Legal Strategy Roadmap Part 3: Protecting Revenue & Profit

This is Part 3 in the Strategic Legal Roadmap series. In this note, we look at how you can use the law to protect your company’s revenue and profit.

Revenue is income from customers. Profit is revenue less the cost of producing that revenue. Both are governed by contracts – the contracts you have with your customers and suppliers. Your customer contracts can be thought of as “downstream” — the direction in which the value you produce flows. Supplier, subcontractor, and vendor contracts are “upstream” of the customer, in the acquisition of raw materials, supplies, and services.

Downstream Contracts

Whether written or oral, the customer contract contains all the essential terms of the deal: what, how much, when and how, and who. A customer contract may be a relatively simple consumer retail sales agreement – “buy one, get one free.” But if your customer is another business, or if the product or service is intricate, the deal can become quite complex, and the way that you have structured it can have profound consequences for revenue.

  • Services and Deliverables. Though often completed in a hurry, as a statement of work to a boilerplate agreement, the description of the services and deliverables will profoundly affect revenue and expense. Ambiguity in the statement of the activities, services, goods, outcomes, timelines, specifications, performance, and service levels, or a failure to delineate what is and is not being delivered can give rise to disputes or trap the seller or buyer in a deal they did not fully intend. In addition, it is essential that the statement of work speak to how out-of-scope work will be compensated.
  • Compensation. “How much” is just the starting point. You will want to consider the payment terms (can you wait 60 days?), the conditions for withholding payments, offsets to payments, payments for things that are out of scope, contingencies, or events to which the payment may be tied, etc.
  • Termination. How and when can you and the customer exit? If the deal becomes unprofitable, can you exit in a timely way?
  • Competition. Are you an exclusive vendor or can the buyer substitute you? Can you sell the same services to other buyers in the same industry?

Upstream Contracts

On the expense side of the profitability equation are upstream supplier, vendor and subcontractor agreements. If your agreement with your customer depends on third-party goods or services, you must ensure that – to the degree possible – your supplier agreements are a mirror image of your customer agreements.

  • Delivery Parameters. Commitments to the customer concerning the quality, number, timeliness, return and refund of products or services must be accounted for in the supplier contract, so you are not left holding the bag if the supplier fails to deliver to you. You must have ways of adapting and responding to customer demand – both as a legal matter and as a matter of sound business practice.
  • Confidentiality Obligations. If you have confidentiality obligations to your customer and share confidential information with your supplier or subcontractor, you must make sure that those obligations intended to raise money are part of your agreement with the supplier.
  • Intellectual Property. As with confidentiality obligations, it may be necessary for you to pass on any intellectual property licensing, assignment or work for higher provisions that govern your relationship with your customer.
  • Indemnities and Warranties. here too, your warranties to your customers any any indemnities that they have you agree to maybe transitive in nature and passed along in your relationship with your suppliers and subcontractors. Again, it is a matter of not being left holding the bag.
  • Remedies and Cover. If your supplier breaches the agreement, will you be able to fulfill your obligations to your customer? Are there ways of ensuring against problems, for example, by using liquidated damages clauses?
  • Term and Termination. If your supplier exits early, do you have alternatives? Perhaps you should make the supply contract more difficult to exit or have a definite minimum term and notice periods that allow you to adjust should the supplier decide to exit.

A big company might employ a “General Counsel” for strategic guidance, negotiation, and authorship of critical contracts. But if you don’t have such a General Counsel, this email series should provide a strategic roadmap for you to consider in your decision-making.

Legal Strategy Roadmap Part 2: Setting the Direction

This is Part 2 in the Strategic Legal Roadmap series. In this note, we look at the legal roadmap as the business is setting out, at or near inception.

Certain formative business and legal decisions set the overall direction for the business and affect downstream decisions for years to come. How the business is conducted when times get tough may determine whether it ultimately succeeds or fails. Essential power dynamics are written into certain key documents. And, would-be investors doing due diligence want to see ownership and management clearly and have a clean, up-to-date repository of company documents and filings.

Your General Counsel would advise you to carefully consider decisions related to…

  • Formation & Governance. What is the mission of the business? What does it do? This may have implications for its form (partnership, non-profit, corporation, limited liability company). As the company grows, it is essential to have a plan for how owners enter and exit and how profit and loss are shared. Voting rights will determine who maintains control over the company and the power of investors to affect the leadership and direction of the company. How is the operating agreement or bylaws amended?
  • Capitalization & Shareholders. For corporations, what types of security will there be – common, preferred, options? How are they converted? How many securities? What percentage of ownership? What valuation? What liquidation, and anti-dilution provisions? Preemptive rights? How does voting work? What about dividends?
  • Founders, Officers, Employees. What are the founders’ relationships to the company as concerns equity ownership, vesting rights, insurance, indemnities, benefits and the like? What incentives are offered to employees? Options? Warrants? Stock? What vesting periods and other conditions?
  • Filings. Have you filed your annual report(s)? Have you recorded votes and member actions? Have you paid taxes in the states you do business? Are there licenses, permits and other forms of government approval or validation necessary?

These “platform” issues for the business are usually addressed as it formally starts up, but they may occur later, as the business merges with another business or converts itself from LLC to Corporation (or vice versa).

To many entrepreneurs, these can be dull and difficult issues. Who wants to worry about voting rights when we are trying to get the product into the marketplace? They are nevertheless the most important issues you will ever deal with if indeed “Success” is your objective.

A big company might employ a “General Counsel” for strategic guidance in these platform issues. But if you don’t have such a General Counsel, this email series should at least provide you a strategic roadmap for you to consider in your own decision-making. Look forward to our next installment, Protecting Revenue & Profit, in our next email.

Sincerely,

Robert Kost

Principal Attorney

General Counsel Online

A Legal Strategy Roadmap for Your Business

 

Every growing business has objectives, even if they are unstated. “Expand my market…make more lucrative deals…increase market share…retain customers.” These are each common business objectives.

Strategy is HOW you achieve these objectives. It is stated in the form of a “by”.  ”We expand our market by opening new stores…We increase market share by acquiring a company…We retain customers by encouraging loyalty…” and so on.

What about Law and Lawyers? How do they figure into strategy?

Of course, you can use a lawyer like an ‘emergency medic’ or crisis manager to solve a pressing legal problem. But, the smart business person understands the strategic dimension of law. He and she recognize that law and lawyers are key to the following strategies:

  • building a solid business foundation by means of proper formation, capitalization, and administration
  • protecting revenue and profit by making better legal deals, upstream and downstream
  • building brand equity and competitive advantage by using intellectual property law.
  • constructing defensive moats by using trade secrets, cybersecurity, insurance, and contracts
  • and enhancing human capital by implementing proper incentives, policies, and agreements

A big company might employ a “General Counsel” to implement its legal strategy. But if you don’t have such a General Counsel, allow me — over the next 5 emails — to guide you through the topics and questions that a General Counsel might.* I offer you a general “legal strategy roadmap” for implementing strategies critical to your company’s success. Look forward to our first installment, Business Foundations.

#HACKED2 is Out

 

General Counsel Online’s Robert Kost is part of a new, powerful and informative book,#HACKED2:  Practical Guidance for Dealing with Threats to Your Business and Privacy.”

Kost wrote a chapter entitled Cybersecurity Incidents are Legal Incidents.  It’s a walkthrough of the legal challenges that a victim (!) must face.

It is now available on Amazon for just $1.99 USD for the next 24-48 hours!  We are offering this special rate in honor of the book’s release.  

Pick your own country version from this link:

https://linktr.ee/hacked2

Interview with General Counsel Online

The Pittsburgh Technology Council, in their weekly Techvibe radio show, interviewed Robert Kost of General Counsel Online to understand what makes this a unique offering in the business law world.   The audio is included in this post and a transcript is below.

 

So glad you’re spending your Saturday morning here with us on tech vibe radio. This is Jonathan Kersting.

And this is Audrey Russo. We always talk some of the coolest people across Pittsburgh’s tech sector people do an alternate types of things with technology. And today, I’m really excited for us to be talking to Rob Kost of General Counsel Online.

Yeah, what a cool model. I can’t wait to talk to him about that. I mean, it’s not necessarily it’s in some ways, it’s like lawyer as a service.

I think that’s but it would be it’s fun to talk to rob and see what he’s doing with all this. Because I think it’s such a cool solution. He can give us all the best details. That’s for sure.

That’s great. So let’s talk about what you’re up to coming to Pittsburgh here.

I began to think what the future held for me, given my past. And my past really is this combination of law. I’ve been a, I’ve been a lawyer for 35 years. I’ve practiced in DC and Maryland. And in New York, I worked for a big corporation for IBM. As a lawyer, I’ve been involved in a whole bunch of things. So law is one aspect of what I come to this with the other was a long history of entrepreneurship, where I’ve been involved in tech startups, since the early 90s. took one of them public on the NASDAQ, and another one with a an institutional couple of institutional rounds of investment. So I’ve been involved in, in entrepreneurship, and especially in tech entrepreneurship for a long time. And over the course of the last five or 10 years, I’ve been involved in a company dealing at the high level in matters of strategy and marketing. So I thought I’d told these different strands of experience together into an offering that I think at any rate is fairly compelling. General Counsel online, he’s an online on demand legal service, whose primary audience is small business, as a small business person over the years, I’ve been neglected by the law. They’re uninterested in me because I didn’t have beaucoup money to spend. And that was usually only in the case of an emergency, or in the case of a highly specialized need, where I called on a lawyer, not that I didn’t need and wouldn’t have won at a lawyer. I just couldn’t afford what I’m pitching myself very much at the small business person who could use help in day to day legal matters. But those needs are sporadic. Rob, you know, I’m wondering what to do about this letter, the cease and desist letter that I got wondering what to do about the lease payments that I can’t make next month? I’m wondering, should I file for a trademark or a patent? Or should I register my copyright on these on these things? Those kinds of issues? I think I’m particularly adept at dealing in and I and I’d love to help people with that. Those kind of day to day legal issues.

So Rob, it seems to me that like these are some general types of problems that like if you don’t get them solved properly, early on, they can really haunt you later down the road. So if you don’t get that trademark, when you should have, it can be two years later and all of a suddenly you’re in trouble because it’s not trademarks. So the idea that you can access and get the right advice early, I think can really help people with their successes, they build their their venture moving forward, right.

I think that’s right, Jonathan, I think, you know, most people just like, if you said to me, You only contacted your doctor, when you were in serious medical problems, I’d say you’re foolish, you really ought to be dealing with some of these health issues on a day to day to day basis to avoid the problems, the acute problems that come on later. It’s really the same thing in law. If you don’t do things right in the first place, they may well come back to haunt you. And I want to totally do I want to address that, that kind of market.

So if people are listening now, right, and they’re all firm, how my like, think about think of a situation where you might easily be able to swoop in and be helpful. Sure, a decent one. That’s good. I think every business, the lifeblood of a business, sort of the business program, if you will, analogous to a computer program is a contract. And every business person thinks they’re an expert at contracts, until something like a pandemic comes around or on Till you figure out the other party’s breached, or done something wrong here, but it wasn’t in the agreement, because you didn’t think it’s true, or, you know, it was it was highly informal, we were going to end up going to the state of Washington, I had to do this to litigate this matter, and it’s gonna cost me two more to litigate it in Washington than the matters worth. You know, could we have solved these issues right up front? is, I think I can’t I think what’s a little bit unique here is coming at these kinds of issues, from a business perspective, primarily, and asking about business priorities, business objectives, and then letting the living the legal matters flow as they will. I think lawyers, most lawyers, by and large, begin from a very law centric point of view of the universe, and aren’t really concerned with how this fits in with an overall business strategy, or how this fits in with an overall business branding and marketing approach, or whether this patent that you want to pursue has any real business value to it? Or who’s going to be looking at those sorts of things. We’re, you know, so my primary concerns here.

So Rob, tell us about about the platform and how it works, because you’ve got a neat way of combining some technologies and making this very cost efficient. Can you give us an overview how it works? Yeah, sure.

This, I saw no point in trying to invent new technology here, because I don’t want any adoption curve issues. So online at General Counsel dot online (generalcounsel.online), it’s not.com. It’s dot online, which is also my name, which is also a trademark that I’ve applied for, for the first time. First time ever just this year. booking.com got a trademark on booking.com. The trademark office had been saying no, no, no, no, no, that’s your domain name. That’s not your trademark. That’s, that’s changed. So I’m online at General Counsel online, every client who comes to me, including those I’ve met in person, the relatively few that I’ve met in person, signs up, signs a retainer agreement online, and has their own personal portal web portal, where we’re sharing all of the documents, we’re going to trade back and forth here in a highly secure environment. I’m using slack as the backbone for this. And every client comes into my website into a single sign on enters the slack application. I’m using Office 365, for document storage, document markup, document, versioning, etc, etc. I’m using zoom for conferencing, not because I have to, because slack has that built in. But people are comfortable with zoom, and I wanted to do things that people were comfortable with. And then again, there’s a single sign on document signatures, contracts, and document filings are all done online. So what I’ve tried to do is assemble piece parts that make sense and unite them into a harmonious harmonious whole.

It’s a nice composite man, I like the way you’re taking the the key pieces and making it the one solid application.

Yeah, that’s right. It’s it’s really one roof. There’s no, download this and add this to the configuration and, and do this, you know, it all happens under one roof. The business model is a subscription based business model. This starts out at a fairly affordable rate for small businesses. And for that you get me I don’t really count hours very seriously. Now you can see that you’re a lawyer, you count every hour, come on. I’m not thinking in terms of hour, I’m thinking of, you know, client objectives and the achievement of those objectives. But whatever I end up charging, it’s always a fixed price charge. So there’s none of this. Well, okay, so you think you want to say you think we need to write the client a letter? Fine. I’ll write you a letter. How much will that be? Well, I can’t really tell you right now, because I may have to do some research. And I’ll do a number of drafts on this letter. And at the end of that surprise, it’s cost you 17 $100 at a rate of $350 an hour. I instead take this as a fixed price quote. And I try and be very, very serious about, you know, how much time I’m likely to spend on this. But if I ended up end up doubling the time on this, because of some unforeseen act on my own part. Well, that’s just I swallow that. And most businesses, most real world businesses, with the exception of law, sort of adhere To that approach, you know, I bid on on what it will cost you to file a trademark, I think it’s cool, cuz you’re making it very approachable as well, too. So, you know, obviously using technology that startups and so forth are accustomed to, and then having some simple pricing structure as well allow the tour, you know what this is going to cost, and allows you to do some of that really important work upfront, so you don’t get haunted later and had as emergency calls that cost lots of money. Right.

Exactly, exactly. Right. So yeah, I’m, I’m right now, you know, I have several clients more than I had actually planned on at this point in time. It has more work to do. I, you know, this was actually conceived before COVID. And then COVID came on his load, like my, my marketing buddy here.

Yeah, exactly.

I hadn’t planned on that. So. So it’s maturing pretty nicely. And I’m having a lot of fun. And I think supplying clients with a lot of good sound, legal advice and assistance.

I think that i think that’s interesting. And I do think attorneys are going through, you know, their own shift in terms of what it means to be an attorney and billable hours. And I net, I think there’s a lot of questioning about, you know, what I mean, they’re dragging and screaming into the 21st century. Every other profession, every other major commercial enterprise is already online, whether it’s insurance, or even my doctor, or banking brokerage, the list goes on, it’s all migrated online, to where the vehicle for providing the value, and the advertising and all of the commercial relationships are all handled as online relationships.

You know, with artificial intelligence, there’s going to be a shift anyway, through pattern recognition, through contracts and things that are thriving.

I think that’s right. I’m aware of some of the Pittsburgh based startups here, and eventually do want to work together with them to kind of see what synergies when my Hey, hey, you know, that’s great. So what’s the website?

It’s it’s a general counsel, all one word. A general counsel, by the way, is, is a common title. in the corporate world. It’s not so common in the small business world. As a matter of fact, most people don’t know what a general counsel is. But as the name suggests, it’s a it’s a person who is typically one of senior management, supplying day to day counsel on legal matters. General Counsel dot online is the URL for this awesome stuff. Rob, thank you so much for hanging out with us today and wish you success with the new venture. We think it’s fantastic. leveraging a whole suite of technologies to bring the price point of legal services down and help out some of the startups and those in need with it. So great stuff all the way around. Rob, you are the best. Thanks for being part of the show today.

Hey, thank you, Jonathan. Thank you, Audrey. Great, I appreciate it.

Absolutely. I’ll be another tech vibe under our belt. And next Saturday. We’re back with more great stories like Rob’s out there and how they’re using technology to innovate. do great work right here in Pittsburgh. This has been Jonathan Kersting. And we are from the Pittsburgh Technology Council. Learn more about us at PGH tech.org. And after you do that, it’s time to have yourself a really good weekend. Thanks, everybody.