• Cost vs Value, One Decision

Protect Your Million-Dollar Company with One Powerful Decision

by Noel Bagwell
for ExecutiveLP®

January 25, 2017

Fast, Good, and Cheap

good-fast-cheapImagine a triangle, and at each of the angles are one of the following options: Fast, Good, and Cheap. Now, pick a side of the triangle. You can have any side you want. You can have the Fast and Good side, the Good and Cheap side, or the Fast and Cheap side… but you can only have one side. That’s the way this article’s going to be. Guess what, because the article is free, you can pretty much eliminate the Fast and Good side.

I say all that to say this: this article is either going to be fast and cheap (but not good), because you’re just going to skim it without really reading it, and, therefore, get very little out of it; or it’s going to be good and cheap (free), because you’re going to take the time to read every word, and really process it. The choice is yours, but I advise you to take your time and really dive into this one. I promise, it’s worth it.

In this article, I’m going to tell you about one powerful decision you can make to add value to your business by improving efficiency, increasing effectiveness, and adding preventive legal protection to your company’s toolset. First, let me lay the foundation for how to think about this decision. With this foundation in place, we’ll be prepared to think about and discuss the decision, itself. The first step in laying our foundation is understanding how to think correctly about making investments in protecting your business.

In Business, “Small” Doesn’t Always Mean Small

Let’s start by acknowledging a simple, yet often overlooked fact. The term “small”, in the context of Small Business, is very misunderstood.

In most industries, a million-dollar enterprise is a small business, according to the U.S. Small Business Administration (SBA). That’s strange, isn’t it? For most Americans, a million dollars is still a huge amount of money. So, generating those kinds of earnings seems like a phenomenal success, and hardly a small business. It makes sense, when you think about it, though, because businesses with million-dollar often don’t seem like million-dollar businesses from the outside, and most don’t have profits anywhere near a million dollars.

A million-dollar business might only have ten employees. Generally speaking, that would mean, on average, each employee is generating around $100,000 per year in gross revenue. Revenue-per-employee metrics widely vary by industry. But, for the purposes of our discussion, let’s use this basic example of a million-dollar company with $100,000 in Revenue Per Employee (RPE). How does the person who is making decisions about how to run this business think?

Thinking Like a Better Small Businessman

costsIt’s easy to imagine a million-dollar business with ten employees being built up over the course of several years. Maybe it’s a beauty supply company or an HR firm, an accounting firm, or a small gym. Whatever the case, people tend to start small and (especially in recent years) undercapitalized, bootstrapping their way along until they finally have a breakthrough.

Once they hit that million-dollar mark, things often improve, even as they get harder. This is usually the result of adding strategic partners who help broaden the vision of the leadership of the company, adding experience, insight, and innovations a single owner (or family of owners), alone, might not have or make. More hands at the till often result in higher earnings, because people reap the benefits of cooperation and gains from specialization and delegation.

Because this growth is hard-won, because entrepreneurs become accustomed to bootstrapping, and because all of this takes a lot of time and effort, start-ups and small businesses have a tendency to be hypersensitive to costs. It is admirable to be fiscally responsible and to use good judgment when considering whether or not to spend your hard-earned money. That being said, only looking at costs when considering whether or not to spend your hard-earned money is as unwise as not considering them at all. Costs are only one side of the coin; you also have to look at the value you will receive when you spend your money on goods or services.

This is a crucial bit of wisdom small businessmen have trouble developing. They work hard, and often struggle to find success. When they finally achieve a measure of it, they have trouble adapting to the abundance mindset that is needed for continued growth. Those who work hardest to achieve success in the face of serious resource shortages tend to develop a scarcity mindset that can be deadly to a business. As Marissa Levin says, “We must shed the negative mindsets that undermine our beliefs that we are capable of greatness.”

Avoid Having a Scarcity Mindset

“We all bump up against a lack of resources in our lives: time, money, knowledge, help, or any other resource we may need to accomplish a task or to make progress. When this happens, we often unconsciously move into a scarcity mindset.

This mindset forces us to focus on what we are lacking, rather than on what we have. Those with a scarcity mindset believe that there’s a limited amount of everything, and they fear they won’t get their share.

It forces us to take a myopic approach to life, in which we focus on what is right in front of us rather than on possibility and growth.

Scarcity mindset compels us to cling to what may not be good for us because of the fear of loss or change.

Scarcity also diminishes our ability to make decisions. Like a magnet, it pulls us away from focusing on activities that can fuel our growth.

Deloitte developed a five-phase vicious cycle of scarcity thinking that kicks in when we experience an unmet, urgent need:

  1. Top-down, strategic thinking is involuntarily interrupted by a bottom-up response (“What is happening? What do I need to react to?”).
  2. Attention and energy is focused on meeting the unmet need, at the expense of other important concerns (“Everything else can wait. I need to fix this now”).
  3. Constant trade-off decisions deplete self-control (“I’m at the mercy of situations I did not plan for and do not want”).
  4. Decision fatigue and lack of cognitive vigilance emerge (“I am exhausted, and I cannot think straight to make good decisions”).
  5. Myopic decision-making and borrowing from the future result (“I have to fix what is right in front of me. Everything else can wait”).

This cycle is what happens to your brain when scarcity takes over.” (Levin, 2016)

A person with a scarcity mindset will look only at costs. This is a clear indicator of flawed, scarcity thinking. Instead, one should objectively examine both the costs and benefits of a proposed transaction. Once you are capable of doing this, you will be ready to consider the powerful decision that can protect your million-dollar business.

RELATED ARTICLE:  Is Becoming a Franchise Right for Your Business?

Legal Protection: It’s Not Just for Big Business

The decision to hire a General Counsel attorney goes far beyond just protecting your business from lawsuits, although that is part of it, of course. Your General Counsel attorney (GC) is an extraordinarily valuable professional who is in a position to offer unique insights and strategic advice to your company’s leadership team (even if that team consists of only one or two people). GCs are skilled at problem-solving, critical thinking, making tough decisions, risk analysis, and creating strategies to prevent legal risks from becoming legal problems. Along the way, they often find ways to improve your company’s efficiency and make you more effective at what you do, adding a lot of value to their relationship with your business.

So, as you probably have deduced by now, here’s the big decision: Whether to hire a General Counsel attorney to support your business, and how to do it cost-effectively in a way that adds real value to your business.

I have written a lot about General Counsel on the ExecutiveLP® blog. So, if you’re unfamiliar with the role GC plays in your company, you should read a couple of those articles. At least, take a minute to read Finding Value in the Multifacted Role of General Counsel and either General Counsel: Necessary Even In The Absence of Lawsuits or 5 Reasons You Need General Counsel Now.

For those with a clear understanding of the role GC plays in a business, the rest of this article is going to help you through the decision of whether to hire a General Counsel attorney to support your business by examining both the costs and the benefits of hiring GC. We’ll also take a look at ways to maximize the value of GC to your business, improving cost-efficiency.

Costs

General Counsel typically comes in two varieties: In-House Counsel (IHC) and Outside General Counsel (OGC). Generally speaking, OGC is less expensive than IHC, if the relationship between the attorney and the business he is supporting follows a flat-fee or subscription-based model, like the one ExecutiveLP® uses.

In 2017, the annual salary for a single IHC attorney serving small companies breaks down something like this:

  • 10+ Years’ Experience: $137,500 – $192,750
  • 4-9 Years’ Experience: $115,000 – $166,500
  • 0-3 Years’ Experience: $87,000 – $114,500

Of course, these numbers vary somewhat, depending on where one is in the United States, and should, therefore, be adjusted for variances in the local market for In-House Counsel legal services.

By way of comparison, ExecutiveLP® offers three Signet™ General Counsel legal service plans to provide OGC legal services to small businesses: the Essentials plan, the Advantage plan, and the Elite plan. Let’s look at what each of these plans might cost a company like the one described above–the company with $1 million in annual revenue. (Note: The projections below are baseline projections, based on our 2017 pricing for General Counsel services for a company with $1 million in annual revenue, and specific, real clients’ costs may vary.)

  • 2017 Signet Elite™: $40,412 per year
  • 2017 Signet Advantage™: $26,942 per year
  • 2017 Signet Essentials™: $6,736 per year

As you can see, there is a significant cost advantage available to businesses that choose Signet™ General Counsel from ExecutiveLP® over hiring IHC, even when choosing the most robust OGC plan.

Benefits

The benefits of General Counsel and the reasons for hiring a GC attorney are the subject of the articles, I mentioned above–Finding Value in the Multifacted Role of General Counsel and either General Counsel: Necessary Even In The Absence of Lawsuits or 5 Reasons You Need General Counsel Now. People tend to like specifics, though. ExecutiveLP® is very up-front about both the specific services we offer and our pricing for those services.

To see the standard pricing for a wide array of legal services we offer, you may download our menu of legal services, current at the time of this writing, here: 2017 ExecutiveLP® Menu of Legal Services

Maximizing Value

If the OGC firm or attorney is charging your business a retainer and hourly fee, there is a good chance (1) you won’t use their services unless you feel you have to use them, and, therefore, (2) the value proposition of having OGC will be drastically diminished.

If the IHC attorney you have hired is costing you as much as $46,500 — $152,300 more than OGC would cost your company, is the value they’re adding to your business as great as the cost represented by foregoing those savings?

Most importantly, what is the relationship like between your company’s leadership and your company’s lawyer? Is your lawyer accountable to your company’s leadership? Is your lawyer accessible? Does your lawyer know your business and proactively protect it using preventive legal techniques, are are they just there to put out fires as they arise?

Crisis management is expensive. Litigation is expensive. While I encourage people to look beyond costs, that doesn’t mean one should ignore them. Rather, compare cost to value, and maximize value while minimizing cost. Usually, when it comes to legal services, you’ll find that striking this delicate balance is not easy, and will require you to foster a relationship with a business attorney who really cares about your business and is good at what he does.

If you’re looking for an attorney like that, feel free to give me a call. Thanks for reading.

Citations

Levin, M. (2016, October 10). The Most Dangerous Mindset That Is Killing Your Success, and How to Silence It. Retrieved January 10, 2017, from http://www.inc.com/marissa-levin/the-most-dangerous-mindset-that-is-killing-your-success-and-how-to-silence-it.html


CC BY-NDThis article may be freely reprinted or distributed in its entirety in any e-zine, newsletter, blog or website. The author’s name, bio and website links must remain intact and be included with every reproduction. View general information about this license; or view detailed legal information about this license.

2017-02-01T11:52:17+00:00