Solos & StartUps: A Match Made in Heaven Or Clients from Hell?

Solos and startups seem like an ideal match.  Most obviously, startups don’t have the cash to hire in-house counsel or expensive mega-firms and solos can offer competitive rates and flexible service.  Solos also have the ability to better understand and accommodate the demands of start-ups since solos are essentially start-ups themselves.  For these reasons, experts typically advise solos with an interest in or experience with corporate or business law to target startups as potential clients.

But is that advise wise?  Not really – and I’ll debunk that myth below.

First, focusing your law practice in a set of impoverished clients isn’t very wise –  even when the target  is as sexy as startups.   When company founders are living in houses mortgaged to the hilt to fund their companies or are subsisting on ramen noodles, they won’t be inclined to spend even a couple of thousand dollars on legal services from a solo.   Theres a reason, after all, why so many new small companies use Legal Zoom
A low priced  subscription service  may fare better, though my impression is that many early stage start ups do not have the same ongoing, routine legal needs as more established companies.  And while a solo could offer quality, low-priced unbundled services to start up entrepreneurs (which is the approach taken by Upstart Legal) that’s more of a long term strategy to build a relationship with a promising company in the hopes of a payout down the line.  Unbundled services, in and of themselves, aren’t a viable standalone business model . Finally, even where a solo does manage to snag a start-up, there’s no guarantee that those companies with dance with the ones that brung ’em when venture capital starts pouring in.

In the meantime, solos also face stiff competition for the more promising startups from mega law firms that can afford to defer compensation or even work entirely for free.  Firms like Perkins Coie have set up slick websites where you can create a termsheet or a Delaware corporation free of charge.  Large firms can offer startups other benefits that solos can’t, like  free offices ,  meeting space  and introductions to wealthy contacts.  These firms offer these benefits to attract the most promising startups, taking the wheat while casting the chaff (think toiletpaper.com) to the small fry.  In other words, while solos can still attract startup business, they’re going to be stuck with the companies less likely to succeed.

I’m not saying that solos should steer clear of all startups.  Rather, they need to modify their expectations — and diversify their client base, using more stable companies to effectively subsidize their start up work. It may also be possible to generate real revenue from startups that have unique regulatory needs (as I provide from time to time to start up marine and hydrokinetic renewables companies).  Some start ups may also have a little bit more money to spend, like those founded by retiring baby boomers.  And for solos who are parents, a practice focuses on mom-preneurs or offering unbundled web-based services could provide enough work to sustain a low-key, part-time practice. Finally,  a start-up focused practice might  work in some states that have thriving start up communities but no dominant, local mega-firms.  Yet even there you may be stuck with your share of low paid work.

What’s your opinion on working with startups?  Please share your comments below?