In light of the big tech layoffs in San Diego, it is important to share stories that highlight the opportunities that can come from such an undesirable situation. Hopefully, this story will inspire some innovators out there who may feel like they are out of luck, but may just need a change of perspective.
In 2008, Yuan Li and four of his friends had a problem. Their employer, Texas Instruments, shut down its wireless division in San Diego. These five world-class engineers with top-notch skills and gold-standard experience were suddenly out of work.
It was scary. But they didn’t want to leave San Diego (nobody does). And they had always wanted to use their skills to start their own business. So they decided to form a new company – that’s when they called a San Diego business attorney.
Yuan and his partners knew their engineering up and down. But they were uncertain how they would set up a business. When they came to the small business lawyer they had many questions such as: How would they protect themselves if the business didn’t work out? How would they protect their profits if they succeeded? How would all five of the partners get along as they built a complex enterprise and made hard decisions?
Step One: Building the Right Foundation for Your Business Model
The plan was for operating revenue to come through consulting contracts with larger companies, while long-term value would come from research and development that the team did together. Taking the time to understand the business in this way was important to do from the beginning to properly evaluate future issues and tailor solutions to keep moving the company forward.
Building the right foundation included:
- putting together a company structure and agreements between the founders that would help each of them contribute as much as they could;
- creating a clear decision-making process to eliminate confusion and conflict;
- creating clear and fair rules about what would happen if any of the partners had to leave before the business plan took off; and
- making sure both outside consulting agreements and agreements between the owners and employees were clear on intellectual property ownership.
Step Two: Implement and Adjust
The partners built up IPG for three years. During that time, the law firm that specialized in wireless communications helped with a number of business solutions, much of which was seamless because the right foundation was laid down from the start. For example:
- When a founding partner had to leave (due to personal reasons), the process was easy and amicable because we’d thought hard and set up a fair process at the founding.
- When it came time to hire employees, proper advisement on employment and regulatory issues helped avoid unforeseen problems and kept their intellectual property safe.
- When the growing company faced the choice of either seeking capital to expand or pursuing a buy-out/merger strategy, the founders felt confident in their decision because the company’s legal team knew their business model intimately.
Step Three: Reaping the Benefits
In 2011, the company received a buy-out offer from Mindspeed. The big company decided it liked the little startup and took every partner and employee in-house, with a healthy payout for the company’s intellectual property
IPG Communications, Inc. is a great example of some brave and talented engineers faced with change and saw an opportunity. They recognized there would be risks and took the steps to make sure they handled the business aspects the right way from the start so they could focus on what they do well.
Key Takeaways: Steps You Should Consider When Forming Your Own Tech Startup
So for those of you thinking about going on your own, always remember these key takeaways:
- Get a legal team early on to lay the right foundation.
- Make sure your lawyer understands your business and your goals.
- Plan your strategy for growth and/or eventual sale of the company.
(IPG Communications and Yuan Li enthusiastically agreed to share this story to help people that find themselves in the same situation.)