Dan Martell - Hiring a Lawyer For Your Business

00:00:00.000 The top three mistakes software companies make when choosing a lawyer and how to avoid them.

00:00:05.540 I'm Dan Martell and I have spent nearly a million dollars on legal fees throughout my career.

00:00:11.320 I've literally helped thousands of SaaS CEOs figure out how to choose a legal firm that

00:00:17.560 makes sense for them at their stage. And I want to walk you through the three biggest

00:00:22.180 mistakes they're making when choosing a law firm. Let's get into it.

00:00:26.060 number one is using a family lawyer and i am the biggest culprit of this i love the lawyer that i

00:00:38.080 started working with his name was jamie he's awesome my dad introduced me to him i think he

00:00:42.980 must have done some real estate projects with my dad and when i started my very first business he

00:00:48.480 was the guy called he helped me incorporate he had the minute books at his office and he would

00:00:54.120 take care of like all the different filings and it was just awesome to have somebody that like

00:00:59.420 knew all about the legal stuff and it didn't have to be me and that was cool when I was just starting

00:01:05.260 off and I needed simple things but after a couple failed companies and finally figuring out the

00:01:11.380 business side of stuff and started getting real revenue and most importantly real customers

00:01:16.520 that's when I realized maybe things were getting out of whack I remember one time I was trying to

00:01:21.660 do an IP ownership agreement with Procter & Gamble, Fortune 50 company, Fortune 100 company in the

00:01:28.620 world. And I had their legal team working with my lawyer and he lived in a small town and he was

00:01:36.260 kind of half retired. And I was like, okay, maybe there's something off. And that's when I started

00:01:42.760 asking around and realizing that there are other types of law firms. There's several different

00:01:49.520 types of law firms there are lawyers that are really good for like small towns and simple real

00:01:53.440 estate and like wills and trusts and that kind of agreements and then there's you know regional firms

00:02:00.480 these are kind of like boutique firms that might specialize in just corporate law which is great

00:02:06.560 and then you'll have like other boutique firms that specialize in technology companies which is

00:02:12.560 highly recommended and then there's even national firms that have multiple offices all over the

00:02:17.760 the world. And based on your needs, they'll do different things. Some of them just specialize

00:02:22.420 in tax. Some of them just specialize in litigation. It all depends what you need. But here is the

00:02:28.000 mistake I made for way too long is when the business went from just a starting independent

00:02:35.580 contractor, like just a little bit of revenue to multiple millions of dollars per year. And I was

00:02:41.920 starting to sign contracts with other companies

00:02:45.220 that were way bigger than me,

00:02:47.300 that should have been the moment that I realized

00:02:50.340 I needed to upgrade my legal maturity.

00:02:54.180 I needed to find a partner who had been there and done that

00:02:58.220 because as much as I love my lawyer,

00:03:00.800 even to this day, I still do some projects with him

00:03:02.840 because for the certain type of scenario, he's perfect.

00:03:06.920 But all of my corporate stuff,

00:03:09.580 I had to find a legal partner that was way more advanced

00:03:13.940 because I want them to give me counsel.

00:03:16.760 If you don't have somebody in your court

00:03:18.240 that can actually say,

00:03:19.560 we've gone through this kind of scenario a dozen times,

00:03:22.420 typically this is where it ends up.

00:03:24.680 Then you're just gonna always second guess yourself

00:03:26.860 and never feel like you're making the right decision.

00:03:29.160 You're just making a decision to move the thing forward.

00:03:31.900 Number two is horse for the course.

00:03:33.860 You know, I mentioned that different lawyers

00:03:35.640 and different law firms specialize

00:03:37.220 in kind of different things.

00:03:39.420 Well, it's true for even in your technology company,

00:03:42.500 you might have a lawyer that specializes

00:03:44.820 in just the corporate side of things

00:03:47.220 and stays away from the tax side of things.

00:03:49.520 And now they might tell you,

00:03:50.500 oh, we have a partner that helps us with this.

00:03:52.560 Okay, maybe, but usually it's like either another firm

00:03:56.060 that they're friends with or whatever, which is fine.

00:03:58.240 But just understand, different law firms

00:04:00.920 are different horses for different courses

00:04:03.200 that you might be facing and dealing with.

00:04:05.380 You know, not too long ago,

00:04:06.700 I bought a company in the single digit millions

00:04:08.880 and when we were doing the due diligence,

00:04:10.980 we had budgeted about 25 on the high end 50K in legal fees

00:04:16.540 and my rule is whenever I'm hiring my lawyer to do stuff,

00:04:20.000 I always say like, here's my budget,

00:04:21.380 let me know if you anticipate that we're like at 50%

00:04:24.860 and still only at 10% completion, right?

00:04:27.080 If we're like spending into it,

00:04:28.980 I need a feedback loop to let me know.

00:04:31.000 That's just a little trick I use with lawyers

00:04:32.920 and I remember him calling me up and he's like,

00:04:35.280 hey, I just want you to know I got the first draft

00:04:37.460 from the council, the seller's council,

00:04:41.860 and the paperwork is written and designed

00:04:45.660 as if this thing is $150 million deal.

00:04:49.560 And that's fine, but I just want you to know

00:04:52.900 this might cost 50 or 75K in legal fees

00:04:56.620 if they require us to go through a redline 0.75

00:04:59.200 all these different terms because they're adding stuff

00:05:02.580 and complaining about language that,

00:05:04.940 from our point of view, is absolutely normal.

00:05:07.460 and I was like okay what do you recommend I do and they're like I really think it's important

00:05:12.380 because what I think has happened is the guy selling hired a firm he's probably never worked

00:05:18.340 with and just gave them blanket instructions to just talk to us about the deal and they may not

00:05:24.360 even be aware of like their desires so I actually had to call the CEO and let them know like hey

00:05:29.920 here's what I'm hearing from my legal team this is what they recommend you should call your legal

00:05:34.880 team explain to them the context of the exit and your desires and your preferences and i would just

00:05:42.800 ask if you could encourage them to just play nice with our legal team like dude do you realize that

00:05:48.400 you're paying your own legal fees and they could spend 100 grand on this deal just to get it done

00:05:53.920 and then we got to pay our legal fees like this is going to get out of whack really quick and he's

00:05:57.920 like oh geez i didn't know called up the legal team explained in the scenario now it took two

00:06:02.480 more phone calls to calm down all the freaking crazy paperwork in the language they were trying

00:06:07.520 to insert and i share that because sometimes when you're doing an exit you may not have the right

00:06:14.560 horse for the course you may not have a strong enough person or you have too much horsepower

00:06:19.680 because you know some some people they go out and they um they they find a law firm from like

00:06:25.600 their tech accelerator and the person does all these this work for free right maybe that's you

00:06:30.240 you've done all the law firms done all this stuff in kind hoping for the transaction it might either

00:06:35.600 be a funding round or an exit and they're kind of using that as their moment to monetize you

00:06:41.120 and i just want to highly encourage you to make sure that's not the case so if you feel like

00:06:46.640 you're going down a path in some new area like exiting your company or raising a big round of

00:06:52.080 funding and your lawyer has never seen this at least a dozen times you might need another

00:06:56.640 law firm that has the right horse for the current course third mistake to avoid is no referrals

00:07:02.960 you know recently i was talking to a new client and they had just finished redoing all of their

00:07:08.880 legal work because their law firm came referred by their accountant so you gotta understand is that

00:07:14.720 the accountants incentivize for you to work with somebody they refer because that legal team refers

00:07:21.120 business back to them right so there's this like one-to-one relationship so if you ask your

00:07:25.760 accountant hey i need a good lawyer they're going to tell you about a good lawyer now does that mean

00:07:29.680 they're a good technology lawyer does that mean that they're the right horse for the course not

00:07:35.040 at all you need to get referrals from people that are unbiased and have no interest whatsoever so

00:07:42.320 my approach i'm going to walk you through the three different ways to do this number one is

00:07:47.600 you want to get referrals from other tech founders in your city that's what i did i moved to colonna

00:07:53.520 I was rebuilding my infrastructure and I asked three of my top CEO friends I said hey who's your

00:07:58.640 law firm that you like there was only two names that came up I interviewed both and I picked one

00:08:03.360 that's who I went with right so that's the easiest one the number two and this is like anybody can do

00:08:08.000 this is in your city there's probably an accelerator like a technology accelerator

00:08:13.600 go look on their website who their legal partner is who's the person that they use for you know

00:08:20.560 speaking at their accelerator and advising their companies and setting up you know the incorporation

00:08:25.360 and like maybe setting up the initial uh equity structure because if not just like my buddy you

00:08:30.960 know he came into my world and he had to spend 25 grand undoing all the mess that was set up because

00:08:36.400 they didn't incorporate it properly now the reality of it is the good news lawyers will fix problems

00:08:41.680 they have no problems with it like there's no downside to them they would much rather you know

00:08:46.160 fix your problems after the fact and you spend you know 10 15 25 000 to do that when you could

00:08:51.920 have just set it up properly at the beginning and the third way to find referrals is to actually

00:08:57.440 search top law firm insert your city name there are so many sites now that have like rankings

00:09:07.040 like up council and others that if you search your city you're going to find top startup legal you

00:09:12.640 you know, firms for your city and they will rank the three to five. That becomes your hit list.

00:09:17.640 Talk to them. The key is to find a partner that you enjoy talking with. My US lawyer, Joey,

00:09:23.440 is so good. I'm not referring him out. I don't talk about him. I used to tell clients about him,

00:09:27.880 but the problem was he got busy. He's too busy for my stuff. So I don't talk about him anymore,

00:09:31.760 but I'll tell you why is he awesome? He's been involved in multiple nine-figure transactions

00:09:36.760 personally. He is dedicated to the tech startup space. Every challenge that you could possibly

00:09:44.020 run into, he's already seen, dealt with, has best practices. And what I love best is that

00:09:50.080 when I ask him a question, he will tell me what's normal. The thing that I hate that all lawyers do

00:09:55.680 is I can't tell you how to run your business. I can just tell you what your options are.

00:09:58.980 That's not what I want. As a CEO and a founder, I don't know about you, but I want this. I want

00:10:03.620 somebody say, well, most of the time people in this scenario, they do this. That's all I want.

00:10:08.140 I want your counsel. I want your advice. I want your perspective. If you're not willing to give

00:10:12.820 me that, I'm moving on to the next one. That's why you have to interview all the different referrals

00:10:16.900 to find the partner that connects with you. You might be talking to a partner and you don't gel

00:10:22.080 with them. This happened to me a long time ago when I was building my US division for Spheric.

00:10:27.140 I met with a partner at a law firm and I did not connect with him. I didn't like his style,

00:10:32.460 his communication, his energy, whatever. And then I went online, I found the other partners and I

00:10:36.660 said, that guy, Matt, his name was, I said, I think Matt is cool. And that afternoon I met with

00:10:42.020 Matt, winner, winner, chicken dinner. That became my partner. That became my ally. Him and I were

00:10:47.200 similar in age and we were both motivated and hungry. He just became partner. I liked that,

00:10:53.420 right? I did the same thing in San Francisco. When I moved there, I found a partner and he was

00:10:58.520 a junior partner like he just became a partner of this law firm and we ended up doing he managed

00:11:04.120 both of my companies sat on our board was incredibly influential and gave me incredible

00:11:08.300 guidance because i interviewed the right partner for me so you got to get referrals so the three

00:11:14.460 mistakes you have to avoid when choosing a lawyer is do not use your family lawyer for advanced

00:11:20.980 corporate stuff if you're doing a tech company you plan on raising money or you plan on having

00:11:25.440 equity for your team or anything complicated, then you want to find a lawyer that's been there

00:11:30.800 and done it. You want to find the right horse for the course, a law firm that actually has been part

00:11:35.960 of transactions. Dozens, ask them, give me examples. And third, get referrals from local

00:11:41.420 tech entrepreneurs, accelerators, or go online and do some research. Interview the partners,

00:11:46.540 interview your lawyers so that you make sure you find the person that gels with your personality.

00:11:50.320 If you do these things, you will find a solid legal partner

00:11:54.940 to be the foundation of everything you do

00:11:57.620 because CEOs and entrepreneurs, we're crazy.

00:12:00.820 We will charge through the world

00:12:02.420 and take all the crazy messes we're making

00:12:05.380 and throw them over to other people

00:12:07.480 to deal with, to clean up.

00:12:08.860 And you need somebody that understands that process

00:12:11.680 and is your partner in crime to keep you from going to jail,

00:12:15.960 moving forward and not slowing you down.

00:12:18.140 So if you like this video,

00:12:19.140 Be sure to tell a friend, leave a comment.

00:12:21.460 I'd appreciate it.

00:12:22.680 And with that, I'll see you next week.

00:12:24.420 Boom.

Dan Martell - February 20, 2023

Hiring a Lawyer For Your Business

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