How to Pay a Lawyer

In which a startup founder learns how to make good use of legal advice

First-time founders find themselves doing many, many things for the first time. One of them is hiring a lawyer. Articles of incorporation, bylaws, intellectual property assignments, stock purchase agreements, customer contracts, terms of service, convertible notes: the parade never ends.

I quite liked our lawyers when we first started working with them. But now I love them.

Four years ago I was wading through what seemed like interminable paperwork for a new startup, Textizen. Three years later, we sold the company and I realized just how much that upfront work — both our founding team’s attention to legal matters as well as savvy advice from our lawyers—was paying off. Due to the acquiring company’s ownership structure, it reported like a publicly traded one and we had to complete an absolutely massive diligence checklist. The late-night, teeth-clenched laptop time almost killed me, but there were zero legal problems, and even some good news about obscure decisions I’d dismissed as hypothetical at the time.

Here’s what I know now about becoming a good consumer of legal services:

1. Use lawyers to help you plan your company’s future. During this period of being a legal client, I stopped seeing lawyers as a necessary evil, issuing edicts from behind mountains of linen paper. Instead, they became partners in achieving the outcomes we wanted for the company, wielding their special knowledge of the law. Terms of use: What rights to data or content should you protect because they’re valuable company assets? What can be given freely? Company bylaws: Is a 2/3 majority required for change of control? Thankfully we never got close to invoking a vote, but I believe talking through scenarios forced our founding team to be more persuasive and less confrontational with hard decisions.
2. Know your plan. For every transaction. In software engineering, you don’t write a line of code without an architecture or design, or at least a plan. Similarly, don’t dive into redlines before you and your lawyers have a shared understanding of goals for the transaction. Your two primary levers are (1) outcome and (2) timeline. Do you want this partnership agreement to earn you maximum dollars after 24 months? Or get deal signed quickly at a fair upfront price? (Hint: if you’re a startup, it’s the latter.) A good lawyer can get you either outcome, but a smart legal client will give them focus to their time (and your money).
3. Make them teach you. Law is very similar to software; it’s an operating system for our country. Upon closer reading, you’ll find familiar tropes such as conditionals, logic, and variables. Founders can (and should) understand the law. Specifically, knowing the business law that governs your company’s operations will gain you time and money. Some of Textizen’s government customers were forbidden by state law to agree to certain terms of our standard sales contract. After a quick chat with our lawyers, I got the context and canned language to negotiate future exceptions directly — faster and cheaper than calling them every time this came up. Two good questions to ask: “What’s my risk here?” and “How have courts interpreted this in the past?”

What if you are having trouble swallowing the cost pill? You can educate yourself on fixed fee legal services and know that deferred payment agreements are not uncommon. At Textizen we benefited from a great partnership between Morrison Foerster and Code for America. If you still choose a self-serve option with Mad Libs docs and no human advice, use documents specifically written for software-as-a-service companies (or whatever line of business you’re in) and make doubly sure you understand what you’re signing.

As your company grows, the contracts will get more complex. Lawyers track time in 6-minute increments, y’all, so go into every call with a game plan to make the best use of that $$$ per hour. But don’t begrudge great lawyers their fees — be a smart consumer instead. Your future self will thank you.

Did you find this useful? Let me know at @mishmosh on Twitter or drop a comment below.