When your software company hires a big overpriced law firm, never go it a…

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!!!When!Your!Software!Company!Hires!a!Big!Overpriced!Law!Firm!.!.!.!!!!!Never%Go%It%Alone!!!!

By Mark D. Walters

GENERAL COUNSEL TO GO™ PLLC www.gctogo.com

425.688.7620

!!!When%Your%Software%Company%Hires%a%Big%Overpriced%Law%Firm%.%.%.%%Never%Go%It%Alone!%%%% !

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1 of 5 © 2013 Mark D. Walters

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88.Software Companies Rock the Law Firm House Software companies are fantastic law firm clients. First of all, they are incredibly fun to work with because they have big ideas, they have tons of talent, and they are hell bent on changing the world. Their enthusiasm is infectious. Secondly, software companies are frequent consumers of legal services. They hire law firms to set up the corporate entity, to prepare the Stock Option Plan documents, the Buy-Sell Agreement between founders, file trademark and patent registrations, prepare the core business contracts (NDA, Employment Agreement, Independent Contractor Agreement, Software License Agreement, etc., etc.). As software companies grow, they look to their law firms for guidance on employee issues, licensing transactions, and risk management. Let there be no doubts: software companies are highly desirable clients for law firms big and small.

Hiring a Big Overpriced Law Firm

While a big overpriced law firm should not be the first law firm your software company hires, sooner or later, you’re going to consider hiring a big expensive law firm. In many cases, the founders will consider hiring the company’s first big law firm when it begins to raise capital. This often makes sense because investors are familiar and comfortable with the big overpriced law firms that work in their world. It also makes sense because, ultimately, your software company will pay the legal fees with investor funds, so investor comfort with the software company’s legal team can help close the round. (But this does not mean investors are not interested in conserving cash; of course they are).


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Whatever your reason for hiring a big overpriced law firm, there’s one thing you know: you are going to pay more—likely a whole lot more—than you want to. The odds are high—indeed a near certainty—that you will end up feeling ripped by the law firm-billing machine. You will likely rationalize that overpriced lawyers are simply part of doing business in the technology sector, and there is nothing you can do about it.

There is a Better Option:

Hire and Manage Your Big Law Firm the Same Way Large

Established Software Companies Do Did you know that the business teams at large established software companies almost never directly hire outside counsel? These companies have staff attorneys, or General Counsel, that hire and manage these important and costly relationships. Most every General Counsel has law firm experience. They know how law firms operate and how lawyers bill, and they use this inside information to protect their company from the law firm-billing machine. Indeed, the business team often uses the General Counsel as a “bad cop” to manage outside counsel and help ensure the company is getting more value for its legal spend. You can and should do the exact same thing. Altman Weil has conducted and published annual surveys on the legal market for many years. Its 2012 Chief Legal Officer Survey, reports the results of its survey of over 200 General Counsel working in-house at corporate law departments.

The survey asked Chief Legal Officers what they have done in the last 12 months to control costs – their highest management priority as reported in the 2011 Survey.


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The number one answer, from 71% of respondents, was to negotiate price reductions from outside counsel.

There is no reason why your software company should not be doing the exact same thing. Hire your own General Counsel and assign him or her the job negotiating price reductions from your law firm. Legal fees and legal costs will be a top expense item, so there is no reason you should not control it. And don’t you already think your paying far too much for legal services? This tactic can save the company many tens if not hundreds of thousands of dollars. Some software company executives worry about offending their law firm if they “lawyer up” to negotiate price reductions from their law firm. If you share this concern, keep the following in mind:

Software companies are killer law firm clients. Big and small law firms across the United States are searching for new software company clients, and the software company’s purchasing power gives it leverage. The big law firms know full well that their competition is equally hungry for new software company clients. When your software company is hiring a big law firm, never forget that it’s a buyer’s market.


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If you’re not convinced and fear offending your law firm, consider this: hiring a General Counsel to select and negotiate a price reduction with your law firm will give you cover. Just like law departments in larger corporations where this is a their highest management priority, your software company can use its own General Counsel as the “bad cop” to do the necessary dirty work of striking a better deal with your law firm. If you get any blowback, simply tell your law firm that your company uses its General Counsel to hire and manage this important relationship—just like large established software companies do—because your company needs to conserve cash. It’s impossible to argue with this strategy and goal. Also keep in mind that large law firms are hearing the exact same message from their larger corporate clients. A second reason why your software company should have its own General Counsel hire and manage its relationship with outside counsel is this: software companies with General Counsel are sometimes viewed more favorably and treated more favorably than software companies that do not have a General Counsel. It’s probably not fair, but it’s a reality. The attorneys at big law firms may give more professional courtesy to lawyer colleagues than non-lawyer executives. After all, they speak the same language, they share the same life-altering experience of attending law school, and they share the same rite of passage of taking and passing the Bar Exam. Thus, the odds are high that your General Counsel can achieve a better result. A third reason why your software company should have its own General Counsel hire and manage its relationship with outside counsel is this: let’s face it; oftentimes dealing with the law firm is a huge distraction. With a General Counsel on staff to deal with the suits, the executive team can stay focused on growing the business.


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A fourth reason why your software company should have its own General Counsel hire and manage its relationship with outside counsel is this: attorneys at the large law firms know that General Counsel have seen the big law firm sausage factory from the inside. Because of this insider information, your software company’s General Counsel can be far more effective when negotiating fee agreements and fee reductions with these law firms. In short, your General Counsel can call bullshit on the law firm’s bullshit. So, if you want to get a better deal and more value from the law firm-billing machine, and if you want to stop feeling so frustrated and ripped off by your law firm, your software company should employ the tactic and strategy that the large established software companies do when they hire big overpriced law firms. Hire your own General Counsel to negotiate a price reduction. Make this a top management priority, and never go it alone!

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© 2013 Mark D. Walters

You are free to share this document. Please pay it forward.

About the Author

Mark D. Walters provides General Counsel legal support to owners and executives of software companies in the greater Seattle area and across the United States. Mark also sits on the Advisory Board of a advertising agency, where he provides guidance related to business strategy, intellectual property protection, employment law issues and risk management. Mark represents established software development

companies. He helps them get price reductions with big law firms, and he helps with software development and licensing deals, together with employment law, intellectual property protection and risk management. Mark has also represented companies in lawsuits involving contracts, trade secrets, copyright, and trademark issues. In the Spring of 2011, Mark represented Washington State Supreme Court Justice Faith Ireland (ret.), who was appointed Guardian ad Litem for Michael R. Mastro in Washington’s largest bankruptcy proceeding. This unique blend of litigation and transactional work informs Mark’s business approach to law. Mark is writing a book entitled, Disrupt Legal Billing Once and For All – Winning the economic battle with your law firm, that will be published in 2013. Mark is also a frequent speaker on topics dealing with law and business. For pre-booking inquiries and speaking fees, please call 425.688.7620. !

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