Improving Survival with Solid Legal Framework

The first stages of your business challenge your business acumen and your stamina.  Many new businesses will fail due to fractures in the team, market problems, and cash flow zero. Last week we discussed common startup scenarios and DIY Internet tools.  Our focus today is to help you see yourself transitioning successfully to the next stage, and prepare you for what’s ahead. 

Stage 2:  Survival

Product & Market Fit

As you gain confidence in your business as a workable entity, you will be consistently generating income and customers.  Your muscles for flexibility and adaptability are growing, and you will shift your focus from mere existence to widening the gap between revenues and expenses. 

Many businesses stay in Survival Phase for a while.  Here you will learn whether your business will earn marginal returns and eventually go out of business, whether you or your partners want to stay or give up (and whether you agree on this decision), or whether this business is successful enough to move forward with some level of founder disengagement. 

Several key legal aspects will support or delay your success.  In the first five years of business the law will influence many key business decisions.  The order and the consequences are vastly different depending on the kind of business you’re in. If you’ve made it to the second stage of your business without choosing a lawyer to turn to for day-to-day questions, it’s time to make this a priority. 

Checklist for Survival:

  • Do you understand the city, state or federal government laws that affect your business or industry?
  • Have you made or been asked to make a personal guarantee to a business creditor or bank?
  • Are you drafting or negotiating your business contracts?
  • Has your business protected its confidential information or intellectual property?
  • Do you have a board of directors you must answer to?  What surprises you?
  • What have you learned about your customers?  Any tensions exist? 
  • Are you going to lease commercial real estate?  What do you know about your landlord?

In my law practice I work with early stage businesses when the client’s needs are a good match for my skills and experiences. Some young businesses begin with 15 – 20 hours of work in the first year.  The more I learn about the business owners and operations, especially early on, the better I can serve them and with more efficiency.  Each client’s unique culture affects their business and legal decisions, and will lend to the coherence or lack of coherence in their relational threads.

If you did not engage a lawyer in the first phase or it’s been more than two years since your previous business assessment, or you aren’t confident in the legal advice you’ve received, it’s time to set up a one-hour meeting with a qualified lawyer.  Focus your meeting on:

  1. Reviewing your legal framework to be sure it matches your business;
  2. Identifying and understanding any legal vulnerabilities that may prevent your business from succeeding;
  3. Understanding essential terms of business contacts with third parties (insurers, employees, contractors, vendors, designers, etc);
  4. Understanding what risk allocation is common within your industry;
  5. Planning for strategic and smooth growth in your workforce;
  6. Discussing the questions / worst-case scenarios that keep you up at night;
  7. Ensuring your business is resourced with a team of good advisers, like a CPA, insurer, or specialized legal counsel, and that your advisers communicate with each other;
  8. Controlling legal costs.

The next stage of business will be chaotic and more costly if you go in without finding the right lawyer.  You’ll be in a much better position for successful high growth if you have engaged a knowledgeable lawyer who you like and trust.  The subjective elements to this are important.  Ask yourself if you like the lawyer.  If necessary, interview more than one lawyer.  I always get several opinions before making a big decision about my healthcare. 

I hear endless stories from litigation attorneys about the troubles of unprepared clients.  The financial impact is devastating for many.  A little planning goes a long way.  Stay ahead of the curve by knowing where you’ll turn for legal advice as your business grows and legal priorities rise to the surface, and by doing it before problems get out of hand.   

Next week we'll look at what to expect as your business moves into high growth.  If you have any questions or comments, please reach out.