What Start-ups Should Know About Hiring a Lawyer
thedailymuse.com
thedailymuse.com
At my company we went through a handful of lawyers, mostly from big firms. We were extremely unhappy with the experience, especially since we did not seem to get reasonable value for our money, ours being a very small account for any established law firm.
Eventually we found a solution that was perfect for us. We now work with a freelancing lawyer who caters to startups and is an absolute joy to work with. He does all kinds of stuff on his own, kind of like our own part-time in-house legal council, but the big thing for me is that he can decide when we need some more muscle (i.e. big law firm, specialist in some type of law), and then we pay him to find, subcontract and manage all contacts with other lawyers.
I can not extract anywhere near maximum value from an expensive lawyer - this guy has a much better shot at it. As the CEO, I save a lot of time and anguish by only ever speaking to one lawyer, and the most pleasant one I've met at that.
If you want to get in touch with my legal guy - based in Stockholm, Sweden - ping me and I'll send you his contact information.
It might not apply if your investors have their own legal muscle that they can introduce. But, if you are <10 employees, it is insanely expensive (manpower-wise) to deal with finding, retaining, and managing decent legal counsel (to say nothing of replacing them due to a sudden conflict of interest, when you unexpectedly find yourself facing a huge firm like Apple/J&J/Halliburton/etc, who seemingly contract 99% of all law firms).
This would give teams the benefit of having single source that knows all your issues and goals, but could also negotiate effective rates with specialists.
Do you have a legal question? See a lawyer.
A few hundred dollars now versus an uncapped downside later? You're basically crazy if you don't.
Your lawyer and accountant are to your business what a doctor and a dentist are to your body. You see them regularly, they give you specialist advice and they can save you serious trouble if you take their advice. These individuals see more permutations of business in a week than you will see in a year.
So stop double guessing whether your company will need a lawyer. You will. You just might not understand it yet. Lawyers and accountants are part of the cost of being in business. It's not their responsibility to be cheap. It's your responsibility to produce enough value for your customers that a profit gets made somewhere in the mix.
Like the article says, shop around. I'm the middle of getting a patent drafted. I picked my lawyer[1] based on the fact that he had a computer science degree and industry experience. You can do the same. Ask. Inquire.
And remember, lawyers are like drug dealers: the first taste is usually free. Go meet them. If you don't like them, see someone else. It's business, after all, not your personal life.
[1] http://www.ghfip.com.au/ws/principal-attorneys/index.jsp#Tho...
(I think he's nuts for quoting fixed-price on anything legal, but I'm hardly going to say no.)
That is just not true. Nowhere can you be happy-go-lucky about the contracts you sign. Even where there is a degree of protection for consumers like in Sweden, and I wouldn't just assume that everything will work out fine even then, b2b is very caveat emptor.
> In Europe you can go to court without lawyer and win.
What does "in Europe" even mean? There is nothing unified about the legal systems here, even in basic principles. Navigating the UK legal system is wholly unlike doing it in Italy.
> I did, so can you.
He did, maybe you won't be so lucky, get a local lawyer.
Especially as there isn't really a single UK legal system.
But after stints in Malaga, Amsterdam, London, and Marseilles, I believe you. The legal systems there in Europe, in aggregate, do seem fairer and more logical than what the USA has. Especially with respect to small business.
Maybe "Ever." was overstating the case. But I do think that in most of Europe you need to worry about litigation so much less that it makes the US system seem bizarre.
(This is also true in Tokyo, where I live. This makes me suspect that some kind of weird outlier thing is going on in the USA with regard to litigation, as it is with infant mortality, literacy, etc.)
When you do hire a lawyer, get an estimate up front, make clear that you want to know in advance if the bill is getting anywhere near the estimate, and require monthly interim billing if there is something ongoing. If you can fit in some scornful laughter at the idea of billing for photocopying and phone calls, that would be good, too. Many lawyers pay lip-service to the idea of fixed fees for defined projects: think about calling their bluff. And ask about other value-added services they might provide, such as introductions to other clients who might be interesting to know. This will be like pulling teeth, because lawyers are pretty terrible at everything in business except (if you are lucky) the legal stuff.
But they probably do know the legal stuff better than you, so don't try to impose irrelevant constraints, like "I want a one-pager for this".
Of course that adice mostly applies to trademarking names which clearly have no existing claimants (or at least none in your area of business) which would complicate things enough to require law firm time to resolve...
That being said, some lawyers only charge a pretty minimal amount over and above the underlying IP Australia fee and it can nice to delegate the paperwork to them.
It really depends on what your time is worth.
Or you could just form an S-Corporation, which is intended precisely for small companies, convert to a (classic) C-Corporation if and when necessary.
As for tax - that's a nice problem to have, but it's not one that's going to loom large on day one (or even year one).
Taxes will loom largely from the very first quarter, especially for unincorporated individuals. Income and business taxes are owed at least quarterly; sales taxes or VAT are owed biweekly, monthly, or quarterly depending on the jurisdiction. In this regard, incorporating is definitely a benefit, since any penalties for failure to timely pay taxes will accrue to the corporation and not to the individual owners.
When you do hire a lawyer, get an estimate up front, make clear that you want to know in advance if the bill is getting anywhere near the estimate, and require monthly interim billing if there is something ongoing.
Or just hire a lawyer that provides services for a fixed fee, as most startup laywers and small business lawyers already do. Monthly billing is standard practice; indeed, many malpractice insurers actually require lawyers to invoice clients monthly for risk management reasons.
If you can fit in some scornful laughter at the idea of billing for photocopying and phone calls, that would be good, too.
If you are paying hourly rates, this is a legitimate issue...unless you are the one initiating most of the phone calls. If you are paying a fixed fee, this is a non-starter.
Many lawyers pay lip-service to the idea of fixed fees for defined projects: think about calling their bluff.
If you sign an engagement letter providing for a fixed-fee, that is not a bluff. That is a binding legal contract, and a lawyer who violates that contract can get disbarred. If you mean that the lawyers market fixed fees but instead try to negotiate hourly fees, I suggest you call your local bar association and report them. Deceptive marketing is serious ethical breach in nearly every state, and can even result in disbarrment.
This will be like pulling teeth, because lawyers are pretty terrible at everything in business except (if you are lucky) the legal stuff.
Your lawyer is a businessman himself. Think about it: he runs his own (legal) consulting business. You are his client. He acquired you either through marketing, networking, or referral--in other words, the 3 primary means that any service provider acquires a customer. He handles his own costs, taxes, staff, everything. Unless he's brand-spanking new, he's almost certainly a better businessman than you, and will probably remain so for the foreseeable future. He's already making a profit. (In the real world, success is measured by profit, not eyeballs or signups.) But the economics of legal practice are different from those of a startup, so make sure he understands your economic concerns and can tailor his services to meet your needs.
Anyway. You won't be hiring the $1000/hr lawyer. For almost all the stuff that startups need to get done, a lawyer who charges in the sub-500 range is going to get it done and done well.
Don't let sticker shock fool you. Lawyers provide an essential service. It would be nice if we didn't need them. It would also be nice to get free unicorns and backrubs from models. Too bad, that's not the world we live in.
The most expensive software consulting I've seen in the wild is $350/hr, and that was for a very specific niche. I know other very specific niche service providers who charge $200/hr.
As I've said previously, I think the fact that most other professionals max out around the rate that the cheapest and least experienced lawyers start shows there's something perverse with the law industry.
$1000 is not unheard of at all. Yes, you're right, the likes of EDS, IBM, Accenture, etc. are easily charging the upwards of $1k/day. But any decently sized firm (50+ employees) is going to charge roughly that amount. You'd be shocked to hear some of the price tags on corporate website development...
I think this is the overall point. Go for a small specialist who will treat you like a king/queen. You don't need a corporate law firm. There are too many transaction costs that you simply don't need (assuming you're small) or can risk accept not having.
I said $1k PER HOUR, not per day.
I'd like to know of software consultancies that charge that much money per hour, excepting the typical fleecing when your deals are built on backroom backscratches like you'd find with the public companies served by EDS et al.
Percona has over fifty employees and they charge $350/hr for standard services and $450/hr for premium service. You only go to Percona if you have a very, very specific MySQL problem that needs to be resolved, and the staff at Percona is populated with as many major MySQL players as are willing. They definitely represent the big guns, when you really, really need your MySQL stuff fixed ASAP and can't fiddle around with people who aren't core MySQL developers, the people who invented the system. They are the top of the line in their niche, and they charge as much as a fresh-from-college lawyer.
A normal, generic consultancy will charge between $100/hr-$200/hr and often their employees aren't anything to sneeze at either, they're just less specialized and therefore have a less compelling case for such high rates. I know of no one in the realm of standard or even most niche commercial software consultancy that rakes in $1000/hr+.
If you know such a company, I'd like to learn their strategy so that I can start charging that much.
Secondly, $1000/hour works out to about $240,000 per month. It's a high figure, but I have worked on a 3-month project that cost the client $1,000,000 before. Granted it wasn't a 1-man job, and God only knows I didn't get to see much of that money, but still, that was how much the client was billed for.
Particularly in the field of web (contrasted with physical products/live events for example), the need to consider compliance is reduced. If you are providing a good service to users, it is unlikely you will run into issues in terms of consumer complaints.
I would caveat it by suggesting that intellectual property is (obviously) an important area to consider. However, there are online tools for patent searching which will be able to give you an idea of whether your product could be patentable (no patent search even done by a lawyer or patent attorney would be exhaustive in any event).
As to brand protection, trade mark registration in the territory where you are based will be relatively cheap and will give you a degree of leverage if someone else starts up a similarly named service. Although it must be said that the main reason people will copy a name is to piggyback on goodwill which will not be a relevant consideration for most start-ups.
Many actual start-up lawyers will be willing to give a few hours of their time for free or at least should be, to talk with you about your business and highlight any initial concerns and make recommendations to help your business.
If they do provide recommendations, I suggest that if they haven't done already you request a fixed rate for any one particular piece of work. If they can't provide a fixed rate, I suggest you look elsewhere. There are sufficient good lawyers out there to enable you to find one who will be willing to be more flexible on fees than rigidly sticking to an hourly rate.
In terms of tax, I would suggest the above but in relation to an accountant, the basics of corporate taxation are relatively simple and you should be able to find an accountant willing to give you time for free.
On a side note, although it is easy to bash lawyers' fees, if you are a large corporate operating in an area where legal compliance is crucial, an hourly rate of $1000 per hour is a drop in the ocean if it saves you many multiples of that in avoiding costs. Blame shifting in ensuring you have someone that you can sue if they make a mistake can be priceless. But that doesn't mean it's appropriate for start-ups particularly considering monies could be spent better elsewhere.
Probably to any profession, but programming is the one I know about ;)
1) Saul: "sometimes you need a criminal lawyer". 2) Startups: "sometimes you need an entrepreneur lawyer". I've always heard that the difference between competent and great lawyers is that competent lawyers will tell you what you can do within the law (i.e. how you can handle a financing round, etc.), and great lawyers will help you figure out how to do the best thing for yourself and your business while remaining within the law.
Worth checking out which small-business programs your local government provide- a lot of them do, especially for "clean industries" like software.
The startup I worked at had a quarter-million in legal fees one year. That was about as much as just one of our hired-gun contractors.