Plan for Traffic Jams

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Entrepreneurs want to move in the fast lane, because there are always more things to do in a day than the available hours will allow. Before you start making profits, you have to move fast to get in the black before your cash runs out. After you start making profits, you still need to move fast to remain competitive in your industry and grow. There are key situations, however, where you get stuck in traffic, and there is no fast lane to get where you want to go. Failure to understand and anticipate those situations can be extremely painful. Three of the most common situations involve financing, regulatory approvals and large strategic partners.

Financing. If you are a successful entrepreneur with three prior companies and a good reputation in Silicon Valley, then you may be able to obtain financing quickly and easily. But more often than not, finding investment is a long process. Actually documenting an investment generally can be done quickly, but finding potential investors and getting them to the point where they are ready to write a check is another matter. Failure to take this into account when deciding when to hire employees or make other financial commitments has doomed many a startup company.

Regulatory approvals. Given the criticism directed at government regulators, you would think that no one would count on government agencies to meet deadlines. However, I see entrepreneurs make plans without a proper appreciation for the potential delay and uncertainty of the regulatory approval process, such as an FDA approval of a medical device. In some cases, the entrepreneur simply has not done enough homework on exactly what needs to happen (and when) in order to complete the process. In other cases, there is insufficient contingency planning to figure out a fallback plan if regulatory approval is abnormally delayed.

Large strategic partners. One of the most depressing scenarios can be the strategic partnership. For example, a startup company is in talks with a Fortune 50 corporation, and that corporation finally tells the entrepreneur that it is ready to become an investor, joint venture partner or a customer. Time for celebration! Until you find out that the investment has just received preliminary approval that will now be followed by formal due diligence by the corporation’s lawyers and be subject to review and approval by an investment committee that does not meet for four months.

Or, until you are notified that you still need to complete the corporation’s formal 90-day vendor validation process to be a supplier. Or, until you receive the first draft of the corporation’s 120 pages of joint venture documentation that will need to be negotiated before the joint venture can proceed.

In the worst situations, the delay that you did not anticipate extends beyond when your current financing runs out.

Traffic jams like these can be a necessary part of getting where you want to go, but you need to anticipate and plan for them so that they only result in slowing your pace and not a fatal accident.

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Andy Coburn
As an attorney with Wyche, Andy regularly represents clients in mergers and acquisitions, reorganizations, structuring of join ventures, securities offerings and other financial transactions. He has extensive experience with growing companies and private placements of securities. Andy also advises and assists public and private company clients in the design and implementation of executive compensation arrangements, equity compensation plans and broad-based employee benefits. Outside of his legal profession, Andy is on the board of the Greenville Little Theatre, a project leader for Habitat for Humanity, and serves as a Business Black Box advisor in law.

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