Startup Execution

Legal for Startups

We all hate working with attorneys. That is, until you need one. And when you find one that effectively advocates on your behalf, you love them more than you care to admit.

Every startup needs great counsel. But few startups set themselves up to effectively use counsel. Some startups avoid using outside counsel out of fear that their limited budgets will quickly evaporate. Other startups leverage outside counsel, but end up overspending because they don’t optimize their engagement model. I have two simple recommendations – one strategic and one tactical – to optimize your legal infrastructure.

Build Your Legal Playbook

Strategically, startups need to position themselves to be acquired. This involves ensuring that your company avoids any agreements that would introduce unnecessary or unacceptable risks to a potential suitor. Most startups don’t have the benefit of in-house counsel, but that doesn’t eliminate the need for someone to play that role. Your executive responsible for your legal infrastructure should be a capable negotiator with a strong understanding of your legal strategy. Though all contract language is important, founders and executives should pay particular attention to three areas: indemnification, limitation of liability, and termination.

Language regarding indemnification and limitation of liability are closely related. You should work with your outside counsel to determine standard language that articulates your preferred and acceptable levels of risk. Your contract templates should include your preferred language. You should also have pre-prepared backup language for higher risk tolerances when business justifies it. Having this content in advance enables your head of legal to negotiate and structure contracts without constantly having to engage outside counsel and running up your legal bills on routine negotiations. Of course, I still recommend competent outside counsel when engaged in special or non-routine legal negotiations.

Termination clauses represent another important consideration in your agreements. Companies enter into contracts with the belief that they are in the company’s best interests. However, a company’s goals may change over time. A partnership agreement with company X may be advantageous today, but disadvantageous tomorrow if company X’s key competitor wants to acquire you. You need to ensure that your agreements provide you with the right to terminate at your convenience, with reasonable advance notice, and with minimal penalties. This gives you flexibility to pivot as your company’s goals evolve over time.

Don’t Leave Home Without It

Most startups envision an exit at some point in the future. For many startups, the exit will involve an acquisition. As CEO, I’ve led corporate development and the due diligence tasks for two separate acquisition cycles. I’ve also been part of an executive team that consummated an acquisition by Cisco. After driving or contributing to the activities and due diligence behind three acquisitions, I can speak from personal experience that the process flows much more smoothly when you run a tight ship on all your legal operations.

Specifically, one of the most important tools that should serve as the foundation of your legal operations is a contract management repository. The opposing legal team will ask for all of your contracts during due diligence. Having a tidy contract management repository enables you to deliver every agreement to the opposing counsel in minutes. I’ve seen companies spend weeks hunting for a few remaining agreements because of poor document management and controls. Combing through file servers and individual laptops for the latest contract templates and the fully countersigned version of agreements wastes time and money. Sloppy contract management ultimately results in delays and higher legal bills. More importantly, it injects unwanted concern into a suitor regarding any potential exposure from acquiring your company. Finally, another potential pitfall of failing to accurately track all of your agreements is that you will miss an agreement and fail to hand it over, exposing the founders or the executive team to legal jeopardy. Due diligence is a fast-paced, pressure-packed time where you don’t want to be pulling your hair out chasing down every last agreement, or creating any inhibitors to your company getting a clean bill of health.

A good platform such as DocuSign or Adobe Sign (formerly EchoSign) will not only provide you with a comprehensive contract management repository, but will also automate the process of contract revisions and digital signatures to fully execute the agreement. Clerky is an innovative startup that helps automate some a startup’s basic legal operations and forms. Regardless of which solution you choose, make sure to use the contract management platform for every agreement including, but not limited to:

  • Articles of incorporation or organization
  • Corporate bylaws
  • Operating agreement / founder’s agreement
  • Shareholder agreement
  • Non-disclosure agreements (which may include non-solicitation and/or non-compete clauses)
  • Job applications and offer letters*
  • Intellectual property assignment agreements*
  • Asset ownership agreement*
  • Employment contracts*
  • Financing agreements
  • Stock option program*
  • Restricted stock agreement
  • Sales contracts
  • Purchase agreements
  • Master services agreements
  • Consulting and professional services agreements (statements of work)
  • Partnership agreements
  • Lease agreements
  • Insurance documents
  • Workplace safety / liability release forms*
  • Employee handbook, code of business conduct, etc.*
  • Board documents (meeting announcements, minutes, resolutions, etc.)
  • Advisor agreements

Items marked with an asterisk are often included in a job offer package.

Closing Arguments

Work with your outside counsel to determine your risk tolerance. Then establish baseline preferred and acceptable language for your contract templates. Then develop a playbook to guide the negotiations with prospective agreements. As you negotiate the agreements, make sure all contracts are stored in a repository to facilitate easy access when needed. Implementing these best practices will ensure a smoothly running legal infrastructure that enables instead of hinders your startup.


Startup Execution

Interviewing – The Unheralded Startup Skill

Java. HTML5. MongoDB. Agile/Scrum. REST/JSON. Kubernetes. AWS. Product management. GAAP/financial accounting. Channel development. Interviewing.

Wait. Interviewing?!? Yes, interviewing skills!

Startups hunger for talent. A company’s ability to source and hire skilled employees determines its ability to grow. A quick search on any job board produces long lists of openings for web developers, DevOps engineers, cloud architects, mobile app developers, product managers, sales engineers, business development managers, accountants, and more. Building a robust hiring engine is an often overlooked but essential part of growing a startup.

How Borderline Employees Get Hired

A growing startup devotes a significant amount of time and effort to interviewing candidates to fill open positions. However, very few companies spend any time to establishing a structured interview methodology. In the rush to get back to their primary job of writing code, chasing a deal, or closing the books, startups assume employees know how to interview prospective employees. The hiring team rarely does any advance planning to prepare for candidates coming onsite for an interview. Interviewers are left with no guidance and no structure. The interview may cover overlapping topics and/or miss several key topics, resulting in a disjointed and disorganized process. One of a startup’s most important operational decisions is left to an unstructured and subjective sense of whether the interviewers generally liked the candidate. This mistake allows a higher percentage of borderline candidates to join the team.

Borderline employees dilute the effectiveness and productivity of the entire team. Senior employees invest one of the company’s most precious assets – time – into training the new employee and getting them up to speed. Team leads, managers, and peers spend multiple man months on a new hire, only to be disappointed in the borderline employee’s output. Companies can minimize these headaches by adopting the simple, structured interview guidelines below.

Behavioral >> Situational

First, every person on the interview team must understand how to conduct a behavioral instead of a situational interview. Many great articles are available that dig into the definition of these terms and provide detailed explanations of why behavioral questions are better than situational. In short, behavioral interviewing asks the candidate to describe how they handled a past experience. In contrast, situational interviewing asks the candidate to make a choice among several options presented.

Behavioral interviews are built on the premise that past history is the best predictor of future behavior. A behavioral question or request tends to start with “Tell me about a time where you (faced a certain problem)”. A situational question tends to resemble “What would you do if you (had to choose between option A and option B)?” Behavioral questions tend to extract a better picture of a candidate’s ability to execute. A person who is good at interviewing will often be able to guess what the situational question is driving at and will give you the response you wanted to hear. For example, “Tell me about a time where you faced an unreasonable deadline” will provide good insight into how the candidate handles pressure. In contrast, “What would you do if you had to work late to meet a deadline?” usually results in the candidate responding that they’ll just suck it up and work longer hours. Whether the candidate really will do that isn’t truly known, but it’s probably the safest response during an interview. Clearly, behavioral interviewing produces better results. Train your interview team to use behavioral questioning. You can use the attached one-page document to provide an overview of behavioral vs. situational interviewing.

The Cookbook

Source, Filter, Validate, Close

The hiring engine usually includes some version of the four phases above. I’ll assume that you have a recruiter sourcing candidates and doing the first round of filtering. The recruiter’s job should be to provide a short list of candidates that have a good chance of being a fit. Recruiters rarely have the technical experience to effectively validate the skills of all the roles they have to fill, but a seasoned recruiter should be very good at filtering. Filtering generally involves some combination of the following:

  • Ensuring the candidate’s goals align with the company’s opportunity
  • Evaluating the candidate’s communication skills
  • Determining at a high-level if the candidate’s past roles provide the foundation to perform the responsibilities of the position
  • Assessing logistical fit with the role (timeframe, travel expectations, work location, relocation, etc.)
  • Performing initial due diligence (work authorization status, work location, compensation and title expectations, readiness to make a change, etc.)
  • Providing background information about the company
  • Selling the role
  • When at the appropriate stage in the process, performing final due diligence (background checks, reference checks, verification of degrees/certifications, etc.)

Once a candidate clears the filtering process, the interview team validates the candidate’s fit. I generally ask the interview team to cover the following topics: cultural fit, manageability, and technical skill. One person (usually the recruiter) covers the cultural fit. The hiring manager should cover manageability and may cover some technical topics. A technical lead and one or more colleagues should cover technical skills.

To help guide your behavioral interviewing, I’ve put together the following list of cultural and manageability questions, along with some simple forms you can use guide your questions and capture the candidate’s responses:

Cultural Interview Questions

(downloadable form here, 148K)

  1. Why are you looking for another job?
  2. What are you looking for in a job? What are your goals?
  3. Describe a time where you worked on a project with an unreasonable deadline.
  4. Describe a time where you worked in an environment with very little structure.
  5. Describe a time where you were asked to work on something you were unfamiliar with.
  6. Describe a time where you had to take a risk.
  7. Describe a time where you had to move faster than you were prepared to move.
  8. Describe a time where you had to choose between working on an immediate task vs. meeting the needs of another person.
  9. Describe a time where you were faced with choosing between individual achievement and team achievement.
  10. Describe a time where you had to work within an established process that you disagreed with.
  11. Describe your three biggest strengths and your three biggest weaknesses.

Manageability Interview Questions

(downloadable form here, 149K)

  1. Describe a time where you had a conflict with a co-worker.
  2. Describe a time where you disagreed with the decision of a subordinate.
  3. Describe a time where you had a difference of opinion with a co-worker.
  4. Describe a time where you worked with an under-performing co-worker.
  5. Describe a time where you were asked to work on something you did not enjoy.
  6. Describe a time where you disagreed with the direction of a project or with a decision made by management.
  7. Describe a time where you didn’t feel heard.

Technical Interviews

Because of the broad range of technical topics possible, it’s beyond the scope of this article to provide a sample list of technical questions. However, one thing I strongly believe in during the interview process is asking candidates to produce some work related to what the role needs. If you are trying to hire a programmer, then ask them to write some code that solves a problem. A simple Google search on “Java programming problem and solution” will provide a number of useful web resources such as CodingBat.com. If the candidate needs strong written communication skills, a Google search on “writing tests” will point you to resources such as IELTS academic writing practice tests. Asking them to produce some real work products in your office often separates someone with true skill from someone who is just buzzword-compliant or who merely holds paper credentials without real capabilities. In some cases, online tools or tests (such as those found on BrainBench.com and PanPowered.com) can supplement the interview process and reduce the time or effort needed to vet a candidate’s technical skills.

Wrap-Up

Before the candidate leaves, either the recruiter or the hiring manager should conduct a wrap up conversation. Topics to cover may include:

  1. How does the candidate feel the day went?
  2. What do they like about the company?
  3. What concerns do they have about the company?
  4. What do they like about the role?
  5. What concerns do they have about the role?
  6. How does this opportunity align with their goals and objectives?
  7. What other opportunities are the candidate currently considering?
  8. What considerations would lead the candidate to choose this opportunity over other opportunities in play?
  9. What questions does the candidate still have about the company or the opportunity?
  10. When would the candidate look to make a decision about their next role?

 

At the end of the interview, the interview team should reconvene and summarize their portion of the interview and provide their individual recommendation (hire, don’t hire, need more information to decide). Finally, the recruiter should collect the actual notes from each member of the interview team. Having the notes will help justify any decisions not to hire the candidate in the unlikely event that the candidate accuses the company of bias and/or threatens legal action.

If the interview team recommends hiring the candidate, the hiring manager and/or executive take responsibility to assemble a compelling job offer. The closing team should use the candidate’s responses to the wrap-up questions above to help close the deal.

Hopefully, this framework provides the foundation for you to set up a robust hiring engine so you can find the most qualified candidates to grow your company.


Startup Execution, Startup Lifestyle

Startup Life

Startups are hard. Startups are rewarding. Startups suck the lifeblood out of you. Startups energize teams to overachieve. Startups expose your weaknesses. Startups develop your strengths. Startups periodically take a pound of flesh and a pint of blood. Startups provide deep gratification from doing your best and seeing something grow.

The right role at the right startup can be more educational than an MBA. Not all startups expect you to sacrifice your firstborn child to the gods of success. But not all startups are healthy environments. For individuals earlier in their career, finding the right fit to your skills and your goals is key. For those with some experience behind them (or those playing executive roles), building the right foundation and exercising good judgment is key to growing a healthy startup.

A Little About Me

I am a veteran of five different startups. I left the world of technical/management consulting in 1999 after my wife and I started a family. High-end consulting provides great opportunities to work with very talented people on very interesting customer projects, but the time and travel demands are difficult to balance with a quality family life.

I joined my first startup as an Engineering Director and was promoted to VP Engineering shortly before the company shut down in 2000, a casualty when the Internet bubble finally burst. I then served as VP Applications Engineering for another startup with fantastic market-leading technology, but various internal and external issues resulted in that company also shutting down. I then took a CTO role where I built a team that created the technology platform for a financial services compliance company. After successfully launching the application, I left the CTO role and founded my own startup. I learned a ton as a first-time CEO, culminating in a successful acquisition after seven years of steady, consistent growth. After working several years for the acquiring company, I felt the itch to return to my heritage and joined my fifth startup as VP TechOps. This fifth startup had a stellar engineering team that built the best product in the market, but was designed to run very lean, meaning everyone wore multiple hats in order to build and grow the company. Thankfully, Cisco recognized the value of the engineering team and the strength of the product and acquired the company.

Why I Write

I enjoy helping teams win. I enjoy coaching and sharing from my experiences. In some ways, writing this blog is a form of catharsis after many startup trials and tribulations. I’ve been fortunate to see several successes in my startup career. But the truth is, success wasn’t likely until I learned from several failures. The old adage that you learn more from failure than success is absolutely true.

Many seasoned experts and investors provide good advice on a variety of startup matters, but there are a few topics that I rarely see written about. I hope to cover several such topics over the next several months, from high-level strategy to low-level operational execution. I also plan to crossover and write about taking care of yourself so you can keep up with the ever-pressing demands of startup life. I believe in working to live, not living to work – a message that is sometimes lost in the Silicon Valley rat race. I plan to cover topics as diverse as startup job titles, hiring, product management, channel development, legal execution, giving back, and building a strong foundation for your life. I welcome your comments and hope you find something valuable for you and your situation.