#03 ~ The key to healthy attorney-client relationships? Candor.
Four strategies startups can use to make the most of their attorney.
The average attorney-client relationship is fundamentally broken. The attorney plays a role more like a psychic than a medical doctor, telling the client what they want to hear, instead of providing the client with the crucial, potentially life-saving advice that they seek.
Built upon lies and appeasement, the attorney/client relationship often becomes another hurdle for startups to overcome–a battle that they are unknowingly fighting.
Imagine a world where you are facing a cancer diagnosis and your oncologist simply tells you what you want to hear. Just like bad advice from your doctor can kill you, bad advice from an attorney can kill your startup.
So, what’s the solution? Hire an honest attorney, right?
Wrong.
The solution is simple: candor.
In this issue of Outside Counsel, I’ll offer four strategies you, the startup founder/employee, can use to create an attorney-client relationship that helps maximize your startup’s potential.
First, understand that attorneys want you to be happy.
It’s important to understand the incentive structure behind any business relationship; knowing the other party’s “why” helps keep you safe. For example, you know that when you go to the car dealership the salesperson wants to sell you a car because they want the commission. They don’t care about you or your needs–they just care about the commission. Fortunately, you know this, so you can act accordingly.
Unlike the car dealership, the average Joe often completely misunderstands the average attorney’s incentives. Unfortunately, many lawyers are incentivized not to offer good legal advice, but to keep you happy by simply confirming your preconceived notions. In the average law firm, an attorney’s career advancement often relies on the amount of money they bring into the firm. So, if they keep you happy, you keep paying and referring your friends to them.
Unfortunately, this is an incredibly short-sighted plan; good attorneys understand that eventually their poor advice will catch up to them, likely in the form of your company going bankrupt. Still, it takes much more work for attorneys to have hard conversations and give quality advice than it does to simply appease their clients. On top of that, consider what looks worse to the law firm’s partners: a client firing their attorney or an already risky startup client going out of business? Definitely the firing.
So, to keep you happy and their career moving in the right direction, they pick the path of least resistance.
Second, weed out the bad guys.
This is the tough part. Now that you understand that attorneys want to make you happy, you have to wade through the laziness and find an attorney willing to get in the trenches with you. This means running a hiring process for your attorney that looks similar to the process you’d use to hire an engineer. I suggest the following:
Ask for references.
Call the attorney’s client and ask them one simple question: has the attorney ever told you something you really didn’t want to hear? If the answer is no, the candidate is likely a people pleaser (or bad at their job).
Conduct an interview.
Ask them for examples of when they’ve had a hard conversation with a client. Ask if they’ve ever been fired by a client? Why?
Consider testing them. Ask them what potential problems they see your startup facing. What better way to figure out if the candidate is willing to be honest with you?
Don’t hire for friendship.
Have you ever had a friend tell you an idea that they were really excited about, and at the end of their spiel, they ask you what you think? If it’s a good idea, you can tell them how great it is and life can go on. But, if the idea stinks, you have to decide whether to be honest and deal with the uncomfortable aftermath, or lie to them and let them keep on living their life. If you hire a friend, you put your friend in that position every single day. Can a good attorney deal with this? Yes, but you’d better make sure that they’re up for it.
Third, align incentives.
You need to be really honest and transparent with the attorney that you hire. Let them know that:
You’re looking for a long-term partner and that the more successful your startup is, the more work you will bring to them.
You won’t be upset when they tell you something you don’t want them to hear.
You’ll only fire them if they’re not honest enough.
Encourage them to be creative, to sniff out the landmines, and to proactively bring you bad news. You need to realize that there is bad news out there–because most startups fail–so identifying the bad news sooner than later will save you time and money, and improve your chances of success.
The ultimate incentive-aligner is to literally give the attorney the same success metrics as you, by hiring them as a part-time general counsel and granting them equity. If the company is successful, they are successful. If the company fails, a significant part of their compensation is worthless. This gives them real skin in the game and incentives them to give you the quality legal advice you need. And instead of paying them inflated law firm pricing, you can pay them a combination of equity and a salary for a certain percentage of their time, i.e. $X,000/month for Y% of their time. If you want to learn more about hiring a part-time GC, check out this article from someone who is a part-time GC for multiple startups.
Finally, accept candor.
As a client, you must remember: wanting something to be true does not make it true.
Over the past six months, I’ve worked with a variety of clients with a range of legal issues. Unfortunately, over that time I’ve witnessed many clients come into our clinic not seeking our genuine advice, but instead seeking validation. You must resist this urge.
In the courtroom, the laws of evidence generally do not allow leading questions–these are typically closed-ended questions that indicate a certain answer–because they are not a reliable means of obtaining important information. You too should try to avoid leading questions–things like: “We’re good on this, right?” “This isn’t going to be a problem, is it?” These questions do not invite candor, instead they signal to your attorney that you are not ready to accept the advice that they worked hard to prepare.
If you are not truly seeking good advice, and are not ready to accept it, it does not matter if you hire the right attorney or align the incentives perfectly. If your attorney’s legal advice falls on deaf ears, everything else was done in vain. You have to listen.
Candor saves lives.
We all want to be validated. We all want to hear the magical words: “You’re right.” But, as a startup founder, it’s your job to put the success of your company first. One of the most important ways you can do that is by making the most of your attorney. Attorneys can be an extraordinarily helpful tool, but only if you let them. So, pick the right attorney and foster a relationship filled with candor.
Remember that a good attorney is worth their weight in gold, while a bad one could cost you your startup’s life.
*DISCLAIMER: I’m not a lawyer and this is not legal advice. Full disclaimer here.*