Startups Need a Legal Compass Part 1
By: Barry E. Haimo, Esq.
April 15, 2014
According to Eric Ries, author of the book, Lean Startup, startups are ventures with an unproven business model that are operating under conditions of extreme uncertainty. Steve Blank, Eric’s mentor, would agree. He adds, however, that the initial business model of startups is to search for a profitable, repeatable, business model. This is all too familiar if you have started a business before. At the outset of your business’s life, you hit the gas sprinting towards what you hypothesize is the ideal business model. As Seth Godin says — which is corroborated by most successful entrepreneurs — hopefully you borrow a proven model rather than reinvent the wheel. In startups, you’re going to hit a lot of walls and have to make quite a few “pivots”. To be successful, generally you will need a good team consisting of a variety of key players. You may find great comfort in having an attorney as a teammate to better advise you along the way. Here are some basic questions to ask your startup team:
* Did you form the right entity for business, legal, accounting, management purposes?
* Did you protect your intellectual property? I.e. copyright, trademark, patents, etc.
* Do you have governing documents with your partners building in accountability and a vesting schedule?
* Do you have properly prepared contracts for your key personnel, customers and vendors?
* Are your books in order so your founders can evaluate progress and quantify the size of your runway?
At the core of any business, especially startups, are its systems, and that means contracts to solidify the element of certainty and predictability that is essential to make your systems thrive. It goes without saying that contracts need to be prepared properly or they can be very dangerous–explosive in fact. They generally relate to partners, employees, independent contractors, vendors and customers. It’s important you find an attorney to advise you from the beginning, or it’s more difficult, and therefore, more expensive to clean up the mess later. With the right attorney, you will gain insight into the business model and terrain in which you are entering. In most businesses, the attorney is a small but key player or teammate. The right attorney doesn’t necessarily bill you by the hour because he or she realizes the importance of investing its time to become intimate with your business model. This can be done at a big firm, but you are going to pay top dollar for it. In exchange for obtaining good, insightful and affordable representation, giving your attorney-teammate an equitable interest in the business should be characterized as a worthwhile investment.
Click here for a short Prezi showing all the areas in which you are vulnerable without proper ongoing representation.
Barry E. Haimo, Esq.
Strategic Planning With Purpose
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