As a business leader the worries you have are usually related to profitability and the future of your business model. But there are many other areas, which if not watched carefully when your business is growing that can create nightmares when you least expect it.
As a business owner or management team of a growing business the weight of the responsibilities running your business is heavy. There are consistent worries about your business, and here are many which may keep you up at night. As a business leader the worries you have are usually related to profitability and the future of your business model. But there are many other areas, which if not watched carefully when your business is growing that can create nightmares when you least expect it. Those things should be an area of focus and probably should keep you up at night, unless you have the right team members watching for issues before they become problems, and the nightmares you weren't expecting.
A startup is like a mineral mine; the founders and managers feel or know that a particular area is very mineral rich, but the only way to find out is to dig. Once the digging starts it’s all hard work with little payoff initially. The owners have expended resources on equipment, and personnel to see their vision through but until the minerals are found, everything is an expense. There may have been numerous digging efforts and massive expenses before the first signs that they have hit the minerals being searched for. Everyone is tired, but hopeful from the efforts. Then, you find a seam, it’s not exactly where you expected it, but it’s great revenue. As an owner now seeing solid revenue signals, you put all of your effort and energy into mining that seam. Many times the revenue signal is so strong you keep digging without paying attention to things like subsidence, equipment, worker conditions, mineral agreements with the land owners, and compliance. Many of these details can kill your business without killing the seam of minerals you are mining, and those things can or should keep you up at night.
As a business CEO, owner, manager or board member being the steward of your business is not only your job, it’s your responsibility. With a growing company that has positive revenue things come at you very fast and as business leaders, we often pay attention to what we believe are the most important things. In any startup, the most important thing is REVENUE… Period. In this day and age, many of the business models are new, and novel and massive time and effort needs to be spent defining the “mine”, the “mineral” and the revenue streams. Because of this, many CEOs are focused on the only signal they can see, the revenue. Therein lies the problem, focus on the revenue while essential to keep the lights on, takes time and attention away from many areas of a business which can potentially destroy a company.
While your revenue and model may be novel there are some areas of your business which given the right attention can keep your mining operation “on seam”. While you can’t mitigate all risks, you can mitigate the vast majority of company killing risks with the proper team and attention. General counsel attorneys are an essential part of your team, they are focused on mitigation of risks, as well as supporting the risks you need to take to make money as a business. The risks noted here relate to legal business risks, in the form of litigation, fines, and other items which if not watched could not only cause the closure of the business but also severe pain for owners beyond the business closure.
First off and most important for compliance, governance, and lawsuit risk mitigation for owners and directors is the Formation and Structure of your business. Your business’s formation and corporate documents allow for the efficient operation of your business, but they can also create a liability shield for those who run the business. This area can also cause risk as you need to be compliant with the state, the federal government as well as your internal corporate rules as you operate the company.
Your business's Capitalization and debt are massive areas of risk, no matter where your money comes from, whether it be from banks, investors, equipment finance, or your own pocket. Knowing who you owe, or who has put money in as well as how much is only part of the equation. Effective communications with all those who have financial dealings with your business is essential. When money is involved, poor communication is the leading cause of lawsuits. These issues can arise for more reasons than just lack of payment. Mergers, sales, going public, or a business pivot can trigger all kinds of discontent, as well as poor communication itself. If those who you owe, or have put money behind you are not comfortable because you are not communicating effectively, lawsuits are soon to follow. This area is especially important to watch for startups because many debt instruments have personal guarantees attached to the contracts. These guarantees should keep owners up at night, because if the business does fail, the owners are personally liable for business money owed. Considering many owners may not take a salary, and have expended massive resources getting to this phase of growth the personal exposure can be nothing short of insane.
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Agreements are the lifeblood of many businesses, but they can also create big conflicts. So many times business owners are inclined to “just sign” something in order to make money. Without looking at downside risks. Every agreement should discuss in detail what happens when things go south. As legal colleagues of mine have illustrated a contract is like a marriage. In the beginning both sides are twitterpated with what the other business brings to the table. They are so quick to get busy...er…get into business with the other party. They ink the deal and then find out the other party isn’t as attractive as they initially thought. Like the newly married now living together, they may not clean up after themselves, they leave the seat up, they steal the covers, they don’t pull their weight doing housework, or worse. You may be able to effectively communicate your way through this and keep the relationship alive but if you rushed into the agreement, you stand to risk more than you needed to if you had just spent the time to get it right ahead of time. If this is an agreement with a major supplier for a multi year deal, you could be buying yourself not only a lawsuit for breach, but it could substantially affect your ability to continue in business. It could be even worse, such as in cases of joint ventures, or partnerships with equity and intellectual property exchanges. The more entangling the agreement the greater the need for them to be exactly right. No matter how you get to the threshold of your new agreement marriage, it's vital to know that both organizations are dynamic. What each business looks like before, and at signing can be wildly different even 6 months after execution. The needs and deliverables can and usually change, and addendums might need to be made to ensure parties are getting what they need out of their agreements. Signing an agreement to “get it on paper” and sticking it into a drawer will only serve to cause you and your business pain later.
The next major area many growing companies get into trouble with is Human Resources. Your business may not even be big enough for or need an HR professional, but this area can cause severe headaches as well as money, even if you get it right. To start, your people are your biggest asset, they help you achieve your goals and provide the brains and horsepower to get the business where it is going. Employment is one of the most heavily regulated parts of doing business in many areas. Considering you are dealing with and responsible for people’s livelihood by providing jobs, there are many rules out there to keep employment fair for the employee. These rules are triggered any time you employ someone, from immigration status, to how their hours are calculated, what overtime means, how you can let them go and for what reasons, and how you treat people. Some rules are based solely on the number of people you employ and others are based on your policies as well as what the state and federal laws. Having someone look out for you and your company’s best interests, even if just a review is ideal. Some have said culture eats strategy for breakfast, and a bad culture can trigger lawsuits for various reasons. Your handbook isn’t your culture, but should reflect it and your ideals so that you can hold people to task for items you believe are important to your business. Keep in mind, in the United States anyone can sue anyone else at any time for any reason, that in no way means the one filing the suit will win, but it’s something business owners forget. Frivolous suits happen all the time, and will cost you money, but having your business in order will definitely mitigate losses from these suits.
We have seen recent stories of Lines of Business which can be problematic. Knowing what potential pitfalls for the roads ahead could be can be hugely helpful for avoidance or anticipation of issues before they become problems. Some of these items could be related to what business you are in like CBD oils or THC which may be legal in some states but is still outlawed federally. Does the business’s growth plan trigger any issues for the future that can be planned for or avoided? Are you using or are you developing any proprietary tech that needs to be protected? In addition to your standard line(s) of business, looking to the future evolutions of your product or service as well as the growth of your business, these areas need to be watched from many different angles from contracts, to compliance, to IP not only mitigate risks, but potentially maximize returns.
Your business’s Intellectual Property is always an area that needs attention. As you grow you develop processes, procedures, technology, secrets, and goodwill. ALL of this is intellectual property whether or not it is protectable through a formal process such as Patent, or Copyright. All processes which add value to your company are your intellectual property and should be documented, tracked and observed to maximize their value. In the areas of “protectable” IP such as Patent, Trademark, and Copyright filings consistently need to be made to ensure your rights are in place and up to date. In this area however, business owners need to know that simply having these filings does not stop people from using your property, it only allows you to sue and recover if they do. Being mindful of, and on top of this can keep you from losing your rights to protect what is yours.
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The biggest asset these days lies in your Data, your customer and business data is massively valuable to you, your competitors, and others who may want to cause your business harm. Data security is for lack of the ability to stress it enough HIGHLY IMPORTANT. There are not only technical best practices, but there are also legal regulations on what kinds of data can be kept, how they can be kept as well as security and storage. Simple regulations from one of the 50 states, as well as international regulations elicit a need for compliance. These compliance needs are also met with massive fines regardless of business size and in many cases regardless of the number of visitors or customers after your first from an area with heightened compliance. Not to mention the overall need for data security to prevent hacking, theft, or ransomware from shutting down your business.
Also essential for the smooth operations of your business is maintaining all data necessary for any potential merger or acquisition. You may never want to sell your business, but if the right deal comes along, being already prepared will save time, and aide in closing of any merger. Having this data together in one place, and regularly reviewed will also keep you on top of any issues with current clients, vendors, creditors and compliance needs. Your counsel should be working with you on that data.
With any growing business, the path you forge on the way to business growth and success is full of potential potholes, landmines, existing IP, and regulations as well as many great opportunities which all need to be navigated without triggering problems for you or your business. Having a general counsel on hand working with management to navigate these waters is essential for your growing business.
As mentioned in previous articles, about General Counsel, and about your GC being Part of Company Leadership. The time has come that you can have a general counsel attorney who knows your business, and regularly works with the management team but without the need for hiring someone full time. There are quite a number of attorneys, like me out there, who’s expertise lies in supporting business growth, mitigating operational risk, and being a sounding board for business decisions which need to be made. We are here for the business owners to assist in keeping them on the Revenue seam, hopefully help maximize revenues, and mitigate risks for those would would dare to mine new territories.
On the other side, If you are an attorney who has a passion for business, and helping business owners grow their businesses. Auxana is a new and growing platform which works with attorneys to provide support for assisting businesses as a fractional general counsel attorney.