Q: What’ the difference between a lawyer and a boxing referee?
A: A boxing referee doesn’t get paid more for a longer fight
I have a confession to make. I love attorneys. They have saved my silly ass more times than I care to count. Early in my career, they saved me by bailing me out of messes, but now in my career, they save me from myself, by getting involved at the right time in the process, so there is no mess to clean up later.
The constant barrage of criticisms aimed at attorneys is fascinating to me. It is our fear of the legal system, that allows some attorneys to take advantage of us, but the fact is that they are no different than mechanics, doctors, politicians, accountants, sign makers, manufacturers, business consultants, bakers, gardeners, or anyone else that takes advantage of us because of our lack of knowledge.
Below are my 10 ways startups can minimize costs with attorneys.
Please note, that I am not an attorney and can not provide legal advice. The following is just my opinon about how to handle deal negotiations. If you are being sued, criminally charged, investigated, regulated, fear any of the above or are negotiating a deal that involves regulation or other issues, then find an attorney and hire them pronto. Don’t mess around with anything that involves your welfare or that of your business. This post is only about and pertaining to situations where you are planning and negotiating a deal of some kind and even then, if you fear you are completely out of your element or don’t know what you are doing, get an attorney involved in the process.
1. Maintain Control
When you give up control of your situation to an expert, then you run the risk of getting screwed over, but it is your responsibility to manage that relationship just like you would any other professional relationship.
The fact is that there are a lot of fair and honorable attorneys in this country. They do their best to guide their clients in a responsible manner and they are also trying to make a lot of money at the profession they worked so hard to attain. Are you going to fault them for that or are you going to do your best to manage your relationship with them so you get maximum impact for minimal fees.
You must stay on top of every detail and you must know exactly what you are getting from them for the time they are billing. My theory is that the large percentage of anger directed towards attroneys is actually anger at ourselves for not maintaining control in the situation we are in.
No matter the legal preceeding, when you allow emotions of anger, sadness, retribution, etc. to rule your actions, then you will lose control over all aspects of the situation, the professionals involved, and your money. Bad attorneys will see that and will take advantage of it. They will use tactics to make you angrier. If you learn nothing else from this post it is to control your emotions. Walk away when you are getting angry and do not allow yourself to be manipulated into bad choices that make others more and lose you everything.
When we get screwed over by anyone, we want to blame them, but if you aren’t on your game and taking the time to understand whatever the legal situation is that you are in, then you are very likely going to get screwed in one way or another when you hire an expert advisor.
So, keep your cool. Walk away from a heated situation until you can get it under control or you will always regret it later.
2. Do the majority of the work before you get an attorney involved
Every technology operation needs a good firewall and the business side of startups are no exception. One of the firewalls I rely heavily upon are attorneys. If I am unwilling to pay them for their services to prevent legal issues, then I am an idiot to complain later that an attorney is charging me a lot to get out of the mess I created.
Having an attorney involved at the beginning of a negotiation can be a waste of funds. A big exception to that rule is if the issue has regulatory, government, or criminal legal implications. In other words, if the agreement you are negotiating will be filled with technical issues related to laws and regulations enforced by a government body, then you likely should have an attorney involved sooner. That does not mean though, that you hash through the structure of the deal with the attorney. You need to build the foundations of the agreement and try to think through all the possibilities and negotiate them before you get the attorney involved.
- What happens if one of us gets hit by a bus?
- Who will be responsible for specific actions to be taken on each team to fulfill this deal?
- What actions specifically will be taken?
- What happens if either company were to be acqquired?
- If you are doing a revenue share of some kind, how long does that last after the agreement is terminated?
- What do you or they have to invest to make this deal happen and what compensation is owed if the work is done by one and not another?
I’ve spent the last several weeks negotiating a deal with a partner that is very exciting to us as a company. I’ve reviewed, edited, and signed hundreds of contracts in my life and so, I’ve been able to get through every detail of this fairly complex international agreement, without speaking to a single attorney. Now, I have the advantage of experience, but the essentials of this agreement and what we and our partners want to do to protect each other are what we’ve put into the document.
Now that we’ve agreed on every aspect of the components of the deal and hashed through them without aninmosity and hard feelings, we can hand the document over to attorneys to make sure the wording and structure are correct and for the finalization of the legal components. Now, we know and trust our attorney and we know he won’t try to add complexity to jack up his rates, but that is point #3 below.
If you don’t have a lot of experience with legal documents, then look them up and learn the nuances of them. You can find thousands of publically available legal documents that work from which you can learn. Once you find a few, look at the things that those attorneys and participants thought would be important in those deals and make sure you address them in context during your negotiation.
Once you have your primary points discussed and agreed to, stick to them unless your attorney brings up serious issues that you may not have considered. In that case, go back to the other party and discuss the issue in a reasonable way.
If the other folks insist on having their attorney involved from the beginning, then you have a tough call to make. I personally prefer to move forward with what I want anyway, but I have a great deal of experience crafting legally based deals. I know what I’ve screwed up before and I know what to look out for in advance. That doesn’t mean I’ve thought of everything, because I rarely do, but it means I think of enough things to ultimately reduce my legal fees when the primary things have been decided.
3. Don’t hire a bonehead – Pick the right attorney
Whether you want to accept it or not, hiring an attorney is a mission critical decision. Not only can it cost you a lot more money, but it can also cost you your company.
Hiring based upon rate is stupid. It’s like buying your car from a salvage yard even though it doesn’t run and has no steering wheel. Yes you will save money in the moment, but in the long run, you will spend a fortune rebuilding the car.
That is not to say, that hiring an attorney because they’re expensive is the right thing to do either. They may be expensive, because they’ve spent their career wringing every penny out of their clients and so have a lifestyle expectation that requires ridiculous rates.
If you don’t have or know and trust an attorney that specializes in corporate law or whatever the legal issue you are dealing with, then start asking everyone you trust who they have used in this situation or that they know of that may be good for your particular legal issue. If you can’t find anyone that way, then go to your local SCORE office and ask for help there. You may also be able to find a legal service for startups in your community. Here in Miami, startups are incredibly luck to have the Miami-Dade Legal Aid Venture Law Project to turn to for their legal needs.
Listen to your smart attorney. After everything is said and done, your attorney very likley has much more experience with deals like this and the legal requirements. I’ve also found that they have so much experience with these negotiations, they are able to point out important deal structure issues I hadn’t considered that are business isssues, not legal issues.
4. Hire the right attorney for the specific legal issue
You wouldn’t hire a motorcycle mechanic to fix your Mercedez and you shouldn’t hire a personal injury attorney to craft your partnership agreements. It just doesn’t make sense even if he is your cousin and the smartest guy you know. What he doesn’t know will hurt you and in the end whatever personal relationship brought you toegther will very likely be demolished in the short or long term.
You have to find a lawyer with experience in the topic at hand. Anything else will be a huge waste of money even if they are cheaper, because you are paying them to learn and understand the legal issues of your type of deal. If they wanted to be a corporate attorney, they would have become a corporate attorney. Don’t pay for the specialization change.
Don’t hire a one man shop and don’t hire the biggest firm in town. One will neglect you and one will not be able to get the job done effectively and quickly if they have more than a few clients. Find the firm that is still a little hungry, but has enough staff to be effective. You want someone that values you and your potential.
5. Don’t go to bed with assholes
Ultimately, the worse kind of agreement or partnership is when you go into a business deal with a jerk. If you know about bad actions by a company or the person with whom you are negotiating or they’ve exhibited aggressive behavior or sounded like a bad person over drinks, then why would you do a deal with them? That said, be sure to check the veracity of any rumors you hear and make sure it’s not someone that is spreading falsehoods about that person or company.
Startups are often operating from a feeling of desparation, so when an opportunity comes along they think that they must do whatever they can to make the deal work. I have never had a deal where I had a bad feeling about the people involved turn into something positive. You will regret going to bed with an asshole in one way or another and you will definitely regret it during negotiations. Walk away from these deals and find their competitor or someone else that can provide what you think your company needs, without selling your soul. Otherwise, you will just end up in hell.
6. Build your company with your attorney first
Did you know, that a crafty attorney can figure out a way to make you liable financially for the mistakes of your company even if you are incorporated, because you said the wrong thing to someone in an email? Everyone thinks that incorporating is a wall of protection, but the fact is that the corporate veil can be pierced and you can be on the hook for what goes wrong. Make sure you start the right way and know the rules if you want to avoid losing everything you own.
There are some really critical things you must do when you setup and as you grow your company that you need to establish from the beginning. If you have never setup a company before and don’t have experience at it, then you better bring in an attorney to setup the elements with you and explain your obligations first as an officer of the company.
Be sure you have operating agreements, employment agreements, and confidentiality agreements in place.
7. Understand your deal and what you want before you start
I’ve seen people piss away a lot of things in negotiations and end up with nothing of value, because they were easily manipulated and lost sight of their minimum standards for a deal.
Before you enter into any negotiations, set your goals and minimum must haves from the deal so that you know when you have what you need for success. Try to think through all the things that they will want from the deal and think of a creative way to structure those issues before they even come up.
This post isn’t a post about negotiation, but the fact is that if the deal sucks for you, but your ego won’t see it, then it is very likely you will have some stiff legal expenses down the line. Always be prepared to walk away, but not as a negotiation tactic. That just becomes childish and boring, just be confident in your position and know what you need to make your company succeed. When you know what your minimal standards are for deliverables to benefit you, then walking away is just good business if those can’t be met.
Negotiate in good faith and honestly if you want your legal bills to be small. Nothing makes someone want to sue the heck out of someone like being lied to in a negotiation. Clearly spell out risks, don’t over inflate the benefits. Treat a negotiation like an SEC filing so that everyone understands the variables. You may be surprised what the other team will start disclosing as well.
8. Understand legalese
This one can be really tough for first time entreprenurs, but you have a vast array of resources at your disposal to help you understand the legal terms in your agreements. Do the research and find out what things mean.
If you are negotiating funding, then the number one source I recommend is Venture Deals by Brad Feld and Jason Mendelson (not an affiliate link). This amazing book will give you a detailed understanding of almost every facet of venture capital negotiations and the resources they provide will answer any other questions you may have. In these deals though, you should likely have an attorney involved sooner than later, because funding involves the SEC and you don’t want to screw up with those folks or you may not have a company or a home when they are finished with you. Brad was one of my bosses during the dot com mess and one of the most honorable VCs you will ever encounter and a really nice guy.
9. Don’t try to win the deal
Sadly, Win/Win Deal has become a cliche’, but the fact is that any deal that isn’t a win/win is a bad deal. Yes, you want to get the maximum benefit for your company, but your interest also lies in developing a long term partnership that can benefit all involved. Why would you want to communicate every day with someone that is trying to screw you or that feels like they got screwed by you. This isn’t about winning, it’s about partnering and developing a relationship that could potentially turn into more.
This is a legal cost issue though, because deals based on hubris and animosity will always end up costing a fortuen to clean up later by attorneys. Minimize the expenses and grief in your life and maximize profits, by creating deals that make everyone victorious. Anything else and you’ll just turn into a miserable greedy person that no one likes.
10. Negotiate a flat rate or control the hours
Many attorneys these days will work on a flat rate. Ask the prospect if they do and what they charge for specific generic tasks. Even if they say they are hourly get an estimate of hours required for your agreement by showing them your pre-negotiated document.
If you do end up with an hourly agreement, because the best counsel for your needs is someone that only operates that way, then control and manage the hours. Ask them for a total hours consumed on a regular basis. Don’t wait until the end of the month to find out what you bill will be. Set a maximum hours and minimum notification. If your deal is 10 hours then ask them to notify you at 5 and then 8 hours consumed. It’s your job to manage your employees and set the rules of your workplace and it’s your job to set the rules with your service provider within reasonable limits.
These are only 10 tips. I am sure many of you reading this have more or have counter opinions to mine. Please post them in the comments, so we can have a healthy discussion that will benefit everyone reading this post.
As always, if you need further assistance or advice, please don’t hesitate to contact our team at Captiva.io.