15 Student Take-Aways on Contracts (and More) From 2 Very Different Start-Up Stories
What can we learn by comparing the experiences of:
Below, with minor edits, are collected student comments on valuable take-aways.
Consistent with prior general observations:
“Although we’ve covered various topics these past three weeks (business forms, IP, contracts), and we’ve had guest speakers from very diverse backgrounds, I find it fascinating how they each, in their own way, have astutely used concepts of law as a strategy.”
“Though putting an agreement in writing is imperative, I found it interesting that written agreements were actually secondary when Karim started his business with his partner: culture and mutual trust matter a lot, especially in a family business and/or start-up environment.”
“The ‘drunkard’s walk approach’ that Karim mentioned (pivoting and being willing to change course) showed flexibility and risk tolerance in establishing a business in a town that others deemed unattractive. … He was motivated by passion to help build a community and do what he loved.”
“[Based on both Eagle and Karim’s stories] though it is important to have a lawyer involved in the contracting process, you can save a lot when you are educated about the legal issues so you can hammer out some details on your own first, then ‘flesh-out’ and formalize things with attorneys.”
This set of take-aways (and the day’s reading and guests) focused more on contracting:
Building on this last statement, “legal issues are too important to be left to the lawyers”
“This Tuesday’s session was fantastic because I got to hear firsthand legal issues facing software companies from a software entrepreneur. My key takeaway from the session, based on both guests’ points of view, was that business owners have a responsibility to be legally savvy, and when it comes to contracts, it’s best if you use your real-world knowledge to figure out exactly what it is you want from a contract yourself and try to organize and plan that contract the way you want it structured before getting lawyers involved and re-working it. This results in something closer to what you want and saves a lot of time and resources by delaying the need for lawyers as much as possible.”
Some noted the impact of open book management at Karim’s companies:
“Eagle Wu [and his contracting counterparts in government] are parties committed to innovative emerging technology. Karim El-Gamal’s company illustrates the idea of creating and leading an ethical business. They invest in employee’s utilizing open book management and give back to the community through initiatives in town, increasing the retention of employees and building a strong brand in town.”
“Karim is clearly an entrepreneur at heart who is always looking for different ways of doing things and is willing to roll up the sleeves to get the job accomplished. This was exemplified by his story where he worked at his partner’s dad sub shop after grad school. Karim seems to also have a very smart approach to risk taking … I found it fascinating that he was not afraid to start his business on his partner’s uncle space. The ice cream shop across the street and the speakeasy were brilliant ideas, but what stood out the most was his adoption of the ‘open book’ management style and his quote where he says something in the lines ‘we are not just a hospitality business, we have become a training facility.’ This reminds me of the Rent the Runways business model, where at first they were an ecommerce store to rent clothes, but today they have evolved to become a data company where their biggest asset is the data they have on customers.”
Several found that Eagle’s use of MOUs and incremental stages in contracting was noteworthy:
“I found Wu’s tactic to attract and potential close a contract with the US DdD by using a MOU then LOS and finally LOI very strategic. I have used MOU in my business deals and found them very useful because of their ambiguous nature. I am impressed Wu and his team put together their own contracts and only collaborated with a lawyer in the final stages of negotiation with the DoD.”
“I found it very interesting that there was arguably little difference between Eagle’s MOU ‘agreement’ and Karim’s verbal agreement. Both of these had the same elements of each having to deliver on their promises in order to obtain value from the other party. This blended nicely into the discussion around investments / series funding, since the MOU is a slightly easier entry point–but one that is rarely used because it takes more time.”
“In consideration of Siedel’s chapter on ‘Contracts Creating Value for Both Parties,’ Eagle Wu explained that startups looking to get traction with Department of Defense contracts want (but do not immediately need) a full contract; rather they can get involved with just an MOU (memorandum of understanding) similar to a letter of intent and by extension a letter of scope.”
On the differences of contracting with DoD compared to contracting in the private sector:
“Eagle Wu explained the trade-offs of startups contracting with DoD (Department of Defense) compared with Private Sector Innovation Centers: the DoD requires more ‘hoops’ to jump through though they always pay on time or with interest adjusted for inflation, while some private sector actors can delay payment but will often be considerably easier to work with.”
“Eagle Wu’s legal astuteness at such young age is very impressive. My takeaway is that as a result of being a tech company that landed its first customer within a highly secretive segment of the government, the DoD, he was forced to mature his legal skills in order to be successful. I appreciate his insight into the differences between a MOU (memorandum of understanding), LOK (letter of support) and LOI (letter of intent) and the strength of each of these documents. His comment around his biggest lesson learned around protecting the IP was intriguing as well and I would have loved to continue the discussion on what he does today to ensure his IP is protected.”
On the value of flexibility:
I also really identified with Karim’s way of looking at business. He said flexibility was one of the most important attributes a CEO can possess. He explained the futility of having a super rigid, concrete idea because most business plans continue evolving even years after their start. This is the case with the Ed Tech startup that my sister and I founded. We began as a digital art tool for kids and only shifted into the education space because we saw that the majority of our users were teachers, who were using the app in their classrooms primarily for its sharing capabilities.
On the contrasts between their similarly inspiring stories:
I found both speakers to be particularly inspiring. It was impressive to see how successful they both have become, and how different each of their approaches were in terms of contracts. Karim on one hand, had a verbal contract with his business partner’s family member, whereas Eagle and his team created the MOUs themselves and waited to introduce a lawyer later in the process of contracting with DoD. Although very different, both achieved success.
On the potential value of ambiguity and selective vulnerability:
“A specific takeaway from Eagle, was that it may be desirable to negotiate as much ambiguity as possible into an MOU, LOS, or LOI. In his case, it was in terms of deliverables. However, leaving some pieces a bit unclear can lead to further negotiations. He also expressed how he chooses to be selectively vulnerable when promoting his startup to the government.”
Never forget: mutual sacrifice is needed for an agreement to truly be a contract!
“Consideration is needed for an agreement to hold up in court.”
Don’t assume something is non-negotiable”
“My key take-away from class is the idea that nothing is non-negotiable, as we discussed in the beginning of class. This concept was demonstrated in the most interesting way when Eagle described his experience, negotiating a contract with the US Air Force, when he was able to change payment method to credit card and got the government to agree to pay the 3% fee on top of it, reducing his payment time from net 30 to net 6 or 7 days!”
The importance of being able to accept risk was noted
“While our readings outline the importance of understanding the risks we are taking in business, Karim’s story of establishing his business and the growth that followed emphasized the point he particularly made that we are going to have to take on a lot more risk than we are ever comfortable with. This is a strong pill for me to take but I needed to hear it said by someone who lived it!! Kind of applies to everything in life….right?”