By: Barry E. Haimo, Esq.
May 5, 2017
Entrepreneurial Lessons From Watching The Founder
I watched the Founder for the first time last night. It was a well done movie: good script, great storyline and superb acting from everyone involved, including, of course, Michael Keaton. At times it was painful to watch because they were some glaringly obvious fundamental mistakes happening before my eyes. Mindful of the fact that the founders antagonized and inadvertently fueled Croc’s motivation to beat them, here’s a few gems I took away from the movie through the lense of my perspective as an estate and business attorney and entrepreneur:
- I would have provided better legal representation to the founders at the outset of their company, long before Croc showed up, with comprehensive basic governing documents in place, intellectual property secured and a clear vision and direction for the company.
- I would have provided better legal representation to the founders at the outset of the initial franchise agreement with Croc. It appears they had dangerously narrow tunnel vision, being only concerned with their priority of controlling quality and remaining consistent with the product and speedy system. They ignored, and therefore beared, all other risks; a no-no in business 101.
- The founders thought that they were adequately retaining control because of the sneaky clause they inserted that Croc’s ability to make changes or other modifications without their approval which appeared CONSPICUOUSLY IN ALL CAPITAL LETTERS. They snickered when Croc went through it and read it with approval because they thought they were cleverly addressing their concerns. The problem was that there was obviously not a sufficient dialogue with their attorney adequately communicating both their KNOWN concerns and those of which they may have been UNAWARE. Otherwise, they would not have relied on just a single paragraph about modifications to the business. It would have been pages and pages covering all aspects of the business, including the process of adding franchises, identifying franchisees, identifying and owning locations, leasing and/or buying real property underneath franchises, logistics and distributions, etc. (Btw the process of perfecting distributions and who was responsible for that was dramatically oversimplified in the story). Nevertheless, the founders mistake was in the lack of dialogue with the attorney so he or she could provide expert legal advice including illuminating and addressing issues they did not see. If they did have a good dialogue, they needed a better attorney.
- In addition to dialogue and a thorough flushing out of all foreseeable issues that could arise, they did not build into the agreement sufficient milestones and protections to ensure that they had their finger on the throttle of growth. They should have negotiated a right of refusal after a certain amount of stores opened that Croc would have happily signed at the outset. Said differently, the founders entered into a poor business deal with Mr. Croc, as they appeared to have given him unfettered and exclusive rights to franchise the business throughout the whole universe. They could have significantly limited the scope in terms of time and geographic location and tied him to performance of the stores instead of giving him the rights to multiply stores like a rabid dog. Similarly, Mr. Croc entered into a bad business deal too, which obviously, at least in part, fueled his ambition (i.e. constant “no” responses to his requests for changes and expansions).
- If not clear enough from the prior point, do not EVER rely on a single paragraph to protect your main concerns. This story shows how there’s always ways around things so it must be thoroughly thought through by professionals who do this regularly.
- To the extent possible, I would have trademarked the name, logo and composite of the name and logo under the founder’s company as franchisor. That would have ensured that they controlled the intellectual property for the duration of the franchise agreement.
- I would have also patented the speedy process under the name of the founder’s company as franchisor and evolutions of the speedy process through continuations.
- Likewise, although less significant, I would have patented the ketchup and mustard concoction they created as part of the speedy process and evolutions of the speedy process through continuations, again, under the name of the founder’s company as Franchisor.
- The second most egregious aspect to the movie was how Croc treated his wife. I find it inconceivable that she received no shares of the company since it was a marital asset (acquired during the marriage). I would need a guest post from a family law attorney to adequately address how equitable distribution (at least in FL) would apply to that situation.
- Lastly, the most egregious part of the movie was undoubtedly this: under no circumstances would I have ever relied on Croc’s word to pay the royalty as promised. It is unconscionable that the founders signed the agreement with that provision removed.
Yes, business and laws have changed over time. The bottom line is that the founders could have protected their rights and limited Croc’s rights beyond a small paragraph in CAPITAL LETTERS. They could have negotiated a better more protective deal. A good business and business-minded attorney would have helped considerably. Of course hindsight is 20/20, but consider this: after the cookie crumbled at the end and they lost all of their leverage, think about how much the founders would have paid, or more accurately, INVESTED) in exchange for quality legal representation at the outset of their deal with Croc..
Barry E. Haimo, Esq.
Strategic Planning With Purpose
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