This special guest post is sponsored by The Small Business Challenge, a contest giving $50,000 to three small businesses.
As an artistic form, rap music has taught society about life, love, and interesting slang terms for money and illicit activity. Some rap songs also carry important lessons that lawyers agree are vital for startup founders. Don’t believe it? See for yourself.
Lesson 1: Founders Must be on the Same Page
The chorus of Money, Power & Respect says it all when it comes to a harmonious relationship among startup founders. (“It’s the key to life/Whatchu need in life/Help you sleep at night/You’ll see the light.”) Startup founders can most easily attain money, power and respect by sitting down at the outset of their relationship and agreeing to how all of these commodities will be shared as the business progresses. Without a founder’s agreement, in-fighting and uncertainty can become a major due diligence time bomb and create a vacuum where the founders have no clue how to deal with each other if problematic situations arise.
Lesson 2: Customer Contracts are Vital
In the early stages of C.R.E.A.M., Raekwon rhymes about the not-so-pleasant activities he partook in as a younger man, making clear that he did it for the money (“…every week we made $40Gs…”). Startups operate on the same principal. At the end of the day, a business exists and everyone works hard to earn money. Wu-Tang protected its revenue stream with automatic weapons. This is usually frowned upon in most business communities, so the next best thing is a contract.
Contracts should be used to protect important customer relationships. McDonald’s doesn’t need a contract with each of its billions of customers, but a startup having customer relationships which are not fleeting and transactional should at least invest in an agreement template. Setting out the rules of the game not only creates legally enforceable obligations on both sides, but as the saying goes, “good fences make good neighbors.” In other words, a good contract allows the parties to avoid misunderstandings by setting expectations beforehand.
Lesson 3: Employees can hurt you
When a startup hires employees for the first time, it’s usually a momentous occasion that cements the business as objectively “legitimate” in the eyes of many. Given this, it’s no surprise that most startups view their employees as valued partners and do not put up the same walls that more bureaucratic organizations might utilize. The bottom line: a startup’s employees will know just about everything about just about everything, and that presents risks to the business.
The employee who installs unlicensed software on computers in the office and the employee who knows by heart the names and numbers of the business’ biggest customers can do damage later if he or she is ever let go or resigns under non-harmonious circumstances. In “Get Money” Notorious B.I.G. warns about the consequences that could arise in this scenario (“Showed you the safe combinations and all that/Guess you could say you’se the one I trusted/It got hot: you sent Feds to my spot/Took me to court, tried to take all I got.”).
Lesson 4: Litigation is no fun
In “It Was a Good Day,” Ice Cube paints a beautiful word picture about a really good day (“I don’t know but today seems kinda odd/No barkin from the dogs, no smog/And momma cooked a breakfast with no hog” and “Today was like one of those fly dreams/Didn’t even see a berry flashin those high beams/No helicopter lookin for the murder/Two in the mornin got the Fatburger”).
Startups should strive for days like this. One of the most efficient ways to avoid having good days is to engage in litigation. Litigation is expensive, time-consuming and emotionally deflating. The process is designed to avoid quick or even clear victories. Sometimes, startup founders rush headlong into litigation without understanding this basic premise because they feel that they are right and/or simply dislike the other side.
Startups should also make sure they are operating to avoid the possibility that they’ll end up in litigation involuntarily. Putting into place solid agreements with customers, employees and founders can help to make this dream a reality and avoid third party lawsuits.