“Any General Counsel I interview and in every appraisal I do with the General Counsel I tell him there are two primary functions he has.

The first responsibility is as a risk manager for the company to make sure we protect ourselves. But I quickly say that if that was the only way he defined his job then we would fail.

He has a second responsibility and that is to find a way to get business done. It is only though his balancing those two objectives – risk management and supporting the growth of the business, that the right organization construct can be developed.”

thanks,

steve

While working as an attorney I had the privilege of working for Jon Sobel, then the AGC at Yahoo!, and early in my tenure at Yahoo! he told me, “There is no such thing as a legal issue. Every point in a contract–even things full of legalese such as indemnification, limitation of liability, venue and choice of law, etc.– are all business issues that must be decided by the business owners, not the attorneys.” He also gave me the most valuable advice of all, “Your job as an attorney is to give the business owners advice, not to make decisions for them.”

The real problem comes up when business owners do not understand the purpose of a written contract. In the typical US scenario a contract only serves two purposes: (1) to provide a road map for performance, and (2) to allocate risk between the parties. That’s it, and when business owners understand the implications of that fact, then the contract drafting process and subsequent negotiations becomes much easier.

In other words, when the business owners have fully thought out the details of who is going to do what and when, and what risks they are willing and unwilling to accept, then drafting and negotiating the contract is easy. The reason so many attorneys become decision makers is because the business owners throw a half-baked “deal” at them and say, “Paper it.” In those situations the real thinking is often being done by the attorney who may or may not understand the business or the needs of the parties, and that is when you end up with form agreements that do not reflect reality.

As one of those awful attorneys, I can attest to risk aversion. Something that is important for attorneys to understand is that deal makers, entrepreneurs or not, are verbose, to say the least. Our job as attorney is to analyze, decipher and assess risk. I try my best to be a solutions person, however, I will also present a “but.” If you hang on every word (which is our training), you will find your head spinning with liability questions.

Entrepreneurs. As the post says, use attorneys as tools in your tool box. It doesn’t demean our profession. You also need to know that attorneys, in their constant “what if the glass is half empty” mode also worry about there own liabilities. If, people are fickle, deal makers are down right schizophrenic. When I see a contract involving large sums of consideration and potential, I look around to see who is going to get the blame if things go south. We are providing a service, but we are also covering our asses.

If I may digress, I look at the types of skills that are required to build a start-up and grow it into a business. Two critical skills are usually lacking in most founder teams: financial acumen and risk management. While in the earliest stages these are not necessary, as the start-up begins to take on customers, partners, suppliers, etc., having these skills becomes essential. Unfortunately, these also tend to be expensive skills to acquire, particularly in the areas that attract the most start-ups.

Too many times, I have seen start-ups go sideways when there is a lack of fiscal discipline and a lack of proper legal vetting. Plus, it is important to have the “devil’s advocate” voice close to the team to temper the unbridled optimism that most founders exhibit. That does not mean that the optimism is bad, it simply means that have a “no” voice to consider can often be helpful when running at 1000 mph in getting the start-up launched.

So you are right, lawyers do not run start-ups generally. Having someone that can understand and elucidate risks is however an important voice in the start-up.

Definitely something in the air these days.

Steve – I’m assuming that you’re referring to WSGR attorneys in the Epiphany story.

My favorite line of this article is “So we had to decide what deal points we could live with that wouldn’t kill our company.” I think this line is exactly what a lot of this boils down to and that is the balancing of risks and rewards.

With contracts you will be getting something of value to your company (otherwise you wouldn’t be signing it). This value needs to be weighed against what risks you are taking in signing the contract. Many lawyers (but not all) focus on the risk side of this equation. Being that risk is half of the equation, that is very valuable knowledge to have in making a good decision. After the lawyer makes you aware of the risks, it is the risk-taker’s/entrepreneur’s decision whether the perceived value outweighs this risk. The lawyer is not, nor should they be, the risk-taker in the situation.

You can try and try to negotiate the contract but at the end of the day, as an entrepreneur, you must decide what deal points you can live with that won’t ‘kill your company’. Then, and only then, will you receive the value of the contract without putting your company in jeopardy.

You say that “the best ones identify ‘realistic risk’.” I would add that the best ones help you quantify that risk, in terms of probabilities and dollars, so that you can determine the expected value of the downside (e.g. if there’s a 10% probability of a $50,000 downside event, then the expected value of the downside is $5,000).

John

I’d suggest that a good way to determine whether a lawyer “gets it” is to ask him or her to describe what they do when the other side provides a contract draft that’s an extremely one-sided. To the extent their answer describes strategies and tactics similar to those in Fisher and Ury’s “Getting to Yes,” you’ve probably got a keeper.

John

My personal experience was similar to worse with one of our first customers. The initial call we had was with the lawyer of that customer, who explicitly told us that we were not even worth his time, because the contract value was too small. We explained his attitude to our product champions, who set things straight. The positive effect was that the whole boilerplate contract went liquid.

We also had a lawyer with a ‘solutions’ attitude. Even better, he was very convinced that we could push some of the nonsense out of the contract, because he knew most of the legal stuff is indeed generated by people that want to have a say, while it does not make any sense under normal conditions.

Often it’s far too easy, or seen as being compliant to simply flick every contract over to the legal dept the moment it lands on the desk, with big implications for costs, timing and sometimes the closeness of the business relationship.

I just read this post and felt good – because its exactly what we did with a major customer over the last two weeks. We discussed the business intent on the various clauses in the contract, found what made sense, and then passed it on to the lawyers to make sure the “legalese” as there. We, of course, need the lawyers to tighten the language and think about the various issues.

The contract appears after various business, strategy and technical discussions. I think its fair to say that both parties feel the partnership would benefit themselves and each other. Lawyers should not become a roadblock.