Working with Lawyers

Working with lawyers is an important skill for an entrepreneur to learn.  Unfortunately like learning sales skills it’s not something that’s discussed often in polite circles.  I’m not talking about learning about the law such as understanding term sheets, service level agreements, etc.  Search the web and you can quickly find abundant material describing what participating preferred, drag along rights, etc mean.  It always makes sense to be prepared before you talk with somebody, especially somebody where every six minutes you have to pull out a stone (hundred dollar bill).

You have to find the right lawyer.  No different than finding a good employee, you are going to have to network, interview several, check references, and in the end make a decision.  I think the key is finding a successful lawyer that is known for getting deals done, one that is respected by many different people that have opposing positions.  Many people and lawyers think that what makes a great lawyer is a “pit bull” that will tear the opposition limb from limb.  This is the last thing you want, when you want to get deals done.

First and foremost you are going to use your lawyer to get deals done.  If you’re thinking you are going to use your lawyer to right those who’ve wronged you or negotiate when something is going wrong, you better be a lawyer or have unlimited deep pockets.  Lawyers are like nuclear weapons: You have yours, I have mine, if either of us decides to use them we’re both screwed.

My worst legal decision (made decades ago):  We had a huge Fortune 100 Client.   They were tough to work with because they always wanted changes NOW.  This resulted in buggy software.  I’ve since learned that if somebody demands changes dictated by their schedule, you make them sign off that they understand there isn’t time for testing so they know there will be bugs.  We didn’t manage the sales process or client services as well as we could have.  Our CEO came back from their HQ freaked out.  He said these a-holes want their money back, we’ve broken our backs on this project, we’ve lost money as it is, let’s talk to our lawyer.  In some crazy decision our lawyer convinced us to file first but not serve so we could have venue if they did.  I at the time said, that doesn’t seem like a good idea.  I did not jump up and down, yell and scream that is stupid, let’s go down there and hammer something out.  Boy I wish I did.   The Fortune 100 client found out and the guy who we thought was an a-hole buried his head in his hands and said “Why the hell did you do that???  It’s now out of my control”.  I can tell you that you never are going to win against a huge opponent unless you are alone and that is your only quest.

So your lawyer’s job is to help you get deals done.  What is the best way to do this?  First you and the other party have to agree on the basis of the deal.  If you are unsure of terms, talk to your lawyer, but work out the business deal first.  Get a framework of the deal.  Then get agreement from your lawyers to estimate how much time it is going to take and to inform you immediately if they think they are going over, and by how much.  Once this is done there are going to be three things that are going to slow the deal down and run up some big bills:

1. Lawyers trying to improve your position.

2. Getting through the worst case “what if” scenarios.

3. The full employment act for lawyers.

Lawyers naturally are going to want to take your side.  They always think you could have cut a better deal.  That’s fine, but you have to get them over it.  You came to an agreement and you worked out the terms you both can live with let’s paper it up.  Write down the intent of the deal.  Strangely if you ever go to court the one thing that they try to determine is the intent.  All of the fancy language is just that, they want to understand the intent.  The only time I lost it at a lawyer’s office is when a company we were buying lawyers kept on imposing new favorable terms.  I finally got up, put my finger in the lawyers face and told him he scuttled the deal and walked out.  Not only did we go back to the original terms, I required their side to pay for my wasted time.

After you’ve written out the terms, you now come to the tough part of what happens if things go wrong.  This can get really emotional.  It’s why most of us don’t get prenups.  Just read most license agreements.  The lawyers have written them so basically it says you know your software doesn’t work, it’s not merchantable, and it was built for no particular purpose.  Here is where you have to be willing to take some risk, no big client is going to accept those terms.  So you have to come up with something reasonable, and most importantly spell out the remedy.  I always say or what???  Let’s just spell it out.  You have to be up five nines or what?  You can walk? You get some amount of money back?  You can tattoo something on me?  For some reason many lawyers seem to want you to warrant something without a remedy.  The worst remedy can be you and the other side spending multiples of what the whole damn deal was worth on lawyers.  The only one that wins is the lawyers.  The one thing I’ve learned is that if somebody thinks they are screwed it doesn’t matter what the agreement says.  Ask the lawyer if they get all of their terms will they defend you free of charge?  They won’t.  Get a working agreement and work like hell to over deliver.

That brings us to the “full employment act for lawyers”.  This states that if I just accept your changes I am a sissy that hasn’t read the agreement.  How can we keep billable hours up if I don’t make changes to your changes of my changes of your changes?  I am convinced this is taught at law school.  There are two ways around this dilemma.  The best is to get everybody in one room and hammer out the deal.  Neither side will like this but it does work best.  The second is to agree to a fixed number of change points on either side, never open up another point, get briefed on each point, and re-open the deal without lawyers, get to terms you can live with and paper the deal.

I know there are tons of lawyer jokes out there (I tell a ton), but if you get a good lawyer and work with them well, it can be a good experience.

  • Aaron Klein

    I just recently learned this lesson the hard way. Of course, the good news for me is that it wasn’t too hard – I had negotiated a fixed fee with my counsel.

    But still – the process dragged on forever. You hit the nail on the head with “everybody in the room and hammer out the deal” with ground rules for settling points and not reopening them.

    Great post.