Experience Series: Legal

https://dilbert.com/strip/2011-02-25

This post is part of my Experience Series where I share opinions I have formed from building companies and running product. Each posting is a break down of a company function. This post focuses on legal specifically.

Standard disclaimer––These points are just my personal experience and the way I operate. It’s not intended to be a replacement for actual legal advice, nor does it represent any views but my own. I am not liable for the decisions you make.

If you are building out a company, register it and make it official. Having an entity afford you some small protections, gives a more professional look and allows you to begin splitting up your expenses.

• For PassiveTotal and most of my companies, I register in Delaware and use Legalzoom. It costs about $300 and I handle nothing. When it comes to getting your EIN, do it yourself and save the cash; it’s free to get that on the IRS website. One slight change I would make today would be to register locally so that I don’t need to have Legalzoom be my representative agent in the state.
• PassiveTotal, NinjaJobs and Split Key Coffee are all LLCs, nothing special. I like having an LLC because it makes taxes simple and there’s no structures to work out. Despite what some may think, you can take seed funding with an LLC too. It’s worth exploring the different types of companies that exist to find the best fit for you.

Make sure you have an NDA drafted and definitely have NDAs and IP assignment agreements with employees and all contractors who could possibly touch your technology (no exceptions).

• More importantly, make sure you can trust the person or organization you’re working with. Contractual paperwork is not going to bridge the trust gap between two entities. If trust isn’t there, just consider revisiting the relationship later on or not at all.

Preferably, have people sign your paper, but if you are forced to use someone else’s, spend the time to read it and note any weird clauses.

• Early in the days of PassiveTotal, we were passed an agreement that would allow us to use another companies data within our product. The agreement itself was structured more around a joint sales go-to-market where we were beholden to selling the other data set whenever we sold our own product. Our intention was to be a lead generation source for the other company, not a forced sales staff. In the end, we passed on the agreement and found other data partners to work with.
• As a further reason to read contracts no matter what––a lawyer friend shared one of his techniques with me of planting typos and grammar mistakes across paperwork. If they went unnoticed, he would know the agreements weren’t reviewed carefully. The goal here wasn’t to introduce anything malicious, but simply assess the emotional effort on the deal and diligence in review.

Always have a paper trail when working with partners, vendors, advisors or anyone else who could potentially bring you issues later on.

• Assuming your company gets purchased, that business is going to want any loose-ends closed out. Better to have the paper work up front than to go have go back and get it later.
• Whatever paperwork you put in place, also make sure that it has the business in mind and plans for worst case scenarios.

Lawyers are expensive, use them strategically. Try your best to read any paperwork you get yourself and highlight the areas where you think there is risk or have questions. Have the lawyers focus there. If it’s serious business, have them review the whole thing.

• Whenever I hear someone complain about lawyers and the cost, I have to wonder what their relationship looks like with their counsel. If you choose to use a lawyer as an extension of your full time staff––giving them a feed of work, not checking in as often, not limiting your requests––then expect to pay a lot. On the flip side, if you use them more as a consultant or advisor, you’ll see lower costs and likely have a better relationship.

A good set of terms and conditions and privacy policy can go a long way on your application. If fleshed out well, you can drastically reduce the language in your master services agreement (MSA).

• This insight was the result of working strategically with good lawyers who functioned like partners, not staff. When we first created PassiveTotal Enterprise services, we knew we would need a master services agreement to close any deal. After speaking with our lawyers, they took a step back, understood what we were trying to achieve and suggested the route of heavier terms of service and privacy policies over bloating the MSA. Reason being, a heavy MSA would likely get redlined during procurement whereas one with generic, straight-forward language would likely go through without issue.

Keep your intellectual property clean. If you are going to moonlight, declare your work with your employer and have it exempt from your agreements. If you are leaving a position to create your product, make sure you aren’t risk of getting sued from your current employer. Hint, don’t be a jerk on the way out and wait a month.

• This is one point never to ignore, especially these days when working at technology companies. Most friends I talk to who are considering creating a company aren’t aware of what their current employment agreement says. Unfortunately for many, their agreements are liable to be sweeping in that any derivative or related work created at the company is the companies property. Read your agreements before you sign them and always declare your work. It’s extremely rare that a company would ever sign paperwork allowing you to declare a work later on.
• I’ve had numerous ideas that could have been companies die within the walls of a private organization. It was frustrating to know the company didn’t want to make money from the idea, but also didn’t want to let it go. Here’s the harsh reality––that company is covering your salary and gave you the opportunity and space to create that idea, it’s their prerogative to do what they want with the idea. If you feel strongly otherwise, quit and make the dream into a reality.

A lawyer’s job is to point out risk, not tell you what to do. They should enable you to make intelligent, informed decisions. Learn to think like they do and play out every scenario you can. Expect the best, prepare for the worst. And by prepare, I mean have yourself covered via contract or something else.

• Building a business requires you to think like this already, but you especially need to do it when protecting your ideas and intellectual property.

Risk profiles increases once you start accepting money. Most people are reasonable, but if you breach your terms, expect that someone may want their money back. Don’t fight them, learn from your mistake.

• More common is that a business will ask for a discount or more services if you breach your contract. Same rules apply, learn from your mistakes and take some solace knowing that the customer is now getting even more of your service than before.

Extending the risk profile into the current market––if you’re collecting personal data, understand what that means in the event of a breach. Could you be fined? Do you need to take certain steps to protect the data? Can you avoid the liability altogether? Data privacy laws are rapidly evolving in the technology world and if you intend to collect sensitive data, it’s on you to understand the risks and what you need to be doing.

Threats should be rare, but recognize they could occur. Like IR, a legal threat is extremely stressful and you may not be thinking straight during the process. Have details for a lawyer beforehand just in case. No need to retain, just have someone you can call.

• Been here, suffered through it. For me, documenting and detailing helped keep me grounded during the process. Beyond a lawyer, also have a friend you can talk to as it’s helpful to get another perspective on the situation.
• Keep in mind, an inbound threat may not be based on any real foundation, but that doesn’t mean a court won’t hear the argument. If you choose to fight, be prepared to spend a decent amount of money, time and most importantly, sanity in going through the process. Sometimes it’s better to concede, even if you believe you’re right.