The Cost of Doing Business September 21, 2015
Tale of Two Businesses (A Business Parable)
Two entrepreneurs went to visit an attorney’s office. One was named Joe Pennypincher, the other was Patrick Preparedman. They each wanted to start a business and needed documents drawn up. At each of their consults, the attorney explained how he would go through and get the important factors of their business reduced to paper and that it would protect them, and hopefully hedge against possible disagreements with partners, investors, and anyone else. The attorney explained the value of having him advise on contracts and business deals as well, and then quoted a retainer.
Joe Pennypincher walked out and said to himself, “I can do that. I know my needs better than this guy does, and I don’t want to pay him that much when I’m just starting out.” He went online and found some legal documents and started running his business. Several years later an investor became frustrated with Joe Pennypincher and took over the company, throwing Mr. Pennypincher out on the street. Mr. Pennypincher then spent a small fortune on litigation just to get his business back.
Patrick Preparedman hired the attorney, thinking, “I don’t know everything that might go wrong, and I’d rather be prepared, and spend a little more now, so I can rest easy if something does go wrong.” His documents were drawn up, and while he still experienced frustration in his business dealings, the contracts were drawn up in contemplation of worst-case scenarios, and he was reminded of steps he needed to take along the way in order to protect himself by his attorney.
Like the Law, Contracts Are Not There For The Good Times
The Bible talks about how the law wasn’t given for the lawful but for the lawless in 1 Timothy. Similarly, contracts are not made for the purpose of helping people who are already getting along. Contracts are there to be referenced once an agreement ceases. People don’t refer to a contract when they are agreeing on everything. People may even agree to disregard certain provisions of a contract between them, or cancel a contract altogether! So it should be noted, when considering how to set up a business, or when entering into a transaction that will have a lasting impact on your business, that the contract will be most important at a time when both sides (if there are only two) are trying to maneuver for whatever advantage and leverage they can achieve.
Cutting Out the Legal Strategist Is Like Advancing An Army Without Proper Scouting
I have had potential clients call who only want me to read over a contract or legal document, “and that’s it.” They just want to make sure that “it’s legal” or “nothing bad will happen.” They are not interested in establishing a relationship in which I can effectively represent them. This puts me in the position of not being able to provide value at a meaningful level. Generally, the things in a contract will be legal, and I can’t guarantee what will happen, much less that nothing bad will happen. So what is the person really looking for? They want an unreasonable low-cost approach to the business war.
By treating business or negotiation as a war, an attorney is a very useful lieutenant or general, to be deployed with resources, and able to create strategic advantages for the side he is on. Employing an attorney to review a single contract is like hiring a general as an assassin; knocking out one objective instead of creating strategic advantages and protecting the resources of his side. And moving forward without understanding the legal consequences of your choices puts your resources at risk and gives the opponent an advantage, especially if they have a grasp on the legal consequences.
Effective representation requires information to be provided to the attorney, coupled with authorization to advocate and negotiate on behalf of the client. No one that has a trial hires an attorney to merely look over their exhibits, and then tries to represent themselves in court. The reason is because there are things that the attorney understands about the ramifications of decisions that must be made in the midst of a trial that allow the attorney to most effectively represent the client. Similarly, in the midst of setting up a business or negotiating a major deal, the attorney can see what will end up causing issues to the client down the road.
By only asking the attorney to look over a document, the attorney cannot plan for every counter-offer, might not understand the nature of the relationship, cannot understand the concerns of the other side, and is generally hamstrung from effectively evaluating the proverbial battlefield. Value is provided in representation, not merely consultation.
At the Day’s End, Risk Is Still There
So let’s say you decide to get an attorney, remember that attorneys still can’t guarantee outcomes. It’s important to have an attorney you are comfortable with and that you trust. If you lack trust, then when things go south, you will not like what the attorney did, even if they did everything they were supposed to. Having the attorney may be the difference between a contract or dealing that lands in court and one that doesn’t. But sometimes you will end up in court even if you dot every “i” and cross every “t.”
With an attorney that you trust, who has been empowered to effectively represent you, the chances of avoiding catastrophic conflict, or being properly prepared for it are better. Then, even if you end up in court, you can know that you have someone in your corner who has been with you every step of the way; someone who appreciates your business, and knows what you need to protect.
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