Start-ups and Hired Professionals

December 12, 2014

Most start-ups think professionals like lawyers, accountants, business counsel and communications professionals are a "nice-to-have" but often feel they don’t have the budget to engage them.  Alyssa Richard, CEO and Founder of Ratehub.ca put it this way: " If you think professionals are too expensive to hire, just wait until you find out how expensive it was not to hire them".

In the early days Alyssa thought they were a "nice to have" and saved the money. She used boilerplate legal documents like many of us, thinking they would get the job done for now. “It would do until we can afford professionals.”

Lawyers are paid to anticipate what could go wrong and include wording in contracts and agreements that covers the Corporation's liability. As entrepreneurs we tend to look at the possibilities and opportunities this transaction represents rather than the risks.  We consider the risks - usually after the deal is done. "Our lawyer bills at $750/hr so we want to be careful what we use him on" but the cost of resolving legal disputes when deals break down is often far greater than the cost of hiring the professional in the first place.

Hiring a lawyer does not guarantee a smooth deal. It does however give you the best chance to resolve any disputes quickly and efficiently.

Another client raised $200,000 from friends and family, rushed to build their solution believing "if we build it they will come". They didn't.  They seldom do. The client spent the entire $200,000 on programming and initial marketing and had no reserve to pivot and re-launch when they found they had the wrong product-to-market fit. Worse, they had no story to tell new investors. They were in effect, dead in the water.

A $15 - $20,000 investment in a good business consultant way back at the beginning of the process would have completely altered their perspectives and had them re-think the investment of their valuable capital. They had no industry expertise on the 4-person founders team. They built the full on solution right from the get go instead of doing just enough to prove the product-to-market fit. They had no industry partner or major beta client to bring that industry wisdom to the table and let them know if they were on the right track.

There is a long list we could go through but for $15 - $20,000 up front a good business consultant would have identified these kinds of issues/concerns and recommended solutions. They did not think they could afford that kind of money on that sort of thing.  Again, as Alyssa Richard said: " If you think professionals are too expensive to hire, just wait until you find out how expensive it was not to hire them".

In Alyssa's case, 2 years into a very good 5 person Founders/Shareholders deal, one of the Shareholders strongly disagreed with a direction the other 4 wanted to take. A well-executed Shareholders Agreement would have restrictions on all parties that would protect the Corporation so one individual could not publicly disrupt the business.

While Alyssa is committed to working this out, a well-written agreement MAY have helped prevent a mess. The problem would have likely come up, but how everybody involved handled it may have been different with the right documentation.

So the next time you are tempted to save a few bucks, consider the ultimate consequences. Hire the professionals and let them do their work.

Derek A. Lackey

A serial entrepreneur with many failures and successes, Derek has spent 20 years in traditional advertising, along with the past 8 in digital marketing. His ability to fuse the two with fluidity and... »

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