Epicom hired a new law firm in November and the selection process reminded me of how our legal needs have changed over the last few years. I suspect this is the same for many companies experiencing high growth.
Epicom has gone through several phases in its need for more sophisticated legal help.
- No legal help during the early days when we had no money.
- Minimal legal help from a solo general practitioner.
- More legal help from two solo practitioners with different specialities.
- Even more legal help from a small firm specializing in high growth technology companies.
In retrospect, this structure has worked well and, I think, balanced our need to keep costs down without exposing the company to undue legal risks. As the company grows, our legal needs have definitely grown too and the money we spend on legal expenses as a percentage of revenue has increased.
Here’s how we addressed our legal needs without spending too much money along with some things I would do differently knowing what I know now.
The Early Days
In the early days, many startups have no money for legal help. This can be a scary situation because mistakes can be made that might affect the future viability of the company. Talk to lawyers and they will tell you that you must spend money on legal help to keep yourself out of trouble. But business owners have to balance legal risk against all of the other risks of running a business, like running out of cash, or not having any new customers. A strong legal structure is of no use if your business goes bankrupt for other reasons within months of starting. In the early days, when cash is scarce, do as much legal work yourself as possible. Read books, take classes, and ask other business owners for contract templates they have used successfully. You will save money and the lessons you learn will help you in your business as it grows. If you are completely unfamiliar with business law, I strongly suggest taking a class to ground yourself in the basics. I took a business law class in graduate school and my business law text sits next to my desk to this day and is not infrequently referenced.
I’m a big believer in doing most of the legwork yourself during the early days of a new startup, but hire an attorney to review your work and make sure no mistakes have been made. Smart attorneys who enjoy working with startups will balance your needs with theirs and realize that helping you get your business off the ground will benefit them with additional business in the long run. This should help you keep overall costs down.
Here are some things you can do yourself in the early days to save money:
- Business Structure – In Texas where I live, creating a corporation or LLC is fairly straightforward. Ask an attorney to help you with the decision of what business structure is correct, but do the leg work of completing applications yourself to save money.
- Contracts – Before engaging an attorney’s help in writing customer contracts, spend some time considering the business objectives of your contract. What are the terms and conditions of doing business with a customer that are important to you? What risks do you want to avoid? What risks can you accept? Look for examples of contracts that companies similar to yours have used and learn from them. What provisions are they including that you should also include? If you find an agreement that seems especially suited to your needs, ask if you can use the agreement as a template for your business. Once you have all of your business needs outlined, an attorney can add (or modify) the appropriate legal language with far less effort and cost.
- Customer Negotiations – If your business is a service business like ours, expect customers to ask for modifications to your standard contracts. It can be frustrating when the cost of legal advise on a requested contract change is more expensive than the value of the contract itself. Learn where to draw the boundaries with prospective customers so they know what you are willing to accept and what you will not accept before attorneys are brought into the process. An attorney can advise you on legal issues, but the business decision-making will still be yours so you might as well think through all of your business objectives carefully before picking-up the phone to your lawyer.
A big change came for Epicom when we began creating Intellectual Property (IP) that we wanted to protect. Before this we only needed an attorney for the occasional contract modification or question brought up by a prospective customer. But once we started creating IP, we needed an IP specialist and hiring one has turned out to be a smart decision. We worked for several years using a couple of different independent attorneys who had great resumes and had left positions in big firms for the flexibility of solo practice. Their rates were much lower, they were fun to work with, and they were able to provide us the billing flexibility that startups like ours need. One of our attorneys reduced her rates by $50 per hour in exchange for us keeping a $2,000 balance on account with her. This worked great for us because money was always on account for legal work and we got a great rate for a high-quality attorney.
Our IP attorney did a great job of educating me on the basics of intellection property and this turned out to be a smart investment. The first few times we engaged her on a project, our IP attorney would write me long explanations justifying the recommendations she was making. At first this seemed like overkill and I worried about how much this advice was costing. But after a few projects I became much more knowledgeable and confident in my negotiating abilities. As a result, I relied on our attorney less and was able to make more decisions on my own without her input. This saved us a lot of money in the long run.
Epicom has recently moved from independent attorneys in solo practice to a small firm that specializes in helping startup and high growth companies, most of which are in the technology space. They are more expensive than our independent attorneys, but they are very efficient and bring a variety of talents to the table. As our company grows and our legal needs diversify I think this decision will prove to be a good one.
Have a story about your own experience hiring legal help? Free free to share your experiences below.