Prabhu' blog

A blog detailing my business activities What i was upto and my notes and stuff... How to go about company and entrepreneurship

Friday, November 10, 2006

Notes on forming a company

Go and get a particular name to the registrar of companies
They will check and see whether it is available and give it to u. This should be done with the Registrar of Companies.After doing this, file the articles of memorandum and associationship with the government and wait for the sanction.

Once you get the sanction,there will be a form which the government will give you. You can use this to get ur bank accounts opened

Ensure that your bank accounts are opened with the first day of operations

Ensure that phone connections and broadband are in the name of the company.

All payments should be done through your bank and this is to ensure that you can keep track of the expenses. STP registration is not required. It is only required and will benefit you if you are a complete exporter and if you dont cater to the indian market and only if you cater to the international market
Say 80% of all your company are exports, by registering in STP u will get tax sops and can purchase hardware . But u must cross the threshold limit to avail of the STP sops. Even software services can be considered under exports

VC funding - U are eligible for it once u have a good tech team 4-5 people and a good marketing presence .Important all VCs look for this a good marketing presence in addition .

VC funding - it is essential that u run the company for atleast 1 and half years to be a good candidate for a VC funding. I dont know how this works in the US. But as far as a beginner entrepreneur, VC funding can be expected only after 1 and half years. If you already have a successful company under u belt the process will be different

VC funding - it is advisable to delay the VC funding to the later stages to ensure that u get a good deal. Otherwise it will not be worth it and u wont be left with any stakes. So try to run the company as long as possible

Accounting - Since you are going to handle the company for 2 years, you must have a basic knowledge of accounting. Follow double accounting standards. This is especially necessary as we have to go for a VC funding later on

This would involve maintaining of journals, daybooks

Web site - Get this outsourced. Unless u want to save every penny and u are literally like us do it by urself . But even if u plan to do it get it done by people who are willing to help.
I wud say get this outsourced. Even 20 k shud be a decent to get a unique designt

Server - Get your own server with a public ip on the net. This is mandatory and nowadays it is cheap

Server tools - Try to do something innovative like running a SVN server and sharing code in time part time people work on it. The main aim get as many part time people to help u. This wud help u know how much the part time people are interested in joining you and whether they really deserve a good place in the company in the future

Version Control - As i mentioned above version control is very important and have it in place from day one

Resource - Start atleast with three people who are ready to face three years without money.
This is important.Since we are not putting in any capital, it is necessary that we alteast sacrifice our salary and not expect too much. keep it to 12 k or something . This may sound silly
2) Ignore people who want to be a part of it to enhance their profile and go for their MBAs. These people dont stick for long and are really not worth it and their loyalty fades
3) Get people who are as much interested in entrepreneurship as you are. When u start lying low, these people can run the show for that period
Other than the cofounders who will be probably of your age, the rest of the people whom u hire shud be younger than u. This feedback i got it from different people
You can hire old experienced people provided they are consultants or you have good control over them and will not interfere in the process
The more complex ur idea. the more hard u will find it to recruit and convince people. And they may not be able to help u much if the idea is very complex. This u will face unless u reach proper VC funding.

Open source - Get as much open source tools as possible . Try to have one machine with a proper build environment and pay only for this license. This is to reduce the cost but maybe some contradictory notes will appear

Biz plan - Have a good biz plan ready and keep on going to biz conferences and present it even if u dont want funding for the company . It will help u broaden ur links and contacts
I am trying to analyze what shud be under the biz plan and will make separate notes for it


Two people with contribution - Other than the minimum 3 people there shud be some person who guides u on the accounting side , bank transactions ( a good CA wud do i guess)
A good marketing person with experience - a marketing person who will fetch u links is necessary. This person is very much necessary for carrying out ur marketing to companies

Focus on mail marketing
operations manager interface - takes care of accounting, banking
marketing manager - takes care of interfacing with other companies and new ways of marketing

Cash Flow - Cash flow for a company in india provided they have above constraints can be run in say 1 and half lakh rupees. The project pipelines are equally important and u can disregard cash flow to some extent if u have a good pipeline of projects

Tie Ups - The name of the game is tie ups. Have technology partners in the form of solution partners, marketing partners and so on and channel partners. These u will find that u can do as u r company survives the ravages of time.

The board - The board is to be composed of people who contribute to the contacts and are influential and can guide its path. No tech people on the board unless it is cofounded by them and they are the cofounders.
Maybe it can be given to people who can adapt to both settings and play the roles with equal easeThere has to space on the board to accomdate VC. Don’t amass a team of tech people on the board unless the ideas is very unique and breathtaking.

Social circle - A membership in TIE and all the entrepreneurship . An association with all the colleges and their incubators cells. A circle which comprises of other CEOs. Pay attention to ur cards. Get as much as possible other people's cards. Start doing this immediately. As far as i know, TIE would not help that much and only in terms of confidence. Once u make the first million u can gain access to the next elite membership clubs where only a select circle is allowed. Business contacts will start flourishing only when u reach this circle.

Shares and capitals - Please split the shares when the company starts. U have to make sure that u have around 35% of the companies for attracting resources. Once the company starts to grow this wil be imporant. Other than the cofounders people who join the company will get 0.5 percent of the company outside the cofounders. Cofounders are those people who are from the inception and who stay stead fast

MBA- A MBA will probably help u. But if u know accounting and u know about capital and stocks and shares, it is enough. Anyway i feel a contacts woud help more than an MBA. Contacts, Money will help you hire a good MBA guy
Hiring a MBA guy is very costly
So it is better if one person in the team has done it.

Tools
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Screen sharing software- if you are a services based company, it is necessary that u share the screens for these projects. It will also be helpful for a company operating from different placesgotomeeting.com, instacoll

file sharing softwaring - it is a must that u have a file sharing system in place. U will save endless amount of time . Believe it . It is very much needed. if you start without a good system in place the timeloss will be days in a single weekexample groove
There are also offerings like Microsoft sharepoint portal.
What u go in for depends upon the amount which you can afford
Version control for appropriate environments
If your company can afford it, channels like working thru remote VPN. For a startup the costs may be prohibitve but if in place many things can be saved

Sufficient mail space- ensure sufficient mail space and a good mail client which lets u operate.
Issue of whether to go open source or with commercial offerings -it mainly depends on what environment u are working. Initially i was proo towardspen source butlater on realized that it is best to have a blend of operating systems linux and windows. If u have enough money, i wud say go for windows. This is a tough call. It depends upon the projects u get and the areas u are working in. if u go into the market of linux distribution and customizing ur software for it, then u can also maintain an open source environment. This is also determined by whether u are into embedded systems and other constraints making it necessary that u are upto date with open source also.

Audits
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if u follow good accounting standards, it will always help u. Later on after starting if u try to shift to some other system, it will be very difficult.
It is always good to have some standard companies do your audit for approaching VCs later
Note: you cannot go for companies like KPMG and mckenzie but to small CA firms conducting good audit standards.
As i said it varies, from what i heard if u have a BPO company with some reputed customer, ur audits shud be done by more reputed people.

Pay roll
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Our company never went into these systems and therefore i do not know much about this.
From what i perceived, there are a number of outsourcing firms ready to support u in the initial days,
But if you have a good accounting system in place and a person to oversee this, there is no reason why u urself shud not do it. This will probably result in increased savings as the outsourcing firms for payroll will start charging more as the company grows.

Investments
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Another dark territory for us
From the articles of memorandum, the company can invest in anything which it likes to do Land, buildings(real estate) and any dealings which help the company
I think for the company to venture full time into market investments, one other license is needed. Most small companies do not do venture into this market investment
Big companies have an arm which does their financial investments in stocks and bonds.
Since u are gonna run it by urself for some time, personal experiences will always help u and rotate the amount.
A good knowledge of balance sheets and looking at them is necessary. There are items like PBT nd government prescribed rates of depreciation of computers, buildings which will help u save ur tax.


Valuation
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As i said, valuation of the company depends on a good 3-4 tech team and a good marketing presence. I have repeated this always but noting it down
1) More areas into, more the value (ie the customer profile banking, insurance)
2) More countries more value
3) More projects more value (obvious)
4) More products with good marketing reach, more value
ie above depends on whether u are services company or not.
Once u become a brand, the brand also carries value. (usually a long way to go)
Market
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Definitely if the market is in other countries like Us and uk,it will carry more value. i need not say anything in this area as everyone is aware of what the big companies do
There is nothing wrong in taking up indian marketing if you are too short of cash. I was a little weak in the local marketing and did see promising signs but never clinched a deal despite repeated followups. Morover everything was about free deployments. It may be possible to do marketing in india also with a good local team.As karungu said logically being closer to the market wud help u.
But if u have sufficient money power and are really confident about it, u can break the rule. May be if we had done it later, few of our friends cud have pitched into the us marketing and wud have been in a position to help.
I believe roughly to market the product, 10 times more money than what went into developing shud be poured in (if u are a startup) . Money to market always helps

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