terryfund.com

June 18th! Has it really been two whole weeks since my last post? Er, well, one year and two weeks to be exact. That’s a serious case of writer’s block… We can blame that on ramping up at the new job, some time consuming responsibilities with my church group, some new responsibilities with the UVU Alumni Association, and me just liking to spend the little free time that is left over with my family. However, the kids are in bed, my wife is in the other room painting, and I decided that there was no time like the present to try and make an effort to jump back in the saddle.

I have read/am reading some very interesting books over the last year. I finished Atlas Shrugged, which just blows your mind these days if you chase each reading session of the book with a session of the national news. Scary in its accuracy. I’ll try to put together a post on the book later like I have done for my other reviews, but it is a pretty long and complicated book, so I’m not sure how it’s going to come out. I’ve also been reading The E-Myth and the 5000 Year Leap. I’ll do separate posts on each of them when I’ve finished. I also think I’m going to dare to delve just a little into the political realm here as a means of exploring to refine my own philosophy and viewpoints, hopefully through a little interaction and discussion with readers.

I think I’ll close out today’s post with a little nugget on lawyering as a corporate attorney. Educate your business people on the ins and outs of contracts. Challenge them on their understanding and take time to explain the impact of specific language, provisions, and terms. Most importantly, find a way to do this in a way that is very relevant and clearly valuable to them. Even though you are in-house, you still have a client and you’ll get less resistance from them if they are confident that you fully understand their pressures and objectives, and if they fully understand the value of what you are protecting with your changes. Often the value you are preserving is only visible in the medium to long term, so it takes a kind of constant dialogue to help keep that notion in the forefront of the business mind. If you are a small business owner dealing with attorneys, take the time to really own your agreements by going over them until you understand the anatomy of an agreement and the effect of each part. Don’t be afraid to ask your attorney questions. As much as you can, try to compile and/or use use standard agreements from your attorney. That will not only decrease review time for your agreements, it will also help ensure that you are bound by terms you feel comfortanble with.

I went to a seminar by the World Trade Association of Utah today. The Speaker was Lee Boam. Lee spent his career with the US foreign service working in Europe and Asia, and spent the latter part of his career as the Minister Counselor for Commercial Affairs at the American Embassy in the People’s Republic of China. His faculty page at the University of Utah is here.

Below are some notes I took from his presentation on the present and future of China:

1. Misconception: China has huge demand because of its huge population. The problem is that population does not translate directly into market demand. Demand equals desire plus disposable income, and the bulk of the Chinese population does not have the kind of disposable income that westerners have.
2. China needs to stimulate domestic demand – they get no residual benefit from exported goods. For example, industrial machinery made in China and exported is not used to create more products in the Chinese economy, but is used to create products in a foreign economy, which increases GDP and employment in that country.  
3. China is making other people’s brands – When the brand has strong value, the company is thus able to produce more inexpensively and sell at the same price, pocketing the difference as extra profit. China ends up with a smaller piece of the pie and needs to create strong brands for itself to increase the take-home value of its work.
4. China needs to stop piracy – Two  US firms have different strategies to combat piracy: a) Coke Method – be able to produce your product cheaper than the pirates, leaving no incentive for them to compete; b) Budweiser method – Budweiser puts hard-to-counterfeit milling around the edge of their cans, making it harder and more expensive for pirates to counterfeit, and thereby creating a deterrent.
5. De-link the RMB (Chinese Renminbi) from the USD (US Dollar) – they are building up too large of a reserve of dollars and the linked currency is hurting them.

So, what does this all mean for US businesses who have been hearing that you have to be in China to compete? I think there are a few lessons to be gleaned. The first is common sense – there is no magic bullet for industry success, so don’t be misled into believing that that’s what China is. If you are looking for a big foreign market to enter, don’t go for China because you think you just have to sell one product to each person and you’ll be wildly successful. Do the research first and find out how big the actual population is that has an interest in your product and the disposable income to buy it. You may well be better off hitting the European market first. The same is true of purchasing goods. Yes, compared to the US, goods and labor are relatively cheap in China. However, Lee advised that a few places, including Vietnam, are even cheaper. In addition there are factors to consider besides cost in determining suppliers, including the ease of obtaining satisfactory import documentation, consistency of product, ease of communication, and so forth. Another lesson may be that there may be solid business opportunities within China for those adventurous spirits willing to go the extra mile.

In an effort to try and put up some content that might be useful to small businesses, I thought I’d write today about something close to home. Lawyers.

Are they really necessary? Do we really need them? The answer, I would say perhaps unfortunately, is yes. Lawyers help us anticipate and plan for problems in the future, and also help us sort out the messes we sometimes find ourselves mixed up with in the present. I have advised many friends and clients who found themselves on the receiving end of a legal matter without even quite being sure how they ended up there. And once someone has threatened or initiated legal action against you, justly or unjustly, you have to be prepared to take action to defend yourself, and that may end up costing you money out of pocket for attorney fees and expenses, even if you end up winning the legal battle!

What’s that, you say? I can end up being in the right and win in court and still have to end up paying some lousy lawyer out of pocket? Now I REALLY hate lawyers! And you wouldn’t be alone. Many lawyers are dissatisfied with our system of justice. For all its strength and effectiveness, it has weaknesses, and one of those weaknesses is its complexity. In order to be able to account for as many variables as possible, it has to be complex, but that also means that it requires an expert to help navigate it. And that expert, like an expert in any other field, needs to make a living. However, there are ways to manage that expense.

First, since you have to have a lawyer, get a good one, appropriate for your size and industry. Your primary counsel will likely be a transactional attorney. This attorney will help you make sure that you are organized correctly and performing all necessary corporate maintenance activities for your entity type. He or she will also help you review contracts, figure out how to hire and fire people, and act as a resource for finding specialist attorneys as necessary. If your industry relies heavily on intellectual property, you will also want to develop a strong personal repationship with an IP attorney. Both of these attorneys should know your organization and operations very well so that they can help anticipate your legal needs. A good attorney will usually be willing to invest some amount of his or her own time in getting to know your company at the outset, and your relationship will deepen over time.

Take some time and interview a number of different attorneys to make sure you find one that you feel comfortable working with, and that has the right experience for your industry. It is also important to resist the urge to automatically select the attorney with the lowest per-hour billable rate. Often, low per-hour rates translate into larger bills because of extra time spent making up for a lack of expertise, or even worse, a poorly (but inexpensively) written contract exposes your organization to considerable liability. Some attorneys are also willing to offer flat fees for some services with long-term clients, or even enter into a retainer agreement where a certain suite of services are provided, some months more, some months less, for a set monthly fee. Feel free to explore creative options with the attorneys you are interviewing and set yourself up in a position you feel comfortable with.

Second, budget for legal expenses. I know nobody likes to pay the lawyers, but as you grow, so will your need for legal services. Getting this into your budget early on will help you keep legal concerns in your strategy, and that will ultimately help you keep legal costs to a minimum in the long run. Exploring some of the alternatives I’ve described above will help to put a relatively constant face to that figure.

Third, remember that an ounce of prevention is worth a pound of cure. It gets annoying paying five hundred dollars to review a contract that may only be bringing in to your company twenty or thirty thousand dollars worth of revenue. On the other hand, that five hundred dollar review will seem like a bargain when you are facing a lawsuit or regulatory agency action whose expense may outweigh the value of the contract itself. Contract reviews are definitely an investment worth making. The good news is that there are ways to reduce this expense as well. You can do much of the legwork yourself. You know the deal you want to make better than anyone. Start with a template agreement of the type you are entering into (e.g., product sales, trademark licensing, employment, etc.). You can get such templates from your attorney, or if he or she does not have any available, on internet sites (such as www.findlaw.com). Try filling in the blanks and putting in minor modifications to describe the arrangement you want. Try not to change sections that do not seem to deal directly with the terms of the deal you are making. These are usually “lawyerly” provisions, are necessary, and are best left to be amended by the lawyer who authored them. Once you have put in the terms you want, have your attorney review it and explain any changes he or she wants to make with you. This will let the attorney shore up any problems, and will make sure you are both on the same page. You will also have saved the expense of the attorney filling in the terms of the contract on billable time.   

Finally, and this hearkens back to a comment above, keep legal in your strategy. There are many ways to do this all along your path. The cheapest way to do this in the beginning is to have a lawyer friend. I know the risks that may run to your reputation, but they are generally considered more entertaining than accountants, and there is an inexhaustible supply of jokes to be told about them behind their backs, or even to their face! I often answer basic legal questions for friends and acquaintances. Short of having a lawyer “friend”, small businesses can develop relationships with attorneys interested in their industry through participation in industry associations. Lawyers often join these associations and attend their functions in order to further their industry knowledge and to network. This networking is an opportunity to develop a relationship with them and to get general advice and answers to basic questions. If you are a startup that is short on cash but long on value, you may consider asking an attorney to join your board and/or provide legal services in exchange for a percentage of ownership in the company. And finally, once the number of legal concerns your company is addressing accumulates to the point of becoming a real distraction from running the company, it may be time to consider hiring an attorney to work in-house. If you are still small but feel like you are on the edge, try finding one that can wear a couple of hats and perform additional functions for the company, or see if you can get a practicing attorney to dedicate a certain amount of his or her time to you for a flat fee. 

Most importantly, put your innovative spirit to work in establishing your relationship with legal counsel. Lawyers stand behind us and make sure that we can at least feel like we are doing business on a handshake and a smile in the boardroom, while they are tightening everything up behind the scenes. Legal counsel is a necessary, but minimizable, expense that will put a small business ahead of those who do not pay attention to it. Following these guidelines will help to ensure that you are always using the lawyers, and not the other way around…