By Patrick Connelly  |  Buffalo Law Journal, Buffalo Business First  |  Mar 16, 2019, 8:10am EDT

Successful Startups Begin with Planning

SPECIAL REPORT: Corporate Law & Litigation

When getting down to business with startups, attorneys begin by helping the new company plan its future.

“It all starts with planning. Before you commence business, there is a great deal of strategizing and planning that goes into the business,” said David Murray, partner at Phillips Lytle LLP.

“We have the good fortune here in Western New York to have developed over the last seven to 10 years a very strong ecosystem for startups,” he said. “Don’t be myopic about your idea. … Take time to mine that ecosystem.”

Paul Avery, member at Bond Schoeneck & King PLLC, begins the process by outlining general categories the new company should be mindful of legally. He goes over the types of business entities that are derivatives of partnerships and corporations and the reasons it may be beneficial to choose one over another.

“If you have a great idea or something that you may want to protect, that’s something we have to talk about,” Avery said.

Andrea Vossler, partner at Lippes Mathias Wexler Friedman LLP, said there are nuances in legal work for startups of which attorneys outside the practice area may not be aware.

“Typically, I say, ‘There are a lot of great corporate attorneys in Buffalo.’ But I found that working with startups is its own niche area,” she said.

Legal costs must be outlined because startups should stick to a strict budget.

“I’m particularly sensitive to that,” Vossler said.

Another priority: Clearly state the time frames for when deliverables will be ready.

“They’re really engaging you to deliver the documents in a form that can just be signed,” she said. “I try to be considerate of those needs.”

Murray assists startups in establishing a formal business plan that defines what the business is and isn’t. By setting midterm and yearlong objectives along with a budget, most should be able to get off the ground with few hiccups.

“You need to plan for those things because you’re going to have to finance those things until you generate income,” Murray said.

Legal considerations

Leaders of the venture should be aware of their own limitations, Murray said.

“Be honest with yourself about what you know and you don’t know,” he said.

Don’t hesitate to seek the help of legal advisers or other resources.

“It’s to the benefit of the new business to talk to someone who has experience,” Avery said.

Large law firms with diverse practices can be sort of a one-stop shop for a startup.

“We have pretty much every aspect that a new business might need,” he said. “All those resources are going to be there and in place to help make the best decisions on Day One. … I think that can be an important consideration.”

Early on, the leaders should have a conversation about how equity will be divided.

“I usually advise that they think really carefully about how their equity gets split up,” Vossler said.

If not done at the outset, she said it may lead to tough conversations down the road or even litigation.

On the investment side of things, Vossler talks to leaders about ways they can raise the capital needed for their business.

Startups are wise to survey their potential marketplace, Murray added. Look at competitors and evaluate their strengths and weaknesses in comparison, he said.

Common bonds

The attorneys said startups share similar legal needs.

Avery said he’ll often help with liability protections and licensing and helps establish where they’ll conduct business for tax purposes. As they grow, needs become employment law-related, he said.

Vossler said she helps leaders sort out roles and responsibilities and come to a valuation that makes sense.

“Valuation is really key when you’re raising finances,” she said. “I usually counsel companies to think through that. They should understand at a very early state that their valuation should be reasonable, otherwise people won’t invest in you.”

Murray pointed to some common mistakes by startups such as lack of proper planning and a reluctance to be adaptable. Plans evolve as the business grows, he said.

“The business plan is a living, breathing, dynamic document,” Murray said.

Once the venture gets established, Vossler said the attorneys will take a step back.

“If (the startup) continues to scale and it raises finances, we are building a relationship all the way,” she said. “We want to see them grow and scale over time. … It’s good for them and it’s good for us.”