“Minimum Viable Lawyering”

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

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.