The speed on startup motorway is high. (Fast) growing startups, in particular, have to be careful, they do not stumble due to legal errors, and gamble away their lead. All founders should urgently observe these five pointers.
Growing Startups: Five Legal Hurdles On The Startup Motorway
The company is founded, the first orders and employees are coming, and an investor is interested in joining. In other words: the startup is growing. Now the legal requirements for your company are also changing. In the following, I would like to show you five areas that are now important for you.
As the company grows, the focus shifts to employees. On the one hand, because new employees come to the company. On the other hand, the existing ones may be given new tasks.
Entrepreneurs should pay more attention to the fact that employment contracts are drawn up carefully. Of course, this applies in particular to the new employees to be hired. But those responsible should also check whether the employment contracts are in order with the existing employees.
Sign And Review Employment Contracts
I have to say repeatedly that young companies sometimes have no employment contracts. The growth came quickly, and the intention was to formalize the existing employment relationships, which were only sealed with a handshake, with an employment contract at some point.
But there was always no time for it. At the very latest, at a decent speed on the startup motorway, clean work is required in this area. In particular, the remuneration regulations and the areas of responsibility require a careful review.
In addition, the question arises as to whether promises regarding later investments in the company are formulated legally effective. After all, there are such regulations in many startups.
As the company grows, it requires new business processes. Unfortunately, many startups ignore this topic at the beginning. After all, the introduction of processes is a boring topic for many founders. The benefits are also not apparent at first glance.
However, founders should bear in mind that due to growth, communication is no longer as easy as it was at the beginning. There are more employees. The distribution of tasks and the reporting channels are more complicated. This makes the follow-up inspection more complex.
The earlier clear and understandable regulations, the easier it is to cope with further growth. These regulations should be transparent for all employees.
At this point, I can also say: every situation does not have to be regulated in detail right from the start. Rather, founders should identify the important areas. In turn, regulations are gradually needed that can be flexibly adapted.
Customers And Suppliers
Once a company has been founded, relationships with customers and suppliers are often a bit down-to-earth. That means: You can do it with a handshake, verbally, or by employing fast e-mail communication.
As the company grows, founders should professionalize these relationships. The use of purchasing and delivery conditions and general terms and conditions are helpful for this.
Training For Employees
The increased use of contractual models is also making more and more sense. However, founders should remember that the employees need training in their use. Employees are often not lawyers. So they often approach contract models in a very ignorant way. They do not check whether using them in each case makes sense.
Without appropriate training, employees may use a certain pattern because the headline of the pattern suggests this use, but in fact, the regulations of the pattern do not apply at all to this special case.
Especially when there are several founders, it is not uncommon for all of them to be involved in the management at the beginning and everyone there to more or less take care of everything. However, interest and competence emerge with time and speed on the startup autobahn.
Due to time restrictions, areas emerge in which the individual founders work with a view to the management. Sometimes, however, it also becomes apparent that individual founders are overwhelmed with management’s tasks.
Founders Are Not Automatically (Good) Managing Directors
When a young company grows, the management has to become more professional. On the one hand, this applies to the distribution of tasks. Individual tasks or areas should be assigned to the managing director who has the appropriate skills.
On the other hand, however, founders should check whether the members of the management are even able to perform the management tasks. I even experience time and again that founders no longer feel comfortable managing directors. But you think that you also have to be managing directors as founders.
Clarify The Manager’s Question At An Early Stage
In fact, as a growing company, competence becomes more and more important. The tasks change a lot compared to a company founded among friends.
The sooner management is honestly discussed among the founders, the better. And of course, that is especially true if more and more management tasks arise, but the current founding managing directors are not interested in them.
If the company grows, at some point, the question arises for founders whether investors should participate. This becomes particularly important when there are good ideas on how the money of potential investors can be used sensibly to create added value.
However, accepting an investor brings with it completely new challenges. For example, the dynamics among the shareholders are changing. There are obligations towards the investor that the company must fulfill. There may be new tasks and business areas that need to be worked on. In addition, the entry of an investor often brings with it legal questions that founders cannot easily answer.
Every Investment Has Its Price On The Startup Motorway
At this point, it is particularly important not to act hastily but to seek competent help. If the founders focus on the money associated with the investment, the other consequences that come with the entry of an investor are often overlooked. The investor’s money comes with a price. Founders should make sure that they are not overwhelmed and presented with challenges that take away the fun of the company.
A growing company is a fascinating situation and often exactly what the founders had in mind for their startup. For the growth phase to be mastered successfully, the course should be set early so that the company is well-positioned for growth.
I always recommend going step by step. One should react to new situations and look straight away at the possible future and consider what needs to be prepared for this future. While this will not prevent all surprises, this approach ensures that dealing with everything that comes in the future becomes easier and more relaxed.