Business 16
Stanford Department of
Continuing Education
Class # 3, 10/12/09
Who needs help?
Who needs help?
o Everybody
Why do I need help?
o
You are most dangerous when you think you know it all
o
Mere mortals cannot keep track of all the external trends
o
You alone can’t know everybody
o
External validation of your credibility is important
Why do I need help?
o Introductions
o Notice of key events you wouldn’t otherwise hear
about
o Better intelligence about competition
o Sagely advice
o Avoidance of potholes
What kinds of help are
there?
o Attorneys
o Accountants
o Scientific Advisors
o Business Advisors
o Board of Directors
What good
are attorneys?
o None, if you pick a bad one
o There are lots of bad attorneys
How do I pick
a good attorney?
o Find one who’s done a lot in the business you are
interested in
o Find one who’s worked with successful
companies in your field
o Call up a successful related company and ask
them who they use
o Ask a lot of people; the good names will keep
coming up
How do I pick
a good attorney?
o Interview them; they will also be interviewing
you
o Find one with which you have a good
rapport
o Ask them about their fee structure
How do I pick
a good attorney?
o Ask what other people you will be working with
o They will offer you to work with cheaper junior
attorneys
o Some are good, others are training on your
nickel
o Lawyers can be very expensive; use them wisely
What can an attorney
do for me?
o Help incorporate/set up a basic business structure
o Partnerships vs. LLCs vs. corporations
o Equity issues
o Intros to potential investors/corporate partners
o Give you a lay of the land
What can an attorney do
for me?
o Give you credibility; good firms don’t take all comers
o Good attorneys have been to this movie before
o Help you avoid basic mistakes and keep you out of
trouble
o Many other things, but you have to use them wisely
What can an attorney do
for me?
o You have to keep them in the loop, but you
don’t want to be over-dependent
o Solicit their advice, but tell them what you
want
o In general, they will not help you manage
legal expenses
Warning Signs
for the Wrong Lawyer
o They piss off everybody they come in
contact with
o Documents measured in metric tons
o Overly legalistic/complicated language
o East-coastitis
o Phone calls not returned promptly
Warning Signs
for the Wrong Lawyer
o Being charged excessively for standard
documents (Non-disclosures, etc.)
o Can’t ballpark figures for tasks
o You just don’t like the guy
o He’s related to you or a friend of Mom
Who are some of the
good firms?
o Cooley Godward
o Gunderson Dettmer
o Latham & Watkins
o Morrison Foerster
o Ropes & Gray
o Wilson Sonsini
o Many others; this town is lousy with lawyers
Choose
the right lawyer…
o Firms that are good at general corporate law
are not necessarily good at patents, real estate,
employment, M&A, IPOs or litigation
o Litigators include just about every firm
o IP firms include
o Shay Glenn
o Townsend & Townsend
o Morrison Foerster
What about accountants;
how boring…
o Yes, but necessary
o Investors will insist
o A good one will save your life
o They will help you figure out how viable your business
really is
o Like oncologists, they are good at bad news that you
need to hear
What about accountants;
how boring…
o Good ones set up systems and routines
o They will present the numbers in any way that you
find useful (YTD, YTY, variances, stagger…)
o Will keep you from mistakes that could cost you
millions later down the road
How do I find one?
o You probably need two
o You need a day-to day (actually, week-to-week) rent-a-
CFO
o They come in once/week and do bookkeeping
o Again, ask around
o Second, you need a good accounting firm to do your
books once/year
Which are the big
accounting firms?
o Deloitte & Touche
o PriceWaterhouseCoopers
o Ernst & Young
o KPMG
Scientific/Business
Advisory Boards
o Absolutely necessary
o They have experience you don’t have
o They are in the trenches and the cutting edge
o They know lots of people who can help you
o They know lots of people to stay away from
o They can often act as mentors
How do I set one up?
o Find the thought leaders in your business, local and
o
o
o
o
o
international
Meet with them, find out if you click
Plan to put together a group of 5-10 people
For an SAB, 50% academic, 50% industry
They are useless if you don’t use them
Offer to pay their expenses for a day-long meeting
once or twice a year
How do I set one up?
o Typically $1500 to $2000/day each
o Offer to hire them for an additional 2-3 days
of consulting/year at the same rate
o A nominal amount of equity
o Set up a schedule of speaking with them on
a weekly basis
o Pick people who like and respect each
other. They don’t have to agree
How do I set one up?
o Pick people who are not so old that they are
irrelevant, and not so young that they know
nothing
o Avoid professional consultants, lawyers,
accountants, relatives
o Pick someone you would trust to shoot your
dog; they may say your plan won’t work
Board of Directors:
What does it do?
o Represents the shareholders interests
o Represents all the constituencies
o Maximizes shareholders’ value
o Sets company strategy/tactics
o Checks on management
o Hires/Interviews
o Approves business/operating plans/budgets
o Does all of it in a legally responsible way
What does one look like?
o Minimum of 3, 5 to 7 optimal
o Add people only after careful consideration
o Only business people
o A commitment somewhere between SAB and
Management
o Compensation usually stock, usually equivalent to a
director-level employee (between .1% and .5% each)
o Venture capitalists & investors are usually
uncompensated for board service beyond
reimbursement of expenses
What does one look like?
o Usually your equity investors are represented
o A good balance is half industry people, half
investors, and the president
Remember:
o It is hard to kick people off boards
o You can make enemies out of previous allies
o Nonetheless, sometimes it is required
o Pick people wisely who will wear well
o Make sure people understand what the
commitment is
o Don’t pick people who are too busy