Even Start-Ups Need to Remember Their Audience

One of the really fun things about working with both start-ups and more established businesses is the contrast – in terms of company stage, funding, decision-making, processes (or lack thereof), culture, attitudes, etc.  Most start-ups – including those established by successful and sophisticated “serial entrepreneurs” – have a more carefree and spontaneous character, which in many ways is what allows them to be more creative, adaptable, energetic, responsive and dynamic than more mature companies.  These are qualities that you generally want to promote and retain in a start-up.  However, it’s also critically important to remember that these qualities – and perhaps more importantly, the behaviors that those qualities sometimes promote – may not be appropriate for all settings, circumstances and audiences.

My purpose with this post is not to stifle or discourage the free-spirited character and spontaneity exhibited by most start-ups.  Rather, my point is to emphasize that these qualities aren’t somehow inconsistent with professionalism or a businesslike approach and attitude – especially when a particular audience, event or circumstance demands the latter.  Remember, not all third parties that may be important to the success of the start-up business will share or even appreciate some of the more casual qualities of even successful start-ups – especially (and most importantly) in the wrong context.

So what’s my real point here?  Know your audience and respond accordingly.  You’re not somehow selling out by wearing khakis (or even a suit) to a meeting with your banker, taking the profanity out of your presentation to the Governor or the local economic development agency, or cleaning up the office before a visit by a key prospective investor.  Keep in mind, while many like to say how much they admire the idea of start-up businesses (and they usually really do), most of them still work in an environment where casual means “business casual.”

Subtlety Has Its Place

As the title to this post indicates, subtlety has its place – just not in business negotiations or contracts.  This is not to say that people shouldn’t be tactful, courteous and professional in these contexts – of course, they should be.  I’m not talking about manners; I’m talking about clarity, precision, directness and transparency – i.e., the things that avoid uncertainty and minimize the risk of disagreement (and litigation).

Occasionally, clients will ask me to word a provision in a contract so that it isn’t as clear or explicit as it might be, so that it’s “less conspicuous,” or in a way so that “later, we can take the position that it meant X. . . .”  This is almost always a bad idea.  After all, a contract is meant to be a clear and complete expression of the parties’ mutual intent and agreement – trying to “finalize” the deal while simultaneously avoiding clarity and completeness in order to avoid points of disagreement is NOT a recipe for success; to the contrary, it is a recipe for future disputes.

So, what does this mean for your negotiations and contracts?  Quite simply, items of potential disagreement should be identified and discussed (and hopefully resolved) early on, just as items on which the parties agree should be discussed.  Dispute resolution at the point of negotiation/deal-making and as part of the contractual process is healthy and productive.  It generally leads to one of 2 outcomes – either the parties ultimately reach agreement through compromise, concessions, etc., and they move ahead with the deal; or they don’t, and the deal doesn’t get done.  Either result is far better than signing a contract or entering into a relationship only to end up in the other kind of dispute resolution – the kind that comes after the contract is signed and involves 2 teams of lawyers, a judge, jury or arbitrator, and words like injunction, breach of contract, damages, and legal fees.  Don’t be subtle . . .

Nice to Meet You – Let’s Get Married

Only fools rush in.  We’ve all heard that expression many times and probably think we’re far too wise and experienced to be such a fool.  However, you’d be amazed at how often businesses and individuals rush headlong into business relationships or contracts only to find out they should have used more discretion, patience and judgment.  Remember, before you date someone, you usually want to know at least a little bit about them; before you go steady, you want to know a little more; and before you get married, you really want to know them well.

Consider applying some of these dating lessons and clichés to your business and legal relationships and contracts, and you may find you have fewer emotional breakups or (more importantly) fewer bad marriages that end in messy divorces:

  • Ask around (a/k/a, do your due diligence) – learn all you can about a person or company before you engage them, become partners or enter into a long term binding contract.
  • Trust your instincts (a/k/a, if it doesn’t feel right, don’t do it) – unless there’s some compelling reason you have to work with a specific person or company or you have to jump into a deal with both feet, if you’re getting a bad vibe, don’t proceed.
  • Go slowly (a/k/a, – start small) – whenever possible, start with a smaller project or a short term relationship and see how it goes. There’s usually time and there will almost always be more opportunities to work together if the first one goes      well.
  • Build in an escape hatch (a/k/a, don’t put all of your eggs in one basket) – even if you’re ready to hire someone or enter into a contract, make sure you have the ability to terminate or get out of the relationship.
  • See other people (a/k/a, avoid exclusivity) – exclusive relationships are serious commitments and have high risk (and potentially, high reward); take your time.
  • There are more fish in the sea (a/k/a, know when to say when) – ending a bad relationship is always hard – whether personal or business – but when your gut tells you it’s not right, then it probably isn’t. Cut your losses and end the relationship (in the right way, of course).

The bottom line is, business and legal relationships resemble personal relationships – with the same types of risks and rewards.  Look before you leap.

You’re an Owner – Act Like One

Owners of businesses – particularly closely held businesses – often divide responsibilities for company matters based on their individual strengths, interests, likes/dislikes, etc.  Those that are good at sales handle sales; those that are good at production manage production; etc.  This makes perfect sense, and I get it.  In fact, these types of preferences, skill sets and synergies are often the reason that certain people make good business partners.  However, this does NOT mean that they should not monitor each other’s performance and the performance of all material aspects of the company’s critical business operations, processes and finances.  Failure to do so often leads to misunderstandings, and in extreme cases can lead to business breakups or even outright failure.

Frequently I encounter businesses whose owners are not particularly strong in financial matters or simply don’t enjoy monitoring the company’s finances.  Without sounding too harsh or patronizing – complete delegation of your company’s finances to another party (even your trusted business partner) without regular reports, monitoring, etc. is NOT acceptable or prudent.  After all, as an owner, that’s your money they’re dealing with.

We all know the old saying – “The buck stops here.”  Well, part of being a responsible owner is understanding that the buck stops with you.  Too often I’ve seen owners who discover too late that someone was doing something wrong, something was not getting done at all, or the business simply wasn’t healthy or performing properly – and the explanation frequently is that it was someone else’s fault.  I hate to be so blunt, but it’s always the owner’s fault – and it’s always the owner’s money that’s lost.

The bottom line is ownership comes with benefits, burdens, responsibilities and obligations.  Monitoring all aspects of your company’s performance and finances is one of the burdens – or at least one of the responsibilities.  Take it seriously for your own benefit and protection.

Raising Outside Capital? Know the Basics – Part 1

So your company is doing well and has great growth potential, but the banks won’t loan you money to grow, you’ve exhausted your personal resources, and you’ve run out of friends and family willing and able to write checks to your company – what does that mean?  It probably means it’s time to raise outside capital – perhaps angel or venture capital.  Here are some considerations before raising outside capital and some of the key points you’ll likely be negotiating:

Dilution/Loss of Control:
First, consider whether you’re prepared to own less than 100% of your company, and if so, whether you’re also prepared to have less than 100% control over business decisions.  If the answer to either of these questions is no, you should not raise outside capital.

Capital Need – Sources and Uses:
Second, carefully consider how much money you need and what exactly you’re going to do with it.  The reason is twofold – first, no experienced investor will take you seriously unless you have a detailed and well thought out strategy; and second, the more you raise, the more ownership and upside you give up.  Raise just what you need to execute your business plan (with the caveat that everything generally takes longer and costs more than planned).

Strategic Investors:
Third, consider what qualities, skills, connections, experiences, etc. you would like your ideal investor to bring to the table.  After all, a dollar is a dollar, but these other strategic offerings are what differentiate one investors’ dollars from another’s – and make them more valuable to you.

Valuation:
Valuation will be key.  At the risk of stating the obvious, the higher the valuation you can justify, the lower the interest the outside investors receive for each dollar invested.  And be prepared to justify your valuation – this company is your baby, not theirs.  What you see as a cute dimple, they may see as an ugly scar.  In the end, the value of the company becomes what you and your investor(s) agree it is.  Make sure you’re prepared to make the strongest case for your valuation – and understand that to the investor, it’s just business.

Stay tuned for “Know the Basics – Part 2.”

Angels and Opportunities – What a Concept!

One of the biggest challenges facing angel investors is access to good deals. One of the biggest challenges facing early stage companies is access to capital; another is access to experienced, strategic investors who bring more to the table than money. There’s no real mystery here – we need to go beyond ad hoc networking to connect angels to investment opportunities for their mutual benefit and for the benefit of the start-up and entrepreneurial ecosystems inIowaand beyond. We’ve known this for a long time, but now we’re finally doing something about it – enter “The Plains Angels.”

 The Plains Angels is the brainchild of Mike Colwell at the Greater Des Moines Partnership and will be led by Mike, Christian Renaudand Tej Dhawan with support from BrownWinick. It is not an investment fund, but rather a group of angel investors looking for a reliable and consistent source of high quality deals that have been vetted by experienced consultants. That’s the mission of The Plains Angels – to connect angels with opportunities.

This is not a new model – it’s proven successful in Omaha, Austin, Denver and elsewhere, and it will succeed in Iowa. And the beauty of it is, it need not and should not be limited to Iowa companies or Iowa angels. In fact, in order to develop the synergies and diversity of opportunity that we’re looking for, it’s essential that The Plains Angels cross pollinate and be cross pollinated by other like-minded groups.

This is an exciting time to be involved in the start-up/entrepreneurial and angel groups in Iowa and more broadly.  The Plains Angels is what we’ve needed for several years to put us over the top locally and make an impact regionally and nationally. This is going to be a lot of fun – join us for the ride!

Shared Values Matter in Attorney-Client Relationships

Everyone knows that shared values matter greatly in interpersonal relationships – in fact, they may be one of the few absolute requirements for a successful and rewarding long term personal relationship.  Most would also agree they matter within an organization, where individual values ultimately dictate company culture.  I’d like to make the case for the importance of shared values in attorney-client relationships.

Both attorneys and clients come in many “shapes and sizes” when it comes to personalities, preferences, communication styles, etc.  I’m not suggesting that these qualities need to be the same or even similar.  In fact, one can argue that it’s healthy to the overall team to have varying skills, experiences and styles.  However, I don’t believe that’s true when it comes to values.  I believe shared values and value systems are essential to a long term successful relationship.

When speaking of values in the attorney-client context, I’m talking about those principles – business, ethical, etc. – that dictate both what we’re willing to do and not willing to do and how we’re willing to do it.  For example, I’m not willing to lie or mislead, abuse or mistreat, or place unfair demands or blame on the other side to a negotiation.  My value system inherently tells me that these are the wrong actions and behaviors to bring about a positive outcome for my clients.  I am, however, willing to push myself and my team to the limits to zealously and aggressively represent my client’s interests.  When clients share these values with me, we make a great team and can accomplish great things.  If we don’t, it will ultimately lead to frustration and disappointment.

If you haven’t taken the time to explore whether you and your attorney (or you and your client) share the same essential values, you should.  It can go a long way toward establishing the right relationship and building it so that you – as an attorney-client team – reach your maximum potential for the benefit of your business.