“Minimum Viable Lawyering”

Posted on February 26, 2010. Filed under: JumpPost, startups, venture capital | Tags: , , , |

So today I was talking to a new lawyer at my law firm, Cooley Godward, about a terms of use for JumpPost and things started to go down the road of a custom contract.  I said to him “Eric, are you familiar with the concept of a minimum viable product?”  He said yes, to which I replied “That is what I am releasing on Monday.  I want the ‘Minimum Viable Terms of Use’ that will support my minimum viable product.  When we get to the point where it makes sense to have something more elegant, we’ll refine it.”

For founders, working with lawyers can be extremely challenging…if done properly, there is a tremendous amount of value in the time you spend with your lawyers…if done improperly there is a tremendous cost.

When I first started to engage with counsel (in my last company), I was constantly worried about the ticking clock (“this guy is $600 an hour, we’ve been on the phone for 30 minutes…I just spent 1% of my monthly burn in the blink of an eye”).  Unfortunately this mindset causes founders to try to speed through calls, avoid asking important questions, and generally fosters a dynamic that is “watchful” as opposed to “collaborative.”  Although the legal line item can often be the largest expense in an early stage startup’s budget, I have found that getting comfortable with this expense and being conscious of it, as opposed to fearful, will maximize value and minimize waste.

Before we get into how to manage cost, let me start by saying that one of the most important things you can do when working with a law firm is invest in building a real relationship with your lawyer.  Don’t worry about the clock, just worry about getting to a point of real trust and mutual respect.  It will pay for itself 10x.

Then, once you have gotten to know your lawyer, don’t incur costs until they are absolutely necessary.  You may have a “legal roadmap” that requires an incorporation, option pool creation, terms of use, privacy policy, proprietary contractual agreement with a vendor, etc…and the cost of all of those efforts may total $50K.  Most founders just want to check every box on their plan, so they dump all the work on their lawyers desk and say “go.”  A month later they get a $50K check and then have to explain to their investors why their first months burn is so high.  What I’ve learned is that you can line up these expenses with your operating plan, and only ask your lawyer to begin working on them when they become a stop gap to further execution.  So, day 1 you need them to incorporate (free to $1K depending on the firm), but hold off on that option pool until you have a better sense of your hiring timeline.  Why spend a $1 today, when you could wait until tomorrow.  When building my first company, I said “go” to a $20K customized legal contract in the first two months of operation.  I knew we wouldn’t need that contract until our product was live 6 months later, but I wanted it “in place.”  That contract never got used once.

So the lesson is, don’t invest in a whole lot of legal infrastructure ahead of need, but rather approach your legal strategy the same way as you would your product strategy.  Only spend what you have to when you have to.  Get something out the door, acquire new data, and then iterate on what you have in place.

Note: There is an element of “protecting against future occurrence” when it comes to the law that sometimes commands more of an up front investment than is consistent with lean product development philosophy, but this is where having a lawyer you categorically trust is extremely important.  Pat Mitchell at Cooley understands my lean startup philosophy and only advises me to spend when it is critical.  Make sure your lawyer is giving you the advice that’s best for your company, not his/her near term cash flows.

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10 Responses to ““Minimum Viable Lawyering””

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Awesome advice. Had never thought about approaching “lawyering” this way. Would be interested to hear you break down “Before we get into how to manage cost, let me start by saying that one of the most important things you can do when working with a law firm is invest in building a real relationship with your lawyer.” What concrete steps can I engage in that get me to the point where I can sit back and start approaching legal advice with my lawyer as a team effort?

dude, it’s exactly the same as getting to know any other member of your team…you need to spend enough time talking to them, learning about their lives and perspectives (non-business related) that you can say “this is a fundamentally good person.” A lot like building a friendship or anything else…their opinion on the meaning of life could be the most telling piece of data in assessing their trustworthiness in business

Jordan, thanks for the informative post. Any lawyer who really knows how to work with startups will automatically approach the practice this way. It doesn’t make sense from the perspective of the law firm to have startups do work until they need it because generally the risk of payment is on the law firm. So we try to keep costs down at the early stages until absolutely necessary. Also, most of the things you described in your $50K bucket should be “off the shelf” for any established startup lawyer and should not cost $50K except in rare circumstances, just for point of reference.

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I think my flaky internet here in Aus blew away this comment mid-submit: I think an entrepreneur can truly go TOS MVP by doing the first draft yourself — go look at TOS from similar but later stage companies and pull what seems important (ideally translate to more understandable language), then come up with additional things you think you might need, then discuss with your lawyer and let your lawyer edit, not create. Faster unless your attorney really has something that fits you out of the box.

interesting…i was tempted to say…dude, just go look what craigslist has and copy it…apparently 90% of TOS is boilerplate stuff…get’s a little tricky if you are creating a new bus model (which we are…but so it goes)

very true.. you can also ask the law firm if they will defer their legal fees from the legal work they do for you until an initial institutional funding milestone is reached. Especially in slower economic environments, firms are often willing to defer $10k or so

Definitely agree you need to build a solid and trusting relationship with your legal. Also, I’d suggest finding someone who is rising in the ranks of a bigger law firm and is looking to cement long term relationships with entrepreneurs. In a larger law firm, your legal council may have no control over his hourly wage and is willing to do some things off the clock to cement and a long term relationship.

Those two things go a long way toward solid contracts at a lower cost.

Hey Jordan,

1% of burn huh? What are you already spending $30k/month on? Seems pretty steep. You have more people on the payroll than just you and Doug?

no way dude…that was my last company…

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    I’m a NYC based investor and entrepreneur. I've started a few companies and a venture capital firm. You can email me at Jordan.Cooper@gmail.com (p.s. i don’t use spell check…deal with it)


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