Before I jump in to this week’s post I want to apologize in advance for the fact that I am going to be a bit of a negative Nancy this week. Why’s that? Because we’re going to talk about the real truth when it comes to lawsuits as an entrepreneur.
Clearly, the average person is not a fan of lawyers and wants to keep away from legal battles. I have noticed, however, that a lot of times new entrepreneurs don’t really appreciate the truths of dealing with lawsuits within their businesses and they can really shoot themselves in the foot by not knowing what they’re getting themselves into when they either pursue business relationships with people or companies known to be litigious or when they bring lawsuits themselves. That’s why this week I wanted to share some of the truths I’ve seen through my years of working with startups and small businesses.
As usual, before we get started, I just have to remind you all that I am not a lawyer and nothing that I say here should be taken as legal advice.
The first thing you need to know is that lawsuits are ridiculously expensive. That’s no surprise to anyone, I’m sure, but it’s important that you realize how expensive litigation is – whether you win or lose – because it’s really the basis for all of the other tidbits we’ll get into. Right or wrong, win or lose, lawsuits suck incredibly amounts of time, money, and energy away from you and your business. Recognizing that is priority number one. What does that mean practically though?
Well, first of all it means that it’s almost never worth it to deal with litigious people or litigious companies. You should always do some research before you get into business with anyone – whether you’re buying, selling or partnering – and one of the things that you should look for is if the person or organization you’re considering doing business with is involved in a lot of lawsuits. Whether they constantly sue or constantly get sued, this is a major red flag that you’re likely to get sucked into lawsuits too if you decide to go ahead and get involved with this person or company, so you should probably think twice about doing so. Even if it seems like a fabulous deal for your company, that amazing win can turn into a huge loss pretty quickly if it means you’ll be headed for a future of dealing with legal issues.
Secondly, it sadly means that bullies often win. Because litigation is so expensive, it’s easy to be forced to give in even when you’re right and the opposing side is in the wrong. If you’re going up against a big company with its deep pockets and high-paid lawyers, they know they can likely just stretch the process out until you can’t afford to continue or bury your lawyer with their legions of them. Sometimes it’s best to just take a settlement because more often than not, the better lawyer wins, not the side that’s right, and you may spend every penny you have only to lose if you actually go to court. On the other side, if you sue a small company, they may simply fight you until they’re out of money and you can’t collect anything from them anyway. I was once brought on as a partner in an organization to work on an entrepreneurship training program and was paid a tiny stipend with the vast majority of my compensation being in equity. After months of me working, one of the partners said that his girlfriend was jealous and didn’t like him working with me because I am young and a woman and so he, as the majority owner, was going to force me out and did not intend to compensate me for all of that work I had been doing. Naturally, I was super pissed and I pushed back – especially given the clear gender discrimination issue as both of the other partners had told me, in writing, that my work had been impeccable up to this point and that the only reason they were forcing me out was because of this crazy girlfriend. It was wildly unprofessional of them and wildly unfair to me, but after a few back and forths of them admitting it was shitty and raising their buyout offer a few times they straight up told me that if I wanted more they would be happy to stretch the issue out in court until all of the company’s money was gone and I wouldn’t be able to get anything. I had no choice but to accept their terrible settlement offer and, frankly, I’m still bitter about it, but that’s the truth about how litigation works. Bullies often win. Sad, but true.
This is something to remember as you move forward with building your business and decide how you’ll proceed and who you’ll work with. Many entrepreneurs think that they have the law to fall back on if bad things happen, and that’s often a naive view. Yes, a contract with a huge multinational is awesome, but do you have the resources to go after them if they breach that contract? Yes, you should protect your intellectual property, but if someone infringes on it, it will likely cost you A LOT of money to make them stop. Yes, it would be nice to split up equity between cofounders based on a handshake, but that will almost certainly bite you in the ass later when your cofounder hires lawyer to contest what that agreement was. You should do whatever you can to prevent litigation – researching who you work with, getting everything in writing, etc. – as opposed to just assuming that you’ll win out in a lawsuit because you’re right.
Again, sorry for being a Debbie downer – I did warn you though
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