Try to avoid overkill
when hiring lawyers

DEAR INFORMER: I’ve heard lawyers talking about non-compete agreements and confidentiality agreements, but are those really necessary if what you’re doing isn’t some deep, dark secret? It seems all these documents just generate fees for attorneys.

DEAR CYNICAL: As with almost any segment of business advice, there are always those people who will sell you everything they can get you to buy. It’s shocking but true.

“It is overwhelming,” agrees Ray Faricy III, an attorney who specializes in small businesses with Lindquist & Vennum in Minneapolis. “It can be overkill.”

But for the vast majority of young small businesses, Faricy says to keep it simple. “You have to. Who’s got time to read 20 pages?” Faricy says. “They don’t need those bells and whistles.”

It’s the attorney’s job to listen to the goals of the business owner, understand what that business does, and then streamline the necessary legal protections.

The priorities for small businesses: Select the right type of business entity. Sign a buy-sell agreement. Write simple contracts for customers. But don’t rely on generic documents available on the Internet, Faricy advises, as those don’t apply to each company’s situation.

As for non-compete and non-disclosure agreements, consider only if your business truly has something to protect. If you’re starting something like a restaurant or a barbershop, “unless you have the recipe for Coke, there are no secrets in those businesses,” Faricy says. “Non-competes for the average Joe with a job at your company, they’re not going to be enforceable.”

Molly Rice is co-founder of Spyglass Creative, a marketing firm in Minneapolis, and she swears by Faricy’s keep-it-simple approach. She and her partners broke off from another agency to form theirs in 2001, and were subsequently sued by their old bosses.

The experience solidified her belief that non-competes, in particular, poison a company’s atmosphere.

“Our focus is on being the best at what we do,” she says. “It’s counterproductive when you’re hiring people” to insist on getting non-compete agreements signed. “If somebody were able to steal an account, then shame on us. To spend all this time and energy and money to stop it, seems pointless.”

She says they take the necessary steps to protect client data, for example, and they have a simple buy-sell agreement and simple contracts with clients. More is unnecessary, she says.

Rice says a discussion about risks with partners and your attorney can help you determine where to spend your legal dollars.

Ray Faricy III, Lindquist & Vennum: 612.371.3507; rfaricy@lindquist.com; www.lindquist.com. Molly Rice, Spyglass Creative: 612.486.5952; mrice@spyglasscreative.com; www.spyglasscreative.com

RECRUITING

DEAR INFORMER: How do you grow a national franchise when your prospects are an elite and elusive group of seasoned business professionals? They need enough ego to be able to do a lot of cold-calling and selling, but must be able to present themselves as ‘other-centered’ when mentoring a group of small-business owners. We know they''re out there — but they don''t exist in large numbers and they don''t seem to cluster.

DEAR HIRING: You’re way ahead of the game because you’ve spent time thinking about and articulating the attributes of your desired candidates, reports Marni Hockenberg.

She’s co-founder of The Hiring Experts, a local company that searches for job candidates and places them with client companies.

That’s the important and often underdone first step for anyone looking to hire. Think about people who are already successful in the job for which you’re recruiting: What are their skills? What are their talents? What motivates them?

Then it’s a matter of researching the next question: Where do they hang out?

“When developing a recruitment strategy, we take a look at the profile of the person. Then we ask ourselves, where would a person like this be involved?” Hockenberg says.

Consider each attribute separately. For example, you say you want someone good at mentoring. Check out mentoring organizations. You say you need people with facilitation skills. Check out colleges that offer courses on the subject, and talk to the instructor. You say you need people who are financially independent. Check out country clubs.

“Birds of a feather flock together,” she says.

Then comes the time-consuming part: cold-calling and networking. Hockenberg’s firm might go online to identify the president or membership director for an association. Look for contacts who are good at networking, good at sales. Call and state what you’re doing. Ask, do you happen to know anyone? Then, send a follow-up e-mail.

She also recommends the HR directors of companies that are doing layoffs, and the outplacement firms that are sometimes hired to place those people. She says to always end with this question: Who else should I talk to?

Keep a log. Hockenberg uses a plain old spiral notebook, and writes down the name and phone number, and when contacted. “You would be totally amazed on where these e-mails go,” she says. Within a week or two her firm usually gets a wide variety of contacts.

“It’s fun. You’re a detective,” she says, adding a caveat: “You have to be ready to dedicate a lot of time to this, or you can contract it out.”

Marni Hockenberg, The Hiring Experts: 952.593.4023; marni@thehiringexperts.com; www.thehiringexperts.com

ACQUISITIONS

DEAR INFORMER: I’m trying to get a merger agreement together with another, smaller company, but their price is much higher than what I would pay. How can I move us closer together to make this work? Our meetings seem to go nowhere, and now we’re at an impasse.

DEAR NEGOTIATOR: It takes loads of patience to successfully negotiate a purchase agreement, and price is probably the stickiest point. But realize there are usually many factors influencing the actual figures, and many ways to move them.

So says Joseph Humke,  an attorney with Lindquist & Vennum in Minneapolis who specializes in mergers and acquisitions. He ticks off a couple of tactics:

• Try an earnout-based pricing formula, which starts with a lower initial price, then adds additional payments as company performance milestones are met. 

“It allows for the seller to share in the future performance of the business, in return for a lower price,” says Humke. Also, the seller can defer tax for one to five years. “We see earnouts in probably half the deals we do,” he adds.

• Buy a portion of the company rather than the whole thing, for a lower purchase price. “It allows the seller to participate in the financial success, either through operations, or if the owner does get a bigger price down the road.”

The down side: “A lot of the times the buyer doesn’t want a partner.”

• Propose a different acquisition structure, designed to minimize taxes on the seller, in return for a lower price. Generally speaking, sellers want to sell stock for tax advantages, while buyers want to buy assets to avoid liabilities. “The buyer might propose, let’s do a stock deal,” Humke says.

• Figure out what the seller really wants. “I would try to identify what else is important to the seller besides price, and horse-trade it for a lower price,” Humke says. “You see this all the time.”

For example, a buyer could offer to shorten the indemnification period, or the time in which the seller is responsible if things go wrong at the company post-sale. Or, if there’s a pressing need to sell the business, the buyer could offer to close the deal by a certain date, in return for a lower price.

You find those things out by meeting with each other, many times. “There’s certainly a dance that is done, without a doubt,” Humke says. “There are personalities with which everyone needs to get comfortable.

“A buyer needs to be patient,” he says, but also must be clear on what price is acceptable. “The buyer always has to be willing to walk away.”

Joseph Humke, Lindquist & Vennum: 612.371.2453; jhumke@lindquist.com; www.lindquist.com