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The legal differences between startups and small businesses

Despite their similarities, startups and small businesses (SSBs) employ very different strategies to reach their goals successfully. These differing paths will lead to a wide variety of legal matters that attorneys might need to handle. The key to efficiently serving these two types of clients is to anticipate their legal needs and prepare for those situations ahead of time. To do that, lawyers must first understand what makes SSBs different and why they may encounter such different legal situations.

What is the plan?

It can be hard to recognize the traits that differentiate SSBs if their owners are describing their enterprise in an abstract setting. To get a clearer picture, experienced lawyers often inquire about their clients’ business goals and the strategies they will use to accomplish them. This could include anything from how they plan to raise capital and organize themselves, to how they hope to run daily operations and eventually grow.  Such goals and strategies are reliable indicators of the type of business they want to run and what their future legal needs will be.

Startups: on a fast track to success

The primary goal of most startups is to make the biggest impact possible in a relatively short amount of time. This often means disrupting industry trends with innovative technology and doing something totally new.

They achieve their goals through fast-paced strategies that allow them to grow very quickly. These may include garnering large venture capital investments from third parties or crowd-funding development by showing early prototypes of their exciting, new product. Attorneys representing startups should expect to encounter issues related to intellectual property protections, investment agreements, marketing, and fair competition laws and more.

Once they make their big splash, startups often try to grow their employee base to further expand their services and develop new products. They may also be interested in aggressively acquiring smaller brands that can help accentuate their offerings. Their lawyers should be ready to handle employee management matters, draw up purchasing agreements and research any laws pertaining to new areas of research and development.

The world-changing idea at your doorstep

Perhaps the most successful startup of our time is Amazon. The online megastore started with the simple idea to change the way books are sold but has quickly grown to revolutionize the entire shopping industry. This was done with a large initial investment in e-commerce technology and aggressive expansion in shipping capabilities. Once their system was in place, more and more products were added to the site until the idea of just selling books was a faint memory. SSB clients may also be inspired by other successful startup stories from companies like Facebook, Uber or Airbnb.

Small businesses: slow and steady wins the race

The first goal for small businesses is usually to achieve a level of stability and profitability while maintaining their own decision-making freedom. While no two are the same, growth is often a secondary goal that comes in the form of expansion rather than evolution. They don’t want to break the mold but instead look to provide an existing product or service to a specific audience in their own unique way.

Small businesses work towards their goals at a slow and steady pace. They often get initial funding through bank loans or personal investments from the owner and then pay those back as they generate revenue over time. Because they are looking to join a preexisting market, they often don’t have to worry about product development or impressing investors. Lawyers working with small business clients should prepare to discuss matters like entity formation, licensing procedures, loan liabilities, and production agreements.

Once operations are off the ground and those initial loans are paid off, small business owners can explore expansion options, such as opening more storefronts in new locations. Lawyers with knowledge of real estate, commercial leases, and franchising agreements will be well prepared to guide these clients when that happens.

Local inspiration on every street corner

One of the most notable examples of a successful small business today is Starbucks. When their first shop opened in 1971, they only sold bags of specially roasted beans to the local residents of Seattle. But the intimate environment of their small storefront and exceptional coffee resonated widely. They started with a single shop that provided common goods to a unique audience in their own way, then later grew by adding more locations. Other good examples include nationwide chains like Chipotle Mexican Grill, regional success stories such as Erik’s Bike Shop, and the recent boom of local food trucks in cities across the country.

There are many more small businesses in the U.S. than startups, and each is unique in its origins and desires. But whether they are humble or bold, businesses of both types face an extensive menu of legal needs. Once lawyers know the goals and strategies that their SSB clients are interested in, they can ensure that they have the knowledge and tools needed to serve them over the years.

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