

Why Lawyers Don’t Run Startups - enra
http://steveblank.com/2010/05/27/why-lawyers-don%E2%80%99t-run-startups/

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grellas
Lawyers don't know the first thing about running startups but a good startup
lawyer will be able to think strategically right along with the founders -
that is, will give advice, not in a ham-handed way that focuses purely on
legal risks but rather in a way that in itself helps put those risks in
perspective for the founding team so that they can see at a glance what the
likelihood and potential severity of each is and how each relates to the
potential benefits of the deal.

This fine piece points out that the founders should be doing this, and that is
true, but the lawyers themselves should also be doing it. Otherwise, they
spend all their time giving very unhelpful advice about why things can never
get done.

~~~
amirmc
Well put. I've gone through the legal process acting for an investor. A lot of
the legalese felt like an insurance policy and was dreamed up by the lawyers
(read: copy/pasted) for scenarios that neither the investor nor startup cared
about.

Just like an insurance policy, the real test is when you have to make a claim.
That's when you might be grateful for some of the terms. Having said that, I
think the way Steve describes it is great. Basically, make sure that the
strategy points are identified and dealt with by the management team, not the
legal team.

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MaxwellKennerly
The point is that both lawyers and clients should understand their roles. The
lawyer's primary job is to explain to the client the legal consequences of a
given course of action. Preferably, the lawyer will have the clients non-legal
interests in mind that the same time, so that they can have an intelligent
discussion about weighing the risks and benefits of a given course of action.

Correspondingly, clients should understand that lawyers are there to give
advice. They are not there to give direction; they are there to give advice.
It's always better if the client and lawyer both understand the clients
strategic goals, so that they can have, as described above, an intelligent
discussion about weighing the risks and benefits of a given course of action,
but the overall purpose of the lawyer is merely to give advice.

~~~
JoeAltmaier
But that puts you in a tough spot: deciding you know a legal issue better than
your lawyer. Similar to telling your doctor "OK, fat and salt are bad for me;
but I like them so I'm going to keep eating them". Why did you even ask?

~~~
timwiseman
So that you can make an informed decision. Also, there is often a middle
ground. "Fat and salt are bad for me, so I will keep eating them, but now I
will do it in moderation."

Similarly, there are times you may decide to take an action that will risk a
lawsuit, but you can do so in an informed way by consulting a good lawyer.
Paul Graham makes the point in
<http://www.paulgraham.com/softwarepatents.html> that most startups should
simply not worry about infringing patents. This is a calculated risk, but one
they should know they are taking if they do so.

Similarly, there is a calculus of negligence (brief laymen's overview at
<http://en.wikipedia.org/wiki/Calculus_of_negligence> ) that essentially says
that if the probability of hurting someone else's property multiplied by the
most likely damage is less than the cost to remove that risk, you simply
accept the risk and be prepared to pay out the damage if it happens and do
nothing to reduce that risk. This is a very calculated risk since if something
happens you will be required to pay for it and the other party will rightly
sue you if you do not. Yet the rational thing is still to just accept that
risk, but you can only make that risk rationally if you have calculated that
risk (perhaps with advie of a lawyer).

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oldgregg
On a related note, NEVER put a doctor, lawyer, or accountant on a board of
directors. It's very tempting because they often have many of the external
signs of success. But many years of indoctrination have taught them to limit
risk at all cost and that is deadly -- not just for your startup but for life
in general. There are certainly exceptions, but in general their very choice
of profession exposes what their priorities are.

~~~
anigbrowl
So you don't think _anyone_ on a board should be primarily concerned with risk
management?

~~~
tansey
Risk management is not the same as "limiting risk at all cost." The former
will balance the reward potentials with the risk of investment; the latter
will turn down anything that's not a lock.

~~~
anigbrowl
OK...but I think 'limiting risk at all cost' is a bit of stereotype; doctors
(and attorneys) _do_ take difficult or even dangerous decisions which require
them to weigh risk as a matter of course, which is why members of both
professions carry malpractice insurance. Also, many board decisions do not
require unanimity.

I question the idea above because it echoes a good deal of what I've heard
about the pre-crash standing of risk managers at banks; during the bull market
they got sidelined as party poopers and now many of the same banks are risk-
averse to the point of paralysis. Surely there's room for a happy medium;
growth-at-all-costs is no healthier than safety-at-all-costs, and we often
read of reckless corporate decisions which end up costing shareholders far
more than than they saved in the short term. Look at that recent Home Depot
lawsuit for example - a $4m 'saving' turned into a $21m loss.

Further, 'external signs of success...choice of profession exposes what their
priorities are' suggests that somehow members of these professions get ahead
by charging fat fees for obvious common-sense advice; doing well by simply
having a phobia of mistakes and accumulating their reputations by default. But
'making it look easy' is one of the things that distinguishes skilled from
mediocre people in every profession. By that yardstick, programmers are just
glorified button-pushers, capitalists are mere _rentiers_ , emergency workers
are all adrenalin junkies, and civil servants do nothing but push paper.

It's true you can't make an omelet without cracking a few eggs, and eggs that
aren't cooked within a certain time will go bad. On the other hand, turning
the heat all the way up ensures your omelet will be inedible.

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tbrooks
Attorneys and accountants have a primary function of limiting and mitigating
risk. Entrepreneurs by definition are willing to deal risk and are much more
comfortable with putting their balls on the chopping block.

Be stupid? No. There are a few great accountants and lawyers worth their salt.
Be wise, but remember it's your damn company, you've put the sweat in, and you
should be calling the shots. Don't be a marionette for your counsel.

------
bmr
The analytical training a lawyer receives could be invaluable to a startup
_if_ that lawyer can break out of his extreme risk aversion.

In my experience, a good lawyer will truly impress you with his ability to
think through a problem, but might surprise you with his ultimate conclusion.
Virtually any risk makes him hesitant, irrespective of the potential return
for taking that risk.

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dmlorenzetti
Deborah Tannen (the linguist and author of "The Argument Culture") tells a
story about how bringing in lawyers to write up an informal agreement derailed
it completely.

 _Some companies, however, referred the matter to their attorneys so a
contract could be written. In no case where attorneys became involved-- mine
as well as theirs-- could we reach an agreement on working together... The
adversarial nature of the legal process had polarized us beyond repair._

<https://www9.georgetown.edu/faculty/tannend/argsake.htm>

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ajju
Excellent advice and very timely for me. Especially the advice about finding
an 'advocate' in the customer's organization with the authority to over-ride
lawyers and negotiating high level points with him.

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dsplittgerber
I think the article misses a few points. If you seek out a stereotypical
lawyer (meaning nit-picky etc.), you get what you pay for - lots of lawyerly
arguing, lots of problems raised etc.

Whose fault is it then if a lawyer impedes progress on an important deal? In
my opinion, the fault lies with the business side. Lawyers provide a service -
just like consultants. You wouldn't let a consultant run your business, so
what's up with placing all the blaim on lawyers if deals get stuck? It's the
business side's fault for not properly managing their lawyer and not telling
him what exactly he is there for.

Legal education makes you an expert in spotting problems and helping put
consensual agreements between people in enforceable language. It doesn't make
you nit-picky per se, it's more a matter of character. There are first-hand
lawyers out there who are probably even better at the business side than the
business people themselves (think Peter Thiel) - they have an expert ability
to spot lots of problems, and then proritize those and decide what's important
and what not. Full disclosure: I am a Ph.D. student in law and that's what my
education provided me with - an ability to prioritize problem-solving
according to importance.

~~~
devinj
_Whose fault is it then if a lawyer impedes progress on an important deal? In
my opinion, the fault lies with the business side. Lawyers provide a service -
just like consultants. You wouldn't let a consultant run your business, so
what's up with placing all the blaim on lawyers if deals get stuck? It's the
business side's fault for not properly managing their lawyer and not telling
him what exactly he is there for._

I'm pretty sure that's exactly what the author is suggesting. For example,
notice things like,

" _When I was a younger entrepreneur my answer would have been, “Ok. See if
you can get us better terms. Call me when you’re done.” This time I said,
“Make a list of the issues in bullet form, send them to me and I’ll get back
to you.”_ "

My interpretation was that he is saying, "don't let your lawyer run your
company strategy, that's your job", and this is fundamentally what you are
saying as well (though with different focus).

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sports_guy
The owners of the startup I worked at were lawyers and it worked out pretty
well for them as the company was bought for nearly $200 million. We did
e-discovery and they knew the space well and had a lot of good contacts in the
industry that got us in the door where we would have had no shot otherwise. I
can't say I thought they did everything right by a long shot but they way it
turned out for them its hard to argue otherwise.

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m0th87
Lawyers run startups all the time. They're called law firms.

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jwecker
Best story of a lawyer trying to run a software startup (Loki).
[http://web.archive.org/web/20020418225227/http://www.linuxan...](http://web.archive.org/web/20020418225227/http://www.linuxandmain.com/features/lokistory.html)
Not for the feint of heart.

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DaniFong
Michael Arrington is/was a lawyer and runs a startup. I think his legal
background has given him the confidence to pursue legally sensitive journalism

Barack Obama ran a very startup-esque campaign, tech development, social media
strategy, wired twenty-somethings and all.

~~~
Dirt_McGirt
> Michael Arrington is/was a lawyer and runs a startup. I think his legal
> background has given him the confidence to pursue legally sensitive
> journalism

And what a runaway success the crunchpad saga has been. Especially from a him
being a lawyer point of view.

~~~
xenophanes
Your comment is not understandable to someone who isn't already quite familiar
with the topic. I don't even know if you were agreeing or disagreeing.

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pmjordan
It's weird. If you look at a lot of startups ("startups"?) in Germany &
Austria, you'll find people with a law background among the founders. I
haven't yet figured out why this is the case.

~~~
hga
How different is the practice of civil law in those countries?

~~~
pmjordan
That assumes I know enough about law to be able to tell. :) I do know that
Germany has really odd laws about cease & desist notices. (receiver has to
reimburse legal costs of the C&D - even though they're probably overblown)

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tjmaxal
This is yet another example of the "Know you role" principle. Basically people
work best in well defined roles inside of a larger framework. without this you
end up with founders trying to do a lawyers job and lawyers trying to do the
founders job.

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stcredzero
Because they're already middlemen.

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rmah
Haha, I've always said, "never let your lawyers run your company".

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TheSOB88
This brings up a point about people who provide solutions instead of just
listing potential problems. I think this can apply to any field, and those who
do it are much more valuable.

