Disruption seems to be the name of the game these days. It is a constant race to see who can create the newest value, the newest market or find the newest way to do something while protecting your hardwork.
But disruption is built on the unknown and is full of uncertainty, especially when it comes to legal risks. Naturally, not knowing what these risks are does not always sit well with founders and creators.
So how do you keep a disruptive spirit and still manage legal risks? I suggest focusing on what you can control and to “fence” in as much exposure (or liability) as possible. This applies across the board, from informal ideas to formal corporate for-profits or charitable organizations.
Manage Legal Risk By Working Backwards
Working backwards and focusing on what you do know rather than what you don't helps when trying to get a handle on something meaty like uncertainty.
The key is to translate what you know (i.e. the risk, obligations and exposure you’re comfortable with) into boundaries and ground rules. Put those SimCity skills to use and build “fences” around the risks you are comfortable taking. Where you are in the business cycle will play a large role in how big your “fenced” area will be.
For example, if I am beta-testing software at no charge I probably want to take on as little risk as possible. So I might whip up a short set of terms and conditions and set boundaries by telling beta-testers what risks I will and won’t to take. I might also set ground rules by listing what beta-testers will and will not receive while trying my software out and how my software may or may not be used. At this point, the risk I take on (or my “fenced” area) will likely be small since I’m not making money. But as money comes in, I might find I am willing to move that fence back a little and take on more risk.
Other Ways to Build A Fence
Outside of working backwards, there are other things you can do to try and minimize some of the unknown risks that come with being disruptive. To get you thinking, here are a few:
Protect Your “Stuff." What happens once you put your “stuff” out in the world is another uncertainty. And by “stuff” I mean your intellectual property (IP), the things you create. To avoid losing rights, properly register your “stuff” when and where it makes sense. Include any markings on your products or assets and include them often. In contracts, set ground rules around use of your “stuff” by others. When giving sensitive information to someone, don’t be afraid to get a confidentiality agreement signed.
Lastly, always keep track of who owns what. When there’s multiple creators, draft an agreement detailing who owns what in case things turn sour. With clients, employees or contractors you might include a paragraph on who owns what in those contracts.
Be Strategic. Many people treat the process of starting or running a startup like it is automated. But if you take this approach, you miss the opportunity to build a sturdy “fence.” If you decide to form an organization, choose an entity keeping in mind the type of risk you are comfortable with and which entities fit the bill. If you are already operating, but want to do something entirely different, you might think of ways to house new ventures. Possibly make them subsidiaries or turn them into strategic partnerships.
This is especially important in the US for federally tax-exempt charitable organizations that do not want to jeopardize its tax status, or social enterprises that do not want to cause issues with its social purpose. Also make sure things like insurance actually work for you and cover what you are doing. Sometimes you may need to buy more or new policies where circumstances or operations change.
Do Your Homework. As Zen as it may sound, becoming one with uncertainty is not an excuse for not knowing. Especially under the law. In your day to day, it is important to do the homework and bring as much light to a project as possible. If you have this amazing idea and cannot believe someone has not run with it, do a little digging to see if there is a reason why.
There could be a grey area or you may actually have struck gold. But it doesn’t hurt to dig a little deeper to see what’s going on.
Conclusion
Whatever you decide, it will be important to remember there really is no way to protect against everything, even where you were operating in a space that’s fairly established. But if I’ve learned anything from most sports related 90’s movies, the best defense is offense. And that means having an honest conversation around what could go wrong and addressing it in the way that works best for you.
Takeaways
- Operating in a disruptive space can get in the way of even the best laid plans. Focus on getting a grip of what the liabilities might be.
- One way to manage uncertainty is to work backwards. Look at what you know. Set boundaries and ground rules based on that.
- Put a “fence” around the risk you are comfortable with, in the way you are comfortable. Examples of this are protecting what you create, making strategic decisions and doing your homework.
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About the Writer
Erin McClarty is the principal of Erin McClarty PLLC, which provides legal counsel, board training and governance resources to emerging or start-up charities and social ventures. She's also the founder of Notations on Nonprofits where she blogs about legal issues, analysis, resources and training for exempt organizations. Erin holds a Bachelor's from the University of St. Thomas and a J.D. from South Texas College of Law. She's served as in-house counsel for Fortune listed companies and sits on various advisory boards, grants panels and pro bono committees.
This was written by a SG contributor.
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