Most fast-growing startups get by for long periods of time before hiring their first in-house lawyer. It’s not that startups don’t have important legal work that needs to get done. But in the early stages of growth, it almost always makes sense to outsource all legal work. It’s a matter of allocation of scarce resources, and most early-stage startups can get by with outside counsel alone.
So when is the right time to hire an in-house lawyer? There’s both an art and a science to the decision. Let’s dig in and consider some of the key factors.
Is there enough legal work to keep a full-time lawyer busy?
It may seem like your startup is dealing with a lot of legal work, but carefully consider whether it’s enough work (30 to 40 hours a week) to keep a full-time lawyer busy. And even if there is that much work at the moment, determine whether it’s driven by an atypical circumstance (e.g., litigation) that is leading to a big but temporary outside counsel spend.
It’s better to hire your first in-house lawyer when it hurts a bit — when you start to feel stretched thin — rather than too early in your business’ lifecycle.
It’s better to hire your first in-house lawyer when it hurts a bit — when you start to feel stretched thin — rather than too early in your business’ lifecycle. Unlike with some other roles that may need filling, you can find highly competent outside lawyers to bridge the gap as you grow into needing full-time support. But don’t wait too long – legal issues can impact an organization’s efficiency, with the burden being felt most acutely by the founder and key executives.
As a general rule of thumb, plan to hire when your outside legal fees reach approximately two times the amount it will cost to employ a good in-house lawyer, who should be able to take on quite a bit of the work currently being outsourced and more effectively manage outside legal support.
When evaluating your current legal spend, you should consider whether your company has been under-investing in legal issues such as contracts, intellectual property and employment policies. There may be more legal work than you think — it’s just being deferred, and an in-house lawyer will have to clean things up.