The Agreement is Signed – Now What?

Ever heard someone say, “Now that the contract is signed, we can put it in a drawer and never look at it again.”? I understand this thinking – if it means the business terms are so clear, and the relationship is so good, that they don’t need to obsess over contractual minutia. In other words, compliance is sort of on auto-pilot. What I’m opposed to, however, is not knowing, or directly ignoring, the requirements of your contracts.

Businesses ignore their contracts for a variety of reasons, including:

 • Things are going so well from a business standpoint that they don’t care what the contract says.
• Conversely, things are so bad that they don’t care.
• They’re too busy, or compliance is too much of a hassle.
• Or, finally, the contract simply doesn’t accurately state their business arrangement.

None of these are good reasons to ignore your contracts. Non-compliance means risk; risk means exposure; and exposure threatens the success (and sometimes survival) of your business.

Here are a few suggestions to ensure contract compliance:

• Keep your contracts as simple as possible.
• Try to match your contract terms with your general business practices and processes.
• Seek uniformity in your contracts (and make sure your lawyers do this when they draft them) on both business terms and more standard “boilerplate”terms.
• Have the same person negotiate the same types of contracts.
• Assign a specific person to be ultimately responsible for performance, oversight and compliance for each contract – preferably the person who negotiated it or someone who is directly involved in performance.
• Prepare executive summaries of the material terms, and review them periodically.
• Make sure those directly involved in the performance each contract know its terms.
• And finally, don’t enter into contracts that don’t accurately state your business agreement, and amend them if circumstances change so that they no longer do so.

Think of it this way – if the deal was important enough to enter into a contract, then it’s important enough to make sure that contract is accurate and to comply with it.

Strategic Alignment Goes Beyond Your Workforce

Business consultants frequently discuss the importance of having an aligned workforce – one with an identified and accepted culture, common values, a shared vision for the future, and a uniformly adopted strategic plan for getting there.  I would suggest for businesses of all shapes and sizes the need for alignment extends beyond your workforce to include, at a minimum, your legal counsel and other important advisers.

Why, you might ask, is it important that your outside advisers be “aligned” with you and your business?  In the simplest terms, having aligned advisers results in: (i) less wasted time; (ii) less wasted money in both consulting fees and lost opportunities; (iii) less frustration and misunderstandings; (iv) more productive negotiations and transactions; and (v) more meaningful and direct accomplishment of your business goals.

So, what does it mean to have aligned advisers, and how do you get them?  Here are a few thoughts:

•         First, choosing the “right” advisers is critical – different advisers have different personalities, approaches and philosophies – choose those that share yours from a big picture perspective.  But understand that this alone is not enough.

•         Remember, you set the course – not them.  Aligned advisers adopt your approach, not theirs – so they need to know what your approach is and what your objectives are.

•         In addition, your advisers must know what tactics and methods you want to use to achieve your objectives – overall and in each transaction or circumstance.  Make sure your directions are clear in this regard.  Think joint venture versus distributor, or even 50-page agreement versus handshake deal.

•         Make sure your advisers are informed as to changes in culture, philosophy, tactics, objectives, budget, etc.  They can’t execute what they don’t know.

•         Finally, periodically evaluate your advisers and their alignment.  If they don’t get passing marks, make a change.

The value of alignment cannot be overstated.  Make it part of your consulting and advisory relationships.

Joint Ventures Present Potential Rewards AND Risks

What are the most basic qualities characterizing a good joint venture?  I would argue that the most important keys are business synergies and a shared vision of what the companies want to achieve and how they can achieve more working together than working alone.  Equally important – and sometimes lost in the early optimism and desire to move quickly – is understanding and agreement as to:  (i) what each company is and is NOT bringing to the JV and what its responsibilities will and will NOT be; and (ii) what each company can do outside the JV – both during and after the JV’s existence.

Why is it so important to decide and define these things?  Because, chances are, if this is a truly strategic joint venture, these are the things that each party may want to pursue on its own (outside the JV), and they may very likely be directly related to, and often competitive with, the purposes and products of the JV.  This means that several key provisions of your JV documents must be carefully considered and drafted.  Some of those are as follows:

• Ownership of (and Rights to) Pre-Existing Intellectual Property – who owns the IP that each party brings to the table, and separate from ownership, does the JV (or even the other party) have any license or use rights to that IP during or after the JV’s existence?

• Ownership of Jointly-Developed IP – similarly, who owns the jointly developed IP, and what use rights do the parties have during and after the JV’s existence?

• Confidentiality and Use of Information and IP – what can the parties do with the confidential information and IP of each other and the JV?

• Assignment of Inventions – Are each of the parties (and their employees?) required to assign all inventions and IP resulting from their joint efforts to the JV?  Only those relating to the business activities of the JV?  What about after the JV’s existence?

• Non-Compete – what exactly can the parties do and not do during and after the JV’s existence?  Compete with JV?  Compete with each other?  And what does compete mean?

• Non-Solicitation – who can the parties do business with during and after the JV’s existence and what kind of business?  Pre-existing customers?  Non-competitive products?  Anyone and anything?  Etc.

Joint ventures present exciting opportunities. Just remember to carefully define the parties’ rights and responsibilities to avoid disagreements in the future.

Sometimes You Really Can Do It Alone

One of the most common questions asked by startups and more mature businesses looking to grow is – how do I raise money from outside investors?  There are a number of answers to that question.  However, before you ask yourself that question, I would suggest there is a more important one – should you raise money from outside investors?  The answer to the second question, in turn, requires you to ask yourself some others.  Don’t worry – eventually you’ll get to answers, but the point is, the decision to raise money from anyone other than yourself (even friends and family) should not be made lightly.

Some of the questions you need to ask are as follows:

  • What do I need the money for?
  • How much do I really need?
  • When do I really need it?
  • Do I have it on my own; and if so, why would others put their money at risk if      I won’t?
  • Are there grant funds or other public or private assistance available?
  • Can I borrow the money rather than diluting my ownership?
  • Am I comfortable with all that accompanies outside investment (e.g., loss of      control, dilution, etc.)?
  • And . . . only after answering all of those questions and determining that you      need outside investors – who are my ideal investors?

The point is, the most expensive, complicated, intrusive and dilutive money that you bring into your business is outside equity investment.  So, when you ask and answer the above questions, consider what you can do to structure your company and business plan to maximize the growth you can achieve with your own dollars before bringing in outside investors.  While it may seem more expensive and risky in the short term, you may find the opposite to be true in the long run.

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.

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.