People often think that founding a company requires a huge amount of initial capital, takes up your entire life, and produces endless amounts of stress. In fact, setting up a business will typically not cost that much. You also don’t need to jump head first into the unknown – you can start by setting up a business on the side while still keeping your current job.
When is the right time to found the company?
This is the million dollar question – and you’ll find as many answers as there are people who have founded companies. Some companies begin as side hustles (intentionally or unintentionally). Some people start their companies because they need a job or feel like they can’t work under someone else. Some people are tired of how the company they work at does things in an unscalable way, so they start their own company to fix those issues. Some people sit down every weekend to develop new ideas with the explicit goal of starting their own company at some point. And some people save half of their salary for years in order to feel secure when they start their own company.
When it comes down to it, there is no right answer – but we can hopefully shed some light on how to go about doing it and some things to consider first.
Insights from an entrepreneur – Yousician
Chris Thür is the co-founder and CEO of Yousician, a gamified music education service. Their goal is to make musicality as common as literacy. Today, their service is used by millions of people around the world. We asked him to share his thoughts about founding a company.
When is the right time to jump in full-time?
“I can’t say what to do, I can just tell what I have done. I can give the one advice one person gave to me and that’s the one I keep telling others as well: 'as long as you have a plan B…it will not become serious and move forward'. At some point, you must take the jump. The moment you’re dedicated to your idea full time and full energy, things move five times faster. What took you a month, now takes you two days. I’ve seen many people, including myself, kind of thinking ‘it’s too risky’ – but entrepreneurship is a business of risk and you must be somehow risk tolerant.”
Did you risk a lot by jumping in?
“In our case it was maybe for me a bit easier because I was doing my job part-time and I had a very low salary to begin with. I was also working on my Masters thesis so I got student support money. However, being a foreign laser physicist in Finland is difficult because there were maybe two companies that could hire me. I also knew that if I dropped out, I wouldn't get back in, at least in this country. So there was a risk, but I realized I was very passionate about this. I wanted to do it, and then we won one or two pitching competitions and got some money. I was fortunate enough that my family also decided to put a few thousand bucks in. That was enough for us to finance the first couple of months of the company.
“I started hanging out with my co-founder Mikko Kaipainen in the beginning of 2010 and in March 2011 I jumped full-time. Mikko joined a couple of months later. He had a well paying job, but when we could pay him at least three months salary then he could join – that’s how I remember it. And I know it’s a chicken and egg problem, but my best advice is: if you know in your heart that this is the right thing to do and you believe in it, find something in that area to work with. I also understand why people say ‘do it when you’re young,’ because it does not get easier when you have two children and a mortgage.
“Let’s face it, it is risky. Maybe one in a hundred ideas work out. However, even if a startup doesn't work out you can still benefit. I believe in this and I say it to our HR team ‘I love hiring entrepreneurs’. It doesn't matter much if they have been successful or not, because in that one year when you fight and struggle to get your company off the ground, you will learn more than any business school can teach you, at least regarding early-stage startups. For later stages, business schools make sense.”
Insights from an entrepreneur – Wolt
Elias Aalto is the co-founder of Wolt, a technology company known for its food delivery platform. Today, Wolt has over 500 employees and the service is available in about 50 cities, mainly in Europe. Elias shares with us how Wolt was founded.
How did you found the company?
“A few of our co-founders and I started working full-time for the company in March 2014. We officially founded Wolt around Slush 2014, which was in October that year. Miki Kuusi, our CEO, was also the CEO of Slush until that time.
“We didn’t pay any salaries for the first six months as we didn’t even have an actual company. We were a bit slow as we didn’t have any funding nor total commitment from the founding team, and there were many situations where we had a 50/50 feeling that Wolt would never even get incorporated. Luckily we decided to give it a real shot in the end!”
Insights from an entrepreneur – RELEX Solutions
Johanna Småros is the co-founder and CMO of RELEX Solutions, which provides solutions for retail optimization. She tells us more about the founding process for RELEX.
How did the founding process work?
“We started working with RELEX at the end of 2005, but at that time we were all still full-time researchers. In the beginning, we were also part of a “research-to-business” program run by the university and Business Finland (a Finnish state-owned organisation that supports businesses). Mikko and Michael had already founded the company as they were doing some consulting projects along their research work. It was practical to use the existing legal entity and I joined the company.”
“In spring 2006, we were part-time researchers and part-time working on RELEX, and Michael was actually still on a research exchange abroad. So it started slowly, but we were able to sell the first product to a paying customer in the fall of 2006 – and it was about that time we all started to work full time for the company. We were also doing some consulting during 2006 so that we could fund the product development. It worked quite well for us and we also learned from the customers.”
“Often people describe becoming a full-time entrepreneur as a big leap, but for me personally it wasn't that big of a leap. I didn’t have any children or a mortgage or something like that, so the risks didn't feel that big. I remember thinking ‘what is the worst that can happen to me?’ Of course, when you have a family or a big mortgage or some other responsibilities, becoming a full-time entrepreneur can be more risky.”
Insights from an entrepreneur – Thingtesting
Jenny Gyllander is the founder of Thingtesting – an online consumer guide that reviews the latest up-and-coming brands and products. Startups can and should validate customer needs before building anything. Now Jenny shares us how Thingtesting did it.
How did you ended up becoming an entrepreneur?
I was new in London, so I was testing and trying all of these different brands and products on the market while I was working in a VC fund – and I just needed a place to vent my thoughts. At some point, I realized that there is quite a long list of products I wanted to try out and started to think when should I test each product.
At first, I didn’t take this too seriously so it never felt like a job. It was like yoga or any other hobby for many people – I enjoyed it and was excited to do it.
There were also quite nice synergies with my job as well. Because I worked at a VC fund, it was good for me to test and be aware of new products. It was beneficial for our deal flow and also for internal operations.
You take a big risk when deciding to become a full-time entrepreneur and it is very scary, so it feels good to have support. Besides my colleagues supporting me at work, I also got hundreds of direct messages from my followers so it wasn’t like I was operating in full isolation. There was quite a lot of external enforcement that influenced me. My mentor advised that if you have a momentum and a passion, you should go for it – and I felt that way.
Even though I really loved working at a VC fund because it is one of the most fun and amazing jobs you can have, in February 2019 I decided to jump and go full-time Thingtesting.
What is required to set up a startup?
Starting a company can be somewhat different depending on where you are located. In Finland, you can do everything online by filling out a form, opening a bank account and transferring the initial capital (if you want to dive deeper into this you can go to www.ytj.fi/en). The procedure can be very different in other countries and might have to fill in paper forms and go visit an office in person in order to register your company.
In practice, becoming an entrepreneur requires a little more thought than just filling out the paperwork. Before setting up a business you should consider at least the following: what your company does, how your business generates revenue, how much will it cost, where do you get the right people for your team, and where will you find financing for your business.
Let’s dig a little deeper into the actual documentation needed. In most countries and jurisdictions, a memorandum of association is needed in order to form a company. The memorandum usually has to include that the founders agree to form the company, the share price, total number of shares, the business name suggestion, financial period, managing director, composition of the board and auditor information. Again, the requirements vary in different countries, so this is just to give you a general idea.
Usually you also need to attach a draft of the company’s articles of association or articles of incorporation to the memorandum. Together, these two documents form the constitution of a company. The articles of association have detailed rules on how the company will be governed. The exact legal requirements and voluntary things that can be added varies, but often each country publishes some example or might even give you a standard template to work from.
When you have done these and sent them to the responsible authorities, there are usually a lot of other registers you will probably have to inform as well. These can include things like the VAT register, employer register, etc. You will also have to talk to a bank in order to open a bank account to start receiving and using money.
As said, you will also have to make the first choices of board composition and company ownership when registering the company, but these choices can or will be changed in the future.
Legal and finance for startups
The rest of this chapter and the next chapter (about financing for startups) might feel complex and hard to understand – but there is a reason for including this material. A startup has to deal with many legal and financial issues and if they are not done correctly they can have critical consequences. When you are dealing with investors or making contracts with big customers, they are probably much more experienced in this area than you are, which is why it’s important to at least be familiar with the terms so you can get a good deal.
Your accountant and lawyer
Many people learn the tricks of accounting to save money, but in practice a good accountant will always do better than an enthusiastic amateur. First of all, your company is more likely to succeed when you focus on the things you are really good at. Secondly, if your business starts to thrive, you don't want to run into problems with the tax authorities because of incorrect accounting practices. And thirdly, having a good accountant is a staggering help when you're dealing with the many layers of financial management.
For a startup entrepreneur, we also recommend that you get a good lawyer, and not to protect you from potential lawsuits. Instead, a startup entrepreneur has to deal with complex contractual arrangements, trademark applications, and patent applications very quickly. Without a good lawyer, you'll be likely to shoot yourself in the foot at some point.
A startup entrepreneur will have to make dozens or even hundreds of different contracts. Employment, investment, shareholder, partnership, subcontracting, and various letters of intent can be dozens of pages of legalese and fine print. If you sign your name on a piece of paper that hasn’t been read by a knowledgeable lawyer, you will be playing Russian Roulette – with the future of your company at stake.
Just as a good accountant ensures that your business finances are run according to the law, that the tax authorities receive their dues on time and that the records are properly documented, a good lawyer will help make sure that your contracts are legal and also drafted in your favor. So the job of a lawyer is to make sure that you don't agree on things that would unknowingly be illegal, and that you are not going to negotiate stupid things. Of course you ultimately decide – and take responsibility. But a good lawyer can make smart recommendations even in tough negotiations.
A good lawyer costs a lot of money, as does a good accountant. But it is very likely that the help of a good lawyer will end up saving you a lot of money. So it's actually one of the smartest investments you can make.