When to incorporate is one of those topics which comes up time and time again, and there is much conflicting advice out there. I’m lucky enough to have a number of different experiences and perspectives with this, and I now believe that by far the best option in almost all cases is to delay registering a company for as long as possible.
Don’t incorporate a hobby
I’m no lawyer, so it’s probably best not to take too much of my advice on this. One of the lawyers who I have a lot of respect for, especially when talking about scalable tech startups, is Ryan Roberts, who runs the Startup Lawyer blog. His advice is this:
"Don’t incorporate a hobby. Incorporate when you are serious about making your startup a business."
I think that’s pretty sound advice.
Being serious about your startup idea
I’m sure if you were to talk with someone else about the idea for your startup, you probably wouldn’t want to call it a hobby. You’d be very serious about it, this idea is the one. Right?
I think that’s great, it’s definitely good to be determined and ambitious. However, when it’s still an idea I think it’s perhaps good to think about it as a hobby.
"The idea came from a personal need, and I knew I’d find the product useful for myself. However, for it to be more than just a hobby, I needed lots of other people to find it useful as well."
This is the point in time when I decided I needed to go through a validation process for Buffer before I launched it. I needed to find out if lots of other people would find it useful. Over time, this worked out well. With 230,000 users and good revenue, we’re most certainly a startup now.
However, realistically, it remained a hobby - an experiment - for quite some time before it became a true startup.
Don’t launch a company, launch an experiment
"by thinking of it as a quick experiment, that fear tends to go away. The beautiful thing about experiments is that disproving your hypothesis isn’t thought of as a failure. It’s thought of as progress. And, getting early user feedback, even negative, is definitely progress."
I think that’s a great way to think about it. Each assumption or hypothesis which is disproved is very real progress, since the measure of progress for a lean startup is validated learning.
What matters? Product/market fit
One reason that it is great to think about a fresh startup idea as an experiment is described very well by Marc Andreeson’s definition of “product/market fit”:
"Product/market fit means being in a good market with a product that can satisfy that market."
When you reach product/market fit you essentially have built something people want. You naturally get traction, and things unfold very quickly. Reaching product/market fit is perhaps the most important thing for a startup. Andreeson puts it this way:
"Do whatever is required to get to product/market fit. Including changing out people, rewriting your product, moving into a different market, telling customers no when you don’t want to, telling customers yes when you don’t want to."
The pre-product/market fit phase is one of the biggest challenges of creating a startup. You have to get out of the building and face those assumptions. You need the flexibility to make drastic changes. The best way is by thinking about the process as a series of experiments, with the eventual goal of arriving at something people want.
When you manage to achieve product/market fit, you’ll know it. This was the key difference between Buffer and my previous startup. Andreeson was right:
"you can always feel product/market fit when it’s happening"
Delay incorporating to stay flexible
With a company registered, and perhaps the name related to the idea, it can be very difficult to let go of an idea in pursuit of succeeding as a startup, rather than with the particular idea. Being too attached to the idea or a particular solution could kill the startup.
Therefore, I believe that it is best to delay incorporating our startups. In this pre-product/market fit stage, we should be focused completely on reaching product/market fit, as Andreeson has told us. This gives us the best chance of finding something that does get traction (it flows when you hit product/market fit). Once you’re there, it’s becomes worth incoporating and giving it the focus as a startup rather than a hobby or experiment.
Have you incorporated your startup? How early did you do it and what were the reasons? I’d love to hear from you in the comments
Photo credit: Juli