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Taking Care of Small Business - The Practice

Small and midsize companies need lawyers too

Trevor Faure examines the way large corporate clients approach their legal needs. He also discusses ways they could rethink how they purchase legal services. There are good reasons to focus on clients with the largest budgets and the most sophisticated in-house legal capacities. At the same time, the market for legal services is filled with a myriad of actors, including millions of small and midsize businesses (SMBs), who also rely on high-quality legal work, albeit not at the scale of large corporate actors, and need to find lawyers.

According to the U.S. Small Business Administration (USSBA), 99.9 percent of all U.S. businesses are small businesses (defined as having fewer than 500 employees). The average employee count across more than 5 million businesses in the U.S. Census Bureau 2016 Annual Survey of Entrepreneurs data set was also just over 20. To put this in perspective, around 89 percent of these businesses had fewer that 20 employees. Lastly, a recent USSBA report estimated small businesses' share of national GDP at 44 percent. All this is to say that SMBs account for not just a vast majority of potential corporate legal clients but a significant part of the U.S. economy.

The market for legal services is filled with a myriad of actors, including millions of small and midsize businesses.

In this article, we explore how SMBs think about their legal needs and how they find their legal counsel through a case study of one, not-atypical SMB. Founded in 2011, TruQC develops digital process-management tools to help companies streamline their reporting needs and workflows. The St. Louis-based SMB originally served industrial painting clients, but has since expanded its offerings and now serves other industries with over 30 employees. We spoke with Aaron Boyll, TruQC's president, and Megan Brinker, its COO, to learn more about how they have thought through their legal issues over the years. Sara Stock, the firm's lawyer, was also available. Stock Legal, a St. Louis 12 lawyer law firm, was founded and is now the vice chair for the American Bar Association's Middle Market and Small Business Committees. On the firm's website, she states that her target clients include pre-revenue start ups, emerging companies, and mature companies with over $100M annual revenue.

What legal requirements do SMBs have?

It is helpful to understand the legal requirements of SMBs. On the one hand, there is a significant degree of variability when it comes to SMBs--a restaurant is going to have different legal issues to think about than a fitness center or a trucking company. But there are common areas and legal requirements for SMBs share a lot with larger companies. Stock states, "Many of the problems that an SMB will face are the same as those faced by large companies." SMBs face legal challenges in a few categories.

Corporate governance.Companies of any size must learn the laws regarding forming and operating businesses. The scope and scale will depend on the circumstances of the business in question--its size, structure, location, and so forth--but SMBs invariably have some degree of corporate governance work that requires legal attention. "Maybe they're forming a new company, or they have risen to a stage in their operation where they're an LLC and the old two-guys-and-a-dog operating agreement isn't cutting it anymore," says Stock. "Either way, corporate governance is first and foremost. It's often an education opportunity. We go through best practices, risks like piercing or owner disputes that can turn on corporate governance issues and practical ways to streamline the process.

ContractsContracts can be simple sales contracts or complex. An SMB could have one contract for its client base and many for customers of all kinds. SMB clients can have their contracts customized by lawyers. They will also be able to teach clients how they use the contracts.

EmploymentRegardless of whether an SMB's HR function has been outsourced or internalized, there is a common employment agreement that covers basic insurance and other events (such as hiring someone or letting them go) which can have legal implications.

Megan Brinker is the chief operating officer of TruQC. She was asked about how they found their lawyer.

Regulatory.SMBs will also need to deal with federal, state, local and local regulatory issues (e.g. issues around food safety, environmental rules). SMBs must have a good understanding of and the ability adapt to regulations. This is where the lawyers play a key role.

Contextual.There may be many other legal considerations for an SMB. They may be purchasing another SMB and/or selling theirs. They might also have intellectual property that is protected. They might need to consider legal considerations specific to their industry or for other reasons depending on where they work. It all depends on each SMB's individual circumstances.

How can SMBs find lawyers?

If you are an SMB, where do you go to find the right lawyer? Brinker or Boyll, despite the popularity of online lawyer-referral systems like Avvo and Super Lawyers suggest that online resources had little impact on TruQC’s identification of outside counsel. They instead value referrals from people who are knowledgeable or experienced.

Boyll says that he was just starting to get involved with TruQC when Stock Legal was created. But, he first called some friends who were lawyers and asked their opinions. Boyll explains that when he's looking for legal counsel to best serve his business, it's about finding the right fit. Getting referrals from industry peers, customers or other lawyers seems more reliable and trustworthy than searching through online directories. Brinker says, "I don’t believe we looked online at all." "We all had people within our circles whom we trust to know what we're looking for. It made more sense for us to turn to them at the final analysis.

Stock agrees that this approach is consistent with a larger trend at her firm. According to Stock, "SMBs are still looking for lawyers through personal networking from trusted advisers." Stock Legal's target client base is SMBs. This means that it is important to maximize offline opportunities to connect with potential clients. Stock adds that Stock Legal was built by meeting with thousands of people for lunch, dinner or coffee. She also sits on several boards and participates in networking groups (which also allows her to recommend just the right service provider for whatever issue a client might be facing). It all adds up to direct SMB clients towards Stock Legal.

Aaron Boyll, president TruQC, says, "I have a few buddies who are lawyers at large St. Louis law firms, and they know that I can't afford them."

Stock describes this as her "old-fashioned", way of connecting to her client base. The firm is starting to get more clients through its website. "This year especially, we've seen a significant uptick in online intake," Stock says. A part of this is the product of a more-deliberate online strategy that includes polishing the firm's profile on social media and producing a blog designed to educate potential clients on common SMB legal issues. Stock points out that much of the firm’s online success can be attributed to the basic principles that created their client base. "Our opportunity today is to leverage online tools to convey to the marketplace what people feel when they meet with us," she explains. That feeling is extremely important. When clients meet with our team, they can trust us to be able engage with their problems and show that they care. We are working on making that feeling accessible online to help clients scale.