By Beth Lebowitz, founder and CEO of Auxana Inc. and member of NAWBO-Phoenix
Leading a business from each stage of its life cycle is tricky enough, without having to navigate the additional responsibilities and tasks associated with “legal.” Here, we’ll delve into the legal needs of different business life cycles, including what kind of legal professional is best suited for each.
Emerging from the development stage of business is both exciting and terrifying. Your brilliant idea is no longer just a concept, and it’s about to make its debut into the world. Taking your product to market isn’t as easy as setting up that childhood lemonade stand, unfortunately, and new business owners can quickly find themselves overwhelmed with the amount of legal needs, known and unknown. How is a freshly minted entrepreneur supposed to know how to navigate these new legal needs, including understanding what kind of legal assistance they need at this stage?
Startups need early-stage strategic guidance in both their formation and initial equity grants. This includes analysis of the next few stages in your business lifecycle—when are you raising money? How much? What are your exit plans? Who are the founders?
From there, you’ll need legal counsel to help select the right entity type, plan for your capital raise and issue the offering. These are large up-front projects as opposed to recurring legal needs, which means that an outsourced general counsel is not going to be your best bet for legal counsel.
Traditional attorneys typically charge by the hour; however, finding a good corporate law firm and coming up with a budget for your initial formation and equity raise is a good idea. It’s tempting when you’re in startup mode to feel that you need more outside resources than is actually true. Don’t fall into the trap of over-using traditional attorneys at this stage.
One fine day, you’ll realize that it’s been a while since you anxiously dry-heaved before running payroll. When it comes to knowing what converts lead into sales, the guesswork is gone. Your revenue increases steadily and consistently quarter over quarter, and churn is trending down. You look around your office and you see focused employees who are ready and willing to tackle new challenges every day. Congratulations, you’ve entered the growth business life cycle. This means that your legal needs have now evolved from one-time projects to recurring needs. You’ll likely find that you require more contract negotiation, employee management and possibly M&A assistance. Risk management comes up in board meetings, as does the creation of policies and workflows that help the engine of the company run smoothly.
In this phase, an outsourced general counsel can help you avoid growing pains, while mitigating risk and becoming part of your continued growth engine.
Some of the most common ways an outsourced general counsel helps a growth-stage company are:
- Contract (customers and vendors) management
- Protecting your intellectual property
- Managing employee and independent contractor agreements
- Privacy and data security compliance
- Corporate governance (board meetings)
One reason why the outsourced general counsel model is so effective is that it allows companies to have legal counsel at a much earlier stage. The point is most growth stage companies don’t need a full-time in-house attorney. But when you recognize the need for in-house legal services, you can greatly benefit from a “shared services” type concept in which an attorney with expertise in a distinct vertical or industry can work successfully to support multiple companies, including yours.
Another major sign that your business could benefit from in-house legal counsel: when your C-suite starts taking on much of the actual legal work themselves to avoid outside legal costs. If your CFO is reviewing contracts and advising HR processes, or your CEO is negotiating business development deals, it’s definitely time to hand those tasks off to a separate legal professional. Not only will this make for a more well run organization, but it’s also a huge step in the right direction for better work-life balance, which has a tendency to get thrown off as a company grows and each team member takes on more and more responsibility.
I expect that many scaling companies will eventually get to a point where they do require a full-time in-house attorney. For those businesses, including those which are quickly growing with an increasing number of new hires, those that have a significant amount of regulatory issues or even those within industries that contain many legal nuances, such as real estate—it makes sense to fill a full-time legal role. But the key point is it’s not the only option.
About the Author
Beth Lebowitz is the founder and CEO of Auxana Inc., a marketplace for companies, attorneys and executive resources, and the founding attorney of Nimbus Legal, an Outsourced General Counsel law firm.