Nutshell: Referrals and recommendations from influential people in your startup ecosystem, or from people you trust, are an extremely important way to build your startup’s set of advisors, mentors, service providers, investors, etc. But there’s a wide gap between an authentic referral made on merit v. one made because of quid-pro-quo business relationship hiding in the background.
Background Reading:
- How Founders Lose Control of Their Startups; Apart from Ownership
- Why Founders Don’t Trust Startup Lawyers
- Startups Need Specialist Lawyers, But Not Big Firm “Lock In”
Cheap “Networking” v. Respect
I have never set foot on a golf course, and really don’t care to any time soon. I honestly don’t know anything about wine other than that I’d generally prefer a good beer over it. I have no idea what anyone on ESPN is talking about every time I’m sitting in my barber’s chair. And I still need someone to explain to me why everyone on there is so dressed up, to talk about sports? Why, might you ask, would any ambitious lawyer who cares about biz dev make zero effort at improving his game on what many consider to be the core pillars of business networking?
In short: when I recommend anyone to a client: an advisor, a service provider, an investor, even a specialist lawyer, I believe it should be solely because that person actually deserves the referral – meaning that I think they are the best for the task – and not because I expect to gain something personally from making that recommendation, or because I “like” them. I don’t care about anyone’s golf game, sports knowledge, or whether they will refer anyone back to me – and I expect the same in return.
I have pissed off and/or disappointed a lot of people because of this mindset, but in the arc of your own career, particularly in a career based on serving as a trusted advisor, respect will sustain you far more than dozens of superficial connections purchased with steak dinners and side deals.
Build Your Inner Circle
As a founder, the moment you show even the slightest sign of building a strong company, you’ll find yourself inundated with people who want to connect with you. One of your first jobs is to learn, quickly, whom to (politely) say “no” to. You can only have so many coffee meetings before they get in the way of actually building a real company. And if you spend enough time at a few startup events you’ll quickly realize how many “startup people” aren’t actually building real companies. Avoid noise. Find signal.
Building your network (quality over quantity) is extremely important, especially if you’re CEO. But it’s (at least) equally important to build and maintain your inner circle. More than people with great resources, money, or advice, these are smart, helpful people whose character you’ve judged to be a cut above everyone else’s; meaning that they can be trusted in a way that your broader group of connections cannot. There is no magical formula for finding these people, or sorting them out from others. Your ability to “read” people will improve over time.
In general, your inner circle should be made up of experienced, smart people who (i) consistently speak their mind more freely than others, (ii) often make recommendations that run against their financial interests or personal connections, and (iii) will give you opinions/feedback that others in the ecosystem don’t have the personal brand independence to give. Referrals from those people are gold.
Your inner circle can be made up of advisors, investors, experienced founders at other companies, etc. What matters most is that you have one to turn to when faced with those inevitable, high-stakes moments where people with all kinds of incentives are pushing you in different directions, and you need cold objectivity. And as I’ve mentioned before and will repeat here: build diversity of perspectives into your inner and outer circle. The smaller the ecosystem, the harder this is to do – and often times connecting with true outsiders (geographically) can be very valuable.
Lawyer Referrals: Merit v. Kickbacks
With respect to the legal services required for a scaling tech company, a group of corporate lawyers (what we are) generally serve as the quarterbacks of a broader team of specialist lawyers; much like how an internist or general practitioner physician quarterbacks specialist doctors in treating a complex condition. For that reason, the main types of referrals that we (at MEMN) find ourselves making are to specialist lawyers – patents, trademarks, immigration, IP licensing, privacy, import/export, etc.
As I’ve written before, every law firm has built in financial incentives to “cross sell” their own lawyers. If I’m at a law firm that follows the traditional “one stop shop” full service approach, I make money if I can convince you to use our specialist lawyers. It’s called “origination credit.” If you use another firm’s lawyers, perhaps because they have more domain expertise for my type of technology (often the case for patent lawyers in particular), I get nothing. Given this fact, it should not shock you at all when your BigLaw corporate lawyer always refers work to his in-house specialists, without suggesting more appropriate alternatives.
A network of specialized, focused boutiques and solo lawyers should, at a structural level, have a far more merit-based referral system. And it does. But even among smaller firms there are lawyers who’ve set up kickback relationships that usually aren’t disclosed to clients – and yes these are often on shaky legal ethics grounds. They’re often structured in the form of a referral fee, or % of fees resulting from the referral. While I’m not going to say definitively that these arrangements should automatically invalidate the trustworthiness of a referral, they should at a minimum give founders reason to do their own diligence on the referral before moving forward with it.
It never hurts to ask a referring lawyer: “is there a referral fee arrangement in place here?” If it’s some kind of startup program (accelerator, incubator, etc.) making the referral, I would ask “is the lawyer/firm you’re referring me to sponsoring your program?” ‘Sponsorships’ often mean the firm is, effectively, paying for referrals. This is actually becoming a mechanism by which large firms entrench themselves, through accelerators.
Again, I’m not going to criticize lawyers who monetize their legal connections. I understand the reason behind it. But with that being said, MEMN’s specialist network does not have any built in kickback arrangements. When I tell a client “you should use X lawyer because she’s the right person, and at the right billing rate, for the task” I value being able to say it with total objectivity. Back to the point made earlier in the post, make your money by becoming awesome at what you do, not by trying to cut shady side deals that taint your trustworthiness.
Financially motivated referrals work great in a lot of product and service vendor-oriented marketplaces, but in the world of top-tier advisors – where trust is your most valuable asset – they should, in my opinion, be avoided. One of the largest benefits of properly functioning ecosystems is how transparent they are compared to large, top-down organizations. That transparency means meritocracy, if enough people with backbones are able to resist the urge to “cut a deal.”