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Business 16 Stanford Department of Continuing Education Class # 3, 10/12/09

Business 16 Stanford Department of Continuing Education Class # 3, 10/12/09. Who needs help?. Who needs help?. Everybody. Why do I need help?. You are most dangerous when you think you know it all Mere mortals cannot keep track of all the external trends You alone can’t know everybody

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Business 16 Stanford Department of Continuing Education Class # 3, 10/12/09

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  1. Business 16Stanford Department of Continuing EducationClass # 3, 10/12/09 Who needs help?

  2. Who needs help? • Everybody

  3. Why do I need help? • You are most dangerous when you think you know it all • Mere mortals cannot keep track of all the external trends • You alone can’t know everybody • External validation of your credibility is important

  4. Why do I need help? • Introductions • Notice of key events you wouldn’t otherwise hear about • Better intelligence about competition • Sagely advice • Avoidance of potholes

  5. What kinds of help are there? • Attorneys • Accountants • Scientific Advisors • Business Advisors • Board of Directors

  6. What good are attorneys? • None, if you pick a bad one • There are lots of bad attorneys

  7. How do I pick a good attorney? • Find one who’s done a lot in the business you are interested in • Find one who’s worked with successful companies in your field • Call up a successful related company and ask them who they use • Ask a lot of people; the good names will keep coming up

  8. How do I pick a good attorney? • Interview them; they will also be interviewing you • Find one with which you have a good rapport • Ask them about their fee structure

  9. How do I pick a good attorney? • Ask what other people you will be working with • They will offer you to work with cheaper junior attorneys • Some are good, others are training on your nickel • Lawyers can be very expensive; use them wisely

  10. What can an attorney do for me? • Help incorporate/set up a basic business structure • Partnerships vs. LLCs vs. corporations • Equity issues • Intros to potential investors/corporate partners • Give you a lay of the land

  11. What can an attorney do for me? • Give you credibility; good firms don’t take all comers • Good attorneys have been to this movie before • Help you avoid basic mistakes and keep you out of trouble • Many other things, but you have to use them wisely

  12. What can an attorney do for me? • You have to keep them in the loop, but you don’t want to be over-dependent • Solicit their advice, but tell them what you want • In general, they will not help you manage legal expenses

  13. Warning Signs for the Wrong Lawyer • They piss off everybody they come in contact with • Documents measured in metric tons • Overly legalistic/complicated language • East-coastitis • Phone calls not returned promptly

  14. Warning Signs for the Wrong Lawyer • Being charged excessively for standard documents (Non-disclosures, etc.) • Can’t ballpark figures for tasks • You just don’t like the guy • He’s related to you or a friend of Mom

  15. Who are some of the good firms? • Cooley Godward • Gunderson Dettmer • Latham & Watkins • Morrison Foerster • Ropes & Gray • Wilson Sonsini • Many others; this town is lousy with lawyers

  16. Choose the right lawyer… • Firms that are good at general corporate law are not necessarily good at patents, real estate, employment, M&A, IPOs or litigation • Litigators include just about every firm • IP firms include • Shay Glenn • Townsend & Townsend • Morrison Foerster

  17. What about accountants; how boring… • Yes, but necessary • Investors will insist • A good one will save your life • They will help you figure out how viable your business really is • Like oncologists, they are good at bad news that you need to hear

  18. What about accountants; how boring… • Good ones set up systems and routines • They will present the numbers in any way that you find useful (YTD, YTY, variances, stagger…) • Will keep you from mistakes that could cost you millions later down the road

  19. How do I find one? • You probably need two • You need a day-to day (actually, week-to-week) rent-a-CFO • They come in once/week and do bookkeeping • Again, ask around • Second, you need a good accounting firm to do your books once/year

  20. Which are the big accounting firms? • Deloitte & Touche • PriceWaterhouseCoopers • Ernst & Young • KPMG

  21. Scientific/BusinessAdvisory Boards • Absolutely necessary • They have experience you don’t have • They are in the trenches and the cutting edge • They know lots of people who can help you • They know lots of people to stay away from • They can often act as mentors

  22. How do I set one up? • Find the thought leaders in your business, local and international • Meet with them, find out if you click • Plan to put together a group of 5-10 people • For an SAB, 50% academic, 50% industry • They are useless if you don’t use them • Offer to pay their expenses for a day-long meeting once or twice a year

  23. How do I set one up? • Typically $1500 to $2000/day each • Offer to hire them for an additional 2-3 days of consulting/year at the same rate • A nominal amount of equity • Set up a schedule of speaking with them on a weekly basis • Pick people who like and respect each other. They don’t have to agree

  24. How do I set one up? • Pick people who are not so old that they are irrelevant, and not so young that they know nothing • Avoid professional consultants, lawyers, accountants, relatives • Pick someone you would trust to shoot your dog; they may say your plan won’t work

  25. Board of Directors: What does it do? • Represents the shareholders interests • Represents all the constituencies • Maximizes shareholders’ value • Sets company strategy/tactics • Checks on management • Hires/Interviews • Approves business/operating plans/budgets • Does all of it in a legally responsible way

  26. What does one look like? • Minimum of 3, 5 to 7 optimal • Add people only after careful consideration • Only business people • A commitment somewhere between SAB and Management • Compensation usually stock, usually equivalent to a director-level employee (between .1% and .5% each) • Venture capitalists & investors are usually uncompensated for board service beyond reimbursement of expenses

  27. What does one look like? • Usually your equity investors are represented • A good balance is half industry people, half investors, and the president

  28. Remember: • It is hard to kick people off boards • You can make enemies out of previous allies • Nonetheless, sometimes it is required • Pick people wisely who will wear well • Make sure people understand what the commitment is • Don’t pick people who are too busy

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