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Business Development

How startups’ and small businesses’ legal needs change over time

Like many other clients, the legal needs of startups and small businesses (SSBs) continuously evolve and change over time. Attorneys who serve SSBs have to anticipate what legal issues may be approaching and prepare accordingly. To do this more easily, lawyers will benefit from understanding where their clients are along the business lifecycle.

The business lifecycle is a representation of an organization’s development divided into five stages: launch, growth, shake-out, maturity and decline. Each of these stages come with new legal challenges that SSB attorneys should familiarize themselves with ahead of time in order to maximize efficiency and serve their clients’ needs well.

Launch

The lifecycle of every small business and startup begins in the launch stage when the company is being conceptualized and the early days of operations take place. During the launch stage, legal advisors must guide their SSB clients through decisions that will critically impact the future of their business. It is especially important that lawyers be able to clearly explain how each choice will affect all of their options going forward.

For example, a lawyer may guide their SSB client in choosing what type of entity they should create. There are a wide variety of options in each state, and each type of business entity comes with different tax treatment, investment advantages, and decision-making formalities. Being prepared to explain these issues and their ramifications is especially important during the launch stage.

Growth

As businesses enter the growth stage, they often need to bring on additional hands. Adding and managing new employees invites a whole host of legal issues that lawyers can help with.

Legal counsel often act as their SSB client’s HR head because of all of the different issues that may come up. These could include defining rules around recruiting and interviewing, writing job offers and rejection letters, establishing onboarding processes, and keeping the company from running afoul of wage and hour laws. There are many other legal issues that come up during the growth stage, mostly related to expanding operations.

Shake-out

The shake-out stage can be framed as the final part of an SSB’s growth. In that light, many of the legal matters lawyers prepare for during this time are related to the previous stage. SSBs in the shake-out stage will usually be focused on optimizing their own performance in order to meet the demand for their product and contend with their competitors.

To do this, many startups and small businesses will look to move into their own permanent space. This means their legal counsel should be ready to guide them in real estate matters, review leases, and write-up purchase agreements.

Maturity

Startup and small business owners who reach the maturity stage are most interested in maintaining that success for as long as possible. They are warding off other competitors and searching for the next innovation that could push their growth even further.

When a startup or small business gains a level of dominance and recognition in the market, they tend to spend more time handling legal challenges and disputes. These could come from wrongful termination claims, intellectual property challenges, or dissatisfied customers seeking legal recourse. Lawyers must have the tools they need when these types of issues arise, and the knowledge to help their SSB clients respond and prevent any serious losses.

Decline

The decline stage is the point where SSBs begin to lose value. Here, the goal of most operators is to either rejuvenate their business and extend the lifecycle or limit their liabilities while exiting the market.

A lifecycle extension may be done by rebranding, investing in new technologies, or launching a new product to reposition an SSB in the market and refresh their growth. In these cases, lawyers may have to revisit legal tasks they have dealt with in earlier stages to ensure the continued success of their client. But if these efforts fail, a business owner may have to take more drastic measures to break even.

There are several ways SSBs can cease operations, but not all of them are necessarily bad. While some businesses will fold, others may be sold to another company at great profit to the owner. This means lawyers representing SSBs in this challenging stage must be able to help them wrap up operations and dissolve the entity or navigate the process of selling their enterprise.

There are an immense number of different legal situations lawyers could encounter as their startup and small business clients progress through the business lifecycle. But those who fully understand each of these stages will best anticipate their clients’ needs. Learn more by reading our guide to serving startups and small businesses.

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