Sometimes, being frugal will bite you in the ass
Posted on December 6th, 2007 in Business, Leadership |
In general, in startups, spending money carefully is a good thing. Cash is the lifeblood of any company and spending it wisely is critical. Having said that, there are areas where you should be prepared to spend because your business depends on it. It doesn’t pay to be too cheap when it comes to your attorney, your hosting & infrastructure and most of all, your people. Identify the critical elements of your business and spend appropriately in those areas. Be as cheap as possible everywhere else.Don’t get me wrong, you have to spend money slowly, but if saving a little today costs you a lot tomorrow, you’re making a bad decision.
3 Responses
I don’t think you should ever give an attorney an open ended assignment, I always try to understand the business value and discuss the cost for a piece of work. This is not the same as negotiating a rate, but it is setting expectations for the amount of time/$ a contract or other work is worth and setting a not to exceed amount. As a rule of thumb 1% of a contract value should be allocated to legal fees. If it’s your first contract or what you hope will be a standard contract, factor in a lifetime use value (e.g. how many times you hope to use it over the next two to three years, anticipating that there will be some additional legal work needed) and extra time for the attorney to educate you. If you are small or just starting out, I find it’s better to be clear a few key things you can’t compromise on and make your best offer first. Negotiation just adds to your legal bill and delays the benefit. This doesn’t apply to the business terms, but does to the legal terms.
Sean, that’s a great point. I think you do have to estimate each work product and capping the time spent after assessing business risk makes a ton of sense. Thanks for the 1% pointer. I was talking more about not hiring the attorney based solely on hourly rate.
That’s a good point, it’s not the hourly rate, it’s the total cost. Not only for attorneys but also for accountants, an hour or two on financial strategy can pay off 100X.