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Attorneys

The Decision. Almost all companies need and use the services of attorneys, entrepreneurial ventures perhaps more so.* By following some legal basics and acquiring appropriate legal services, companies can achieve better legal health, including fewer problems and lower costs over the long term.16 According to FindLaw, Inc., the factors to con­sider in choosing an attorney include availability, comfort level with the attorney, experience level and appropriateness to case, cost, and whether the lawyer knows the industry and has connections to investors and ven­ture capital.17

Just how attorneys are used by growth-oriented ventures depends on the needs of the venture at its particular stage. Size is a factor. Exhibit 3.2 summarizes the findings of a survey by Inc. magazine. The trend has been for firms with sales under $ 1 million to use attorneys mostly for contracts

*The authors wish to acknowledge the input provided by Gerald Feigen of the Center for Entrepreneurial Studies, University of Maryland, from a course on entrepreneur ship and the law he has developed and teaches at George Washington University Law School; also John Van Slyke of Alta Research.

and agreements. These companies also use a substantial amount of their attorneys' time for the personal needs of top management, matters sur­rounding incorporation, and formal litigation.

The necessity of legal counsel is obvious when it comes to contracts and lawsuits. But small business managers also rely on company attor­neys for personal problems ranging from tax matters to divorce and estate probate. As company size increases, so does the need for advice in such areas as liability, mergers, and benefit plans.

Contracts and agreements. Firms need assistance with contracts, licenses, leases, and agreements governing noncompete employment and the vesting rights of shareholders.

Formal litigation, liability protection, and so on. In today's litigious climate, sooner or later most entrepreneurs will find them­selves as defendants in lawsuits and require counsel.

Real estate, insurance, and other matters. It is hard to imagine an entrepreneur who, at one time or another, will not be involved in various kinds of real estate transactions, from rentals to the purchase and sale of property, that require the services of an attorney.

Copyrights, trademarks, patents, and intellectual property protection. Products are hard to protect. But pushing ahead with their development (software, for example) before ample protection from the law is provided can be expedient in the short term but dis­astrous in the long term.

Employee plans. Benefit and stock ownership plans can be power­ful incentives in building a team, but they have become complicated to use effectively and to administer. They require the special know-how of lawyers so common pitfalls can be avoided.

Tax planning and review. Here, a word of caution is in order. All too frequently the tail of the accountant's tax avoidance advice wags the dog of good business sense. Entrepreneurs who worry more about finding good opportunities to make money, rather than tax shelters, are infinitely better off.

Federal, state, and other regulations and reports. Under­standing the impact of and complying with regulations often is not easy. Violations of federal, state, and other regulations often can have serious consequences.

Mergers and acquisitions. There is specialized legal know-how in buying or selling a company. Unless an entrepreneur is highly experienced and has highly qualified legal advisors in these transac­tions, he or she can either lose the deal or end up having to live with legal obligations that may be costly. This is especially important for the growing firm.

Bankruptcy law. Many people have heard tales of entrepreneurs who did not make deposits to pay various federal and state taxes in order to use that cash in their business. It is likely that these entre­preneurs falsely assumed that if their companies went bankrupt, the government was out of luck, just like the banks and other creditors. They were wrong. In fact the owners, officers, and often the direc­tors are held personally liable for those obligations.

Other matters. These matters can range from assistance with col­lecting delinquent accounts to labor relations.

Personal needs. As entrepreneurs accumulate net worth (i.e., prop­erty and other assets), legal advice in estate, tax, and financial plan­ning is important.

Bankers and Other Lenders

The Decision. Deciding whether to have a banker or another lender usually involves decisions about how to finance certain needs. It appears that most companies will need the services of a banker or other lender at some time in this respect. The decision also can involve how a banker or other lender can serve as an advisor.

As with other advisors, the banker or other lender needs to be a part­ner, not a difficult minority shareholder. First and foremost, therefore, an entrepreneur will be well advised to select the right banker or lender rather than focusing only on a bank or a financial institution. Different bankers and lenders, and the institutions with whom they are affiliated, have reputations ranging from "excellent" to "just OK" to "not OK" in how they work with entrepreneurial companies. Ideally, an entrepre­neur will work with an excellent banker or lender with an excellent financial institution, although an excellent banker or lender with a just-OK institution is preferable to a just-OK banker or lender with an excel­lent institution.

An important starting point for the entrepreneur is identifying what he or she needs from a lender. Some will have needs that are asset based, such as money for equipment, facilities, or inventory. Others may require working capital to fund short-term operating expenses.

Having a business plan is invaluable preparation for selecting and working with a lender. Also, since a banker or other lender is a "part­ner," it is important to invite him or her to see the company in opera­tion, to avoid late financial statements (as well as late payments and overdrafts), and to always be honest and straightforward in sharing information.

Accountants

The Decision. The accounting profession has come a long way from the "green eyeshades" stereotype one hears reference to occasionally. Today, virtually all of the larger accounting firms have discovered the enormous client potential of new and entrepreneurial ventures, and a significant part of their business strategy is to cater specifically to these firms. In the Boston area, for instance, the leading Big Four account­ing firms have installed new offices for their small business groups on Route 128 in the heart of entrepreneurs' country.

Accountants often are unfairly maligned - especially after the fallout of the Enron-Arthur Anderson case. The activities that accountants engage in have grown and no longer consist solely of counting num­bers.18 (Exhibit 3.3 outlines this trend for large accounting firms.) Accountants who are experienced as advisors to emerging companies can provide, in addition to audits and taxation, other valuable services. An experienced general business advisor can be invaluable in helping to think through strategy, in helping to find and raise debt and equity cap­ital, in mergers and acquisitions, in locating directors, and in helping to balance business decisions with important personal needs and goals.

Exhibit 3.3Areas of Growth for Large Accounting Firms

	1995 Revenues (Mi	Mi	ions)	%	Change Since 1990
Accounting and auditing	$6,004				+2.9%
Taxes	$3,197				+ 13.1%
Management-consulting services	$6,371				+ 117.7%

Source: Used with permission from "How Many Accountants Does It Take to Change an Industry?" As seen in the April I, I 997, issue of Inc. magazine. Copyright ©I 997 Gruner & Jahr USA Publishing. All rights reserved.

Consultants

The Decision.* Consultants are hired to solve particular problems and to fill gaps not filled by the management team. Many skilled con­sultants can be of invaluable assistance and a great source of "other peo­ple's resources." Advice needed can be quite technical and specific or quite general or far ranging. Problems and needs also vary widely, depending upon whether the venture is just starting up or is an existing business.

Start-ups usually require help with critical one-time tasks and deci­sions that will have lasting impact on the business. In a study of how consultants are used and their impact on venture formation, Karl Bayer of Germany's Institute for Systems and Innovation Research of the Fraunhofer Society interviewed 315 firms. He found that 96 used con­sultants and that consultants are employed by smaller but growing firms for the following reasons:

To compensate for a lower level of professional experience

To target a wide market segment (possibly to do market research for a consumer goods firm)

To undertake projects that require a large start-up investment in equipment15

These tasks and decisions might include assessing business sites, evalu­ating lease and rental agreements, setting up record- and bookkeeping systems, finding business partners, obtaining capital, and formulating marketing plans.

Existing businesses face ongoing issues resulting from growth. Many of these issues - for example, market research, evaluating when and how to go about computerizing business tasks, whether to lease or buy major pieces of equipment, and whether to change inventory valuation meth­ods can be involved - are so specialized that rarely is this expertise avail­able on the management team.

While it is not always possible to pinpoint the exact nature of a prob­lem (and sometimes simply an unbiased and fresh view is needed), a ven­ture is usually well advised to try to determine the broad nature of its concern - such as whether it involves personnel, manufacturing, or mar­keting, for example. Mie-Yun Lee of BuyerZone.com offers helpful hints for establishing an effective consultation relationship: (1) Define, define, define - invest whatever time is necessary to define and com­municate the expected outcome of the project; (2) when choosing a con­sultant, expect a long-term relationship as it takes time to get them up to speed on your business; and (3) don't assume that outsourcing is a magic bullet that relieves you of work. A high level of communication between your company and the outsourcing partner is critical to success.20

Conclusion

To grow a business requires an entrepreneur to grow as an individual. An important part of that personal growth is assessing your own strengths and weaknesses. But that very personal exercise has to be in context with the opportunity you are pursuing. By clearly defining the nature of the opportunity and the requisite skills and abilities required to exploit it, you identify the kind of people you'll need to achieve your goals. One of the strong messages of this chapter (and this book) is that great leadership is required to build a small company into a high-value venture. And great leaders build teams.

One of the advantages you have as a small business preparing to grow is that you can build a team and remain nimble. To do that often requires an expansive definition of the team concept. Suppliers, con­sultants, professional advisors, and both formal and informal networks, along with employees, constitute the team for the resource-conscious, highly flexible, and creative entrepreneurial company.

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