Startup Next Door

7 Entrepreneurship Lessons from “The Hobbit”

jwasham — Tue, 01 Jan 2013 20:38:13 +0000

I really hate it when posts have pop-culture, timely linkbait titles like “8 1/2 Startup Tips I Learned from Justin Bieber” and “5 Things Every Entrepreneur Needs to Know about PSY’s Gangnam Style Video”. But I honestly could not get startup equivalences out of my head when watching “The Hobbit”.

Disclaimer: I hate spoilers, and I wouldn’t put any spoilers in here. But if you’re really sensitive about your movies (like I am) and don’t want to know anything that happens or is said in the movie, see the movie first (it’s been out for 3 weeks, go see it).

1. It’s Going to Be a Long, Tough Journey

If you would rather stay home with your warm hearth and comfortable chair, then stay at home. The adventurer takes risks, and strays far from the comfort zone. Seriously, it’s really hard.

2. There Will be Competition

Even for the craziest of startup ideas, there is competition. If you’re not finding any, it’s still there. When Bilbo and the Dwarves set out to recapture their ancestral home of Khazad-dûm, they knew there would be competition for the treasure within, even though it was unseen. The unfolding of the prophecies were being watched by more than the Longbeards. And sharing the market (the treasure/home) is not an option. You must want it all.

3. You’ll Need Help

Trying to go it alone as a solo founder is a mess. For one, you’re not as smart as you think you are, and two, you can’t do it all or you’ll burn yourself out. As your business grows and you approach new opportunities, you’ll need someone to help you make decisions and bounce ideas off of. Those who work alone and only listen to their own thoughts end up like Gollum.

4. Each Needs to Have Skills that Fill Gaps

When the group ventured out, they sought Bilbo because they needed a thief. Every venture will require the recruitment of one or more additional founders in order to fill gaps in business, marketing, engineering, branding, strategy, connections, and more.

5. You’ll Need to Learn as You Go

There is no perfect team. Every (ad)venture is different. Each will need to learn from the others and improve their own skills as they go. Bilbo wasn’t a thief when they set out for the Lonely Mountain. But he learned as he went along and took risks to get better. Bilbo and some of the group had either no weapons or weak weapons, but they picked better ones up as they went along. Your weapons will be mainly books such as The Lean Startup, The Startup Owners Manual, and other great books like The Purple Cow. For engineering types, your weapons will also be websites, tutorials, research, and books by O’Reilly (I’ve always been partial to them).

6. You’ll Need a Good Lawyer, and Contracts

Bilbo signed a contract before setting off. The risks were outlined and he signed off. If he hadn’t, it would have been a very short film. Make sure you get all agreements in writing. It protects all parties. Your lawyer is there to protect your business, and as a by-product, you. Make sure you’re doing things the right and legal way. Don’t lose your business down the road because you took a shortcut.

7. The Vision Will Keep the Group from Quitting

Near the end of the film, Bilbo tells Thorin, son of Thráin, that the reason he didn’t give up was because he wanted to help the Dwarves on their quest to get their home back. It wasn’t the money. So when you’re recruiting for your startup and potential hires are more interested in the pay and the perks instead of equity, it’s because they just aren’t into your vision. Of course, as recruits get older they end up with more financial responsibility, so living off ramen is not an option. But the vision you share with co-founders and employees is what will keep them from leaving should the outcome look bleak or other job prospects come along. The vision gets us through the tough times and keeps us together.

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What are your thoughts? Please share in a comment below.

Completition Vs. Competition

jwasham — Mon, 27 Aug 2012 21:07:33 +0000

A couple of months ago I put some thought into the area of competition. You may not know, but my latest startup has some competition. The competition we face ranges from trivial to troublesome.

But we’re glad to have it.

Once you launch a startup, it’s only a matter of time until competing businesses come along.

The Joy of Competition

In the beginning, I saw competitors as a threat, but this opinion didn’t last long. Now I see competitors as a blessing. If you launch a business, and 2, 3, 10 months, or 2 years later you have no competitors, it likely means your business idea stinks. Of course you may have some exceptional advantage like a bevy of patents or an ambitious goal where competition is expensive (vacation resorts on Mars, space elevators). But for the most part, competition means you are on to something.

Originals and Clones

Competitors are of two types: originals and clones.

Originals are businesses whose founders had the idea that led to the business. Clones simply got the idea from originals. There can be multiple originals. But whether you are an original or a clone is mainly in the perspective of the competition. You may be an original, but to a competitor, they likely see you as a clone. And if you’re an original, you’ll view the competitors you discover post-launch to be clones. It really doesn’t matter. It’s all perspective.

So what is Completition?

Completition is the merging of “complete” and “competition”. Yes, it’s clever.

Completition is the advantage of having competition. Competition helps to complete and reinforce multiple areas of your business: pricing, features, and the market picture.

Pricing

Competition not only validates your business idea, but also helps in determining pricing. Coming up with pricing for SaaS (software as a service) is difficult especially if there are no anchors or similar services. We launched at a different monthly price (and pricing structure) than we have now. It changed months later due to multiple factors, but having similar services in the market (competitors) helped us to settle on a price that worked for our long-term growth, yet was sensible compared to competitors.

Features

Businesses who copy competitors’ features are facing a losing challenge. Since the features were probably planned and built starting 2 weeks to 6 months before, you’re already way behind. But having the same features as your competitors (if you didn’t just copy them) can help customers compare services. It also is somewhat indicative that you have features that customers want, since others have built them too.

For smart businesses, features aren’t built unless the customer asks for them explicitly, or the product folks see it as a solution to customers’ unspoken (or unknown) problems. By the time the feature is out, customers should have validated the idea as a sound one (either through conversations about the upcoming feature or by prototype). Putting out a feature that you “hope will fly” is a terrible approach and a waste of time.

More features does not mean a better product. In many cases, the fewer the better. Just make products that solve most of the customer’s problems as quickly and simply as possible (from the customer’s experience, not yours). Making things simpler for the customer usually involves more work for product (in making decisions for the customer) and engineers (they have more to code since the complexity is offloaded to them).

Market Picture

Let’s face it. Consumers like choice. No consumer wants to buy products or services without a choice, under the whims of a monopoly. Consumers want to search out competitors, compare prices, compare features, get opinions, and make informed decisions. Too many choices can almost be worse than no choice, however. But most markets over time will shake out the weak competitors (or the entrepreneurs not in it for the long haul).

So to consumers, having this complete market picture helps them feel comfortable with the company they purchase from, with the knowledge that if they are let down, there are alternatives. Of course this makes it hard to retain customers, but I think if you’re honest, available, and fair, your customers will stick around. Especially if you bend over backwards to provide customer service and products that exceed expectations. That’s what we’re doing at TalkToTheManager. Check us out if you own a business or know someone who does.

What are Your Thoughts?

In the comments section below, please share your opinion and experience.

Next post: 7 Entrepreneurship Lessons from “The Hobbit”

Photo courtesy Official US Navy Imagery (CC BY 2.0)

TalkToTheManager at Seattle Beta

jwasham — Tue, 24 Apr 2012 01:58:05 +0000

Those in the Seattle area can check out TalkToTheManager at Spitfire in Belltown on Tuesday, April 24th. I’ll be doing demos of TalkToTheManager and showing off all the cool features.

Tickets to the event are $15 or $20 for 2. Get more info at: http://seattlebeta.com/

Update (April 30, 2012): Congratulations to gli.ph for winning the People’s Choice Award for the night. Here’s the Seattle Beta post.

Here are some photos from the night, including one of me sharing the awesomeness:

I’ve Launched TalkToTheManager.com

jwasham — Sat, 21 Apr 2012 00:07:51 +0000

My latest startup is TalkToTheManager, which is a departure from the consumer-focused startups I’ve done in the past.

This announcement is a little late, since I actually launched on March 4th, but I was holding back on an announcement until I could get some good market traction.

How to Cache PHP Sessions in Membase

jwasham — Tue, 01 Nov 2011 19:17:35 +0000

From time to time, I’ll divert from talking business into getting down into tech details, because doing more with fewer servers or other resources will save you money and that’s good for business, especially when bootstrapping.

For this tutorial, you’ll need to be running your apps in PHP and can configure it, and have the ability to install software to your server. If you’re still reading, I’ll assume you’re comfortable with both. Let’s go!

Important update: see bottom of post

The Usual: Memcache

You may be familiar with memcache. Memcache is a simple, fast, in-memory caching system that is used for caching data that is requested often. By using memcache, you avoid the need of repeatedly pulling information from disk or from a database query. This speeds up serving requests and reduces the need for disk accesses. It can easily be made to expand the caching across servers, so you are not bound to the memory limits of a single server. Your memcache storage can be as large as the added memory of many servers.

Memcache and Sessions

In PHP, user sessions are stored on disk by default. This is fine for keeping track of sessions for small traffic and a small number of users, capable of being handled by a single server. But once your site is getting heavy traffic, the repeated disk accesses for session files will start to slow down requests, as well as exhausting the filesystem’s capability of handling many files per directory.

Should you decide to increase the number of servers to handle the traffic (using a load balancer) you’ll run into the next challenge: users who hit one server on one request may not end up on the same server on the next request. So the session that had their logged-in state may be on server A, but on next request they get routed to server B which doesn’t have a session for them, or may have a logged-out session for them. So the user ends up being logged in or logged out, and it’s at the whim of the load balancer. Some load balancers are smart in that they will keep a user “stuck” to one server for session’s sake.

The next logical step is to put sessions in memcache or in the database, so that it won’t matter what server the user ends up on, their session will still be available for the request. Putting sessions in the database is better than files, but still involves a database request for page request. The better option is to put sessions in memcache. Since all servers share the same memcache storage pool, each has access to all the sessions, and the session lookups are super fast.

The Problem with Memcache

Memcache is great, but once you start running low on memory (as you cache more info) lesser-used items in the cache will be destroyed to free up more space for new items. This can result in users getting logged out. Also, if one of the servers in the pool fails or gets rebooted, all the data it was holding is lost, and then the cache must get “warmed up” again.

What’s a developer to do?

Membase, the Next Big Thing

Membase is memcache with data persistence. And it doesn’t use something like memcache, it is memcache. So if you have code that already is using memcache, you can have it use membase right away, usually with no change to your code.

The improvement of having data persistence is that if you need to bring down a server, you don’t have to worry about all that dainty, floaty data in memory that is gonna get burned. Since membase has replication and persistence built-in, you can feel free to restart a troublesome server without fear of your database getting pounded as the caches need to refill, or that a set of unlucky users will get logged out. I’ll let you read about all the many other advantages of membase here. It’s much more than I’ve mentioned here.

Membase is a NoSQL solution, so if you’ve been looking to try one out but haven’t had data problems big enough, this is your opportunity to jump in.

Membase server comes in two flavors: community and enterprise. The community version is open source, and doesn’t have some of the high-end features of the enterprise version. But for our project here and many of your projects, the community version will be more than enough. Enterprise is not necessarily for the bootstrapped. You get more features and support, but you’ll pay thousands for it.

Who’s using it? Between Membase and its cousin, Couchbase (based on CouchDB) there are a number of high performance and high-traffic sites using them. And all ReadyPrompt sites use it.

The Tutorial

Let’s start in on the real meat and potatoes here.

I’m going to focus on an Debian/Ubuntu-based package install, since I’m fond of it and stopped liking installing from source years ago. Those on other Linux platforms should be comfortable here, however. No worries, folks.

Cleaning up old Junk

Since Membase provides memcache within its install, we don’t want any previously installed memcache stuff hanging around and messing up our mojo.

These are the Ubuntu packages you’ll want to get rid of:

php5-memcache
php5-memcached
memcache (may or may not exist as a package for your Linux flavor)
memcached

That’s right, get rid of them. Just apt-get remove ‘em.

In addition, to make sure you remove any memcache.ini or memcached.ini that may be sitting in /etc/php5/conf.d

Then run:

service apache2 restart

to restart apache.

Getting on the Right Memcache

You’ll notice I listed memcache and memcached. We’re going to stick to memcached for the remainder of this tutorial. Yes, it matters.

Getting the code

Since we’re staying away from the Enterprise version here, let’s go straight to the download page.

As you can see, there are binaries available for a number of platforms, including 64-bit versions.

After downloading, let’s run (on Ubuntu 64-bit):

dpkg -i membase-server-community_x86_64_1.7.1.1.deb

Like I said, once it’s done with a very quick install, you’ll have memcached installed and running. You can run this to see the services it runs, including its bundled memcached:

ps –aef | grep mem

Now point your browser to http://yourserverip:8091

If the browser just spins or gives you an error, you’ll need to edit your firewall to allow TCP access to port 8091 from outside.

When the membase admin on your server shows up, you’ll see this nice welcome:

On the next screen you’ll enter the path to where you want data to be stored (or leave it as default), and memory size option for setting up a new cluster. We’re going to do a cluster of one for this tutorial.

Next, you’ll set how much memory you’ll want for you first bucket. Oh yeah, I didn’t discuss buckets. You can save things to separate buckets. Investigate.

I also set it to have 1 backup copy via replication.

Next to last detail: enable software notifications:

The very last step is setting a username and password (not depicted).

Once you’ve set your password, you’re in! Soon you will see these graphs full of very hot lines.

The next step is to install php5-memcached:

apt-get install php5-memcached

This will also install memcached, as you can see from the output:

Reading package lists… Done
Building dependency tree
Reading state information… Done
The following extra packages will be installed:
libevent-1.4-2 libmemcached2 memcached
Suggested packages:
libcache-memcached-perl libmemcached
The following NEW packages will be installed:
libevent-1.4-2 libmemcached2 memcached php5-memcached
0 upgraded, 4 newly installed, 0 to remove and 39 not upgraded.

This additional memcached will conflict in a subtle way with the one membase installed. Not to worry. Just get rid of it:

apt-get remove memcached

You should have a new file that php5-memcached made for you: /etc/php5/conf.d/memcached.ini

with this as the content:
extension = memcached.so

Changing PHP to Handle Membase Sessions

Since membase is sitting right behind memcache, you’ll still use memcache session handling. Edit your php.ini file (or add a custom ini file to conf.d directory) with this:

session.save_handler = memcached
session.save_path = "localhost:11211"

Now just restart apache and you’re done.

service apache2 restart

If you fire up a phpinfo() you’ll see this in your session section (edited for brevity):

You should see “memcached” as one of your registered save handlers, as well as your session.save_handler. You should see the save path as above also.

Updating Your Existing Memcache Code

If you are already using memcache as a caching mechanism for other things, you’ll need to make sure you’re using the Memcached library. It’s not greatly different from the Memcache library, so converting your code to use it should be trivial.

You’ll need to change lines like this:

$memcache = new Memcache;
$memcache->connect(‘memcache_host’, 11211);

to this:

$memcache = new Memcached;
$memcache->addServer(‘memcache_host’, 11211);

The expiration you use for set() operations does not need to change. Read more about expirations here.

In general, I don’t like to deal with Memcached library directly. I wrap it in a utility class so that if I need to add more membase/memcache servers in the future or change the way I create hash keys, I only have to do it in one place.

If needed, at any time you may restart membase by issuing:

service membase-server restart

Hope this tutorial helped you out.

Update (Nov. 4th, 2011): After further checking and integration, some frameworks require php5-memcache. Installing both php5-memcache and php5-memcached causes no weird side effects. They are just separate libraries for talking to memcached.

Update (Nov. 5th, 2011): You’ll notice over time that the items in cache are increasing and rarely decreasing, and it’s nothing to be afraid of. Explained here in a post by Mikkel Ovesen.

Update (Jan. 6th, 2011): Some colleagues have run into troubles with this approach, as PHP’s memcached does not store session expiration correctly. That means that when your membase runs out of memory, it stops working instead of freeing up old sessions. I’m researching and will update when I find out a solution. Please comment below if you can help.

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Did you discover anything new or helpful you’d like to share about this tutorial? Let everyone know in a comment below!

Just Launched: Dot Com or Nothing

jwasham — Tue, 16 Aug 2011 19:05:25 +0000

Early Friday morning, I was thinking that if I could get an instant domain search going, I could hook it up to Hover.com and send them traffic (because they’re awesome) and get some affiliate revenue when someone bought a domain with them. After work Friday I started coding, and Sunday night I finished it: http://dotcomornothing.com Ah, weekend projects.

At the time I started coding, I wasn’t a Hover affiliate. I didn’t have an appropriate site to mention on the affiliate application, so this site was made before I even filed for approval. Glad I was approved. Whew!

The folks at Hover were pretty enthused to see this, and the dev team was stoked:

Woot! That was awesome. I ran it by the Dev team and their reactions were, "See? Now THAT”s how we like to see people use our [~stuff~]". LOL

Actually, funny that you were able to figure that out with the domain look-up, because that’s new and you couldn’t do that before. Dev just updated some code recently, so they’re quite impressed with themselves now, because this is exactly what they wanted to happen.

I know the integration of the coupon code is non-existent, but hopefully they will have a way to integrate that in so you won’t have to copy/paste it. Just not supported right now except thru this link: http://hover.com/ReadyPrompt

Why Hover? I’ve been a big fan since last November. You may remember my post “Ditching GoDaddy for Hover”.

There was some coding trickiness to building the site, and there is a lot of optimization and caching going on, but it’s blazing fast and helps you cut through the jungle of reserved domains to help you find the next great domain.

For some explanation on the name and some SEO fodder, I had to put some hidden text in the page:

For anyone buying a domain for a new startup, it’s an important, and sometimes terribly expensive choice. This post by Fred Wilson: Finding And Buying A Domain Name is a good start, and is immediately followed by an outstanding comment on why dot com is the only TLD that matters and continues on to how to negotiate a dot-com name by contacting the domain owner cold.

Here’s the deal. The only domain name that matters for your startup is .com. Dotcoms got their name in the 90s because they represent business. Dot-com is the money TLD. Even companies like del.icio.us and bit.ly eventually had to buy their dot-com counterparts. There’s just too much mindshare about .com.

With domains, it’s “fake it till you make it”, so if your startup is successful with a .ly, .it, .us, or whatever, that’s great, but know that you’ll have to break down and get a name-appropriate dot-com once your business blows up. One exception is short URLs. When going short, dropping one character and having that .co, .ly or similar is nice to have. I’ve got rdpt.co.

Now go get yourself a “fresh from the oven” dot-com!

Next post: How to Cache PHP Sessions in Membase

I’ve Joined Earndit.com as an Advisor

jwasham — Fri, 12 Aug 2011 19:50:30 +0000

I’m pleased to join Earndit as an advisor. Having worked with the founders professionally before Earndit’s inception, I can’t imagine a better combination of co-founders. Harry Kautzman II and Andres Moran have the tenacity and drive that the best entrepreneurs exhibit, yet are good-natured, tempered in their decision-making, and complement each other with strong technical and business expertise.

I’ve always been impressed and inspired by what Earndit has accomplished: giving people an incentive, and sometimes a little extra boost, to be active and fit. The potential reach of users of the service is staggering, and we still have a long way to go and many opportunities to explore. The community of friendly, spirited people that Earndit has attracted makes it even more exciting.

Harry confided in me about Earndit before it was launched, and we’ve discussed how to handle challenges and key decisions as they’ve arisen. So I feel like I’ve been a part of the company all along. Earndit has demonstrated growth at increasing (and many times surprising) levels over a brief span of time, and I’m assured that Earndit will continue to enjoy greater success in the coming months and years. I’m pleased that I’ll be alongside these superb fellows and will do my best to counsel in the areas of engineering, scaling, promotion, and funding.

The great adventure continues.

You may remember Earndit from a few posts here, including their post-launch audio interview. Way to grow, guys!

Next post: Just Launched: Dot Com or Nothing

Don’t Worry About the 3 Percent

jwasham — Fri, 05 Aug 2011 19:13:39 +0000

Let’s face it. We want to make all our customers happy. More happy customers means more money and fewer complaints.

So what happens when you discover that a feature isn’t working properly in one obscure browser? If you’re like me, you let it go.

There are quite a few obscure browsers out there, and my obscure meaning that the percent of the overall users using them is very little: Opera, Konqueror, Seamonkey, SRWare Iron, K-Meleon, Lunascape, FlashPeak SlimBrowser, Songbird, Beonex, Camino, Galeon, Epiphany, Kazehakase, Avant Browser, Maxthon, and I’m sure the list continues. Even well known browsers (though older versions) fall into this category: Firefox 2, IE 5.5, etc.

I pretty much stop at 3%. If your browser’s share of use is less than 3%, I’m not fixing the issue. Even if your given browser is 100% standards compliant and scores 100 on the Acid3 test, you’re out of luck with me.

I also stop at 3% on not only browsers, but also operating systems. Still hanging onto Windows ME? Not going to test or fix my apps on that.

When it comes to mobile, you’ll have to find the percentage you’re comfortable with. There are just so many handsets and form factors out there.

Finding out the Cut-off

Where do you find out what to cut out? The main thing I use is Google Analytics stats for zKorean. Since it is a high-traffic site with a good spread of users across many ages and demographics, I’m pretty comfortable with it. I also tend to use W3Schools stats (yes I know there are W3Schools haters, don’t give in to hate). But be warned that sites like this have very tech-heavy visitors like programmers and designers which can skew the OS and browser numbers towards Linux, Mac, Firefox, Safari, and Chrome, so take their stats but keep it in mind.

See how Opera is below the 3% cut-off? Sorry, Opera users. Then I have to dig in to each browser and see where its cutoff is for its per-version market share. Your favorite spreadsheet program comes in handy here. W3Schools breaks it out for you already, so you can put away your calculator. But if you’re doing it on your own, and browser X has a 55% share, but it’s newest version only has 12% of that, then the newest version is at 6.6% of overall share (0.55 x 0.12 = 0.066, then multiply by 100).

Love Thy Customer

But when responding to a customer about it, just be apologetic with a little friendly prodding:

“I’m sorry that you’ve had an issue with using the sorting feature on x browser. I would like to help, but our company does not have the resources to test across a large number of browsers and platforms. The best we can do is make sure that it runs on the most common configurations. In the future, hopefully we’ll have the ability to run our tests across even the rarest of browser/OS combinations.”

Some of you may say, “well x browser uses the Gecko engine, just like Firefox, are you saying you don’t support it?”. I support the browser, not the engine. Since browser makers are always looking to add some feature to make their browser special, all bets are off if they break the rendering or goof up behaviors.

Don’t be That Kind of Designer

Don’t take the other extreme, either. I’ve seen many a condescending message from a “better than you” designer on a website. I’m talking about the kind of web designer that thumbs his nose at users running IE, or visitors that are using browsers that aren’t standards compliant (and I could rant on how browsers that tout standards-compliance always add in special sauce to push their own standards, but I won’t). If a browser is below 3%, like IE6, you can show a nice message to your visitor, or let your pages degrade somewhat gracefully. But if I happen to be on IE8 and checking out your site, I don’t expect “Your browser is weaksauce and doesn’t support web standards. Go away and come back on a real browser.” Almost as bad are sites that just fall apart on IE (even IE9) because the designer didn’t think it worth their time to even check. Yes, the box model is different. I get it. But regular Joe web user is not going to blame their browser for how bad your site looks. They are just going to think you suck as a designer.

Going Large

If you are Google or Yahoo, you have the resources (people power) and extensive automation/testing systems to test across a larger range of possible platform/browser combinations. So Yahoo and Google don’t cut off at 3%. They go below 1%. The reason is they can afford to not alienate users on obscure configurations. And each 1% represents millions of people. It’s a noble goal to be inclusive as possible, but within the limits of what you can handle.

What Do You Think?

Comment below on where you think the cutoff should be. How far do you go to ensure the experience is pleasant to a variety of users?

Next post: I’ve Joined Earndit as an Advisor

Using LegalZoom to Set Up your Delaware LLC

jwasham — Mon, 01 Aug 2011 15:40:01 +0000

This is Part III of the Delaware LLC series. Start series here.

OK, this is where the real action happens. Once you’ve got your business and personal accounts separated, it’s time to take the plunge and get your LLC. There are any number of companies that would jump to help you: The Company Corporation and LegalZoom are just two. But since I’ve had good experience with LegalZoom in the past I used them.

I’ll guide you through the whole process, which takes about 30 minutes. Let’s go!

Whether you’re here to incorporate or do an LLC, they can handle either, and for just about every state. But for the purposes of this, we’re going with a Delaware LLC.

Step 1:

Get to LegalZoom’s LLC start page.

There are three packages you can choose, but you don’t have to worry about picking which until checkout. There’s something here for everyone from the budget-conscious to the impatient high-roller. I chose the middle package (Standard), because I wasn’t in a huge hurry, and because I’m a sucker for fancy stuff like leather-looking binders and company seals:

Before we go too much further, here’s a rundown of the price I paid for the whole deal:

I chopped off the part where it states that the purchase price is tax deductible, subject to IRS limitations. Also, if you are a little queasy on the total, they offer an installment plan over 2 months. It also mentioned that a typical lawyer would charge $1839 for a LLC. Wowzers. Anyway, enough with narrow filler. On with the show.

I’ll hit on some of the screens you’ll see and give you some extra info on what they are asking. The little help parts on the forms were quite helpful in making informed decisions about which paths to take.

Step 2:

I won’t go over every screen (although almost all are here), but some key ones.

The answers you see above are my answers, and not necessarily the defaults. See the “How did most people answer this question?” parts? Those were helpful, but I sometimes went against the wisdom of the crowd. The main question here that I had to think on was whether to use percentage for membership share or business units. Business units are arbitrary and not tied to a dollar amount. So you could express 2 members sharing 50/50 ownership by 50% each, or in terms of half the business units. I went with business units since I viewed them like shares, and are easier to divide in large numbers or small numbers without needing to go into 5 decimal places. I think in the big picture it may not matter as much, but do your own research to see what works best for you.

On this screen where you add members, enter your initial investment in the LLC, and what percentage of the business, or how many business units it represents. Here I chose one million business units as the entire business unit pool, since I am the only member. You can choose the initial size of the business unit pool at whatever you like, but I chose to go large on the number, since I view them as shares.

I decided to go with officers, and as such crowned myself CEO. That’s right.

Below the officers you must define rules on how decisions for the company will be made, and who the IRS contact will be. Think hard about the decision on how ownership interests will be handled. As soon as you add one more member to your LLC, this decision could make or break you. And don’t get too hung up on getting everything perfect here. You can change these my amending your company articles later, but I wanted to have it solid from the beginning.

Step 3: Taxation and the EIN

These next questions determine how you wish your LLC to be taxed. The big question is if you want to be taxed as a sole proprietor, which I do for simplicity’s sake, and so I don’t contribute too much profit to Uncle Sam.

The questions above pertain to the SS-4. I decided in an earlier step to spend an extra $30 and have LegalZoom prepare my SS-4 form, which is how you get your EIN (Employer Identification Number) which acts kind of like your company’s Social Security number. It turns out that you don’t really need an SS-4 for requesting it since I ended up requesting the EIN over the phone with the IRS, but you’ll still need your signed and dated SS-4 in your records. And it also makes it easier to request the EIN over the phone since they will ask you questions from the form. Nice to have it handy so you don’t fumble on the phone with the IRS.

That’s a short one, also pertains to the SS-4.

Step 4: Pay Up

Pick the package you want and lay your money down. This was the total for the “Standard” package with overnight delivery and Tax ID number form preparation.

Post-pay instructions:

There is a bit of time built in to the delivery process, since LegalZoom must prepare papers for the Delaware Secretary of State and send and get approval. See the 35 days above? If it really took that long the overnight shipping might have been a waste, but maybe I was lucky because it didn’t take long at all. Check out the status page:

Was ordered July 7th. Took only 14 days to process and was delivered on the fourteenth day. So I don’t feel too dumb for paying for overnight. Go LegalZoom!

Step 5: Aftermath

Once you get the package from LegalZoom there will be a few things to sign and you’ll need to get on the horn and call the IRS to get your EIN. That takes about 10 minutes, mostly wait time on hold. Once you get your EIN, it’s immediately effective. Now you’re in business!

At this point, you can set up your business account. Your bank will need your copy of the letter from Delaware Secretary of State showing that your LLC was recorded. LegalZoom will send you this with your packet. If you get your Delaware LLC through LegalZoom, you’ll need to call LegalZoom’s business assistance number and request a “bridge letter”. This letter connects you, your LLC, and your registered agent so that your bank will know that you are a representative of your LLC. The reason they need this is because they will check the Delaware Secretary of State’s website and do an entity search. Since LegalZoom is responsible for maintaining your registered agent, the registered agent will show up in this search, and not your name. This bridge letter fills in the gaps by connecting you with the business. They will email it to you soon after as an attachment. Print it out and take it to the bank.

Note: Keep in mind that LegalZoom will set you up with a Delaware registered agent, and will bill you $159 per year a month later and every year afterwards on the anniversary of your LLC’s inception.

I hope you enjoyed this short series. I hope it helps many of you in protecting yourselves and also legitimizing your business in the business world. Now let’s kick some tail.

Next post: Don’t Worry About the 3 Percent

Separate your Business and Personal Accounts

jwasham — Wed, 27 Jul 2011 16:26:36 +0000

This is Part II of the Delaware LLC series. Start series here.

In order to protect your personal assets, it’s vital to separate your personal money, expenses, and debt from those of your business, or you may forfeit the legal protections that LLCs and corporations offer.

Failure to separate business and personal accounts can lead to, should your business be brought up for litigation, a judge finding that your LLC or corporation’s liability should be bound to you personally. This is called “piercing the corporate veil”.

Read more on piercing the corporate veil at Wikipedia.

Bank Account

The first step is to start a bank account for your business. The account can be at the same bank you do your personal banking with, but it should not be your personal account. Also, if your personal account has a savings and checking account, do not reserve one for personal and one for business. It’s not good enough.

Many banks will upgrade your account for free if you add a business. This can save you money in fees. So even though it’s bundled, you’ll still separate personal and business.

One important note is that your bank will likely NOT allow you to change your sole proprietorship account to an LLC. You will have to pay for getting your LLC expenses paid for out of a personal account. Once your LLC is registered on the Secretary of State’s website and you have an EIN, you’ll be able to make your business’ bank account. In addition, if the state of your LLC and the state your bank is in are different, your bank may not allow creating a business account for it. Just something to check.

Domain Registrar

If you have domains for personal use, like for your personal blog or website, you’ll need to create a new account at your registrar and move your personal domains to it. Hover did this for me on request. Was a piece of cake.

When setting up your account for personal and business domains, make sure you use a non-domain related email for the account. This means if your domain is mysite.com, make sure you’re not using a @mysite.com email address on your account. Just use a free gmail or hotmail account. This is just good practice in case you lose control of your domain and need to get it rectified. This is not a personal vs. business thing. It’s just a smart thing to do.

Web Host / Server Host

If you have a personal site or blog hosted on your business’ servers, it’s best to move it off to its own account. The exception to this is if your blog is an extension of your “brand”. Many social media personalities and famous persons fall into this exception. If you are running your email through your server, you should use a non-domain related email, just as with domain registrar section above.

Phone Number

Make a phone number for your business and use it in your contact info instead of your personal number. I use Kall8 for this. It’s only $2 a month for an 888 phone number. You can always forward that number to your cell phone or voicemail until your business gets big, but it’s smart to have all your expenses (no matter how small) and contact info as business-centric as possible.

E-mail Host

I use Rackspace Mail for my personal and business email accounts, instead of running my own mail server.

If you are using the same email for both business and personal, you should create one for personal that does not use your business’ domain. This may mean buying a domain just for personal use, or switching to a free email host.

The same advice for using a non-domain related email domain is applicable here, in case there is an issue with your mail host’s account, you’ll still be able to communicate with them.

Rule of Thumb

If in doubt about an expense, think of it this way. You should have business and personal separate enough that if a company came along and wanted to purchase your business and all accounts outright, it would be easy to hand it all over without going in and changing everything.

Other

Other types of accounts you should consider separating from personal use:

insurance
credit cards (get you a card for your company)
email sending systems, like SendGrid
newsletter mail systems, like MailChimp
payments to outsourced services (design, coding, etc)
legal services
marketing services (PR, Google Adwords, etc)
payroll

There could many more, so before you whip out your personal credit or debit card to pay for something business related, think twice.

Photo courtesy dominicpics – Creative Commons BY 2.0

Next post: Using LegalZoom to set up your Delaware LLC