The Four Things Startups Need Their Lawyers to Know
Make sure the attorneys you bring on board will be able to meet your company’s unique needs.
“The first thing we do, let’s kill all the lawyers.” This declaration from Shakespeare’s Henry VI is made by Dick the Butcher, a gang member plotting to overthrow the King of England who is afraid the honorable lawyers might gum up the works.
I was recently reminded of this line when a startup I invested in was acquired and the company’s founder shared with me that he was aghast at the legal bureaucracy he encountered at his new parent corporation. The lawyers were not adept at delivering speedy, practical solutions, and the founder was forced to spend far too much time micromanaging or working around them.
This mismatch is hardly unique. Over the past few years, several well-funded startups have pursued a get-big-fast strategy to maximize early-mover advantages. But when there is a rush to hire throughout the organization, a company can easily end up with lawyers who, by nature or training, are ill-suited to its particular business climate.
Startups must be nimble, creative, efficient, and willing to fail fast. If a company’s attorneys lack the appropriate instincts for the startup environment and unnecessarily block business initiatives, they can become critical choke points in the business’s operations. And this can prove ruinous. So rather than hiring lawyers who fixate on preventing potential losses, a startup company needs attorneys who can help the business exploit opportunities and score wins. Here are some things startup business leaders need to make sure their lawyers know:
A startup company needs attorneys who can help the business exploit opportunities and score wins.
How to mitigate, not eliminate, risk. Attorneys need to manage the company’s legal and reputational risk, but they must resist the instinct to eliminate all risk. In a startup, an expensive and obviously compliant solution may be a poor option compared with an inexpensive and potentially compliant solution. To properly evaluate the alternatives, attorneys need to be able to crunch the numbers and apply mathematical reasoning to inform their judgment. This means assessing (a) the upfront cost (monetary or otherwise) of each alternative, (b) the likelihood that any solution could be challenged and judged legally insufficient under the applicable legal authority (contract, regulation, guideline, etc.), and (c) the remedial cost if the company must alter its initial course of action. Although attorneys don’t need to recommend the lowest net-present-cost option in every case, they should be willing to advocate for the best business solution — which isn’t always the conventional legal solution.
How to offer and explain options so colleagues can act on them. The in-house attorney’s job is to inform and educate his or her colleagues about legal risk, in plain language, and put them in a better position to assess that risk against operational requirements and opportunities. Using conclusory statements to close off discussions about options other than the most conservative course of action may exempt the lawyer from decision-making accountability — but it does so at the expense of the business’s needs. Instead, the startup attorney needs to develop and deliver actionable information that sparks meaningful dialogue and assists the company’s business managers in making the right call.
That outside counsel reports to the company, not the other way around. In-house attorneys are unlikely to be effective advisors if they rely too heavily on outside legal counsel and become nothing more than conduits between business executives and the law firms that represent the company. Outside attorneys typically have less insight than inside counsel into the organization’s operations, which may constrain them from advocating for the most practical solutions. Of course, it’s important for in-house attorneys to leverage outside expertise, but they must harvest actionable information by constantly pressure-testing the advice with alternative assumptions and different proposed courses of action (i.e., “what if” scenarios). Otherwise, in-house counsel might descend into an overly cautious, lowest-common-denominator approach that is particularly unsuited to the startup environment. The startup attorney must minimize operational disruption and design solutions that preserve the core business objectives.
The business — and be willing to pitch in everywhere. Most lawyers will have trouble providing strategic advice if they can’t thoughtfully contribute to discussions of business issues. And if attorneys are unfamiliar with the operational details and view their role as simply reacting to legal questions raised at various intervals by others, they’ll become more isolated from the business over time because colleagues will be less likely to include them in business discussions. To be successful, startup lawyers need to actively engage with the business and take wholehearted ownership of the company’s business objectives.
Lawyers often play a critical role in the development of new businesses. But, unlike many other professionals, lawyers are regularly entrusted with a unique privilege to block action, which can be a big problem for a quick-moving startup. So, when scaling up, startup leaders need to ensure that their in-house attorneys are culturally aligned with the business and capable of driving core priorities and the bottom line as much as managing the legal issues.
Shakespeare’s Dick the Butcher had a point — even though his proposed remedy was a bit over the top. A revolution requires a profound commitment to a common cause and a bias for action. And startup companies are all about the revolution.