Bar News - August 19, 2011
Opinion: A Client’s Perspective: Don’t Waste Your Money on Lawyers
By: Jason Freedman
This provocatively titled blog post caught my eye. The title was catchy and cleverly misleading – the writer did not advocate doing without lawyers. Instead, he shared advice on not wasting money on lawyers by unnecessarily relying on them. Recently, I shared the blog post on the NH Bar Association Group page on LinkedIN. The posting drew brief comments from three attorneys in different practice areas. The blog author and the three lawyers agreed to have their comments reprinted here. – Dan Wise, Editor
When I started my first company Openvote, I asked my lawyer’s advice on every legal matter. I thought it was essential that he be involved in everything that could one day come back to haunt us. He prepared us with NDA templates. He explained every detail of the articles of incorporation and the bylaws. He did an incredible amount of work for us. He was not the most expensive lawyer by the hour, but we used him a lot. I had budgeted $12,000 of credit card debt to get us to a prototype. The bill from the lawyer before we’d barely written a line of code? $9,000! Holy Sh*t! Of course, I negotiated it way down, but still, I had screwed up. It was my responsibility to manage his time. A lawyer is a service provider. The entrepreneur has to manage the costs associated with his work. When we started [my next company] FlightCaster, I worked incredibly hard to learn as much as I could on my own time. I figured that with enough blog reading, friend-bugging, and advisor counseling, I could get away with only the bare minimum in paid counsel.
Startup Legal and Financial Resources:
Startup Lawyer - This site flat out rocks. Read every word on it. Twice. It’ll teach you all the basic of dozens of legal issues that will come up with your startup. Everything from 83b to vesting to IP.
Venture Hacks - I just love these guys. They are doing so much to help the entrepreneurial community, and in ways that are good for everyone. In addition to running Angel List, they’ve written and collected some of the best resources on the web. Everything from equity to board seats to due diligence.
Feld Thoughts - This is the blog and startup resource center run by Brad Feld, of TechStars and Foundry Group. While there are now hundreds of [venture capitalists] with blogs, Brad’s is one of the most comprehensive set of concrete resources out there. He also uses Lijit to power search of both his blog and other top blogs. It’ s a powerful way to find high quality, curated advice on any startup topic. Everything from 409a to financial statements to negotiations.
YC Series AA Documents - Y Combinator worked with Wilson Sonsini to create a solid set of equity financing documents that startups and angels can use as templates. They’re neutral, vetted, and free. Even if you’re not using them, reading through them is a great way to educate yourself about all the topics you’ll face during a financing round.
Funny thing happened though. All this extra work on my side meant that I could now afford to hire the very best!
You should insist on working with incredible people in all aspects of your business. If you only hire world-class engineers, apply that same demand for quality to your accountant and your lawyer. There will be times when they prove their value. Our legal and financial counsel contributed an incredible amount to FlightCaster’s success and I’m certain that, without them, our result would’ve been substantially worse. And because I only used them for the most important questions and tasks, their overall impact on our cash flow was actually reasonable. Most importantly, I put the effort in to self-educate, which helped me make better decisions overall.
Asking your lawyer questions about general startup stuff instead of doing your own homework is just pure laziness. And worse, your lawyer will give you advice that is the absolute most conservative strategy you could possibly pursue. It’s like asking the referee how to play football. You need to learn the game from other players and coaches. Use your lawyer for the really hard-to-figure-out stuff.
In order to use your financial and legal counsel less, you’re going to have to self-educate. The following links and several weekends of your time should get you started. (Visit humbledmba.com for the specific links.)
Jason Freedman is an executive at Flightcaster, which offers flight-delay prediction software. He has an MBA from the Amos Tuck School of Management at Dartmouth College and is also the founder of OpenVote, another startup. He blogs at humbledmba.com.
NH Bar Association Group Members Respond on LinkedIn
Michael Listner, an attorney and policy consultant in East Rochester: I take a proactive approach with business clients whether they are non-profits or for-profits. The rationale is that if they come to me first I can show them where the mines are so they can navigate through them. Still, my experience has been, particularly in the organizational setting, that there is a mentality to play "hide the ball" from the lawyer. These people end up consulting the lawyer as they go into damage- control mode when they hit a mine.
Edward Adamsky, an estate and elder law practitioner in Pelham: You have to be pretty smart and pretty educated to know how to use a professional’s services. Many of us have to rely on the professional - I don’t know what to tell my doctor to do or not do. I might guess that I don’t really need that expensive MRI, but I’m not sure. You can ask your lawyer to help provide you with only the low-cost or fixed fee services that you really need - but then you still have to rely on the lawyer to know what it is that you really need and what you can do without.
Yes, educate yourself as much as possible before going to the professional - but then you still have to trust the professional to some extent - you don’t know all that the professional knows.
Jason Czekalski, a general practitioner in Rindge: It’s not just organizations that play hide the ball. I find it with individuals as well. The other big problem I encounter with individuals is their failure/refusal to follow the advice they paid for. They go off on their own, then get upset when things don’t go as they expected. They then gripe about how expensive I was and how they wasted their money because I didn’t help them. However, I do have clients who pass just about every major issue in their lives past me, and they listen to what I say. They are a small number, but they realize the value of timely, appropriate legal advice. They are not wasting money. They are earning great returns on a prudent investment. This group doesn’t hit very many mines.
How would YOU respond to a client with a business start-up asking how to make the best and most economical use of a lawyer’s services? Visit the NH Bar Association at LinkedIn or write the Bar News directly at firstname.lastname@example.org.