What every engineer should know about starting a high tech business venture (2009)

WHAT EVERY ENGINEER
SHOULD KNOW ABOUT

STARTING A
HIGH-TECH
BUSINESS
VENTURE

© 2009 by Taylor & Francis Group, LLC

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WHAT EVERY ENGINEER SHOULD KNOW
A Series

Series Editor*

Phillip A. Laplante
Pennsylvania State University

1. What Every Engineer Should Know About Patents, William G. Konold,
Bruce Tittel, Donald F. Frei, and David S. Stallard
2. What Every Engineer Should Know About Product Liability,
James F. Thorpe and William H. Middendorf
3. What Every Engineer Should Know About Microcomputers:
Hardware/Software Design, A Step-by-Step Example,
William S. Bennett and Carl F. Evert, Jr.

4. What Every Engineer Should Know About Economic Decision
Analysis, Dean S. Shupe
5. What Every Engineer Should Know About Human Resources
Management, Desmond D. Martin and Richard L. Shell
6. What Every Engineer Should Know About Manufacturing Cost
Estimating, Eric M. Malstrom
7. What Every Engineer Should Know About Inventing,
William H. Middendorf
8. What Every Engineer Should Know About Technology Transfer
and Innovation, Louis N. Mogavero and Robert S. Shane
9. What Every Engineer Should Know About Project Management,
Arnold M. Ruskin and W. Eugene Estes
10. What Every Engineer Should Know About Computer-Aided Design
and Computer-Aided Manufacturing: The CAD/CAM Revolution,
John K. Krouse
11. What Every Engineer Should Know About Robots, Maurice I. Zeldman
12. What Every Engineer Should Know About Microcomputer Systems
Design and Debugging, Bill Wray and Bill Crawford
13. What Every Engineer Should Know About Engineering Information
Resources, Margaret T. Schenk and James K. Webster
14. What Every Engineer Should Know About Microcomputer Program
Design, Keith R. Wehmeyer
15. What Every Engineer Should Know About Computer Modeling
and Simulation, Don M. Ingels

*Founding Series Editor: William H. Middendorf

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16. What Every Engineer Should Know About Engineering Workstations,
Justin E. Harlow III
17. What Every Engineer Should Know About Practical CAD/CAM
Applications, John Stark
18. What Every Engineer Should Know About Threaded Fasteners:
Materials and Design, Alexander Blake
19. What Every Engineer Should Know About Data Communications,
Carl Stephen Clifton
20. What Every Engineer Should Know About Material and Component
Failure, Failure Analysis, and Litigation, Lawrence E. Murr
21. What Every Engineer Should Know About Corrosion, Philip Schweitzer
22. What Every Engineer Should Know About Lasers, D. C. Winburn
23. What Every Engineer Should Know About Finite Element Analysis,
John R. Brauer
24. What Every Engineer Should Know About Patents: Second Edition,
William G. Konold, Bruce Tittel, Donald F. Frei, and David S. Stallard
25. What Every Engineer Should Know About Electronic Communications
Systems, L. R. McKay
26. What Every Engineer Should Know About Quality Control,
Thomas Pyzdek
27. What Every Engineer Should Know About Microcomputers:
Hardware/Software Design, A Step-by-Step Example. Second Edition,
Revised and Expanded, William S. Bennett, Carl F. Evert,
and Leslie C. Lander
28. What Every Engineer Should Know About Ceramics,
Solomon Musikant

29. What Every Engineer Should Know About Developing Plastics
Products, Bruce C. Wendle
30. What Every Engineer Should Know About Reliability and Risk
Analysis, M. Modarres
31. What Every Engineer Should Know About Finite Element Analysis:
Second Edition, Revised and Expanded, John R. Brauer
32. What Every Engineer Should Know About Accounting and Finance,
Jae K. Shim and Norman Henteleff
33. What Every Engineer Should Know About Project Management:
Second Edition, Revised and Expanded, Arnold M. Ruskin
and W. Eugene Estes
34. What Every Engineer Should Know About Concurrent Engineering,
Thomas A. Salomone
35. What Every Engineer Should Know About Ethics,
Kenneth K. Humphreys
36. What Every Engineer Should Know About Risk Engineering
and Management, John X. Wang and Marvin L. Roush
37. What Every Engineer Should Know About Decision Making Under
Uncertainty, John X. Wang

© 2009 by Taylor & Francis Group, LLC

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38. What Every Engineer Should Know About
of Finite Element Analysis, Louis Komzsik
39. What Every Engineer Should Know About

40. What Every Engineer Should Know About
Phillip A. Laplante
41. What Every Engineer Should Know About
Embedded Products, Kim R. Fowler
42. What Every Engineer Should Know About
John X. Wang
43. What Every Engineer Should Know About
Mike Ficco
44. What Every Engineer Should Know About
Business Venture, Eric Koester

Computational Techniques
Excel, Jack P. Holman
Software Engineering,
Developing Real-Time
Business Communication,
Career Management,
Starting a High-Tech

© 2009 by Taylor & Francis Group, LLC

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WHAT EVERY ENGINEER
SHOULD KNOW ABOUT

STARTING A

HIGH-TECH
BUSINESS
VENTURE
Eric Koester

Boca Raton London New York

CRC Press is an imprint of the
Taylor & Francis Group, an informa business

© 2009 by Taylor & Francis Group, LLC

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To the extent that this publication may discuss or refer to legal principles or issues, the application of law to a particular
situation may vary depending on the particular facts and circumstances. As a result, nothing contained in this book is to
be considered as the rendering of legal advice for specific cases; readers should always consult their own personal attorneys for advice as to their specific situations.

CRC Press
Taylor & Francis Group
6000 Broken Sound Parkway NW, Suite 300
Boca Raton, FL 33487-2742
© 2009 by Taylor & Francis Group, LLC
CRC Press is an imprint of Taylor & Francis Group, an Informa business
No claim to original U.S. Government works
Printed in the United States of America on acid-free paper
10 9 8 7 6 5 4 3 2 1

International Standard Book Number-13: 978-1-4200-7697-4 (Softcover)
This book contains information obtained from authentic and highly regarded sources. Reasonable efforts have been
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Library of Congress Cataloging-in-Publication Data
Koester, Eric.
What every engineer should know about starting a high-tech business venture / Eric Koester.
p. cm. -- (What every engineer should know ; 44)
Includes bibliographical references and index.
ISBN 978-1-4200-7697-4 (alk. paper)
1. Engineering firms--Management. 2. New business enterprises. I. Title.
TA190.K637 2009
620.0068--dc22

2008036297

Visit the Taylor & Francis Web site at

and the CRC Press Web site at

© 2009 by Taylor & Francis Group, LLC

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Contents
Preface ..............................................................................................................................................ix
Acknowledgments .........................................................................................................................xi
How to Use This Book ................................................................................................................ xiii
Author .......................................................................................................................................... xxv

Part I. Becoming a High-Tech Entrepreneur
Chapter 1. The Startup Life .........................................................................................................3
Chapter 2. Your High-Tech Business Concept .......................................................................23
Chapter 3. The Startup Road Ahead ........................................................................................ 39

Part II. Starting It Up
Chapter 4. Forming a Founding Team .....................................................................................63
Chapter 5. Working with an Attorney .....................................................................................95
Chapter 6. Leaving Your Employer ........................................................................................ 117
Chapter 7. Forming the Business ............................................................................................129
Chapter 8. Planning for Your Business .................................................................................159

Part III. Building a Startup Success
Chapter 9. Raising Money ........................................................................................................203
Chapter 10. Venture Capital ....................................................................................................237
Chapter 11. Building Your Team.............................................................................................313
Chapter 12. Your Boards and Board Members ....................................................................359

Chapter 13. Protecting Your Intellectual Property .............................................................383
Chapter 14. Product Development.......................................................................................... 411
Chapter 15. Marketing Efforts ................................................................................................421
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viii

Contents

Chapter 16. Sales Organizations.............................................................................................433
Chapter 17. Operational Matters of the Business................................................................443
Chapter 18. Contracts and Product Warranties....................................................................457
Chapter 19. Startup Accounting..............................................................................................469
Chapter 20. Tax Considerations for a Startup ......................................................................481
Chapter 21. Issuing Securities.................................................................................................505

Part IV. Next Steps and Stages
Chapter 22. International Expansion .....................................................................................521
Chapter 23. IPOs, Mergers, Acquisitions, and Sales ..........................................................545
Chapter 24. The Entrepreneurial Circle of Life...................................................................567
Definitions...................................................................................................................................569
Additional Resources ................................................................................................................575

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Preface
To think like an engineer is to think of situations in their entire context, including the
laws and regulations of society and the actions of all the people necessary for success.
Dr. John H. Marburger III
Director of the Office of Science and
Technology Policy,
Executive Office of the President

Innovation is the centerpiece of the global economy, and the seeds of that innovation are
sown by individuals starting new businesses to tackle the world’s challenges.
So if you’ve made it this far—welcome. Picking up this book to learn about starting a
high-tech business venture is a good first step. This book has been written to assist both
brand new entrepreneurs and those who have been around the block once or twice before.
Hopefully, it will be a useful tool and something you turn to at numerous points in your
startup life.
Now is a tremendous time for entrepreneurship. More people than ever are starting new
businesses. Although there have been periodic slowdowns for new technology businesses,
the long-term trend over the past 25 years has been increased availability of human and
financial resources available to high-tech entrepreneurs.
This book is part of the Taylor & Francis/CRC Press series “What Every Engineer
Should Know About.” As a result, it is focused primarily at entrepreneurs and potential entrepreneurs coming from a technical background such as engineering, medicine, science, computers, biotechnology, and numerous other related “high-tech”
fields. But don’t fret; anyone should be able to use this book, with or without a hightech background or experience. To aid those entrepreneurs without a strong business
background or training, I have included plenty of business, finance, marketing, and
related acumen.

Why are engineers, scientists, and technical individuals so successful as entrepreneurs?
Some experts believe it is just because engineers approach problems from a different angle
and find solutions. The website describes how engineers
think:
Engineers are problem-solvers.
Engineers use knowledge.
Engineers are creative.
Engineers solve problems by using knowledge and creativity, making them some of the
best-positioned people to find a solution to a problem and hence why more and more engineers are becoming entrepreneurs . . . and succeeding at it.
As you read through this book, you will find it is chock-full of statistics, data, anecdotal
evidence, tools, spreadsheets, questions and answers, and research to help guide an entrepreneur through the startup process. But I’d be kidding myself if I said it contained everything you’ll need. The resources section at the end of the book has more books, articles, and
websites, but I’ve packed more onto the book’s website at ightechstartup.
com. Visit the website for updates, new articles, answers to questions that are submitted, links
ix
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x

Preface

to download documents, or spreadsheets found in this book and much more. If that isn’t
enough, just shoot me an e-mail at , and I’ll respond directly
to you.
Hope you enjoy the book. It is designed to help answer some of the most common questions faced by a startup company, and I hope it makes your journey a bit smoother and
slightly more successful. In any case, enjoy the ride and best of luck with the startup life!

Eric Koester

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Acknowledgments
Researching and developing this book has been extremely fulfilling and valuable and certainly would not have come together without the involvement of countless people who
provided their support, guidance, time, and energy.
Special thanks go to my wife Allison Koester for her direction, insights, and (sometimes)
necessary prodding throughout the process of preparing this book. I also took advantage
of her research capabilities as a CPA and a PhD candidate in Accountancy at the University
of Washington to solicit her assistance with the chapters on accounting and taxation here
in the book.
Thanks are due to several important colleagues at Cooley Godward Kronish LLP. Sonya
Erickson and John Robertson each provided encouragement and guidance in this process. I also acknowledge the following individuals who assisted with specific sections of
the book and thank them for their contributions to the final product, including research,
review, and drafting: John Blake, Eric Wood, Pratin Vallabhaneni, Havila Unrein, and Alan
Hambelton. Special thanks to each of you.
In addition, thanks are due to my assistant Lauree Lingenbrink who gave the manuscript a review and provided constructive feedback to keep the book valuable and interesting for a first-time entrepreneur. Heather Anichini, Kari Annand, Blake Ilstrup, and
Gordon Empey each gave helpful thoughts and comments that have improved this book
immeasurably.
The outstanding character drawings at the beginning of each chapter were done by
Travis Fox, an artist from the Kansas City area.
I thank the entire team from the Taylor & Francis Group. First to Allison Shatkin, my
acquiring editor, who helped me to create what I hope will be a nice addition to the
WEESKA portfolio. Next to Jill Jurgensen, the Senior Project Coordinator on the book,

who was a valued resource to move this manuscript to completion.
Finally, thank you to my friends and family (including my wife Allison) who put up
with me missing numerous social engagements to get this to completion. I greatly value
these friendships and each of your support.

xi
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How to Use This Book
Any tried-and-true entrepreneur will tell you that starting a new business involves challenges, countless learning experiences, reworked priorities, and, inevitably, much change.
The aim of this book is to provide useful information for new entrepreneurs, as well as
experienced entrepreneurs and managers of a growing high-technology startup company.
To accomplish this goal, I’ve organized the book into four sections:
I.
II.
III.
IV.

Becoming a High-Tech Entrepreneur
Starting It Up
Building a Startup Success
Next Steps and Stages

Each of these sections groups important concepts together. In Part I, the book’s focus is on

the entrepreneur himself, including what to expect, what makes a successful entrepreneur,
how ideas are generated and developed into a business concept, and a summary of some of
the key challenges and lessons for any entrepreneur. Part II addresses the early challenges
a new entrepreneur faces when forming a new business, including building the founding
team, working with your attorney, departing your former employer, forming the business
entity, and developing your business plan. Part III focuses on the five key challenge areas
new businesses will face: funding, talent, technology, marketing and sales, and operations.
Finally, Part IV is all about the next steps and stages after your business is up, running, and
growing, including international expansion, mergers and acquisitions, and initial public
offerings, as well as thinking about starting your next venture.
Should you just sit down and read this book straight through? Well, that is one approach,
and the book is organized in such a way that it is a fairly logical progression from idea
generation to business formation through funding, recruiting, product development and
sales, and finally into expansion internationally or from sales or acquisition. Ultimately,
most readers will probably find this book to be most useful if you are able to read important sections when the question pops up. Think of it as another resource in your corner.
With so much information in one book, the question really becomes, “How do I actually
use this book?”
This book focuses on the five key stages in the life cycle of a high-technology startup
company. In each stage, there are various priorities, challenges, and opportunities for the
company. The stages are as follows:
1.
2.
3.
4.
5.

Idea stage (“opportunity recognition”)
Startup stage (“business formation”)
Launch stage (“product release”)
Growth stage (“ramp-up”)

Expansion stage (“next steps”)

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How to Use This Book

xiv

Within each of these stages, this book identifies the five sets of challenges faced by a hightechnology startup company. These challenges are as follows:
•
•
•
•
•

Funding challenges (“How do we pay for this?”)
Talent challenges (“How should we recruit and retain the right people?”)
Technology challenges (“How can we develop and protect our innovation?”)
Marketing and sales challenges (“How do we get people to buy?”)
Operational challenges (“How to we build the company for success?”)

Profitability

At each different stage of the business, these challenges change and so does your focus.

For a new company, operations, talent, and technology challenges may be the most pressing to the business. Yet for a company preparing to roll out its products nationwide, funding, sales, and marketing challenges could become the focus of the management team.
Obviously, each company will need to prioritize certain challenges more than others.
What follows are tables for each of the five stages, from the idea stage to the expansion
stage. For each stage, the book lays out the five primary challenges and identifies specific
challenges, opportunities, and objectives that a business in that stage will be faced with.
These changes may not exactly match the issues faced by your business but may be helpful
as general guidance. As your business moves through the various stages, you can identify
the key challenges and find out where in the book to learn more.

Expansion
Stage
Idea Stage
Growth Stage
Startup Stage
Launch Stage
Time

Just as a quick example, let’s say your business is in the startup stage. You’re deciding how
to form your company, hire other founders, design your prototype, and raise some seed
money. Obviously, all of these are crucial to your success, but what is the most important?
Well, startup stage companies tend to need to focus on operations and technological challenges, because you are starting to build the business itself and lay out the technology,
which will be what drives the business going forward. Because of this, your business will
likely need to look into things such as how should you best structure your business (as
a corporation or a limited liability company, for example) and how to best protect your
intellectual property in the most cost-effective manner (using trade secrets and provisional patents, for instance). If those are issues facing your business, the tables throughout
this section will try and point you to the place to look. Any entrepreneur will be faced
with countless challenges, but if you can anticipate the most likely challenges you’ll face

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xv

and identify tangible solutions in advance, certain obstacles won’t be able to stem your
progress.
Obviously, an entrepreneur has many things to juggle on a daily basis, so the tables
should help you to dive into the book and find information that can help you get results . . .
and quickly. That’s why it is up front. So read it cover-to-cover or jump to the place where
you can find the information you need.

Idea Stage (“Opportunity Recognition”)
You’ve identified a technological idea that appears to have a sizeable target market and fills
an important need, but you may not have a great deal of business or startup experience. At
this stage, your funding needs are fairly low, the team is either just you or perhaps a core
group of founders, and the business is not yet operational.

Key challenges

Focus

Priority

Objectives

Useful book sections

• Prepare personal
financial summary

Chapter 3
• “Initial Capital” (p. 43)

• Prepare monthly budget

Chapter 9
• “Seed Funding”
(p. 212)
• “Angel Investors”
(p. 223)
• “Government
Funding and Public
Sector Support”
(p. 229)
• “Bank Loans” (p. 226)

Funding
• Do we have the
initial capital to start
the business?

• Initial capital

♦

• Research

• Is it feasible to raise
the amount of funds
necessary for product
development and
market penetration?

• Obtain initial capital
• Researching
“comparable” companies
for information
• Operate cheaply

Talent
• Can we recruit
cofounders and
management
needed?
• Does our team have
the necessary business
and entrepreneurial
skill set?

• Networking
• Training

♦♦♦♦

• Develop a contact list

and solicit input,
feedback, and search on
the business and to find
potential cofounders
• Find a mentor
• Use training resources
(seminars, entrepreneurial
organizations, SCORE,
etc.)

Chapter 1
• “What Are the Skills
an Entrepreneur
Will Need?” (p. 16)
Chapter 4
• “What Should You
Be Looking for in
Cofounders?” (p. 67)

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xvi

Key challenges

Focus

Priority

Objectives

Useful book sections

• Basic research on
intellectual property for
United States and key
international markets

Chapter 2
• “The Opportunity
Recognition
Process” (p. 24)
• “Development of
the Business
Concept” (p. 27)

Technology
• Is our idea really
unique?

• Intellectual
property

♦♦♦

• Product
development

• Develop a list of
competitors
• Document your progress
on product development
• Identify potential
proprietary aspects of
your technology
Marketing and Sales
• Is the market large
enough and growing
sufficiently?

• Market
competition

♦

• Identify your potential
products
• Identify your potential
target markets

Chapter 2
• “Researching the
Market” (p. 30)

• Research buying patterns
• Identify trademarks and
trade names
Operations
• Can we build a
business around
this idea?

• Business
planning

♦♦

• Prepare business
concept summary
• Develop financial
projections
• Identify staffing,
equipment, and product
development needs for
the first six months of
operations

Chapter 2
• “Getting It in
Writing: The
Business Concept
Summary” (p. 32)
Chapter 3

• “What to Expect in
the First Months of
Your New Startup”
(p. 42)
• “Risks and
Challenges of the
Startup Life” (p. 44)
• “What Type of
Business Are You
Starting?: Startup
versus Small
Business” (p. 47)

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xvii

Startup Stage (“Business Formation”)
You are going forward with the business, so you have started to recruit cofounders and
early employees, but your team is not yet complete. You are putting together a business
plan and beginning early stages of product development. Funding needs have increased
somewhat, and you are beginning to require founder investments to start the business
and looking for additional funding sources from friends and family, angel investors, and

government grant programs. During the startup stage, there are likely to be little to no
revenues and only an informal organizational structure.

Key challenges

Focus

Priority

Objectives

Useful book sections

• Obtain capital necessary
for product development

Chapter 8
• “Financing and
Liquidity Plan” (p. 180)

Funding
• Where can we raise
our initial and
first-round capital?

• Networking
with potential
investors

♦♦

• Build contact list for
funding sources

• Development
of financial
models

• Attend local events with
members of the startup
community

Chapter 9
• “Seed Funding” (p. 212)
• “Angel Funding”
(p. 214)
• “Government
Funding and Public
Sector Support”
(p. 229)
• “Bank Loans” (p. 226)

Talent
• How do we recruit
talent for our
organization?

• Recruitment
and retention

• How do we structure
our equity
ownership and
compensation of
founders and
employees?

♦♦♦♦

• Enter into agreements
among founders
• Create a capitalization
structure
• Create a hiring plan
• Retain an attorney
• Approve an option or
stock plan
• Create partnerships with
third-party recruitment
companies

Chapter 4
• “Agreements among
the Founders” (p. 72)
Chapter 5
• “When Should You
Find Yourself a Good
Lawyer?” (p. 97)
• How to Select Your
Attorney?” (p. 100)

Chapter 8
• “Management” (p. 188)
Chapter 11
• “Practical
Considerations of
Hiring an Employee”
(p. 321)

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xviii

Key challenges

Focus

Priority

Objectives

Useful book sections

• Create an intellectual

property strategy

Chapter 5
• “Specifics for
Intellectual Property
and Patent Counsel”
(p. 113)

Technology
• How does the
technology become
our product?

• Intellectual
property

♦

• Product
research

• Hire intellectual property
counsel

Chapter 13
• “Understanding
Intellectual Property”
(p. 386)
Marketing and Sales
• How do we market

the business to
potential investors
and employees?

• Business
planning

♦♦

• Develop an internal
business plan
• Develop an external
business plan, including
solicitation tools

Chapter 8
• “Business Planning”
(p. 160)
• “Building a Business
Plan” (p. 168)

Operations
• How do we structure
the new business?

• Business
formation
• Departing
from previous
employers

♦♦♦♦

• Select the state and type
of entity to form
• Obtain employer
identification number
• Qualify to do business
in other states

Chapter 6
• “Best Practices When
Departing Your
Employer (or When
Hiring from a
Competitor)” (p. 119)

Chapter 7
• “An Inc., LLC,
S-Corporation, or
Something Else?
Which Entity Do I
• Implement record-keeping
Choose?” (p. 135)
policies
• “Incorporating the
Business” (p. 139)
• “Formalities of the
Corporation” (p. 149)
• Create policies for

following formalities
of the corporation

Launch Stage (“Product Release”)
Your team has begun to grow and you are starting to create a simple organizational structure to manage the team and its operations. You have developed a prototype or beta product, and additional refinements and research and development are ongoing for a full-scale
launch. Fundraising is an important priority for the business because you need funds to
rapidly grow the business. You may have limited product revenues, but expenses have
increased as you have begun to recruit sales and marketing staff.

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Key challenges

xix

Focus

Priority

Objectives

Useful book sections

• Create fundraising tools

Chapter 8
• “Building a Business
Plan” (p. 168)

Funding
• What amount of
funds do we need to
raise to launch our
product?
• Where can we raise
the funds necessary?

• Fundraising to
launch the
product

♦♦

• Meet with potential
fundraising sources

• Fundraising for
future product
development

• Identify alternative
sources of funds (loans,
bootstrapping, grants)

Chapter 9
• “Funding Sources
for Your Business”
(p. 218)
Chapter 10
• “Is Venture Capital
Right for Your
Company?” (p. 238)
• “Attracting Venture
Capital” (p. 252)

Talent
• How do we hire
additional business
staffing?
• How do we recruit
members for our
advisory boards?

• Recruitment
and retention

♦♦

• Board of
advisors

• Develop documentation
and policies for new

employees
• Monitor hiring goals
and retention efforts
• Target high value
advisors for your board
of directors and advisory
boards

Chapter 11
• “The Hiring
Process” (p. 316)
• “Employee Costs”
(p. 327)
• “Equity
Compensation”
(p. 335)
Chapter 12
• “Recruiting
Directors” (p. 365)
• “Advisory Boards”
(p. 378)

Technology
• How do we retain
• Product
proprietary rights
development
over our technology?
• Formal
intellectual

property
protections

♦♦♦♦

• File for applicable
intellectual property
protections
• Implement a trade
secret policy
• Develop your product
or products

Chapter 13
• “Managing Your
Intellectual Property
as a High-Tech
Startup” (p. 394)
Chapter 14
• “Startup Product
Development”
(p. 413)

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xx

Key challenges

Focus

Priority

Objectives

Useful book sections

• Identify the target market

Chapter 15
• “Marketing Basics”
(p. 422)

Marketing and Sales
• What is our target
market and how do
we reach them?

• Target
customers

♦♦ ♦

• Create a public relations
strategy
• Allocate sales between
internal and external
sales resources
• Identify competitor
responses to marketing
strategies

Operations
• How do we handle
logistical issues?
• How do we make
the business more
efficient?

• Office space
• Record-keeping
• Reporting

• How do we manage
our accounting
needs?

♦

• Retain proper space for
your business

Chapter 17

• “Choosing an Office
Location” (p. 444)
• Hire internal and external • “Leases” (p. 445)
assistance for accounting, • “Insurance for the
finance, insurance,
Business” (p. 453)
staffing, and tax needs
Chapter 19
• Develop regular results
• “Basics of
reporting system and
Bookkeeping”
schedule
(p. 474)
• Update internal business
plan

Growth Stage (“Ramp-Up”)
You have likely secured necessary first-round funding to grow the organization. As a
result, your team has grown and perhaps even expanded beyond a single location. This
growth requires the company to have a more formal management structure. With the
addition of outside investors, your board of directors now plays a more vital role within
the organization. Your technology is likely to be commercial, and development efforts
are underway on new applications or products. Sales and marketing efforts have become
very vital as the company begins to target new customers in different geographies, sectors, industries, or positions within the prospects. Although you have secured first-round
funding, for the business to expand, you have already begun looking for additional funds
for expansion of your sales, marketing, and engineering resources.

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Key challenges

xxi

Focus

Priority

Objectives

Useful book sections

• Obtain financing from
outside investors

Chapter 3
• “Dilution: What Am I
Left with at the End
of the Day?” (p. 48)

Funding
• How to finalize
investments from

venture capital
funds or other
institutional
investors?
• How will you raise
funds for expansion
of the business?

• Securing new
funds

♦♦♦♦

• Future
fundraising
to expand the
business

• Investigating joint
ventures and strategic
alliances
• Educating shareholders
of impacts of additional
financings

• Efficient use
of proceeds

Chapter 9
• “Joint Ventures and

Strategic Alliances”
(p. 230)
Chapter 10
• “Understanding the
VC Term Sheet” (p. 272)
• “Deal Documents in a
VC Financing” (p. 296)

Talent
• How do we
transition our hiring
to a more formalized
organization?

• Recruitment
and retention

• How do we recruit
members for our
board of directors
and formalize board
operations?

• Board of
directors

♦

• Management

• Create a formal
management structure

Chapter 6
• “Best Practices When
Departing Your
• Revise and update hiring
Employer (or When
plans
Hiring from a
Competitor)” (p. 119)
• Implement a retention
and reward bonus
program
Chapter 11
• Formalize management
and board operations

• “Practical
Considerations of
Hiring an Employee”
(p. 321)
Chapter 12
• “Recruiting
Directors” (p. 365)
• “Working with the
Board of Directors”
(p. 372)

Technology

• How do we enhance
our product and
reach new markets?
• How do we retain
proprietary rights
over additional
developments?

• Product
enhancement
and
development
• Licensing and
intellectual
property

♦♦

• Identify technology to
license or markets to
license to
• File for applicable
intellectual property
protections in foreign
markets
• Use partner relationships
• Use resources such as
advisory board to further
development efforts

Chapter 13
• “Licensing of
Intellectual Property”
(p. 405)
• “International
Intellectual Property”
(p. 408)
Chapter 14
• “Product
Development
Resources” (p. 415)

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xxii

Key challenges

Focus

Priority

Objectives

Useful book sections

• Identify the target market

Chapter 15
• “Startup Marketing”
(p. 429)

Marketing and Sales
• How do we
efficiently use our
marketing and sales
budgets?
• What is the sale
process for our
products?

• Efficient use
of marketing
spending

♦♦♦

• Create a public relations
strategy

• Selling
Process

• Allocate sales between
internal and external
sales resources

Chapter 16
• “Sales” (p. 434)

• Identify a sales structure
and growth program
• Create sales forecasts
Operations
• How do we manage
our key contracts?

• Securities
issuances

• How do we manage
our tax needs?

• Contract
management
• Tax planning

♦♦♦

• Develop contract
management system;
identify key contracts
for review from your

attorney
• Meet with tax
professionals to identify
tax minimization
strategies
• Transition to long-range
strategic planning model
• Create procedures for
securities and option
issuances

Chapter 5
• “Working with
Corporate Attorneys”
(p. 105)
Chapter 18
• “Basics of Contracts”
(p. 458)
• “Typical Contract
Provisions and
Clauses” (p. 462)
• “Electronic Contracts &
E-Commerce” (p. 465)
Chapter 19
• “External Uses for
Financial Statements”
(p. 477)
Chapter 20
• “Key Tax Considerations
for a Startup Company”

(p. 482)
Chapter 21
• “Key Considerations
for Issuing Securities”
(p. 506)

Expansion Stage (“Next Steps”)
The company is focused on expansion into new markets, new products, and new geographies. At this point, your products are likely producing revenues and you are exploring
ways to increase efficiency and expand the sales of those products. However, you are also
exploring new products and diversifying your revenue stream. The business is likely to
have grown to a size where there are now multiple levels of management. You may be
exploring possible joint ventures, acquisitions, or opening offices abroad. In addition, to
fund these expansion plans, you may begin discussing liquidity strategies with investment banks and larger institutional investors.
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How to Use This Book

Key challenges

xxiii

Focus

Priority

Objectives

Useful book sections

• Maintain an updated
corporate and
business
recordkeeping system

Chapter 23
• “Pursuing an IPO
or Mergers and
Acquisitions”
(p. 548)
• “Preparing the
Company for a
Potential
Transaction”
(p. 552)

Funding
• Should the
business consider
an initial public
offering?
• What is our exit
strategy?

• Merger and
acquisition

activity

♦♦

• Initial public
offerings

• Research
underwriters and
retain appropriate
third-party advisors
• Identify market trends
in fundraising
methodologies

Talent
• How do we comply
with rules and
regulations
regarding
employees?
• How do we expand
our hiring globally?

• Formalization
of human
resources
function

♦♦

• Develop standardized
documentation for
employment matters
• Create protocols for
departing employees
to manage trade
secrets and
intellectual property
matters

• International
hiring

• Research and select
appropriate markets
for expansion
• Identify international
partners to assist with
growth efforts

Chapter 11
• “Labor and
Employment
Laws” (p. 349)
• “Departing
Employees”
(p. 354)
Chapter 22
• “Direct Overseas

Activity: How Big a
Footprint” (p. 528)
• “International
Issues with
Intellectual
Property” (p. 531)

Technology
• How do we
develop next
generation
products and new
products?
• How do change
our products to sell
them into
international
markets?

• New product
innovation
• Gen II
product
development
• International
product
modifications

♦♦♦

• Expand product
portfolio and target
markets for products
• Research key
partnerships for
product innovation
• Identify product
modifications necessary
for international
expansion

Chapter 22
• “Expanding into
Global Markets”
(p. 522)
• “International
Issues with
Intellectual
Property” (p. 531)

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xxiv

Key challenges

Focus

Priority

Objectives

Useful book sections

• Modify sales structure
to match target
markets

Chapter 16
• “Sales” (p. 434)

Marketing and Sales
• How do we reach
customers who are
not “early
adopters” or
customers wary of
startups?

• Sales growth

♦♦♦♦

• International
sales growth

• Expand and retool
your marketing
strategy

• How do we sell
into international
geographies?

Chapter 22
• “Selling Your
Products Abroad”
(p. 523)

• Research necessary
sales size and
organization to reach
growth targets
• Explore alternative
structures to sales
such as franchising,
licensing and direct
expansion
• Identify the appropriate
organizational structure
to match international
sales efforts

Operations
• How do we expand
our operations
globally?
• How do we grow
by acquisition or
sell aspects of our
business to others?

• Global
expansion
• Merger and
acquisitions

♦♦

• Select international
counsel for selected
markets
• International tax
planning
• Open offices or
identify partners in
foreign markets
• Develop a strategic
plan to identify where
and how expansion or
contraction by merger
and acquisition
activity is appropriate

Chapter 22
• “Tax Planning”
(p. 527)
• “Special Concerns
Relating to Overseas
Subsidiaries” (p. 530)
• “Factors to
Consider When
Choosing Overseas
Counsel” (p. 534)
Chapter 23
• “Mergers and
Acquisitions Activity:
Mergers, Assets
Acquisitions, and
Stock Acquisitions”
(p. 553)

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