I was talking to a friend who is getting his startup off the ground and we started discussing working with law firms in the company formation stages. I think a lot of first-time entrepreneurs shoot from the hip when dealing with selecting and working with a corporate firm early in the lifecycle, so here are a couple simple things I learned along the way that I recommend to people doing startups:

• Negotiate up front how much you’ll pay for your incorporation documents.  Don’t pay more than $5k for these. These docs should include company formation documents, standard employment documents, consulting templates, and company NDAs.  You can ask for a full package - any firm that works with startups (WSGR, Gunderson, Fenwick, etc.) has these on hand.
• Do not give a law firm equity. Unless they promise they’ll never send you a bill, there’s zero reason to award them stock.
• Don’t talk to too many lawyers/firms early on - it’s a waste of time. If you’re in NYC, Gunderson, WSGR, and Fenwick are fine.  Meet a partner or two and make your decision.  
• You shouldn’t be paying more than $10k for legal docs for your first round of financing.  I’ve heard of startups paying up to $50k and that’s insane.
• If you plan on raising capital, defer all of your payments until after your first financing.
• You can and should go over all of these points when you’re picking your firm.
• If a law firm or partner fights back on any of the above, you’re probably working with the wrong person.

Picking a legal partner to work with is important. You want someone you can trust who also has a strong reputation and track record in the startup community.  You won’t (and shouldn’t) interact with him/her in the early stages, but you want them by your side, engaged, and fighting for you when you need them most.  

*For more information Chris Dixon has written some great posts on the topic, and I recommend you read his blog particularly when it comes to raising capital and startup formation.

When GroupMe started one of my responsibilities was taking care of everything legal-oriented and keeping the company organized. Around eight months into it, two financings later, and with a staff of 15 people (and growing), I was stretched too thin and getting basic paperwork out was taking me too long.  I was also dealing with multiple points of contact when it came to our legal initiatives, and there were a lot of them (trademarks, patents, corporate, etc.). I found myself spending too much time (and money) on lawyers.

Around April/May we brought on Mordecai Goldstein as a consultant who essentially acted as GroupMe’s General Counsel (he was previously General Counsel at Gilt Groupe and had a good relationship with Steve). This was one of the best things we ever did at GroupMe to optimize my time. Mordecai would come in starting one half day every week, and we would ramp it up from there depending on what our needs were. What was most important was that I had a single point of contact for all things legal: HR, trademarks, patents, litigation, partner contracts, employee onboarding, etc. On top of that, he maintain and get our important files organized, backed up, and in one place. (There’s nothing worse than scrambling to get all of your docs organized for diligence during a financing and wasting cycles collecting last minute paperwork – it can also lead to a delay in closing deals.)

Bringing in Mordecai was a blessing to myself and GroupMe. It gave me the ability to focus on more important initiatives, and it gave the company a single trusted contact who could manage our legal work much better than me. Delegating these tasks was a time saver, and also a major money saver as we no longer had to expensively contract/outsource the issues we could take in house.  Chances are when you’re 6-12 months into building your company, you’ll have more important things to do than worry about keeping growing stacks of paperwork organized.   Two to five hours a week of help can make a world of a difference, and save you countless, priceless hours to deal with the things you do best: building your company.

“Everyone has a plan until they get punched in the face.”

-Mike Tyson

After we launched the GroupMe Beta at TC Disrupt in September 2010, we inadvertently stepped into another round of fundraising.  It was never our intention to raise money at that time, but there was considerable interest from several VC firms on the West Coast, and so it seemed like the prudent thing to do. The opportunity to raise another round of financing was appealing as competition in the space was heating up, and we had a chance to step on the gas.  So we went for it and initiated the process with two firms.

We had full partner meetings which could not have gone better.  I was 50/50 that one company was going to give us a term sheet, and with the other I was 95% certain.  That’s absurdly high certainty, naive certainty, but that was the case.  After some very strong meetings, we flew back to NYC and waited for a term sheet to come in.  The 50% firm was in touch for two weeks, and ultimately came back with a “No” because of an issue in diligence (which we solved down the line).  The 95% firm went relatively silent for two weeks, and ultimately circled back with a “No” due to a conflict of interest.  

What happened? The plan was to quickly close with one of these firms and then go on and grow our business.  That was the only plan, and it seemed to be a sure thing at the time.  When the “No’s” came in, it was a blindside knockout punch to the face.

Word had leaked that we were raising and we were convinced that we had to continue onwards.  Up until that point we weren’t running a process, the process was running us.  There was no backup plan because we never thought one was necessary.  

Fortunately, we were able to get back on our feet fast, recoup, strategize, and quickly talk to some more firms we were interested in working with.  We were lucky that several of them wanted to work with us.  I’m grateful for the way things turned out with that raise - I don’t think they could have been any better and I couldn’t ask for better partners than the ones we had.  Should we have had a Plan B?  Yes.  Was it a rookie mistake?  Most definitely.  But if it didn’t happen then, it would have happened somewhere down the line, and with more severe consequences.

As Mike Tyson said, everything is good until you are knocked down on your ass.  This happens all the time at startups and takes many different forms.  Sometimes a financing falls apart.  Other times a new hire you and the team love bails at the last minute.  Some features and products you pour your heart into don’t scale or gain traction like you think they would when they launch.  I’ve seen plenty of sites unfortunately go down on their launch days after months of preparation.  And sometimes that epic distribution deal falls apart.  It happens.  It’s always important to think through and cover your possible failure cases and have a backup, but inevitably we’re all blindsided at some point. When that happens, there’s nothing left to do but get back up and get revved up for the next round.

I saw something remarkable from a startup I’ve had the privilege of working with recently.  The founders are in the midst of assembling their core team and they’ve been doing an awe-inspiring job at it.  Steve Martocci and I have been working with them for a several months, and one of the first things we stressed most while they thought about hiring their first employees was to utilize a trial period.  The trial period is something we inadvertently stumbled into when we made our first hires.  What began as a series of consulting gigs transformed into a hiring practice that has worked very well for GroupMe.  It has also worked well for several startups that I’ve seen adopt the practice.  Putting together the right core team at a startup is one of if not the most difficult and important things in the early lifecycle, and the trial period can help you find the right people to help build your company.

At GroupMe we never had an employee #1.  Instead we assembled a core team with Pat Nakajima, Cameron Hunt, and Brandon Keene.  Both Pat and Cameron began as consultants in July 2010.  Cameron was introduced to me through Marco Arment, who I used to work with at Tumblr.  We needed a front-end developer with an eye for good design, and someone who could build for iOS.  Marco, with great conviction, said that Cam was the guy.  He was right.  Pat was introduced to Steve through his old boss and longtime friend and supporter of GroupMe, Josh Knowles.  He was in between jobs and agreed to help us get groop.ly off the ground doing some consulting work.  

The time we all spent together during those first couple weeks was pure fun. Everything clicked: personalities, working styles, karaoke duets, and even taste in office music (which admittedly sometimes consisted of various Disney soundtracks at the time). What started off as Steve and I working with consultants in the office (aka Steve’s studio apartment) quickly turned into a cohesive team in a matter of days.  The process of converting from consulting work to full-time work was completely organic.  It was the next logical step in our relationships, and building out the core team. 

The anecdote is important because it set a precedent for GroupMe in how we like to recruit and work with prospective team members.  In retrospect, those early days of consulting were really a trial period to see if we were all a good fit together.  The trial period is something that has worked extraordinarily well for us, and I think it’s something that’s also worked well for those that we’ve recruited.  There are so many things that determine if someone is a good fit (personality, culture, skill-level, etc.), but I think the most important criteria is that you (and the person joining your company) both have a positive gut feeling about working together.  It takes time and some getting to know each other before one can develop that feeling - generally speaking, I think it usually takes around 2-3 weeks.  

If someone is currently a consultant, or in between jobs, we like to bring them in as a paid consultant for a 2 week period and see how things unfold over the course of that time.  This way, we don’t make any rash decisions, we can see how they mesh with the team, and they have an equal opportunity to determine if our company and culture is the right fit for them.  More often than not, the trial period leads to a full-time position.  There have definitely been instances when someone was not the right fit, but we would have never been able to figure that out on both sides had we not engaged for those 2-3 weeks.

There are some situations when it’s difficult to do a trial-period; for instance, when a potential hire already has a full-time job.  When this happens we like to bring them in after work or over multiple weekends to work on projects with the team.  We’ll order lunch, and hang out and work for the afternoon and try to complete a specific project end to end.  This gives both parties an opportunity to test things out in an abbreviated time span.

The trial period doesn’t just extend to engineering, but all departments: support, marketing, sales, business development, etc.  Steve Cheney, our first BD hire, worked at GroupMe for 4 weeks before we brought him on full time.  We were setting up for our first major brand partnerships and I was overworked and dropping the ball.  Steve came walked in the front door and got up to speed in two weeks, and we went on pitches together for the rest of the month, ultimately leading to one of our most successful launches to date.  Kevin Crowe and Tanuj Parikh both had full-time jobs, so we’d all meet on the weekends and run through projects and whiteboarding sessions together. 

When a startup is small and growing, every employee plays a pivotal role - and it’s not just their respective job - it’s contributing towards building the culture you want to be around forever.  One bad apple will bring the team down, and one exceptional person will elevate your and everyone else’s game by 10x.  That’s why it’s so critical to hold to your highest and most important standards, and the trial period helps you do exactly that

It’s impossible to sum up the past year in a blog post, so I’ll stick with a bullet point list of some of the things I’m thinking about:

• Thank you to my fiancé and my family for your support and putting up with me. 
• Steve Martocci is the best co-founder anyone could ask for.  He’s brilliant and has taught me more than I could have ever imagined.  And most important, he’s one of the nicest, big-hearted people I’ve ever met.
• The GroupMe team is world class.  The team is everything.  It’s an absolute honor to work alongside these guys everyday. They’re family.   
• Our investors and advisors are amazing.  They are the most entrepreneur and company friendly people I’ve met.  They’re also the best mentors and teachers one could ask for.
• GroupMe users are amazing.  From the feedback to the support, they keep us all going and I can’t wait to share all the new things we’re going to build with them. It’s why we do what we do.

The past year was incredible, but I am so incredibly excited by what lies ahead. The Skype team is staffed with some of the most talented people I’ve met. Working with them and their network of hundreds of millions of users is a once in a lifetime opportunity. Since day one, GroupMe has always been about helping change the way the world communicates and enabling people to connect, share, and make decisions with their close ties. Skype is the best partner to help execute that vision and bring it to over a billion people across the globe. I’m thrilled for the future.