1 – then #52. These are essential and important. The rest – well just do them when you have a bit of time left at the end of a weary day, but do them all the same.
    Suppose that’s not in approximate chronological order though… πŸ˜‰

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