I would like for every one of my regular readers to read Why Lawyers Don’t Run Startups. It is a bit unfair to lawyers and even includes a sentence about entrepreneurs hating lawyers. But we’re tough and we can take it.
This is important for you to read even if you never intend to advise a startup. It highlights the challenges of our profession’s traditions versus today’s business climate of often risky entrepreneurship. Lawyers are trained to deliver perfect “bulletproof” legal work to their clients. It is our goal to eliminate all risks. When new challenges occur or new risks are identified, we try to protect our clients against those risks. That is how standard business agreements that used to be four or five pages have now evolved to agreements of fifteen or twenty pages. It is not uncommon to see a “simple” thirty page contract. But there’s a cost to all of that fine tuning. Clients and their counsel have to spend more time reviewing these longer documents and time is money.
Entrepreneurs and startups are like home run hitters at the plate swinging for the fence. Many entrepreneurs have several previous failures on their resumes. But if you hit the home run, you could be set for life.
A law firm that “hits” a .325 success rate would likely soon be out of business.
So we have this conflict. In the real world and in our personal lives we all constantly make decisions that have a 70% chance of success. A lawyer sees that as 3 out of 10 clients achieving a bad result and then firing the firm, bad mouthing it or perhaps even suing their lawyers. So the understandable reaction is to tell the client to avoid the risk entirely (“don’t do the deal”) or to prepare onerous provisions for a document that hopefully reduce the risk.
Many lawyers who advise startups have internalized and deal with these challenges. For lawyers who are concerned about too much risk, clear communication and documentation is very important. Avoiding risk is why many civil litigation cases settle on the eve of trial or, as we lawyers say, “on the courthouse steps.” We may have to re-examine some of our traditions and appreciate that a five-page contract with a 10% risk is a better client service than a forty page contract with a 9.5% risk. This is easy for a blogger to discuss in a blog post and much harder for a law firm to put into action, especially when all of those percentages of risk are educated guesses to begin with.