Managing lawyers is tricky

I was raised by two trial lawyers. At breakfast and dinner, I heard tales of dot-com-billionaire fallouts, complex business litigation, and antitrust. I learned early on that the law is intricate and that those who understand it have a significant advantage.

Even with that background, managing lawyers as a startup CEO can be tricky. Just like managing engineers or marketers without understanding their trade is difficult, managing lawyers is no different. Without some legal knowledge, it's easy to feel out of your depth, overwhelmed by risk, or led down expensive paths you didn’t need to take.

Maybe managing lawyers isn’t your biggest challenge–maybe it’s finding new customers? If so looking for design partners on a new AI solution–click to learn more.

Lawyers manage risk–you manage the business

A lawyer’s job is to identify and mitigate risks. Your job, as a founder or CEO, is to weigh those risks against business goals and decide what’s worth doing. If you rely on lawyers to make business decisions, you’ll often find yourself choosing the most conservative, risk-free path. And in startups, that can mean missing opportunities.

When a lawyer flags a risk, ask them:

• “What are the consequences if this risk materializes?”

• “What’s the likelihood of this happening?”

• “What’s the minimum viable solution to mitigate this risk?”

• “Do we have to address this now?”

These questions help you get clarity and make a balanced decision. It can also help to go to your lawyer with the risks you anticipate happening, or possibly happening, so that they can focus on those. Good lawyers will ask you this question if you don’t volunteer this information up front.

Not all risks are worth avoiding

In early-stage startups, you can’t mitigate every legal risk. Perfect contracts, air-tight compliance, and bulletproof IP protection take time and money you may not have. Some risks you can live with — for now.

For example, spending weeks negotiating a partnership agreement to cover every possible future scenario might slow down momentum. Instead, focus on the risks that could materially harm your business, and either live with the rest, or handle it during a renewal.

Risk aversion can be a negative. Google asked me to interview in business school. I interviewed with book search. Book search was blatantly violating copyright, copying literally every book they could find. They built machines to copy books more efficiently. I really, really didn’t like it. Sure, it seemed great to index all of those books, but it was a blatant violation of copyright law. I liked Google but had no interest in working on a project like that. Turns out–it was a totally reasonable legal risk. 🤷 

Be clear and specific

Ambiguity in legal conversations wastes time and money. When you work with lawyers:

• Be clear about your business goals. If you’re trying to close a deal quickly, say so.

• Be specific about the scope. “I need a basic NDA” avoids getting a 20-page masterpiece.

• Set limits. Cap hours or fees on projects to avoid runaway costs.

The clearer you are, the more efficient your legal support will be. Ambiguity usually serves no one.

Understand the trade-offs

Good legal advice often comes with trade-offs. A watertight contract might protect you from risk but could also slow down negotiations. A lawyer might advise you against a marketing claim because of potential liability, but that claim might be key to customer acquisition.

Ask yourself:

• “Is this legal protection worth the potential business cost?”

• “Can we revisit this risk later when we have more resources?”

You can always tell your lawyer that you’re ok with a specific risk. And there are usually ways to mitigate a risk while not eliminating it entirely. These require deep knowledge of the law, but not all lawyers consider this as an option. You can be the one who brings it up.

There are times when lawyers have wanted to go back and forth on agreements to make them “better”. Remember, lawyers are people too and they want to prove they are providing value to you the CEO. But every time you send a redline back to a large company, you both frustrate your champion and you add weeks or more of waiting and uncertainty. Is “better” worth it?

Build a relationship

Lawyers are more effective when they understand your business and priorities. Invest in building relationships with your legal counsel. The more context they have, the better their advice will be. A lawyer who knows your business well can help you spot issues before they become problems. This can be as easy as adding them to your monthly investor update email.

The structure of your lawyers’ practice makes a difference in your relationship. Solo practitioners or small firms will give you more time with the principal. If you are working with a larger firm, the partners will dip in and out. Try to have a consistent associate or team so that they can learn their business. Otherwise a good chunk of your fees will be wasted on paying new people to learn your business.

Working with white-shoe, expensive law firms has its advantages. Their lawyers are smart, though a risk is that the 1st and 2nd year associates are purely booksmart and out to prove they can find every possible everything in your documents–not just the what matters. But the main disadvantage is that the high cost leads to avoiding using lawyers even when their advice would be productive. Be sure your legal costs are aligned with your stage, and your team is clear on when the lawyers need to be involved.

Lawyers, ideas, and specialization

I’ve never met a startup lawyer who said a startup idea was bad. Ever. They’re selling you a service; whether or not they think your idea is the next Facebook or flop, your VC money is legal tender with them so they’ll say nice things. Some lawyers are great business people–but they’ll still blow smoke. Just because your lawyers love your idea doesn’t really mean anything (unless you are selling to law firms; then it might matter). For that reason, neither does their intro to VCs (they know many but are among your worst paths in).

However every startup lawyer knows market terms because they see way more than any one company or investor. They know what’s normal in investment docs, in NDAs, in customer agreements, in terms of service and nearly everywhere else. This knowledge is gold. Usually they can’t tell you why they know it or cite examples, but the founder who ignores this information is a fool.

Some lawyers are not familiar with startups. These lawyers are terrible for you, whether they’re on your side or the other side. Lawyers used to doing PE deals writing seed term sheets and series A docs are one such nightmare. Lawyers used to negotiating NDAs for Fortune 1000s working on docs for Crytpo companies–also a nightmare. Make sure you’re working with people who understand your business and the context in which you operate.

The real cost of legal mistakes

When I started my company, and at all prior companies, we never had major legal issues. I was told “if you don’t set it up right, it’ll cost a lot to fix later.” I believed that advice, and followed it.

For a while, I thought maybe I spent too much on lawyers and brought them in on too many things. Lawyers reviewed NDAs that weren’t ours. All revenue agreements, unless they were our form, got a review. Same for partnership agreements. We controlled costs by using an independent, solo practitioner (about ½ the cost and 10x the experience of a big law associate) and by insisting on our paper whenever possible. I thought it was well managed, but founders I met later who were much more lax with legal work gave me the sense that maybe I overdid it.

Then I saw an example of what happens when you don’t set it up right. Not only did it ultimately cost $250,000 to fix (at a seed stage company!), the legal missteps delayed a key funding round and acquisition process. The delay caused the company to miss a window of excitement (froth?) in their market, and possibly a $100+ million acquisition offer. So yes, it cost $250,000 to fix, but in reality it cost so much more. Get it right the first time.

Startups have unique winning strategies

A patent troll came after a startup where I was an executive, and it fell to me as VP of BD to manage the matter. We called our excellent lawyers, who asked our CEO what he’d be willing to pay. Apparently claims like this were generally settled for around $50k, and while we were low on funds we could absolutely afford that. The claim was by a serious firm with serious chops and was very much a real problem.

So when asked what we’d pay, the CEO said, verbatim, “Fucking nothing.” And he banged the table. Literally. A few times.

Thus started about $2,000 of billable time with lawyers trying to talk him into giving them a number to work with. He refused to be anchored. “If I give you any number, we’ll end up paying something close to it. I want to pay nothing. That’s my only number.” Bang table.

A couple of weeks and much negotiation later, we got them to accept $2,000 to settle. There is a long list of reasons why, but I ascribe it to two. First, my CEO refused to play the game the way the lawyers wanted to play it. Stubbornness and ignorance totally work in zero sum negotiations. Second, we were running low on cash. While a disadvantage in a lot of ways, being at a startup that might run out of money any moment can be a huge negotiating advantage. We used it.

Nearly everything is negotiable

The only things I’ve found to be completely nonnegotiable are things like Apple, Google and Amazon terms of service and contracts. Pretty much everything else has wiggle room. Investment banker engagement letters. Obviously, acquisition or investment terms. SaaS vendor agreements. You’ll never know if you don’t try.

Price is not always the most important term. Rare is it that price is the term that kills a company; usually its some other, more fine-print thing. Lawyers taught me to look out for “bet the company risks”, like unlimited liabilities or indemnifications. That’s why those sections are usually in ALL CAPS. Understand everyone’s motivations and, especially in customer agreements, pay attention of publicity terms, IP clauses, and exclusivity.

If it’s not worth negotiating it might not be worth doing at all

Use form agreements or clickwrap (online) agreements as early as possible. Skyp.ai, the startup project I’m working on to make it easy for founders to do outbound, uses online terms (they’re on the website). I don’t plan on negotiating terms until we have six-figure agreements. If I were selling to a Fortune 500 company that wouldn’t be an option-but by focusing on small companies, founders, etc., it shouldn’t be a problem. Less money wasted on lawyers; no additional risk.

If you have to negotiate an agreement, and don’t want to pay your lawyers to do the work, it’s worth asking whether it’s worth spending time on at all. Sometimes it simply isn’t. Perhaps the dollar amount is too low; perhaps its a unique, small customer rather than a new line of business; perhaps it’s a too-needy customer who will only cause headaches later and churn early anyway. Sometimes you can handle negotiations without a lawyer, but it’s rare and risky, especially if the “you” in that sentence is a salesperson or manager, not you the founder/CEO. Better to just use the form agreements, always, or require the agreement be large enough to make it worth paying lawyers.

The exception is with government entities–which is also one reason why they are terrible customers. I remember a $1,500 per year agreement the City of Cleveland required be changed because of city laws. We had no choice. I’m pretty sure our legal costs exceeded the first year of the agreement–and one of the clauses they had us remove was the auto-renewal, because they had a regulation against that sort of thing. Of course they did.

Shortcuts, like AI

There are a lot of great shortcuts in startup land today. HR platforms like Rippling, Deel, and their ilk make it very easy to have employment agreements appropriate to each jurisdiction and to document everything properly. There’s no reason not to use these tools–and very little reason to use lawyers, unless you are solving specific issues. The same is true for Carta and your cap table, or SAFEs and other standardized investment documents. A seed round in the 2010 timeframe cost $5-15k in legal fees. Today it might cost almost $0, with SAFEs and Carta to manage it. The same is true on the fund side for Angellist.

Using AI as a shortcut to drafting your own documents is a tricky one. I do like putting NDAs through ChatGPT and asking:

prompt: You're a professional New York attorney. Analyze this NDA for any unusual or non-standard terms, based on New York and Delaware law, and highlight what risks they may create for my company

In my experience it is usually ~50% right, but the wrong 50% are false positives. In other words, it will show you all of the unusual terms and some which are not unusual that you can ignore. You can then reject it, if it’s weird, and try getting your counterparty to use your form, or ask your lawyer to review. If it doesn’t turn up anything, well, you’re a grown up so you decide what to do.

Using AI to draft agreements is trickier. ChatGPT is not a lawyer. But, when you are very small and have very little money, giving ChatGPT a couple of competitors’ terms of service and asking it to draft one for you is not a terrible strategy. I’m not a lawyer; this is not legal advice. However it’s a good start and maybe what your lawyer might do anyway. Maybe try it, and then have your lawyer review it. Just 2-3 years ago it cost ~$3-5k+ for qualified lawyers to draft a terms of service and privacy policy–an honest day’s work at $500/hour. Twenty dollars a month seems pretty good, especially if you don’t have thousands of dollars.

Managing lawyers is a skill

Managing lawyers is a skill that every CEO needs to develop. It’s about balancing risk and reward, being clear about your goals, and knowing when to push back. It’s not the most exciting skill; there are no webinars on it or fancy courses, but it can have a big impact. You don’t need to be a legal expert. Simply understanding the basics helps you get the most out of your legal support. Being an irrational, crazy client can sometimes even be the winning strategy.

In the end, it’s about making sure your legal partners help drive the growth of your business, rather than slow it down.

Maybe managing lawyers isn’t your biggest challenge–maybe it’s finding new customers? If so would love to hear from you 👇️