In business you hear a lot about economies of scale — the idea that if you produce or consume a lot of something you can expect it to be cheaper per unit. But I’ve been wondering recently about whether there’s a different kind of benefit you can get from deliberately trying to create diversity in a group.
I first started thinking about it in relation to our cohorts at BGV. Part of the point of accelerator programmes is that they give you an economy of scale. Paul Graham and the Y Combinator team’s initial realisation was that you could make 10 small investments for the cost of one traditional angel investment and that the teams needed many of the same things which you could provide in bulk. It’s the same for us. We’d be a very expensive way to invest £150k in a single startup but spread across ten it makes more sense.
We’re also able to leverage more expertise and valuable connections for the teams because of their diversity — they all work in different subject areas. It’s classic Mark Granovetter where ‘the strength of weak ties’ is really important. A team working in urban planning can help a team working on primary education because they know people who work in that world — maybe not well, but often those relationships and introductions are the most useful. Having a diverse group of founders on the programme also helps us avoid too much groupthink because people have genuinely different experiences and skills.
There are some bits of starting a company that everybody has to do, no matter whether their aims are to change the world or not. I thought I’d just write quickly how we went about doing the legal setup, banking and accounting for School of Everything because when we started out, I had no idea how those kind of things worked and what you needed to worry about.
First of all there’s setting up a company in the first place. In the UK this is very, very easy once you’ve made the decision about what type of company you want to be (see a later post for how to make that choice). There are hundreds of services that offer online company registration through Companies House. I used Company Wizard and it was a very straightforward process, costing about £35 and was all done within a few hours. Unless you have all the details worked out at the stage you register the company, it’s worth keeping things simple. Go for the minimum number of directors and give the founders the minimum number of shares to get the percentages right but don’t worry too much about everything else — you’ll update it and change it when you take on investment or if anything changes along the way.
Next you’ll need a bank account. This can take some time and is worth getting right because I got it wrong and have struggled a bit ever since. We went with Co-op Bank because I’d been a customer for ages and liked their ethical stance. The main problem has been their online banking which until last year was one of the worst web services I’ve ever seen. Now it’s just middling but it can really slow you down if you’re not careful. If I were you, I’d look very hard at how good banks’ online services are before taking the leap.
As you get a bit further down the road and start dealing with real money you’ll need an accountant. When we started out, I naively thought that all accountants were pretty much the same but I’ve now seen that we were very lucky in choosing ours after seeing other companies spending far more time and effort on accounting than we have ever had to. We chose Complete Accounting Solutions on Seedcamp’s recommendation and have a service where we pop everything in the post once a month, answer any queries and they do everything else. I am intrigued by Crunch which looks like a good service but make your choice based on which service is going to keep everything above board but save you the most time.
You’ll also need lawyers and again I’m very thankful that we chose Keystone Law early on. Here you can end up spending a fortune so you do need to bare price in mind and since lawyers generally charge by the hour, I think you’re looking for a lawyer who has lots of experience at doing what you want them to do so they can do it fairly quickly. All of the people we’ve dealt with at Keystone ‘get’ startups and have been great at explaining what we can and can’t do. Other lawyers are available but I’ve been very happy with everything they’ve done for us.
All these things are important and if you get it wrong they can really drag you down. I’d say go with personal recommendations but do remember that there are lots of friendships in this world that can lead to people recommending people who may be good but aren’t suited to what you want to do. So take the time to understand exactly how the people you’re going to work operate and ask them a few questions to see how well they can explain things to you. After all, when you start something up, the buck will more than likely stop with you, so you have to understand all the boring bits as they relate to the company as much as the people who are advising you.
I’ve actually found what I’ve called here ‘the boring bits’ really interesting. I didn’t know much about how companies worked before I started and now I’m very glad that I do. I think it’s one thing that puts people off starting their own organisations but it shouldn’t really. It’s all pretty straightforward once you get into it and there are plenty of people around to ask for advice as well as places online to get information. So don’t let the minutiae of running a business put you off. It’s not as scary as it looks. And if you’d like to join Bethnal Green Accountancy Club, just let me know.
