Lawyers for Startups: what you MUST know before you hire
Startups need lawyers, but how do you choose the right ones? And are you maximizing your lawyers, or simply wasting your money?
Why do startups hate lawyers?
Disclaimer: I have worked with over 30 different lawyers throughout my career to date. A few have been awesome, and some have really sucked. They were all expensive. Some of the most expensive ones sucked the most.
There is plenty of hate in the world for lawyers – just take a look at some of the lawyer jokes out there. But startups seem to struggle with lawyers more than most.
There are several reasons why startups and lawyers don’t mix:
- Lawyers are expensive and startups are usually very short on funds.
- Lawyers tend to be “worst case scenario” people – that’s their job. Whereas entrepreneurs tend to be optimists. So, there is an extreme clash of mindsets.
- Entrepreneurs want to create and build. Lawyers don’t really build things.
- Lawyers (bad ones) are often far removed from the business side of the equation and can get wrapped up in legal minutiae.
- Nothing is guaranteed with legal advice. You spend a lot of money for an informed legal opinion but if the advice is poor, it is still *your* problem. This is frustrating for startups. We are used to vendors delivering on what we paid for.
- In my experience, there are seldom clear wins in the legal world. There is usually a settlement and compromise between two companies in conflict, and then there are lots of legal bills. Entrepreneurs quickly learn that the legal route can be very expensive and yield few results when taking on a competitor, especially a bigger competitor. Your lawyer will often declare it a success because you didn’t have to go to court. Umm… yeah.
Why do so many lawyers suck?
There are a lot of lawyers. As with any profession, some will be better than average and 50% will be below average.
Lawyers don’t always stick to their specialty
They come from different backgrounds and there are many different specialties. Lawyers often get involved in things outside of their specialty. You wouldn’t have an electrician do your plumbing, but in the legal profession this expertise switch happens often, especially with “general counsel”. They may handle a question around intellectual property to help an existing client, or they reach out to their network to get some advice. This is often expensive and doesn’t yield best-in-class advice. That said, finding a new lawyer with a specialty needed for a one-off project and doing an engagement letter (potentially including a deposit, etc.) will be neither fast nor inexpensive.
As a startup, it’s difficult to vet lawyers
There is no reliable rating or review system for lawyers. You typically search for them online or you get a referral from an existing business contact. Be careful with referrals – make sure you understand why the person is referring that lawyer and what level of experience they have had with them. Knowing this will help you determine whether the lawyer will be a good fit for your situation.
How can your startup get better results with lawyers?
The trick is to choose the right lawyer for the task at hand.
- Recognize that specialties matter. You’re probably going to need more than one lawyer, especially as your startups grows. You only pay for their services when you use them but having some relationships already in place will help. Some typical lawyers that a startup may need:
- Intellectual property lawyer – for SaaS B2B startups this can be critical if you’re considering patents, trademarks, and general advice on IP.
- Merger and acquisition lawyer – if you are fund raising, looking at acquisitions, or anything in this area then this specialty is essential.
- General counsel lawyer – this is often an independent lawyer (not at a big firm) who has general expertise around contracts and miscellaneous items that come up. They can probably handle a lot of general stuff and will be cheaper than a big firm.
- Commercial real estate rental lawyer – if you’re considering leasing space then find a lawyer with this specialty. They might be able to review and advise on a contract for as little as $500-$1,000 before you sign a 7-year commercial lease. You will only need this lawyer as a one-time deal when renting office space on long lease terms, or when you outgrow the coworking spaces available.
- Human Resources lawyer – as your startup grows beyond 10 employees this specialty is helpful. You may need to fire people or deal with disciplinary situations or breach of contract etc. It’s also worth getting all your initial employment contracts done correctly when doing your first hires.
- Find the right lawyer for the job. I prefer recommendations, but I make sure I understand how strong the recommendation is. Meet with the lawyers to feel them out – they should offer a free meet and greet. Make sure your styles and attitude match. If they are old school mentality with a wood paneled office and a suit, that might not match the vibes in your “shorts and sandals” startup. Find people that you can work with.
- Look for a business mindset in your lawyer. Startups are about making the impossible work from practically nothing. We don’t have $15,000 to spare on a maybe. The lawyers you work with need to have a healthy mix of business savvy and legal aptitude so you can navigate risk with practicality at the same time. You don’t have money to burn so you need to focus on “good enough”. Find lawyers who have experience working with startups if possible.
- Work with busy lawyers. If your lawyer is busy then they’ll have a steady workload and won’t be looking for creative ways to add billable hours to your account. 🙂
- Discuss cost estimates. Lawyers work on a bill rate per hour which could be anywhere from $200 per hour to a whopping $1,500 per hour. And they typically bill in 6-minute increments. When discussing a new project or issue with your lawyer, be sure to ask about a cost estimate for the project so you are both on the same page regarding the budget required. This helps to set clear expectations for both sides.
Lawyers are a necessary part of doing business, but it can be a much better experience if you follow these guidelines. And if you don’t like your lawyer, get another one. There are plenty of lawyers around.