Back in the “dot com” era, many Internet start up companies appeared and disappeared, almost as quickly as the seasons turned. According to Dun and Bradstreet, 88.7% of all small business failures are due to management mistakes. The number TWO leading management mistake is – advice from family and friends. Notice that this large business killer did not say “advice from your attorney.”
So just why does “advice from family and friends” do in so many businesses? It would be trite to say “because they don’t know what they’re talking about” but in many cases that’s exactly the case. They may have heard that Cousin Joe has a deli somewhere, and HE never used a lawyer, so why should you spend all that money. They may have a friend of a friend who has a frame shop in a neighboring town, and HE never spent money on advertising, so why should you? Or even, Aunt Ethyl used contracts she found on the Internet for her real estate business, so why don’t you just use those and cross out “real estate” and write in “consulting services?” It’s always worked for HER.
Obviously, these are extreme cases, however, the point still remains. Accepting and implementing advice from someone who is not familiar with your particular field, can be damaging to your business. And there’s no more dangerous area than the legal arena in which accept a non professional’s advice.
It is clear that the most vulnerable time for any new company is when that company is in its start-up phase. That is the time when many important decisions are being made that are difficult, if not impossible to change down the road. Matters from what type of entity to choose under which to run your company, to who gets how much of what kind of stock, are of great importance to the future of your organization, yet are often glossed over in the beginning phases of planning. This is especially true if the head of the company’s bandwidth is taken up with the product or service to be offered, and not with the logistics of how to most effectively set up the groundwork that will make all of the rest possible.
The planning phases are the most important time to get a lawyer involved with your company. An attorney who is well versed in your area of business can be an invaluable source of not only legal knowledge, but of business know how that she herself has experience with, or has clients who have been through similar transitions. She can help you choose and register your company name so that you don’t run into difficulty AFTER you’ve paid for signage, stationery, business cards, etc., choose the best way to incorporate (if that’s even a good idea in your case), how to set up stakes in the company, employment contracts to keep valuable employees, stock options plans, sales contracts, service contracts, negotiate your office lease, set up a collections system for those occasional “deadbeats,” ensure you’ve filed the correct forms with state, federal, and municipal agencies, protect your company’s intellectual property including your Internet domain name, review your website and ad copy for possible infringements, negotiate and review supply contracts, and more.
If you choose a small firm or a solo practitioner, you are guaranteed to have a fellow small business advocate, and one who has likely gone through many of the same issues you are currently facing. They can provide invaluable advice to you for dealing with many of the day to day hassles that prevent you from devoting more time to improving or marketing your product or service. No only can they save you time, but they can also save you quite a bit of your bottom line. A quick example would be the business owner who chooses a name, pays for a large sign in front of his new office, buys letterhead, business cards, telephone book advertising, magazine advertising, purchases a domain name and contracts for a website, just to receive a “cease and desist” letter from a company with a similar name. The business owner then either has to change their name at great expense, or hire an attorney who is then hoping to defend the company from a possible infringement suit rather than paying for an hour or so of her time to research the name FIRST.
Can you do many of these things yourself? Possibly. Will doing it yourself save you money? Perhaps, but perhaps not. What is your time worth to you? How many sales do you lose dealing with issues that your lawyer could take care of for you? How much development time? How much time from your family? What happens if you make one of the many common mistakes that non lawyers make while dealing with legal issues?
Prevention is a very important issue, not only in issues of safety and health, but in issues of law. The cost to your business and to your personal bottom line is generally much less if you spend the money up front for prevention of later problems. In this world of (sometimes frivolous) litigation, the cost of defending yourself is much higher than doing your best to ensure you avoid problems at the outset.
Does your start up need a lawyer? Yes. Definitely. Find one familiar with your field and start saving yourself time, money, and annoyance.