Contract reviews done by lawyers need to follow good-sense guidelines.
Some contracts are routine and don't need any form of customizing. The review in such cases is minimal and can even be skipped if the routine nature of the contract is obvious or if the entrepreneur is seasoned enough to identify a clean situation without lawyer help. Most such routine contracts cover simple cases, such as a simple nda or a recurring situation in which a basic template is used with no material variation apart from non-legal business items that typically get customized in an exhibit.
For most cases, though, the whole key to doing a contract right is to customize it properly on its material points. This means it should be clear, it should accurately reflect the intent of the parties, and it should contain basic legal protections for each party. It is vital to this process that both the lawyer and the entrepreneur understand what is material. Why? Because that determines the proper cost-benefit analysis for how it should be reviewed.
For example, say a startup is negotiating a 1-year office lease for only a few hundred square feet of space at a modest rental rate. That sort of lease needs very little lawyer review because there is not much at stake (the money is small, the location itself not particularly important to the startup, etc.). A quick read-through by the lawyer is the max that this needs and then only to see if there is anything wildly out of line in the document. What about a 3-year lease with more square footage and a higher rent? In that case, maybe a good high-level review is in order, with comments and mark-ups on a range of important points but little or no attention paid to boilerplate clauses that may be highly unfavorable to the tenant as worded but that are also highly unlikely to occur. And what if the lease is for 5 years with two 5-year options to renew, with a location that is very important to the business involved, and with risks (such as potential environmental liabilities) that can far exceed even the value of the lease itself if mishandled? In that case, lawyer review is normally vital and needs to be pretty thorough (including even haggling over much of the boilerplate language) because it is far more likely that contingent risks can come about over a lengthy period, the amounts at stake are greater, and the lease itself may be important to the business (e.g., a restaurant that depends heavily on having a particular location).
This same sort of approach applies to a whole range of contracts. What if your business is getting acquired or if you are buying a business? Well, if it is a little business and the purchase price is very small (say, $50,000), you can very likely be well-served by a canned form used for small business sales (brokers who do these deals use these all the time). Such a form will have basic provisions covered and will usually contain the most important warranties and representations but all of it will be bare-bones. This normally works fine for a small sale. Again, lawyer review can be skipped or done at the quick read-through level. But what if the business you are buying is going to cost you $1,000,000. In that case, you still are in the small-business category but the money is more significant. This likely warrants an intermediate level of lawyer review (contract needs to be customized for the deal, with proper account taken of whether it should be structured as an asset sale, stock sale, or merger - each having different tax consequences - and with careful attention paid to reps and warranties, to conditions for closing, and to collateral matters such as non-compete, etc.). This might take $5K or $10K or sometimes more in lawyer time but it is money normally well spent (it certainly is if you are a small business owner and $1M is a lot of money to put at risk for your situation). And, of course, once you start talking about acquisitions in the tens or hundreds of millions, you need major lawyer time to make sure the complex aspects of such deals are handled properly.
What about a license agreement? A small deal, with non-exclusive rights concerning routine IP needs little or no lawyer review. But a core OEM deal involving the licensing of IP that is at the core of your company obviously warrants significant lawyer review, especially if it involves joint development efforts, sweeping indemnification clauses that might trigger major liabilities, or other complications that require sophisticated handling of IP and other rights. Of course, there is also the issue of weasel language and its nasty impact if it is not caught and deleted from any major contract.
In short, lawyers and entrepreneurs need to be guided by good sense in handling these matters. It is not good sense simply to act as if lawyers are not needed. It takes only one really bad instance for most entrepreneurs to realize how bad a mistake it is to cut corners in really important matters. On the other hand, letting lawyers run wild with their reviews is foolish as well. Their time must be managed and managed well. It should be used where it matters and curbed where it doesn't.
Let the barbs fly, then, but this is one lawyer who will insist that the advice given in this piece may have a grain of truth in it but is too simplistic to cover most serious business affairs. It may work in a number of cases but it can easily get you into trouble.
By the way, I am not saying give an open ticket to lawyers. If your lawyer can't make good judgments concerning what is important and what is not, and can't manage time wisely, it is time to get a new lawyer.
It took me a while to learn how to talk to lawyers.
It is always wrong to ask a lawyer 'What do you think?' of a contract, they will always have different ways of saying what it says, covering different contingencies.
The right question is "What rights does this give me and the other guy?" followed by "What is my financial exposure?"
As an entrepreneur you probably want to leverage your work and sell it to multiple clients so a contract clause that prevents derivative works might be bad. If a contract clause asks you to indemnify someone else, you need to understand if they are going to be sued and for what.
A friend of mine once sagely said to me 'Errors and Omissions insurance is cheaper than a lawyer.' which was basically use insurance and good business ethics to keep your financial risk of being sued low.
That being said, you should read all contracts you are asked to sign. If they are full of a lot of distasteful clauses you can always just say 'no thanks.'
I think the problem a lot of lawyers have is failing to acknowledge the realities of a BIG A v small b situation like the one in pud's example. Of course, it is not the lawyer's place to make decisions on behalf of his or her client as to how much risk they accept in return for a big pot of money. Entrepreneurs need to be aware that their lawyer will always see risk as something to be minimised to the lowest possible level, which is not always something that is possible because of market realities. Equally when instructing a lawyer it is easy to set them on an overtly combative route if you give off too many signs of being up for a fight, or don't give clear enough instructions to the contrary: "Hey, I realise this contract is going to be totally in the other side's favour, and to be honest I have no choice in this. I am doing this deal regardless, so just flag up anything that is totally non-standard or is going to get me in a whole heap of trouble".
Why aren't there more standard contracts for the situations described in the article? E.g Construction contracts are generally standard documents with very well documented procedures in the UK even with large (say £50M+) contract sums. But this seems to be an exception, not many other industries do this. I wonder why?
It sounds like the OP didn't consider putting the lawyers in the same room and requiring a contract by the end of the day. That way your rights are protected and the back-and-forth doesn't take forever.
At one extreme: giving your counsel veto power over what contracts you sign, and allowing them to bill time ping-ponging contracts until prospects give up.
At the other extreme: just signing everything and saying "fucking sue me" when things go sideways.
You should be somewhere in the middle. Contracts more often than not have provisions that are silly for you to accept verbatim. And, contracts more often than not have provisions you'd rather not accept, but that are baked into your prospect's own processes and not changeable.
No matter what you do, if you're being sensible, there are going to be tough decisions to make every once in awhile. If there aren't, you're probably doing something wrong. Like, for instance, signing tens of different contracts from giant companies without any legal review.
You need to be able to figure out what's negotiable and what isn't.
I work for one of those massive organizations that everyone hates doing business with, but sort of has to. I've watched dozens of vendors spin their wheels for months over boilerplate stuff that nobody is empowered to change. They ultimately lose the deal over something that ultimately didn't matter.
> Then there was the time I wanted to hire my first full time employee. I was apprehensive to do it because I only had enough money to pay him for 2 months, unless I got another client fast.
> “Worry about that in 2 months,” Dad said.
Speaking from the perspective of that employee, fuck you.
OK, for the serious point: you may be not give a shit about risk. Good for you, you crazy risk taker! The world truly needs more people like you.
But for me? I've got a mortgage and a car payment and a wife who is trying to go through graduate school. I need to know that my ass isn't going to come into work on the 61st day and hear you say "Well, looks like we're outta cash -- sorry buddy..."
If, on the other hand, you share that risk with me up front, thanks -- you're a good boss.
I get your point, but if those things are true, then that would not be the proper job for you to take, no matter how risk prone or risk averse the founder is.
>> Then there was the time I wanted to hire my first full time employee. I was apprehensive to do it because I only had enough money to pay him for 2 months, unless I got another client fast.
>> “Worry about that in 2 months,” Dad said.
> Speaking from the perspective of that employee, fuck you.
Yep I agree that does sound a bit irresponsible, though realistically I doubt most employers have more than a few months salaries stashed away in their bank accounts to pay employees.
Better advice from his father would have been to wait till he at least got another client first, then he could justify getting another hire - if just to work on the new client project.
Pretty much all employment is risky. It doesn't matter that you have a car payment and a wife going thru graduate school. Those are financial risks you took.
Your employment could end at any time. The company could be seized by the government as part of some investigation and shut down, the CEO could be hit by a bus, you could screw up in a big way and get fired. You could be hit by a brain aneurism and simply not be there to provide for your car payment and your wife's schooling.
Every employee is taking risk that their employment might end for any number of reasons.
This is one of the reasons that, when something like that happened to me, I said "That's it, my livelihood will never be in someone else's hands again" ... and have been self employed / doing my own startups since.
1. They will sue. Medium to large - in fact any mature business, considers lawyers and the threat of lawsuits and litigation as a cost of doing business. They don't get emotionally involved, they just do it. FYI, looking at lawyers & legal as cost of doing biz is a healthy attitude and may save you a heart attack.
2. Telling someone to just "fucking sue me" or simply "sue me" makes it combative and I made this beginner mistake early on in being a CEO. I actually simply asked their lawyer if he thought his case "actually has any merit?" in a cocky tone in a phone call. Turns out he thought it did. Once I had capable council on my side she had to work hard to make nice with the other side and bring it to settlement hours before we were irrevocably committed to litigating the issue.
Lets put it this way: Wouldn't it be awesome if everyone you signed an agreement with "just signed it"?
That's right, they will sue. My company has been sued several times - so far, we've prevailed, but it takes time and money to defend a suit. MUCH better to avoid if at all possible.
I have a corollary: you're not a "real business" until you've been sued. (!)
This poor advice is like saying you can save money by not paying insurance premiums. Of course you can - until something goes wrong.
A better lawyer would have been able to amend that contract with minimal fuss. I used to get a legal briefing on the dodgy parts of the contracts I was asked to sign, along with sensible suggested changes that often benefited both sides (eg. termination clauses more appropriate to the length of the gig) I'd then send through the amended contract and discuss all the reasons for the changes with the client. Never had any problems.
The reason he was hard to sue is that he's so small. If things went really South on a small project, what's the worst thing that happens? He's 22 and talented in New York - he declares bankruptcy, and gets another job or stays on Dad's couch. This is a situational thing - you can accept liability when the downside is so low. This is why legal departments in small firms are much gentler than legal departments in the Fortune 500. Of course this doesn't work for a large firm, or someone with 3 kids and a mortgage. His dad would have said, "Go get a real job" or something like that.
Similar on the hiring - when you're that small, you invite someone to take the risk for you. You can take more risk when there's limited downside. And in this case it was the other guy's downside - if there was no work, he'd be the one in trouble.
Here are some specific contract provisions that can cause real-world problems for your business. (Shameless plug: These are discussed, and illustrated with true stories, in my short e-book, Signing a Business Contract: A Checklist for Greater Peace of Mind, at http://www.ontechnologylaw.com/before-you-sign-a-business-co...)
* Most-favored customer clauses
* Exclusive-rights provisions
* Indemnity obligations
* Automatic renewal
* Confidentiality obligations (or no confidentiality obligations)
> Then there was the time I wanted to hire my first full time employee. I was apprehensive to do it because I only had enough money to pay him for 2 months, unless I got another client fast.
> “Worry about that in 2 months,” Dad said.
This seems really dishonest. Yeah, everybody knows that startups are risky, but if you can't afford to pay more than 2 months of salary, then don't hire a full-timer. Either find a co-founder or hire a contractor instead.
I still show my contracts to my lawyer, and sometimes really fight for certain clauses, but I'm realistic: Sometimes having a signed contract is more important to me than certain categories of unlikely risk mitigation.
If you have the luxury of leverage -- the ability and willingness to walk away if the contract isn't perfect -- then yes. Hammer it out to protect your interests.
But if the contract is critical to the company's survival, then he's right: Just sign it. It's better to have an income from an imperfect contract, then no company at all because you've run out of money.
My experience is that the people who jerk you around with contracts are usually bad payers. If it's a bad contract then the prospect of income is very uncertain.
Business ultimately relies in trust, if they give you a poor contract then it is a strong reason not to trust them over anything.
The lesson here: it was 1998. "The industry" was still a little fledgling, so the legal territory was still largely unchartered. But it grew into an ugly duckling, quickly.
Sent the contract to my lawyer. She marked it up, sent it to the client. Then the client marked it up and sent it back to my lawyer. And so on, back and forth for almost a month.
Garbage in, garbage out. During the "ugly duckling" phase, the legal machine is just learning that it can spew garbage. It tests its limits. Just how much garbage can it spit before something happens? When the garbage is between private parties? Apparently, a lot.
I charged my first client $1,400. My second client paid $5,400. The next paid $24,000. I remember the exact amounts — they were the largest checks I’d seen up til that point.
Then I wrote a proposal for $340,000...
The Bust was just growing pains.
It probably could be reasonably argued that the industry is still in an ugly duckling phase (multi-Billion dollar valuations, really?)
But this is part of growing up.
In Code and Other Laws of Cyberspace Lessig writes:
It is a lack of a certain kind of regulation that produced the Y2K problem, not too much regulation. An overemphasis on the private got us here, not an overly statist federal government. Were the tort system better at holding producers responsible for the harms they create, code writers and their employers would have been more concerned with the harm their code would create. Were contract law not so eager to allow liability in economic transactions to be waived, the licenses that absolved the code writers of any potential liability from bad code would not have induced an even greater laxity in what these code writers were producing. And were the intellectual property system more concerned with capturing and preserving knowledge than with allowing private actors to capture and preserve profit, we might have had a copyright system that required the lodging of source code with the government before the protection of copyright was granted, thus creating an incentive to preserve source code and hence create a resource that does not now exist but that we might have turned to in undoing the consequences of this bad code. If in all these ways government had been different, the problems of Y2K would have been different as well.
Why would a coder ever be held responsible for something not specified in the requirements doc? If people wanted Y2K compliant software in the 70s and 80s they should have specified it.
As for multibillion dollar valuations, what's wrong with the valuations on MSFT, AAPL, GOOG? If you think the PE is crazy on LNKD, just short it. As for what VCs are willing to invest for particular companies those investments are more anecdotes than data.
Linkbait. Some of my competitors write contracts specifically so that they can sue other companies. How about this, I fucking read my contracts and I don't sign bullshit.
Articles like this depress me, because in 1998, I totally knew how to make websites, but didn't know I could make money doing it. Instead I was 18 and doing what I was supposed to do, that is I was busy going to school, and now I'm 31 and still in school not making money. What's wrong with me? Sigh.
When I started out as freelancer, my first three invoices were not for $1400, $5400 and $24000 respectively, and then a potential $340000! They were more like $300, $310, $260 etc. Maybe I'm doing something wrong too. I'd like to see my revenue explode exponentially.
I was in the UK in '99 working a string of crappy low paying jobs whilst reading job ads offering £100,000 + car + rent in London for Y2K work. I never applied for any of them because I didn't consider myself worth that much money
Wasn't until years later I found they were taking on pretty much anyone who could turn on a computer. oh well...
It's still possible to make money building web sites, perhaps more so than ever. If you aren't happy with still being in school, why aren't you putting the pieces in place to start your own web development practice?
At certain times in certain industries, it definitely pays to be brazen and shameless, particularly with your rates and aspirations. I never was either but am becoming more so after a great deal of hindsight :-)
If you're a 22-year-old with no assets it's probably not much different; you lose a judgment and declare bankruptcy and that's that.
If you're older and have a lot of assets, you just do it via a corporation and it's the same, thanks to the magical unaccountability of the corporate veil.
I agree with the sentiment of this point in general I think. Having counsel read every single contract and letting them wrestle directly with clients is probably a bad idea. Your lawyer will have only your interests in mind (or theirs, who knows?), and it probably won't lead to much productive happening. And even further, taking a few business law classes would be cheaper than using up tons of lawyer hours and probably net a better end result.
Anecdotally, At Arcturo, both myself and one of my principal guys have a good bit of contract reading experience (he much much more than myself). Every time I get a contract, I toss it to him and let him give me a thumbs up/down/comment. Having him around to handle reading things over and nit picking (often times to the point of having their lawyers concede points to us they hadn't addressed or thought of) has been awesome. If you can find someone who has a lot of business operations experience and can also hack code, they'll add a LOT of value to your company.
Remember watching a vid (1) where Pud explicitly mentioned his mom being said lawyer and his dad (as mentioned in the article) being the entrepreneur. Wonder why he left that out this time. I certainly enjoyed the dichotomy know who his folks were and what role each played.
(1) http://vimeo.com/25489184
Just change that one line "He was right. I got the job, they paid, things went well, nobody got sued." to "He was wrong. I got the job, they didn't pay, things went horribly wrong, everybody go sued".
Even if it were changed to that, the story wouldn't end with "I couldn't buy food, my macbook pro got repossessed, and I went to federal pound-you-in-the-ass prison."
If you do get sued and your business collapses you can always start another one.
To clarify though, I believe the success he's had is most certainly NOT luck but rather hard work and merit. My comment was referring just to that specific article.
Well, your business may well not be like his business. First, it was all new then, and the first half of the swhoosh to the top.
But being of the conservative sort, I have generally had a lawyer review whatever contracts people want me to sign, firstly for him to explain what it really means--what are the actual risks. Even as a very young fellow in my first one with a contract, I knew enough that it was for me to make the business decision and for my lawyer to explain what the legal ins and outs were.
Then there was the fellow who liked to do negotiation by contract. It said that everything that I did they owned, probably back a year before I started, and that if I didn't perform the would take my house and my first born, but then on the second page they said that we are kidding about the house. And it was from a law firm that was bigger than most buildings, and Very Famous. But I pushed back and after a couple of cycles got things to be in a reasonable state.
In another long-term consulting contract negotiation, my lawyer's first response after reading it was one word "Egregious". Fortunately, I was able to hammer that into better shape. This was one where the contract was supposedly non-negotiable. I learned something there.
But in no world that I am familiar with does it make sense for the lawyer to do the negotiation. They (in all likelihood) don't understand your business as well as you do.
Even though I have been doing this for a while now, I wouldn't sign anything without a lawyer's review.
But I have also been at the other extreme, where there was no contract for a multi-year deal and it worked out well.
The interesting part of this from my perspective is "my dad - a lifelong entrepreneur."
I recently saw that pud is a year younger than me, and we entered the job market at almost the same time with similar skill sets. Why did it take me so goddamn long to pull my head out of my ass and finally start my own company (at 35)?
Perhaps pud's acceptance of risk has a genetic component, or at the very least he was brought up in an environment where he learned to adjust to uncertainty.
He credits laziness - but we all know that lazy + smart = effective. I wonder if that's part of entrepreneurial DNA as well...
We don't necessarily need to turn to genetics to explain this.
When one of your parents is an entrepreneur, being an entrepreneur yourself is a natural and obvious option -- but when no one in your family has ever started a business, it's anything but.
When I was younger, I simply didn't think 'hey, I could start a business' when thinking of things I could do with myself.
I wouldn't be so hard on yourself. We're all products of our environment.
[+] [-] grellas|14 years ago|reply
Some contracts are routine and don't need any form of customizing. The review in such cases is minimal and can even be skipped if the routine nature of the contract is obvious or if the entrepreneur is seasoned enough to identify a clean situation without lawyer help. Most such routine contracts cover simple cases, such as a simple nda or a recurring situation in which a basic template is used with no material variation apart from non-legal business items that typically get customized in an exhibit.
For most cases, though, the whole key to doing a contract right is to customize it properly on its material points. This means it should be clear, it should accurately reflect the intent of the parties, and it should contain basic legal protections for each party. It is vital to this process that both the lawyer and the entrepreneur understand what is material. Why? Because that determines the proper cost-benefit analysis for how it should be reviewed.
For example, say a startup is negotiating a 1-year office lease for only a few hundred square feet of space at a modest rental rate. That sort of lease needs very little lawyer review because there is not much at stake (the money is small, the location itself not particularly important to the startup, etc.). A quick read-through by the lawyer is the max that this needs and then only to see if there is anything wildly out of line in the document. What about a 3-year lease with more square footage and a higher rent? In that case, maybe a good high-level review is in order, with comments and mark-ups on a range of important points but little or no attention paid to boilerplate clauses that may be highly unfavorable to the tenant as worded but that are also highly unlikely to occur. And what if the lease is for 5 years with two 5-year options to renew, with a location that is very important to the business involved, and with risks (such as potential environmental liabilities) that can far exceed even the value of the lease itself if mishandled? In that case, lawyer review is normally vital and needs to be pretty thorough (including even haggling over much of the boilerplate language) because it is far more likely that contingent risks can come about over a lengthy period, the amounts at stake are greater, and the lease itself may be important to the business (e.g., a restaurant that depends heavily on having a particular location).
This same sort of approach applies to a whole range of contracts. What if your business is getting acquired or if you are buying a business? Well, if it is a little business and the purchase price is very small (say, $50,000), you can very likely be well-served by a canned form used for small business sales (brokers who do these deals use these all the time). Such a form will have basic provisions covered and will usually contain the most important warranties and representations but all of it will be bare-bones. This normally works fine for a small sale. Again, lawyer review can be skipped or done at the quick read-through level. But what if the business you are buying is going to cost you $1,000,000. In that case, you still are in the small-business category but the money is more significant. This likely warrants an intermediate level of lawyer review (contract needs to be customized for the deal, with proper account taken of whether it should be structured as an asset sale, stock sale, or merger - each having different tax consequences - and with careful attention paid to reps and warranties, to conditions for closing, and to collateral matters such as non-compete, etc.). This might take $5K or $10K or sometimes more in lawyer time but it is money normally well spent (it certainly is if you are a small business owner and $1M is a lot of money to put at risk for your situation). And, of course, once you start talking about acquisitions in the tens or hundreds of millions, you need major lawyer time to make sure the complex aspects of such deals are handled properly.
What about a license agreement? A small deal, with non-exclusive rights concerning routine IP needs little or no lawyer review. But a core OEM deal involving the licensing of IP that is at the core of your company obviously warrants significant lawyer review, especially if it involves joint development efforts, sweeping indemnification clauses that might trigger major liabilities, or other complications that require sophisticated handling of IP and other rights. Of course, there is also the issue of weasel language and its nasty impact if it is not caught and deleted from any major contract.
In short, lawyers and entrepreneurs need to be guided by good sense in handling these matters. It is not good sense simply to act as if lawyers are not needed. It takes only one really bad instance for most entrepreneurs to realize how bad a mistake it is to cut corners in really important matters. On the other hand, letting lawyers run wild with their reviews is foolish as well. Their time must be managed and managed well. It should be used where it matters and curbed where it doesn't.
Let the barbs fly, then, but this is one lawyer who will insist that the advice given in this piece may have a grain of truth in it but is too simplistic to cover most serious business affairs. It may work in a number of cases but it can easily get you into trouble.
By the way, I am not saying give an open ticket to lawyers. If your lawyer can't make good judgments concerning what is important and what is not, and can't manage time wisely, it is time to get a new lawyer.
[+] [-] ChuckMcM|14 years ago|reply
It is always wrong to ask a lawyer 'What do you think?' of a contract, they will always have different ways of saying what it says, covering different contingencies.
The right question is "What rights does this give me and the other guy?" followed by "What is my financial exposure?"
As an entrepreneur you probably want to leverage your work and sell it to multiple clients so a contract clause that prevents derivative works might be bad. If a contract clause asks you to indemnify someone else, you need to understand if they are going to be sued and for what.
A friend of mine once sagely said to me 'Errors and Omissions insurance is cheaper than a lawyer.' which was basically use insurance and good business ethics to keep your financial risk of being sued low.
That being said, you should read all contracts you are asked to sign. If they are full of a lot of distasteful clauses you can always just say 'no thanks.'
[+] [-] craigmc|14 years ago|reply
[+] [-] willyt|14 years ago|reply
[+] [-] duncanj|14 years ago|reply
[+] [-] chopsueyar|14 years ago|reply
Can you give some hypothetical examples of this?
[+] [-] fredBuddemeyer|14 years ago|reply
[+] [-] tptacek|14 years ago|reply
At one extreme: giving your counsel veto power over what contracts you sign, and allowing them to bill time ping-ponging contracts until prospects give up.
At the other extreme: just signing everything and saying "fucking sue me" when things go sideways.
You should be somewhere in the middle. Contracts more often than not have provisions that are silly for you to accept verbatim. And, contracts more often than not have provisions you'd rather not accept, but that are baked into your prospect's own processes and not changeable.
No matter what you do, if you're being sensible, there are going to be tough decisions to make every once in awhile. If there aren't, you're probably doing something wrong. Like, for instance, signing tens of different contracts from giant companies without any legal review.
[+] [-] Duff|14 years ago|reply
I work for one of those massive organizations that everyone hates doing business with, but sort of has to. I've watched dozens of vendors spin their wheels for months over boilerplate stuff that nobody is empowered to change. They ultimately lose the deal over something that ultimately didn't matter.
[+] [-] owenmarshall|14 years ago|reply
> “Worry about that in 2 months,” Dad said.
Speaking from the perspective of that employee, fuck you.
OK, for the serious point: you may be not give a shit about risk. Good for you, you crazy risk taker! The world truly needs more people like you.
But for me? I've got a mortgage and a car payment and a wife who is trying to go through graduate school. I need to know that my ass isn't going to come into work on the 61st day and hear you say "Well, looks like we're outta cash -- sorry buddy..."
If, on the other hand, you share that risk with me up front, thanks -- you're a good boss.
[+] [-] brk|14 years ago|reply
I get your point, but if those things are true, then that would not be the proper job for you to take, no matter how risk prone or risk averse the founder is.
[+] [-] jklp|14 years ago|reply
Yep I agree that does sound a bit irresponsible, though realistically I doubt most employers have more than a few months salaries stashed away in their bank accounts to pay employees.
Better advice from his father would have been to wait till he at least got another client first, then he could justify getting another hire - if just to work on the new client project.
[+] [-] epscylonb|14 years ago|reply
Working for a start up is almost always inherently more risky than working for BigCo, regardless if you are employee number 1 or not.
[+] [-] mikeash|14 years ago|reply
[+] [-] nirvana|14 years ago|reply
Your employment could end at any time. The company could be seized by the government as part of some investigation and shut down, the CEO could be hit by a bus, you could screw up in a big way and get fired. You could be hit by a brain aneurism and simply not be there to provide for your car payment and your wife's schooling.
Every employee is taking risk that their employment might end for any number of reasons.
This is one of the reasons that, when something like that happened to me, I said "That's it, my livelihood will never be in someone else's hands again" ... and have been self employed / doing my own startups since.
[+] [-] mmaunder|14 years ago|reply
1. They will sue. Medium to large - in fact any mature business, considers lawyers and the threat of lawsuits and litigation as a cost of doing business. They don't get emotionally involved, they just do it. FYI, looking at lawyers & legal as cost of doing biz is a healthy attitude and may save you a heart attack.
2. Telling someone to just "fucking sue me" or simply "sue me" makes it combative and I made this beginner mistake early on in being a CEO. I actually simply asked their lawyer if he thought his case "actually has any merit?" in a cocky tone in a phone call. Turns out he thought it did. Once I had capable council on my side she had to work hard to make nice with the other side and bring it to settlement hours before we were irrevocably committed to litigating the issue.
Lets put it this way: Wouldn't it be awesome if everyone you signed an agreement with "just signed it"?
[+] [-] GeorgeTirebiter|14 years ago|reply
I have a corollary: you're not a "real business" until you've been sued. (!)
[+] [-] tjmc|14 years ago|reply
A better lawyer would have been able to amend that contract with minimal fuss. I used to get a legal briefing on the dodgy parts of the contracts I was asked to sign, along with sensible suggested changes that often benefited both sides (eg. termination clauses more appropriate to the length of the gig) I'd then send through the amended contract and discuss all the reasons for the changes with the client. Never had any problems.
[+] [-] mathattack|14 years ago|reply
The reason he was hard to sue is that he's so small. If things went really South on a small project, what's the worst thing that happens? He's 22 and talented in New York - he declares bankruptcy, and gets another job or stays on Dad's couch. This is a situational thing - you can accept liability when the downside is so low. This is why legal departments in small firms are much gentler than legal departments in the Fortune 500. Of course this doesn't work for a large firm, or someone with 3 kids and a mortgage. His dad would have said, "Go get a real job" or something like that.
Similar on the hiring - when you're that small, you invite someone to take the risk for you. You can take more risk when there's limited downside. And in this case it was the other guy's downside - if there was no work, he'd be the one in trouble.
[+] [-] dctoedt|14 years ago|reply
* Most-favored customer clauses
* Exclusive-rights provisions
* Indemnity obligations
* Automatic renewal
* Confidentiality obligations (or no confidentiality obligations)
* Termination for convenience
* Unilateral amendment rights
* Best-efforts obligations
* Assignment-consent requirements
* Non-compete / no-hire / no-solicitation clauses
* Tax consequences
[+] [-] nandemo|14 years ago|reply
> “Worry about that in 2 months,” Dad said.
This seems really dishonest. Yeah, everybody knows that startups are risky, but if you can't afford to pay more than 2 months of salary, then don't hire a full-timer. Either find a co-founder or hire a contractor instead.
[+] [-] pud|14 years ago|reply
[+] [-] revorad|14 years ago|reply
I don't drive drunk any more :-)
[+] [-] SomeCallMeTim|14 years ago|reply
If you have the luxury of leverage -- the ability and willingness to walk away if the contract isn't perfect -- then yes. Hammer it out to protect your interests.
But if the contract is critical to the company's survival, then he's right: Just sign it. It's better to have an income from an imperfect contract, then no company at all because you've run out of money.
[+] [-] egiva|14 years ago|reply
Good customer service gets you out of most predicaments, so I review the contract but spend more time worrying about how to serve my customers.
[+] [-] epo|14 years ago|reply
Business ultimately relies in trust, if they give you a poor contract then it is a strong reason not to trust them over anything.
[+] [-] shawnee_|14 years ago|reply
Sent the contract to my lawyer. She marked it up, sent it to the client. Then the client marked it up and sent it back to my lawyer. And so on, back and forth for almost a month.
Garbage in, garbage out. During the "ugly duckling" phase, the legal machine is just learning that it can spew garbage. It tests its limits. Just how much garbage can it spit before something happens? When the garbage is between private parties? Apparently, a lot.
I charged my first client $1,400. My second client paid $5,400. The next paid $24,000. I remember the exact amounts — they were the largest checks I’d seen up til that point.
Then I wrote a proposal for $340,000...
The Bust was just growing pains.
It probably could be reasonably argued that the industry is still in an ugly duckling phase (multi-Billion dollar valuations, really?)
But this is part of growing up.
In Code and Other Laws of Cyberspace Lessig writes:
It is a lack of a certain kind of regulation that produced the Y2K problem, not too much regulation. An overemphasis on the private got us here, not an overly statist federal government. Were the tort system better at holding producers responsible for the harms they create, code writers and their employers would have been more concerned with the harm their code would create. Were contract law not so eager to allow liability in economic transactions to be waived, the licenses that absolved the code writers of any potential liability from bad code would not have induced an even greater laxity in what these code writers were producing. And were the intellectual property system more concerned with capturing and preserving knowledge than with allowing private actors to capture and preserve profit, we might have had a copyright system that required the lodging of source code with the government before the protection of copyright was granted, thus creating an incentive to preserve source code and hence create a resource that does not now exist but that we might have turned to in undoing the consequences of this bad code. If in all these ways government had been different, the problems of Y2K would have been different as well.
[source: http://www.code-is-law.org/conclusion_excerpt.html]
This is dated (1999), but interesting. He was wrong about Y2K, of course, but not about the underlying issues and problems with contract law and IP.
[+] [-] fleitz|14 years ago|reply
As for multibillion dollar valuations, what's wrong with the valuations on MSFT, AAPL, GOOG? If you think the PE is crazy on LNKD, just short it. As for what VCs are willing to invest for particular companies those investments are more anecdotes than data.
[+] [-] AJ007|14 years ago|reply
[+] [-] barefoot|14 years ago|reply
[+] [-] rhizome|14 years ago|reply
[+] [-] radarsat1|14 years ago|reply
[+] [-] Luyt|14 years ago|reply
[+] [-] cubicle67|14 years ago|reply
I was in the UK in '99 working a string of crappy low paying jobs whilst reading job ads offering £100,000 + car + rent in London for Y2K work. I never applied for any of them because I didn't consider myself worth that much money
Wasn't until years later I found they were taking on pretty much anyone who could turn on a computer. oh well...
[+] [-] aasarava|14 years ago|reply
[+] [-] petercooper|14 years ago|reply
[+] [-] jeffool|14 years ago|reply
[+] [-] TomGullen|14 years ago|reply
[+] [-] _delirium|14 years ago|reply
If you're older and have a lot of assets, you just do it via a corporation and it's the same, thanks to the magical unaccountability of the corporate veil.
[+] [-] jeremymcanally|14 years ago|reply
Anecdotally, At Arcturo, both myself and one of my principal guys have a good bit of contract reading experience (he much much more than myself). Every time I get a contract, I toss it to him and let him give me a thumbs up/down/comment. Having him around to handle reading things over and nit picking (often times to the point of having their lawyers concede points to us they hadn't addressed or thought of) has been awesome. If you can find someone who has a lot of business operations experience and can also hack code, they'll add a LOT of value to your company.
[+] [-] JoeyDoey|14 years ago|reply
[+] [-] westicle|14 years ago|reply
His mother tanked the first deal? So his father told him to fire her? I'd love to be a fly on the wall at that family christmas.
[+] [-] toast76|14 years ago|reply
[+] [-] gnu6|14 years ago|reply
If you do get sued and your business collapses you can always start another one.
[+] [-] compay|14 years ago|reply
[+] [-] compay|14 years ago|reply
[+] [-] nknight|14 years ago|reply
I don't see him giving advice to anybody. I see him recounting some rather... debatable decisions early in his career.
[+] [-] wglb|14 years ago|reply
But being of the conservative sort, I have generally had a lawyer review whatever contracts people want me to sign, firstly for him to explain what it really means--what are the actual risks. Even as a very young fellow in my first one with a contract, I knew enough that it was for me to make the business decision and for my lawyer to explain what the legal ins and outs were.
Then there was the fellow who liked to do negotiation by contract. It said that everything that I did they owned, probably back a year before I started, and that if I didn't perform the would take my house and my first born, but then on the second page they said that we are kidding about the house. And it was from a law firm that was bigger than most buildings, and Very Famous. But I pushed back and after a couple of cycles got things to be in a reasonable state.
In another long-term consulting contract negotiation, my lawyer's first response after reading it was one word "Egregious". Fortunately, I was able to hammer that into better shape. This was one where the contract was supposedly non-negotiable. I learned something there.
But in no world that I am familiar with does it make sense for the lawyer to do the negotiation. They (in all likelihood) don't understand your business as well as you do.
Even though I have been doing this for a while now, I wouldn't sign anything without a lawyer's review.
But I have also been at the other extreme, where there was no contract for a multi-year deal and it worked out well.
Use a lawyer, but use the lawyer wisely.
[+] [-] TWSS|14 years ago|reply
I recently saw that pud is a year younger than me, and we entered the job market at almost the same time with similar skill sets. Why did it take me so goddamn long to pull my head out of my ass and finally start my own company (at 35)?
Perhaps pud's acceptance of risk has a genetic component, or at the very least he was brought up in an environment where he learned to adjust to uncertainty.
He credits laziness - but we all know that lazy + smart = effective. I wonder if that's part of entrepreneurial DNA as well...
[+] [-] gyardley|14 years ago|reply
When one of your parents is an entrepreneur, being an entrepreneur yourself is a natural and obvious option -- but when no one in your family has ever started a business, it's anything but.
When I was younger, I simply didn't think 'hey, I could start a business' when thinking of things I could do with myself.
I wouldn't be so hard on yourself. We're all products of our environment.