What is Facebook?

I’ve gotten a little play lately for saying, “Linkedin is your resume; Twitter is your personality.” (Borges, Marketing 2.0: Bridging the Gap between Seller and Buyer through Social Media Marketing, 2009.)

Now I’m being asked, in so many words, “OK bub, you think you’re so full of pith and vinegar… Let’s have a metaphor for Facebook, and make it apt.”

Alright, here goes. Facebook is your life as a cocktail party. And everyone’s coming. Everyone.

Remember how your peeps used to be stratified into groups based on how and when you met them? You had your high school friends, your college friends, your Summer-in-Europe friends, your early 30’s friends. You had your theatre district friends and your techno-geek friends. You had your pre- and post-marriage friends. You had your client friends and your co-worker friends. You had your Saturday night friends, and you had your Sunday morning friends. And throughout, you had your relatively constant family relationships.

Sometimes these groups intermingled; but considerably more often, natural boundaries sprang up between them. Without any subterfuge or orchestration on your part, but merely by the necessary myopia of a life being led through the fullness of time, your stock of friends was multidimensional, and those dimensions rarely overlapped.

Not anymore. Not on Facebook. On Facebook, the gang’s all here. On Facebook, the multidimensional web of your life has collapsed into a big, fat, unlayered melting pot. It’s a 24-hour cocktail party, and everyone you’ve ever known is there. All your clients are there, and all their friends. Your most untethered party-hound is hanging out with your most conservative customer. Your borderline-psychotic ex is chatting up your boss. Your mom is telling your secretary about the longevity of your thumb-sucking.

It’s your party. Welcome! How are you going to entertain all these folks? To whose standards is your behavior going to conform? Is there any part of your life that will escape examination by these folks? How much scrutiny can you tolerate?

They’re here; get used to it.

My advice: party on.

A New Theory of Business: From Idea to Happy

For 15 years or so I have been pursuing an agenda dubbed “ideas2money,” a slightly tongue-in-cheek abstraction of the premise that all business is about monetizing good ideas, in turn premised on the relatively venerable notion that the sole role of any business is maximizing profit and, thus, shareholder wealth.

After observing progressive companies such as Zappos (and, to some extent, Google), however, I propose a new theory of business = ideas2happy, whereby profits are maximized in any business whose primary goal is to maximize customer happiness.

According to Zappos CEO Tony Hsieh, dogged focus on customer happiness, increases shareholder happiness, and, ultimately, human happiness. Which, after all the analytics and short term profits and key performance metrics, is really the point. Isn’t it?

Stay tuned.

Three Reasons Why It’s the Dawn of the Entrepreneurial Age

Three Reasons Why It’s the Dawn of the Entrepreneurial Age.

Opening Keynote, TechVenture2009 Conference, 16 Nov 2009, Tampa

Some moments matter more than others.

Humanity is at an inflexion point in history that makes this moment the Entrepreneur’s moment. When the history of this time is written, they will call it the true dawn of the Entrepreneurial Age. If entrepreneurship is where technology and business come together, then historians will call this the time when technology and business truly got down to… business. They will point to the dot com boom of the late 90’s as a trifling flirtation between technology and business, a momentary dalliance, an awkward first date. Exciting at first, and full of extraordinary promises, full of exuberant irrationality, with both sides boasting about how good it’s all going to be when they got home. (Maybe even suggesting an ever so titillating little fantasy about inviting Hollywood into the ménage…)

But then, when push came to shove at the end of the night, there seemed to be a lot of uncoordinated fumbling between technology and business. Like with many first dates, the desire and interest were there, but it turned out that neither technology nor business had any long term game. The great paroxysm of mutual adoration just sort of petered out, and, next morning, after a cordial goodbye, technology and business, each head-achy and cotton mouthed, took a brisk walk of shame back to their neutral corners. The boom ended, the bubble burst.

Technology and business sort of went their separate ways for a while, and entrepreneurship hummed along as a quiet, background process.

But now, a decade later, technology and business are flirting again. They’re a little older, a little wiser, a little more deliberate, and prepared to take their time and get it right.

And so I say it is this time – not just this epoch, but this very year, in fact, this 4th quarter of 2009 – that will be hailed as the true dawn of the entrepreneurial age. There are 3 reasons for this: 1. the true internet age, which enables modern entrepreneurship, has arrived; 2. the financial crisis has elevated entrepreneurship to godlike status; and 3. the culture of free/sharing/crowd-source/open-source is maturing.

1. The internet age is really here.

Are facebook friends with one of your own parents? Have you recently explained to another person how to tweet? Did you know that, as of 2007, half the people on Earth have a cell phone? We are now all connected all the time – in a new and completely unprecedented way – and that changes everything. I have written previously on the implications of this.

2. The financial crisis has focused a great deal of expectation on entrepreneurship.

In the throes of the deep financial crisis from which we’re only now beginning to recover, a great deal of attention has been focused on entrepreneurship as the bright light that will guide us back to our prior economic greatness.

Can entrepreneurship save the economy?

Entrepreneurship is miraculous, there can be no doubt.

As you know, if you’ve been following along, it just totally blows my mind that the hydrogen atoms in the water that makes up 70% of my body were created in the big bang’s very fires of creation some 14 billions years ago, and the carbon in my cells was created inside an exploding star some 5 billion years ago along with everything else in the periodic table of the elements, and all this stuff just floated around in space for a while until the carbon and the hydrogen and a bunch of the rest of it managed to smash together in orbit around the sun and then they turned into rocks and oceans and bacteria and Australopithecus and you and me and skyscrapers and iPhones. I mean, the universe made some stuff that turned into the slime on a hot rock in space, which, after eons of reproductive success, turned into you and me and our inventions. More particularly I’m amazed at the capability of the 5-pound hunk of jelly in each of our heads, the most complex machines in the universe as far as we know, in which electrochemical potentials race around constantly dreaming up new ideas or just dreaming about old ones (more often than not, dreaming about past or future instances of the aforementioned reproductive success), and that we, the soapy film on a watery planet circling a standard-issue star, that we can sit here and dream stuff up and then make our dreams manifest in the real world… that we, little bits of the universe, little highly organized matrices of smoke from the stellar furnace… that we can have ideas and dreams and we can look at the world every day and we can say “I can make it better.”

Well, it seems to me that the universe is veritably programmed for entrepreneurship and that entrepreneurship may in some sense be the very purpose and meaning of life, the very reason we exist, and so yes, yes, taking that cosmic mandate into account, yes, I do think that entrepreneurship is up to the task of saving this country’s economy.

Why has the financial crisis brought so much expectation to bear on entrepreneurship? Because when the old ideas are obviously, inescapably broken, the need for some new ones becomes easier to swallow.
For the first time in modern history, the conservative business practice is to embrace the new and the different. The financial crisis has taught us that our reliable institutions of yesterday are fallible, and every once in a while we need some fresh new ideas about how to run things.

This is unnatural for us. Embracing the new is not easy for us. We come from schools of fish and herds of animals and bands of monkeys for whom sameness is a survival trait and standing out from the crowd can get you eaten. We instinctively dislike change.

When Robert Fulton went down to the Hudson River in 1807 and said, “I propose to propel a boat up and down the river using naught but the power of steam,” they laughed at him and called his boat Fulton’s Folly. “It’ll never work,” they said. Newspaper editorials were written deriding the project. “Why do we need steam engines?” they said. “Sails and oars work perfectly fine.”

And of course, Fulton was right, and everyone else in the world was wrong.

Everyone who’s ever said, “It’ll never work,” has, for the most part, been wrong. Nevertheless, every innovation comes with a small contingent of persistent naysayers standing around taking pot shots at it. It’s as though our fear of change forces us to insist blindly on the impossibility of change.

Do those cries of “it’ll never work” sound familiar to you?

The conventional wisdom nowadays is that the Chinese can take our jobs, and they can manufacture our stuff, but that’s OK because the Chinese can only copy, they cannot innovate. Chinese innovation will never work.

On October 28, 2009, Techcrunch reported the story of Song Li, proprietor of a company called Zhenhai, which is a Chinese version of match.com. Now, Zhenhai did start off as a knock-off of match.com, but Song Li didn’t just adopt the match.com model wholesale. You see, romantic matchmaking has been a cottage industry in China for thousands of years, and it has survived to modern times. So zhenhai is free to use and free to search. If you find someone you want to date, however, you call one of Zhenhai’s matchmakers and you pay the company for the matchmaker’s services. This unique twist represents an innovative ushering of ancient tradition into the modern world.

O-M-G! The Chinese are innovating.

At around 1.5 billion people, the Chinese population outnumbers ours in the U.S. by four or five times. Say what you will about their rigid governmental controls and their tendency to copy our stuff, anyone who thinks that someone in a crowd of a billion and a half people isn’t going to cultivate a good idea once in a while is ignoring basic statistics.

3. It is the Dawn of the Culture of Sharing

What we’ve realized now that we’re all connected is that we like to share stuff. Especially music. But also ideas and recipes and political philosophies and stories… heartwarming stories of personal triumph and desperately agonizing stories of tragedy and hardship… and, of course, videos of dogs on skateboards and cats playing the piano.

We’re good at sharing. We’ve been sharing since we invented the campfire.

But we’re a bit schizophrenic about sharing when you come to think of it. We force sharing down our kids’ throats. When one of our children refuses to share a toy, what do we say, especially if the other child’s parents are nearby? We tell our child they need to learn to share and we force them to give up their toy!

But we don’t exactly enforce those sharing rules on ourselves in adulthood do we?

“Honey! Bob from across the street won’t let me drive his new Lamborghini.”

About some things we become proprietary. We have trouble assigning a value to things that are incapable of ownership. But with the crowdsourcing movement, these lines are blurring.

Wikipedia is probably the single most prominent example of the enormous value wrought by a culture of sharing. With millions of contributors, Wikipedia is pretty much the definitive source of all knowledge on the planet. Wikipedia is only one example of how a culture of sharing and crowdsourcing can create extremely high value. What the open source culture of sharing demonstrates is that people will contribute their time and energy and resources to an effort without getting paid, just because it makes the world a better place.

At some level, the open source culture of sharing is based on the proposition that the rising tide raises all of our boats. We’re all in this together. More sharing means more ideas in circulation. And that means more entrepreneurship.

So for these 3 reasons (the internet age is here, the world is holding its breath for entrepreneurship to succeed, and the burgeoning culture of sharing is in full swing) we’re at a special moment in history.

What does this mean for Tampa Bay as we strive to meet George Gordon’s challenge of becoming a top ten technology hub within the next five or six years?

A community has no will but for the will of the people who live there, no direction but for the sum total of the individual directions of its citizens. A community has no goal, attains no goal, that is not set and achieved by the people in that community.

Advice for an Aspiring Tech Hub

If you want entrepreneurship for Tampa Bay – if you want to see this great romance between technology and business blossom into a full-on marriage living in a McMansion in Palma Ceia and sending their kids to Academy of the Holy Names – if you want entrepreneurship to live strong in Tampa Bay, you personally must take action.

Don’t assume no prophets come from Nazareth. Don’t assume the guy next door can’t be the next Steve Jobs.

The founders of next hot global startup could very well be sitting in this room.

Encourage the entrepreneurs in your life. Celebrate their crazy ideas. When you hear yourself thinking, “It’ll never work,” take heed: for every single great, world changing idea, there has a coterie of weak-minded folks claiming the effort was doomed and would never work. In every instance, those people have been dead wrong.

Criticism is good. Skepticism is healthy. But blind pessimism and thoughtless anti-meliorism are just annoying.

Don’t be dissuaded by failure. It’s an artifact of the creative process and if you’re doing entrepreneurship right, failure is mandatory. Fail early, fail often. When you see your friendly neighborhood entrepreneur experiencing a momentary failure, or a spectacular failure, pat them on the back and remind them that they’re smarter now than they were.

Paul Graham, entrepreneur and founder of Y Combinator, says to be like Silicon Valley a city needs two things: nerds and money. (Technology, meet business.)

We’ve got a bunch of both here in Tampa.

Let’s hook them up. Let’s get the nerds some money.

Take a deep breath and recognize that entrepreneurship requires a deep cultural acceptance of new ideas. So naturally the hotbeds of entrepreneurship in this country tend to lean ever so slightly to the left of center. Conservatives tend to underestimate the power of a new idea. The most successful entrepreneurs come from the blue states.

Mahatma Ghandi, when faced with the rigid perspective of his orthodox rivals, said, “First they ignore us, then they laugh at us, then they fight us, then we win.”

Is it time to re-think the legality of non-compete agreements? The state of California has the 8th largest economy in the world, and I don’t know if you know this, but non-compete agreements are unenforceable in California. There are probably a lot of reasons for the colossal success of the technology venture sector in Silicon Valley, but I wonder if one of them might be a lack of restraint on the ability of smart, competent people to change jobs at will and go work for – or start – competing companies.

Try not to try to own everything. Try not to keep all the goodies for yourself. The culture of sharing is alive and well in Silicon Valley. In my experience, when you meet with a Silicon Valley investor and they’re not interested in working with you for whatever reason, the first thing they do is name three or four people from their personal network with whom you should meet, and sometimes they make the calls for you.

No one in Silicon Valley tries to own you. They’re proud to share you.

Also in my experience, there are some investors here in Tampa Bay who refuse to look at any venture opportunity that has already been shopped. If they’re not first in line, they’re not interested. Behavior like that will not help us become more entrepreneurially friendly. It will cause is to choke on our own frail egos.

Remember that we’re all in this together; what’s good for one of us is probably good for all of us.

I’m not suggesting we should abdicate capitalism, for God’s sake. I mean, if entrepreneurship is about anything it’s about making all the money in the world and sticking it in your ears and telling the rest of the world to go suck it.

I believe it should be the mandate of every organization in this region – every technology group, every entrepreneurship group, every chamber of commerce, every economic development organization, indeed every person or entity who wants Tampa Bay to become a more fertile garden for entrepreneurship – it should be their mandate to purposefully reach out to every other similarly situated organization in this region and ask, “How can we work together? How do our agendas dovetail? How can we help you? What are we doing that you’d like to be a part of?”

I would like to commend the Tampa Bay Technology Forum, in fact, and its outreach committee, whose charter is just that: outreach – connection – mutual help.

With just a little bit of outreach, and a willingness to stop hoarding ownership of our own particular puny plot in the sand, but with a slightly broader, more enlightened perspective, we can come together as a community, as the village that is rumored to be required in the raising of a child… and we can raise ourselves some startup companies.

There are some folks who did not want this event to happen. They are rumored to have encouraged their constituents not to participate in this event as a guest or sponsor. These are folks who apparently feel as though they are entitled to exclusive enjoyment of the venture community ‘round hyar.

To those who would attempt to thwart well-meaning efforts like this one, I say shame on you. Not only are you acting like a big fat bully. You are not being true to your core values.

If you truly care about Florida’s venture-backed sector, if you truly want to see the cultivation of more entrepreneurship in Tampa Bay, then when an event meant to celebrate entrepreneurship pops up on your radar screen, your only response, your only ethically and morally and intellectually consistent response, is to stand up and say, “Congratulations, how can we help?”

And if you don’t do that, if you don’t extend a hand in support, if you don’t at least stand there and applaud… if you instead elect to attempt to maintain the status quo and affirmatively try to quash the hot new upstart… if you complain about limited resources to go around, in a veritable echo of all those wrongheaded pessimists throughout history who’ve said “it can’t be done – it will never work,” then how seriously can the rest of us be expected to take your professed endorsement of entrepreneurship, really?

Because entrepreneurship is here to stay, and the shows aren’t going to stop, and the conferences and the breakfasts and the after-5’s aren’t going to stop, whether produced by David Glass or the next hot producer, and I look forward to the day when I can go see ten business plan presentations every week, every day here in Tampa Bay, and there’s event after event after event… and entrepreneurship blossoms.

And remember, to those who would attempt to forestall any so-called “competing” activities out of some shameful, intellectually weak, misguided, hubris-laden effort to control that which by its very nature cannot be controlled, I say again…

First they ignore us, then they laugh at us, then they fight us, then we win.

Thank you.

Why Get Patents?

Why should I bother with patents? Don’t they take forever to be awarded? Doesn’t copyright last longer? (And aren’t patents evil?)

The conservative (as in conservation of value – I’m not using it in the political sense) business practice is to patent wherever possible and use copyright registration or trade secret protection as simultaneous regimes alongside patents to protect assets.

The protection afforded by a patent is substantially broader than other forms of IP protection, inasmuch as copyright only protects against direct copying of particular fixed expressions with at least some measure of intent on the part of the copyist and trade secret law only protects against actual misappropriation or theft of information. Patents, on the other hand, protect against even innocent duplication of underlying inventions or methods and their equivalents. Thus, patents can constitute a much stronger arsenal to ward off competition. On the other, other hand, trade secrets and copyrights can last much, much longer than patents, which expire after 20 years. A comprehensive IP strategy, then, should employ artful use of all forms of IP.

Patents have lately become a thriving form of currency in commercial markets and now comprise a significant component of every innovative enterprise’s ability to manage competition. An entire subculture of intellectual property “investment banks,” speculators, traders, “trolls,” auction houses, and market makers has arisen to give rise to a vibrant cottage industry in the buying and selling of patents. Underlying the value of this market is a shared appreciation for the fact that patents generate licensing revenues when asserted against competitors and potential infringers, who often agree to pay royalties as a much cheaper and more predictable alternative than the exorbitant expense of patent litigation. And of course, when litigated against competitors who refuse a license, patents can ultimately result in large damage awards and court orders that forfend competition.

This, in turn, means that more patent applications are being filed every year as market players attempt to establish competitive positions in what they imagine to be the important technologies of the future. It also leads directly to more issued patents being asserted more aggressively than ever against market participants in practically every sector and with respect to practically every technology.

That puts a lot of pressure on innovating companies to participate in the patent arena. Aggressive attention to patents is wise, if not mandatory, from a defensive perspective to forestall the threat of lawsuits by other intellectual property market participants. Lack of attention to this increasingly important market dynamic gives rise to the risk that the company will have no patents to use defensively to get a seat at the negotiating table when the company becomes the subject of third party patent assertion.

To fight fire with fire, first, you’ll need some fire.

Whether you agree with the law or the philosophy of patenting as currently enforced and practiced, if your company is advancing the state of the art in any meaningful way, you may wish to consider filing some patent applications.

Why register a trademark?

Why should I spend all this money on registering a trademark? Isn’t my domain name enough?

Short answer: because it’s cool to own stuff.

Long answer:

Your brand tells your customers where your products (and services) come from. In the minds of your customers, your brand is you. Artful brand selection fortifies market recognition. Pick a forgettable brand and risk obscurity.

Wise companies select brands that are distinctive and not easily confused with the existing brands of competitors. Stronger brands tend to be those that are arbitrary or fanciful as compared to the goods or services they identify (e.g., Apple computers). Weaker brands tend to be those that are descriptive of the goods and services they identify (e.g., Apple orchards). The purpose of a brand and, consequently, the purpose of trademark protection, is to avoid consumer confusion as to the source of goods and services. So being unique helps.

Trademark rights flow from actual use of the brand in commerce. One obtains common law trademark rights merely by using the brand to identify goods and services in the marketplace when advertising or offering the product or service for sale. Common law trademark rights only extend geographically to the local region in which the holder has actual sales or significant market contacts or activity.

So if you don’t register your trademark, you can still sue folks who might confuse your customers with a similar mark, but only in places where you actually have customers.

With a federal trademark registration, however, you’ll enjoy exclusive rights to the brand across the entire United States. Registration gives constructive notice throughout the United States that you have enforceable rights in the registered mark. Finally, you can file your federal registration with US Customs to prevent importation of infringing goods.

Corporate name reservation with the secretary of state is important to secure the name of your company in a ministerial sense with your state regulators. Domain name registration is important to obtain access to a meaningful and recognizable web address. But neither of these activities ensures that you own your brand name. To own a brand as strongly as possible, a federal trademark registration is preferred.

Obtaining federal trademark registration constitutes a stronger form of ownership than reliance upon common law. Trademark registration illustrates to investors, customers, and competitors that you take a serious view of asset protection and also of your company’s position in the marketplace.

Finally, you can’t sell what you don’t own. If you wish to maintain a high apparent value to investors and acquirers, consider registering your brand as a trademark.

Why Use Website Terms of Service Agreements?

Why put a Terms of Service agreement on your website?

Look, everything’s got a little legal legend to it, ok? You see them everywhere. The masthead of a magazine, the fine print on an advertisement, even the coffee cups at McDonald’s. Everything just seems to go better when emblazoned with a bunch of juicy legal notices. Right?

Must be over 18. No purchase necessary. Void where prohibited.

Maybe it’s just me.

Admittedly, very few people ever read the Terms of Service on websites — it took over a month or so after Facebook changed its TOS earlier this year for anyone to notice. But that’s because they’re needlessly buried; they are truly the “fine print” of the web experience. This is a shame. Experiencing a website should be transparent and obvious, not fraught with surprises hidden in legal minutiae.

The reason you see TOS agreements on every website is because they really can reduce legal risks. They are the cloves of garlic that can ward off the vampires of frivolous lawsuits that could otherwise suck the life out of innocent, well-meaning, web-based companies.

Your website TOS agreement notifies your users of what they can expect when using your site. Including a TOS agreement on your site is an opportunity to get a few things out in the open so you can’t be accused later of hiding the ball.

In any case, whether or not your users actually read your TOS agreement, it’s probably still enforceable as a legal contract.

Make it a good one.

Startup Legal FAQ 12 – Why Own IP?

What’s the big deal with owning all this IP? Isn’t there more to my company than just my IP?

Yes, there is a bit more to your company than its Intellectual Property. But, on average, not much more. So it’s important to keep good records about the IP you have.

Here is one of a bunch of good reasons why it’s useful for a startup to care about owning IP: If your company becomes the subject of serious interest by investors and acquirers, two of the basic questions their lawyers are going to ask as a part of their due diligence investigation are, “Do you own IP rights in your core offerings and can you prove you own those IP rights?”

If you cannot demonstrate to their satisfaction that ownership in your IP has been fully transferred to your company, then they are going to report to their client (your buyer) that your assets suffer from title defects.

Cue scary halloween pipe organ music, say, Bach’s toccata and fugue in d-minor…

Buyers and investors do not like title defects. Title defects give buyers and investors nightmares. Nightmares about dirty, stinking, little cockroaches crawling out of the woodwork saying, “That thing you just bought for several million dollars? Guess what? Once…long ago…I helped build it. But I never signed a work-for-hire agreement, so guess what? I still own it! Howdy, partner!”

And then the cockroach eats the buyer’s palpitating little heart out.

Needless to say, a report of title defects in your intellectual property is likely to result in a reduction of the price your buyers and investors are willing to pay. IP title defects and can sometimes kill the deal altogether.

So, again, be sure you own the stuff your company’s built on. Consider conducting a thorough IP audit. In anticipation of your eventual exit, be obsessive about securing and proving clean title to all IP assets.

Startup FAQ 11. What’s the Difference Between a Work-for-Hire and an Assignment Agreement?

Ein minuten, bitte. Aren’t you forgetting something back there? If my company doesn’t get a work-for-hire agreement, why can’t we just get an assignment agreement later?”

As assignment is good, but not as good as a work-for-hire. A proper work-for-hire is a permanent vesting of copyright ownership in the buyer. But if there is no work-for-hire agreement, even if a full assignment of ownership is eventually executed by the developer giving your company exclusive rights in perpetuity, that copyright assignment will always be inalienably revocable by the developer after 35 years.

The inalienable right to terminate a copyright assignment is intended to level the playing field for “starving artists,” who, early in their careers, are perceived to be at risk of exploitation by corporate buyers with superior bargaining power. It gives the starving artist another bite at his former apple during, it is presumed, the acendancy of his celebrity.

A current case is discussed here.

In the technology business, 35 years might seem like way too long a time to care about. But is it?

In just a few years from now, the earliest versions of lots of PC-based software –- from which much software in current use is derived -– will hit 35 years old. Imagine for a moment the fee a former outside contractor could command by wielding the inalienable right to revoke from major software houses the earlier copyright assignment in the code on which their current offerings are based.

Failure to appreciate the importance of intellectual property in a transactional context, based perhaps on a perceived rush to get a project into development prior to the negotiation and execution of a competent work-for-hire agreement, can substantially imperil the value of your company’s intellectual property and, thus, your company itself.

Startup Legal FAQ 10. – Why Use Independent Contractor Agreements?

I suppose I need an independent contractor agreement too?

Yes. Yes you do.

Ideally, you need one that uses the magic words “works made for hire.”

Ownership of intellectual property is counterintuitive. Mere payment for deliverables does not necessarily secure clean title from independent contractors. Under US copyright law, in order to be deemed to be “works made for hire” wherein the company obtains complete ownership from the developer, a written agreement literally reciting the phrase “works made for hire” must be executed by the developer prior to the developer’s creation of the deliverables.

If no such agreement is executed in time, the materials created by the developer for your company may not, and may never be, completely owned by your company. Without a written work-for-hire agreement, the strongest form of ownership your company might enjoy is an implied, nonexclusive license to use the materials in the manner theretofore discussed by you and the developer… whatever the record may reflect that to have been.

Failure to secure your outside developers’ signatures on a competent work-for-hire agreement gives rise to a major defect in your ability to secure clean title to the assets that they develop. The lack of a work-for-hire agreement means that your company is not the copyright holder in the deliverables and that the developer always will be.

Startup FAQ 8-9: Why use employment agreements?

Why do I need employment agreements? Can’t I trust my own employees?


Of course you should hire people you can trust. You may even enjoy a personal bond with your employees and treat them like friends and family. But the employment relationship is fundamentally a business deal. And business deals should be governed by written agreements.

Without a written agreement that says so, you might not be able to:
• own intellectual property rights in the employee’s work product;
• avoid paying unbargained-for benefits or wages;
• fire the employee when you want to; or
• prevent the employee from competing with you after they leave.

Again, written contracts bring clarity and predictability to business relationships. What kind of friend would be offended by that?

I’ve got a salesperson who’s working on commission. I don’t need to use an employment agreement with him do I?

Yes. Yes, you do. Perhaps especially with him. One point of contention in any sales commission relationship is the time at which the commission is earned? At signing? At closing? At payment? A contract can answer these questions.

If you do not pay your employees properly, they can sue you for back wages and benefits, and can often force you to pay their attorneys’ fees on the case! The only way to reduce this risk is to get the terms of the employment relationship in writing before the employee begins work, whatever those terms may be.