What Start-ups Should Know About Hiring a Lawyer

http://www.thedailymuse.com/entrepreneurship/what-start-ups-should-know-about-hiring-a-lawyer/

by nlow • 14 years ago

49 43 14 years ago

sixQuarks• 14 years ago

What kind of startup can afford $350-$800/hour lawyers?

ido• 14 years ago

If it's your first business and you're strapped for cash you can often get free legal advice (in Austria that would be from the Wirtschaftskammer - the ministry of commerce).

Worth checking out which small-business programs your local government provide- a lot of them do, especially for "clean industries" like software.

rayiner3• 14 years ago

When you're a really tiny startup, you don't really have any legal needs that take a lawyer more than a couple of hours to do. When you're bigger, you still don't have a ton of work in terms of hours.

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.

mansoor-s• 14 years ago

I agree with this question. Specifically for bootstrapped start-ups. Will lawyers ever work for equity?

swampthing2• 14 years ago

Most of the big Silicon Valley firms will defer fees until your first significant financing.

t413• 14 years ago

That's incredible how much a lawyer's hourly rate is. A senior partner >$1000/hour? It's amazing how expensive risk reduction services are that, in my mind, equate to a blame shifting strategy.

jacques_chester5• 14 years ago

In court cases where hundreds of millions or even billions of dollars are on the line, it makes sense to pay the lawyer who is 1% better even if he or she costs %100 more.

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.

yen2232• 14 years ago

Somewhere, some lawyer is probably wondering why it costs $1000/hour to develop what she believes is just a simple website.

cookiecaper2• 14 years ago

Do you actually know a web firm anywhere that will charge $1000/hour? Such a rate is unheard of in software consulting as far as I know. Maybe someone like EDS who has huge public companies in their pockets will charge these rates, but I personally have never encountered it and I don't know anyone who charges it.

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.

rayiner3• 14 years ago

I've been both a lawyer and a programmer, and I've observed something: Lawyers will shock you with their hourly rate. Programmers will shock you with how many hours they log.

joshAg• 14 years ago

don't forget that the hourly rate has to also cover office space rent, paralegals, secretaries, utilities and all the other incidental costs of doing business. Though I bet that most of that $1000/hour still goes to the lawyer.

mitchi• 14 years ago

Better call Saul

joshuaheard• 14 years ago

LOL

rdl2• 14 years ago

IMO, this is true.

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.

swampthing2• 14 years ago

It's true, but it's also pretty hard to figure out whether you're actually remaining within the law since things are so rarely tested (at least in the startup world).

RenierZA• 14 years ago

http://www.bettercallsaul.com/

jacques_chester5• 14 years ago

Here's what I learnt in law school:

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...

sharkweek• 14 years ago

I clerked at a law office while I was in college -- the lawyers there were happy to offer free 30 minute consultations because the conversion rate of the people that showed up for those was actually pretty high. It was a great way to build trust right off the bat and to ensure it was a good fit for a longer term partnership

jacques_chester5• 14 years ago

Exactly. And for the same reason my lawyer above is giving me a fixed-price on the work he's doing.

(I think he's nuts for quoting fixed-price on anything legal, but I'm hardly going to say no.)

atirip• 14 years ago

In US certainly, but here's what I learnt living in Europe. You basically do not need lawyer. Ever. You can live happy life and run happy business. Without lawyers, without fear that somebody/anybody can/will sue you of anything. Wthout fear of shady contracts, shady business practicies etc. And even in very rare occasion when somebody decides to sue you and this case goes to court, even then you do not always need a lawyer. In Europe you can go to court without lawyer and win. I did, so can you.

jacques_chester5• 14 years ago

I'm in Australia, not the USA. And we're talking about business owners, not private individuals.

kryptiskt• 14 years ago

> Without lawyers, without fear that somebody/anybody can/will sue you of anything. Wthout fear of shady contracts, shady business practicies etc.

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.

veidr2• 14 years ago

I know posters below are ripping your 'in Europe' phrasing, because truly, there's no 'Europe' when it comes to legal systems and judgements.

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.)

shin_lao• 14 years ago

You obviously never had to fire anyone, had a customer who refused to pay you or had to sign an important deal with a large company.

grabeh2• 14 years ago

I think they chose the wrong lawyer to speak with. From what I can tell, he's a lawyer more versed in dealing with much larger companies and venture capital transactions as opposed to the typical start-up (if such a thing exists).

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.

splittist• 14 years ago

For a non-Valley, non-VC, non-swing-for-the-fences (Sand Hill Road cookie cutter) startup, think about where your risks really lie (who is going to sue you; when; why; and for how much). If you have partners, then having someone walk you through all the 'what if things go wrong' stuff may be useful. If it's just you, then you can even postpone incorporation. 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). I would be amazed if it made sense for the median startup to register any trademarks. And if you "need" patents, really drill down on what that "need" is (if it's just a tick-the-box exercise for eventual VC's, then one jurisdiction might be enough; if you need a global patent protection strategy to secure your fundamental business value, you're doing it wrong).

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".

bigiain• 14 years ago

I'm not so sure about the trademark thing. I've just started that process with my partners non-tech new business. Here (in Australia) you can do a bunch of searches online, and enter a trademark application on a government website for $120, and if it;s approved you pay $300 for 10 years trademark protection. Once you've got all your domain name / twitter handle / social media accounts and pages lined up, a few hundred bucks for trademark protection in your area of business seems like money well spent to me, even if all it does is discourage someone from making a claim they've got more rights to a domain name or social media account name than you.

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...

jacques_chester5• 14 years ago

Yep, trademarks are fairly self-service in Australia. Generally you can leave the lawyer out of it unless and until a dispute arises.

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.

rprasad• 14 years ago

If it's just you, then you can even postpone incorporation.

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.

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.

nirrrrrr• 14 years ago

the most important skill is DEAL MAKER. A lawyer that will guard your interests while aware of the other side needs. There are so many lawyers that guard their client while totally alienating the other side.

meriksson• 14 years ago

TL;DR: Since dealing with high-end lawyers is often tough, contract someone to do it for you.

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.

veidr2• 14 years ago

This is such awesome advice. Find and hire one good lawyer, who the deals with all your other lawyers.

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).

oregonspanish• 14 years ago

Do you think that other startups would be interested in this type of in-house counsel-as-a-service?

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.

carbocation• 14 years ago

Not sure how George Grellas hasn't been mentioned yet (HN's "grellas"), but if you're a US startup, I recommend his firm.

DoubleMalt• 14 years ago

Interestingly the red flags section would apply to programmers with only minor changes.

Probably to any profession, but programming is the one I know about ;)

What Start-ups Should Know About Hiring a Lawyer

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