Over the years of working with startups and small businesses, we have come to realize there are a couple of common misunderstandings about starting a business that can seriously impact one’s chances for success. Knowing that you must address the following two key tasks upfront allows you to avoid a crisis down the road.
1. Company Formation
Once you decide to move forward with your business idea, you must form a company. This is not just a “nice to have” option. Operating without a business entity can put your personal (or family) wealth and assets at risk. A law school professor of mine often said that attorneys who recommend a sole proprietorship set themselves up for malpractice.
Always seek professional advice to decide which business entity is better for you (e.g., a LLC versus a C or S corporation). Then follow up with proper registration and licenses to allow you to operate (e.g., to open a bank account, you need an Employer Identification Number).
The HBO show, Silicon Valley, had a funny bit showing why this is definitely a first step. The founder of the fictional startup Pied Piper raises $200K from an angel investor and goes into the bank to deposit the check. The check is not made out to him personally, rather is payable to the yet-to-be-formed Pied Piper Inc. and (of course) the bank teller refuses to deposit it. The founder leans in and asks the teller if incorporation is something she can help him with!
So before you go out raising money or promoting your company, make sure you have a business entity and seek some professional help (not from your bank!). And it almost goes without saying to identify and protect your intellectual property (IP) when you are forming that entity.
2. Company name
In today’s world, deciding upon a company name often depends on domain name availability. In theory this is correct, but it’s critical not to confuse your new company’s domain name registration with its federal or state trademark registration, or even the ability to use the company name.
Obtaining a domain name is not a trademark. When we registered our domain for Traklight with GoDaddy as Traklight.com, we did not automatically receive the ability to create a company named Traklight, nor did we immediately have the right to market a product or company with that name.
Taking this a step further, you cannot get around similar names by changing the top-level domain (TLD). A TLD is the end of the domain name. For example Traklight.com has a TLD of .com. As many are aware, there are numerous TLDs now available — .biz, .me, .net, and so on.
If we tried to register the domain name using the TLD of .com and it was already in use by another software company that had a similar business to Traklight, we might be tempted to register Traklight.net and Traklight.me to get around the Traklight.com company’s domain name. However, simply by registering those two domain name registrations with different TLDs, we would not have a trademark for the name Traklight or products called Traklight. Trademark registration at either state or federal level is a separate process and should be handled by professionals.
If we had sunk money into our website, logo, printed materials, and signage, we might be looking at thousands of dollars wasted because that Traklight.me and Traklight.net would not have given us the right to use the name Traklight.
This confusion occurs at a variety of different stages in companies’ lifecycles as new product and division names are created, but it’s critical to start on the right track with your new venture’s first trademark.
Mary Juetten is the founder and CEO of Traklight, the only self-guided software platform that creates your custom intellectual property (IP) strategy. Mary has dedicated her more-than-25-year career to helping businesses achieve and protect their success, specializing in leading companies in transition or start-up phases and helping them create sustainable, operational, and financial growth. Mary wants entrepreneurs and businesses to have Fortune 500 style software solutions! Mary has a Bachelor of Commerce degree from McGill and a Juris Doctorate from Arizona State as well as her US and Canadian accounting and public accountant certifications. She is an international writer, speaker, and mentor, and co-chairs the Arizona Technology Council’s Law and Technology committee. Mary previously represented entrepreneurs on the Board of the Crowdfunding Investment Regulatory Advocates and is currently on the Emerging Enterprise Committee of the Licensing Executives Society.