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Robert P. Mollen, Counsel at Fried, Frank, Harris, Shriver & Jacobson (London) LLP

I’m frequently asked by startups to recommend professionals in a variety of areas, including legal, tax, immigration, insurance, banking and employee services.

Unfortunately, the question often comes up only after something has gone wrong, or the company has received an invoice that it didn’t expect (and can’t afford). The risks are even greater where the startup is expanding cross-border and has selected professionals in a foreign market.

Problems usually arise because the startup: (a) relied on the wrong recommendations in selecting the professional; (b) failed to ask the professional the right questions; and/or (c) had the wrong expectations as to how the professional worked, or what the professional should be expected to know. Here are some general pointers:

1. Use professionals that work extensively with startups

This point seems self-evident, but somehow isn’t.

Your needs are likely to be both specialized and pretty standard for startups, so you need professionals that regularly work for startups. From a technical standpoint, you wouldn’t ask your eye doctor to do heart surgery, and your startup likewise shouldn’t use generalists who work occasionally in the startup space. Similarly, from a cost standpoint, your professionals will best be able to provide a high quality cost-effective service if they have standardized their startup services.

This doesn’t just apply to advisors. For example, startups that select the wrong banks can find themselves frustrated by unnecessary levels of red tape and a lack of appropriate support.

Consequently, you need to take recommendations of professionals from the right sources. Get your recommendations from other successful entrepreneurs, from venture capital firms and business angels, and from startup advisors that you respect. Don’t just use your family lawyer or tax accountant, your local storefront lawyer, or your cousin who will work cheaply, unless they have the right experience and expertise.

2. Know who will do your work

If you are retaining professionals for their expertise, it is important that you know who actually will do your work and whether you will have access to the expertise. It is fine for firms to push standardized work down to a junior level so long as the work is appropriately supervised. However, you will want to meet the junior members of the team and get comfortable before you hire the firm. You also will want access to more senior people with expertise when you really need them.

3. Ask for fixed fee or capped fee proposals

Professional advisors frequently work on an hourly charge basis. They may provide an estimate and then, for various reasons, present an invoice that exceeds the estimate. The professionals may have furnished the estimate in good faith, but that doesn’t make it any better for the startup that can’t afford the higher amount.

Startups should asked their professionals to provide services on a fixed fee or capped fee basis. This should come as no surprise to professionals that regularly work for startups. In circumstances where a fixed or capped fee is not practical, such as where the professional is asked to participate in negotiations, it may be possible to structure the work in phases, with a fixed or capped fee provided for the particular phase.

4. Expect business advice and support from your professional

All businesses need trusted business advisors, and startups need them more than most. Consequently, in selecting your professionals, choose those who, because of their broad experience, are able to provide more than narrow technical advice. Of course, your advisors should make clear when they are providing technical advice within their sphere vs when they are providing broader business advice. If you choose well, you may find the business advice is even more valuable than the technical help.

Additionally, your professionals should be willing to help you in ways that go beyond their provision of services. This may include introductions to potential investors or customers who may be interested in what you are doing, notice of relevant opportunities that they come across, or referrals to other advisors and professionals who can help you. Except in limited (and clearly disclosed) circumstances in the investor context, these are not paid-for services – it is part of what they should be willing and able to do in order to build their overall relationship with you.

5. Consider using professionals that add to your credibility

A key issue for any start-up is establishing credibility – with potential investors, customers, and others who have the ability to help your company grow. Particularly in the United States, but increasingly elsewhere as well, your startup may get some benefit from the reputations of the professionals who are prepared to work with you. You should choose the professional that is right for you, and not just rely on reputation – however, if you can get both at a price that you can afford, so much the better.

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This discussion is not intended to provide legal advice, and no legal or business decision should be based on its contents. If you have any questions or comments, feel free to contact [email protected] or via LinkedIn here.

You will find Bob’s other weekly blogs for emerging and growth companies on US issues, international expansion and early stage financing here:

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