In Chapter 13 of 14 in his 2012 interview, Internet entrepreneur Joe Stump answers "What Has Working With Lawyers Taught You About Business?" Stump learns basic employment and contract law during college business law classes. As an entrepreneur, Stump learns far more about how to mitigate and minimize risk as a startup founder and business owner, for example, reading contracts to filing tax forms. Joe Stump is a serial entrepreneur based in Portland, OR. He is CEO and co-founder of Sprint.ly, a product management software company. Previously he founded SimpleGeo, which was sold to Urban Airship in October 2011. He advises several startups - including attachments.me and ngmoco:) - as well as VC firm Freestyle Capital. He earned a BBA in Computer Information Systems (CIS) from Eastern Michigan University.
Erik Michielsen: What has working with lawyers taught you about business?
Joe Stump: It has taught me a ton. I went to business school in my undergrad, so I actually had to take some law schools. I'm sure you had to as well. And it’s just like -- The law classes I had to take, I think I had to take two of them and they're very basic employment kind of law classes. But they do give you a window into how contracts work, like what is the basic you need. You need mutual consideration in a contract. What are the basic things? So I at least had that luckily because a lot of my peers that are programmers that become founders, they get this legal paperwork, and they’re like, what do I do?
But the things that the lawyers have taught me over time is basically what to look out for in contracts. The lawyer’s entire job – their entire job is to mitigate and minimize risk, right? And so, they’ve really taught me that your business is under constant attack and you have to watch out for that. A lot of us, a lot of business people think that the attack are competitors or market environments. The attacks can come from within like employees, partners, clients, investors.
So, you need to basically -- the lawyer is there to help you navigate those tricky waters and there are so many laws out there and so many ways that you can structure contracts that I didn’t even know existed until I started working with lawyers in and around my business. It's made me so much smarter and it's actually allowed me to even move more quickly, it saves me money. I was talking to an investor friend of mine. There are a couple of really common mess-ups that founders do in startups.
First of all is they don’t get contracts for consultants. So, early on, you're moving really, really quickly. You're like, “I just need this code down. I need another set of hands,” and then you just hand out a GitHub key and people start hacking and then the problem with that is if you don’t have a contractual relationship with somebody and you just have like a couple of emails and IMs, that does nothing but cause your lawyer to lose his hair, right? Because that person, there are automatic employment laws in a lot of states, particularly in California. California has some very European-esque employment laws.
So, watching out for that has saved me money. Personally, myself in a company early on in SimpleGeo, my co-founder hired a contractor and we ended up at the time, we didn’t end up getting paperwork and it end up costing us, when we ended up letting that guy go, a lot of money.
Another common mess up is there's this thing called an 83-B and you're supposed to file this with the IRS when you get equity in a company and that starts your capital gains clock ticking. That’s something lawyers do. It's just kind of automatic stuff. My co-founder in SimpleGeo at his first company did not file that and that was the difference between 15 percent tax rate and a 48 percent tax rate when he sold his company and he ended up paying 33 percent more in taxes than he should have.
So, what I’ve basically learned from my lawyers is -- it's interesting. I've learned a couple of things. First of all, I learned how to read contracts and I know what to look out for, which actually is kind of ironic. The lawyer has basically trained me up to the point where I'm like a junior paralegal and I'm like saving myself money. So I redline and read all the agreements that I get before I go back to the lawyers. The other thing, and it saves me money with employees, it's saved me money with taxes. I very, very happily write my check to my lawyer. Accountants, they're very similar. Those are the easiest checks for me to write along with my employees.