Sunday, January 29, 2012

Weekend Project: Contracts

I didn't work yesterday (much), aside from reviewing some contracts I'll need to sign prior to a gig I'm taking this week to help a friend. 

Contracts supplied by startups are typically onerous. Their lawyer may or may not be startup oriented, and will usually send some boilerplate of each category of contract, and leave it to the signatories to raise issues. 

I read every line and decide whether I can live with it or not; I can't afford to be prevented from making a living because of some overly paranoid boilerplate. At the same time, it's the startup's job to ensure they aren't hiring a trojan horse. 

Current and future investors depend on the startup's ability to compete, for instance, which is tougher when someone close to the company's secret sauce heads to a direct competitor.

So defining what constitutes a competitor is really important. Usually competition is defined very broadly--like high-level categories. An example: "...any company addressing the internet search market."  Huh. Does that mean Google? Kayak.com? Foursquare? It's so broad that I wouldn't sign something like that. 

You end up making reasonable suggestions to narrow the scope, hopefully without being too big a pain in the ass for the startup. The point is, it's not about you, it's about them, and they're right to be paranoid and protective of their work--to a degree.

At the same time, you sign a couple of these with a few different startups and end up with no place to work because of the overly broad non-compete statements. Contracts tend to be 99% over-protection and 1% about the actual business. Ugh!

Here are a few suggestions for startups hiring outside help:
  • Keep your contracts concise and short. The longer they are, the more time everyone has to spend on them, and that's time spent away from your highest purpose. 
  • Be specific and narrow about your protections; the broader the claims and protections, the more likelihood you'll have a protracted period of refining.
  • The four contracts are typically NDA, Non-Compete, Inventions, and the Consulting Agreement. There should be no overlap between these, but for some reason every startup I work with sends these with all kinds of overlaps--sometimes contradictory overlaps. Or better--consolidate them.
  • Don't obsess about locking everyone down with every last possible restriction. You need to get to work, you need the help, and you don't want to scare people away. It's highly unlikely someone's going to screw you, or be able to screw you. Your success comes down to your and your team's own execution. 
This is just off-the-cuff. Please chime in with your own rules of the road for contracts--I'd love to hear your thoughts on this. 

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