Entrepreneurs: 7 Pitfalls to Avoid When Hiring a Lawyer

by JD Supra Perspectives
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Get coffee before you commit. This tests the lawyer’s availability as well as your ability to communicate outside of a formal conversation.

I was talking to a startup founder yesterday who asked me a seemingly simple question: “What do you think about startups just hiring big law firms to do everything?” The short answer was that big firms are the right answer in some contexts with the right people. The long answer: I went on a rant.

Have you ever hired a lawyer for your business? Did you know what questions to ask, or how to evaluate whether or not they could deliver what you need? Sure, there are services that leverage technology to match businesses with talented lawyers (Priori Legal in NY and UpCounsel in SF are two better-known examples), and these services can help you substantially, but ultimately you need to decide who is right for your business.

I have worked as a big law firm attorney and I’m currently in-house lawyer (where part of my job is to hire law firm lawyers for our business). I mentor startups that are part of Entrepreneurs Roundtable Accelerator, where I answer more questions about how to hire a lawyer and how the system works than I do about substantive law. As a result, I’ve seen plenty of good and bad in this area.

He's curating talent, a powerful concept described by entrepreneur and author Faisal Hoque as “gathering the right people at the right time in their lives, in the right combination of talents.”

Here are the seven pitfalls to avoid when hiring a lawyer:

1. Waiting until you need a lawyer to find the right one

Once you need a lawyer, you usually have very little time to find the right one. Build relationships and find people you like working with, can get along with, and can contribute to your business. Entrepreneurs must cultivate talent in all areas before a need forces them into making an uneducated decision. This applies to every function in your business, and especially to law.

My good friend is the head of Business Development at a venture-backed startup but he’s constantly looking for “his people” - finance, legal, marketing, HR, you name it - to work with on anything new he does. He’s curating talent, a powerful concept described by entrepreneur and author Faisal Hoque as “gathering the right people at the right time in their lives, in the right combination of talents.”

2. Not talking about money

There are blog posts dedicated to finding “hidden fees” in law firm bills, with such shocking revelations as lawyers rounding up their time to the nearest 6 minute (0.1 hour) increment. Law firm fees can be excessive but this approach is all wrong. You need to trust your lawyer. You need to invest in this relationship to know that you’re getting good advice; if you think you’re getting screwed on the bill, you both have failed to build this relationship.

Instead of looking for an extra 6 minutes to cut from the bill, do this:

Talk about money early and often. You want a budget and you want transparency. The absolute worst thing a lawyer can do to an entrepreneur (or an in-house lawyer) is to surprise him or her with a high bill. Understand that budgets are estimates, so ask your lawyer to call you proactively if the fees might run high.  Discuss why it might happen, what you can do to avoid it next time (if anything), and what the best path forward should be.  Everyone struggles with this, from experienced executives and in-house lawyers to first-time entrepreneurs. Open communication is your best tool for success.

Understand that rates and fee structures are negotiable. Ask if the firm offers discounted hourly rates for entrepreneurs. In addition to hourly rate discounts, alternative fee arrangements may make sense. These arrangements are becoming very common in all lines of legal work at firms of all sizes. In-house legal departments are demanding that firms provide more flexibility and predictability in billing structures; while the billable hour isn’t nearly dead, how you are billed and how much you are billed are both negotiable at nearly every law firm.

Understand where you fit in the firm’s economics, especially if you’re a technology startup at a large law firm. Understand that you exist in a strange corner of the Big Law universe, where:
?    most partners are billing $800+/hour to private equity, hedge fund and Fortune 100 clients,
?    you’re a pre-revenue website/app/internet-of-things thing, and
?    you have the most prestigious law firms in the world fighting to work with you.

Understand that this will not last long if you don’t raise money fairly quickly. You’ll need to pay those bills somehow.

3. Hiring on brand name alone

In the startup world, a handful of big law firms have well-known, established venture practices - and 25 or more others are trying to build venture practices. All (or nearly all) of these lawyers are exceptionally talented. That’s not your concern. Instead, you need to be sure those talents will be there for you when you need them.  Focus on:

Availability: When I need advice, will I actually be able to talk to the partner or senior associate I am hiring? (Side note: Using junior associates at some of these firms to draft venture financing documents can actually be cost-effective because they do them all day every day. This is unlike most other tasks junior associates do.)

Responsiveness: Ask outright: In an emergency, whom do I call? You should also ask yourself if you’re the type of person who has an abnormally high number of emergencies.

Connectedness:  Many firms tout the power of plugging you into their client base for connections to investors, potential partners and peers, and some lawyers actually will do it.  Jose Ancer provides good advice that startup founders shouldn’t ask their lawyers directly to connect them to potential funders, but you might want to tap into the firm’s network to meet interesting people.  Test the firm’s promises of connectness by asking for client references who can attest to the lawyer or firm actually doing what they say they’ll do. The examples should be recent and meaningful; an invitation to attend a speaker panel with 100 other guests doesn’t count.

4. Not encouraging your legal team to communicate

This advice might not be for everyone, but I think it’s powerful. Issues don’t exist in a vacuum, yet if you hire lawyers from different firms to handle pieces of your legal work - for example, employment and IP issues - they typically don’t talk to each other. Connect them. You’re all on the same team.

The cost of these conversations is often the biggest concern for entrepreneurs. Here are two ways to limit that cost:

Schedule the meetings:  Ask for the discussions to be scheduled for set dates/durations so any expense is predictable; and

Fix the cost: Talk about what these discussions will cost you with each firm upfront.

Many in-house lawyers simply don’t pay for firms’ internal meetings. You might consider this approach too.  However, you’ll quickly find that the meetings you refuse to pay for just stop happening, and you want your lawyers to talk to each other. Open communication among your team will help you in the long run. Instead of refusing to pay for meetings, openly discuss when the conversations will happen and attach a fixed cost to them to get more comfortable with them.

Once the company is formed ... how will you deal with employment, intellectual property, tax, leasing, licensing, commercial deals, and everything else that happens with a business that is actually doing stuff?

5. Thinking like a startup, not a business

“Startup law” - especially the fixed-fee or reduced rate services offered by big firms - focuses on forming the company and setting up your initial relationships between the founders and early investors. When you raise money, you’ll probably pay off that bill. Great.

Once the company is formed, guess what? You’re a business, with legal issues like every other business. How will you deal with employment, intellectual property, tax, leasing, licensing, commercial deals, and everything else that happens with a business that is actually doing stuff? Make sure you think about this before you start working with a firm so that you understand their ability to do this work and what it will cost you. If you need to use a different firm for these “everyday issues” (i.e. everything but raising money), make sure you coordinate your team to talk to each other.

6. Working with a lawyer who doesn't have time for you

This is fairly self-explanatory. If you hire a partner with 200 entrepreneur clients, how much time is he or she spending with each one? 

7. Not testing your ability to communicate

Is this lawyer a human being able to communicate with you in non-lawyer words? You’re paying for advice, after all. If you don’t understand the advice because you and the lawyer don’t communicate well, it doesn’t make him or her a bad lawyer, but it makes him or her a bad choice for you.

My advice: Get coffee before you commit. This tests the lawyer’s availability as well as your ability to communicate outside of a formal conversation.

Hiring a startup lawyer is an incredibly important and expensive decision. Avoiding these 7 pitfalls can save you thousands of dollars and as importantly, many hours of your time.  

Over to you: What is your best advice for hiring a lawyer? What mistakes have you made?

Questions? Email me. I’ll answer every one.

*

[Josh Beser is Assistant General Counsel at Lonza, a global leader in life sciences and specialty ingredients with over 10,000 employees worldwide. Josh also mentors technology companies with Entrepreneurs Roundtable Accelerator in New York. Previously, Josh was a corporate associate at Bingham McCutchen LLP and Heller Ehrman LLP, representing emerging companies in the technology and life sciences industries. Connect with Josh on Twitter and LinkedIn.

JD Supra's In-House Perspective series provides in-house counsel a platform upon which to share their views and thought leadership on issues of the day, including industry news and legal developments, relationships with outside counsel, and law practice matters. To participate in the series, email news@jdsupra.com.]

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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