INBOUND 2016: Sharon Toerek "The Five Legal Mistakes Your Agency is Making in New Business"

Thank you. While you guys are up and you're here Friday morning after two and a half very long days. Thank you for that. I appreciate it. We are going to talk about legal mistakes your agency is making, a new business, and how to fix or avoid them. So I really. And I'm hopeful that today's session is going to be very interactive because I'm here as much to learn from you as I think you are to learn from me. Every time I come to one of these and talk to agency folks, I come away with new ideas, new information. There we go. So here's sort of the lay of the land today, the mistakes that after almost 15 years of working with agencies, now almost exclusively in my law practice nationwide, that I see you all making in new business situations. I pitched this idea to HubSpot for a presentation because agency client relationships are the number one reason my phone rings every day in my practice. My practice is pretty diverse for agencies. Intellectual property protection, social media compliance, lots of other things agencies deal with all the time. But contracts and how to deal with clients before you sign a contract are the top things that I get asked about all the time. So I'm happy to share some of my observations about the patterns that I see. We'll talk about again, solutions to fix or avoid the mistakes, hopefully before they occur or how to fix them in your business processes. And then we'll talk a little bit about process you can put in place in your agency to make the whole thing go more smoothly, to make you more confident, and to make this feel less like a friction point within your agencies. I know you didn't go into the agency business to deal with legal, to have to think about legal. You're about helping your clients create great business results. And you're here at this conference to learn more about how to do that and how to grow your agencies as well. So this should be additive to that. It shouldn't be a detractor. And that's my perspective. So mistake number one, you aren't protecting your agency's intellectual property when you either pitch new business or create a proposal. If Blair's here in the front row, he hates pitching, but everybody does it at some stage or another in agency life or you're writing proposals on a regular basis. I come through just about everything I do in my practice for agencies through a lens of intellectual property because that's how I was raised in the law. I trademarked copyright and intellectual property lawyer by training before I started working with marketers. And so I pretty much see everything you do through intellectual property lenses and I think it's your most significant asset after the human capital that's in your agency's day to day. So protecting it is really critical. You're not doing it in new business situations on a regular basis. I'm going to get internal groans if you're not going to actually be verbal about them. I know you're thinking right now, I can't believe she put get a non disclosure agreement up there. We hate non disclosure agreements. We don't want to ask clients for non disclosure agreements. We think it sets the discussion off on the wrong foot. It sets a bad tone. We're laid back. I'm going to ask you to sort of suspend that and get over it for a couple minutes while we talk about this. Most of you are working with brands that are sophisticated enough first of all to not be offended if you approach them as long as you do it correctly with the idea of signing a mutual non disclosure agreement. Secondly, most of them are sophisticated enough to have one in their drawer that they are not shy about pushing across the desk at you before you get too busy talking about details of the engagement. And it's typically not going to be drafted in the spirit of mutuality or in your favor. So I'm going to ask you to just pause for a second and be a little bit more broad minded about the whole concept of getting or asking for a non disclosure agreement with a prospective client. Some of you won't do it anyway and that's okay. We'll talk about some other tactics you can use. Take a positive approach to this and again ask the client to consider it in the spirit of mutuality. I also think even if you more times than not are not going to ask the client to sign the non disclosure agreement, have having one at the ready helps you be prepared for what to look for if and when the client asks you to sign one that they've created. It's going to help you issue spot better. It's going to help you push back if you need to on protecting your own intellectual property during the new business phase of the conversation. And it's going to make you and your team members just a little bit more sophisticated in the eyes of the client. Anyway, I know you already are sophisticated, but they'll perceive you a little bit differently in my experience. And actually I have an agency yet to tell me that they've asked a prospective client to sign an NDA and lost a piece of business because of it or had a client walk away offended because of it. I'm not saying it never happens. I'm saying it's more rare than you think. So be broader minded about using the non disclosure as part of your new business process. And don't have a don't ask default mindset within your agencies. Keep an open mind about it. Expect your team to too. And if you decide not to ask for one, that's okay as long as you're making the decision with open eyes. And if that's your decision, there's some other tactics I want you to think about in the new business phase of the relationship. Fix this problem in your proposal documents. There are ways you can use language in written proposals and concept assets that are protective of your intellectual property rights without seeming too forward on the issue. If you're uncomfortable staking your claim in the ground, included an IP ownership clause in your actual proposal or your pitch documents. If you pitch, you can put legends on the actual physical assets you use. If you are using any in your new business development work and make this part of your business process. And it feels a little less uncomfortable. And it also feels somewhat organic. I find that when a client, a prospective client, receives a pitch document from you, a proposal document, they see a legend in there that this is our IP and unless we engage with one another, it's ours to take and do what we want to. Now, if your pitch materials have any of the client's proprietary information in them, obviously that's theirs. And they've got some skin in the game too in terms of what you can do with those documents. But use these documents as part of your IP protection strategy pre engagement with the client. I like to say the simple copyright notice is your friend. This only works to the extent you're using physical manifestations of your work during the new business phase of the relationship, that means you're actually putting together storyboards, sample concept pieces. I hope you're not doing speculative work anymore, but if you are on those spec assets, anything you create that you can touch look at see your copyright notice is your friend. Okay, seems simple, but it added to any of these other measures. Definitely creates a line in the sand about how you protect your intellectual property and how you expect a prospective client to look at it as well. Tips for using copyright to your benefit Here again, ideas are not protectable. If you're just having a conversation, you're just spitballing with the prospect. That's all fair game. The copyright laws in the United States and most of the Western world are not going to protect those things. And if the client doesn't engage with you and executes those internally or hires your competitor to execute them, you're out of luck. So to the extent you can put what your ideation is in some form of writing, even very preliminary. I just sat last night during the concert next to a team of in house marketers from non US country. Really great conversation about a lot of things. But I was describing my presentation today and this young man used to work in an agency and now is an in house marketer. And when I told him the focus of the talk, he said we've done that as a brand. We've taken ideas that an agency has shared with us during a new business pitch and we've implemented them internally without hiring them. It happens all the time. If you want to hedge against that, be a little bit more careful about how you disclose what you're going to disclose. You have to disclose ideation to get the business right. You've got to show them your chops, what you can do. Just be smart about it. Number two, you accept the client's contract without adequate review or challenge. Too often, guys, you are, especially if you're working with enterprise sized organizations or if it's a really big enticing piece of business, they push the bible sized document across the desk at you and okay, or worse, you're working with procurement and they are playing the this is our form card and we don't really ever change it for any of our vendors. And the form is just as easily usable for someone selling software or widgets as it is for what you do. I think you have more leverage than you think you do. And I find that most agencies don't spend enough time reviewing the document in the first place. If the deal is important enough to your agency to invest the amount of time I know you've invested in the new business process, it's important enough to perform a careful legal review. If you've looked at enough contracts yourself in your career, then you review it. If you're not comfortable doing it, have a resource available to look at it for you because it's very easy to miss stuff, especially in these enterprise sized boilerplate, full and rich contracts. So perform an adequate review. Read the document thoroughly first of all, and I know that sounds basic, but you'd be shocked at how often it doesn't happen. Here's some bad terms I want you to watch out for when the client pushes its template across the table to you. Right? First of all, it's most likely going to say I love the cameras. You guys are going to all get this deck and access to it. But feel free to take as many photos as you like. Get my good side. Okay, so with respect to intellectual property rights, the client's template is going to say, I promise you that the rights belong to them as soon as you created whatever it is that you created for them. That's bad for a reason that I'll get into in a second. You need to watch out for payment terms that are ridiculously long. And most of you are good about pushing back on this or payment terms that don't kick in until after the client approves the invoice and They've got a 30 day approval or review process before they actually push it through to accounting and then it's 16 more days after that. You know, during the recession, I have agency clients who are staring down 120 day payment terms plus a review period that puts agencies out of business. Sometimes you can't afford the loss of cash flow that those kinds of terms create for you. So you not only have to look at the terms, but whether there are any conditions that have to occur before the terms kick in in the first place. They don't include language about the approval process for things like external costs, legal reviews, additional work, or out of scope work that's required. There's not adequate language there about what the client's responsibility is going to be in those areas. So you need to look for that. And there's also frequently likely to be really unreasonable liability provisions in those documents. Not only are you going to indemnify the client for everything in their view, but you're also on the hook for things that are completely not within your control, such as content information, legal reviews that are on their shoulders to do and don't get performed. So these are terms you want to watch out for in any contract template that's presented to you by your prospective client. Okay, benchmark. The reason to have your own client contract templates, even if you're not going to use them in a particular engagement, is so that you know what to look for to benchmark against what's in your agency's contract. What are your standard terms? Where are the gaps? What's the delta between your standard terms and what the client is asking you to do? Again, it's okay to bargain some of that stuff away if you're doing it with open eyes and it's your business decision. I just don't want you to do it by default or for lack of adequate audit or review. Number three, you start the process all over again with every new deal, with every new client. I can't tell you how many times I get these calls. Sally used to work at ABC Agency and she's got a pretty good client template that she took when she worked there and she brought it here and then we just punched it up with a few things and then we handed it over to Bob and he put some stuff in it and thing is a mess, it's a train wreck. So you need, if you want to use someone else's template as an example, that's great. My perspective is that your process needs to be consistent and we'll talk a little bit about process from the perspective of what the documents are and look like and who's running it within your agency. So I think change is overrated in this area. I think having a consistent set of legal terms and conditions that is your sort of default for dealing with client business is important. It helps avoid mistakes, it makes the process faster, it costs you less money in legal fees and reviews. And it also makes you smarter over the long haul about negotiating and about what to look for when the client presents a contract to you. So the documents every agency needs in its arsenal, as far as I'm concerned, you need again an actual non disclosure agreement. You may not use it every time. I hope you try to at least most of the time, but you need to have one in your toolkit. You need a master service agreement. And a master service agreement is important to have particularly for those engagements that are going to be longer in term, larger in scope or for bigger dollar assignments. You might choose either because of your culture or because you work on smaller projects, to want a shorter form of the legal language that you use. This is fine. I think in addition to having an msa, you ought to have a standard short form term of legal terms and conditions that you incorporate into your sows, into your proposals. I had someone come up to me yesterday, an agency owner and say, we don't believe in contracts. We never signed a contract with a client. And I said, oh really? I said well so how do you, you know, how do you work with them? And he said, well we have a, we have a statement of work. I don't care what you call it. A statement of work is a contract. It says what you're going to do, it says what they're going to pay you to do, it says what your responsibility is with it. Call it whatever you want. Just have a set of legal terms and conditions either in a standalone service agreement or that you can include and incorporate by reference into your other business documents that the client's going to sign. I'd also consider standardizing to the extent you can. Most of you are HubSpot agencies, so you kind of see a lot of the same types of projects and deals over time. So consider standardizing your proposals, your sows, your change orders, your client approval forms. If you're by any chance also doing media, your media insertion orders have all this stuff in your toolkit. And just like you shouldn't be deviating from your employee handbook if you have one, and I hope you do, you shouldn't be deviating as a rule from these new business documents. And your team should understand that. That's the rules of the road. Process Part two, In addition to the documents, centralize the process from a human perspective. If you've got an operations officer, if you're large enough to have somebody handling finance or operations, that might be the right person to use. If you're small, it might be you, or you might want to outsource it to your legal advisor. But one person, one department in the agency should really be monitoring handling your client contracts. I see too many agencies putting this on the shoulders of the AES who are working on a bunch of things at one time. They're holding the client's hand for the business they already have. They're trying to deal with contracts for new clients. You need to centralize this process that ensures that your deals are going to be more consistent from client to client and ensures the documents are going to be at hand and easy to use. Excuse me? Easy to use. And it saves you time, saves you money, and it annoys the clients a lot less, too, in my experience. If the agency again is going to sign the client's contract, this person, whoever it is, or this department should be the one doing the benchmarking against your standard terms and conditions. Okay, I mentioned now look at everything through IP colored glasses. I can't help it. I think again, it's your most significant asset. You're giving it away too frequently. You're giving too much of it away, or you're not giving it away at the right time. And I'll tell you what I mean by that. Timing is everything when it comes to your intellectual property rights. There's a reason why the client contract template says they own your IP from the minute it's created. They want that leverage even if they haven't paid you. Your contract should never say that. No money, no IP transfer. It's that simple. You're going to get the rights client, we're happy for you to have them. We need to be paid first. And when we're paid, that's when the transfer kicks in. Okay, no money, no IP transfer. There are going to be some rights that you're never going to want to give to the client. If you want to retain the rights to your portfolio use of assets you create for a client, that's an intellectual property right. And you need to carve it out in your contract. If you've got unexecuted ideas or concepts, particularly if you work in a vertical. I see this all the time. You know, they didn't like that idea, but we still think it's really solid. We want to maybe pitch it to another client in the same industry or a client in another geography that does what they do. That's an IP right. You need to keep the rights, those unexecuted ideas or concepts, rejected ideas or concepts, you should be carving those out in your contract, not transferring them to the client automatically. I'm going to put a pin in this for a second and say there are times when the parties will agree that for a set fee or a bump in compensation that your ideation will belong to the client. I'm fine with that as long as you're doing it with open eyes and it's your business decision to make and you're not doing it unintentionally or unknowingly. Okay, pre existing intellectual property, some of you have proprietary processes, proprietary industry knowledge content. You own your own software code, whatever it might be. You need to retain and carve out in your agreement those pre existing intellectual property assets and make sure they're not included in the transfer because again, the client's template will not distinguish between them. In my experience, your contracts have payment provisions and liability provisions that are too weak to protect you. That's mistake number five that I see on a regular basis. What do I mean by that? The more options and rules around payment, or lack thereof, which is more critical to most of you, the more options you have later. Okay, and what do I mean by that? If you want the ability to charge your client interest for late payments, if you want the ability to recover collection fees, attorney's costs if you're not paid in a prompt manner or the relationship goes sour, if you want the ability to charge late fees or rush fees, those things have got to be in writing in your contract. You will not be able to recover any of this stuff, any state in the U.S. if you're a U.S. agency, if you don't have it in writing in your agreements. So if you want this flexibility, if this is important to you, you got to make sure it's written in your contracts. And I see too many times where a client will come to me and they've got a payment problem and it's going to cost them money to enforce that payment problem. And they're never going to be made for that. So I see an omission of this too frequently in client agreements with my agency. Folks, liability limits. The client's template is going to make you liable for everything. We talked about this a little bit earlier. Here's some things you want to make sure you include in your agreement and you again, look for in theirs. Clear client approval language and clearance for legal rights in work. If you need branding clearance done. If you are working on a social campaign and you need review done of the ads or the posts or the campaigns before they go live, you need to put that on the client. And that needs to be clearly expressed in writing in the agreement. Okay? Again, don't accept liability for work or information or lack thereof that the client is supposed to give to you. That needs to be on them and that should be clearly accepted expressed in your agreement as well. Insurance insurance types of insurance limits, policy limits of insurance. I've seen the tiniest shops who are clients of mine get contract templates from clients that have EO limits of $5 million, $7 million. It's crazy. You need to be very careful and sometimes this is a negotiation point. If you're working for a client in a highly regul. I'm going to tell you, you have less flexibility here. If you're working for a government entity, you probably have less flexibility here. But you need to pay attention and make sure that your coverage limits match what you're committing to in the contract. I've also seen agency clients sign contracts before, I reviewed them that don't match up to their coverage. So they're not even in compliance and they've said that they are. So you need to look at not only the policy limits, but what types of coverage the client asking you to provide. Is it just general liability? Is it general liability and errors and omissions? Sometimes it's not only those two things, but it's automobile coverage, workers compensation coverage. Take a look at that. Look at the size of the engagement and make a business decision about what's reasonable for you. Okay. And where you need to negotiate the limits. Down some tactics strategies for you in this area in terms of liability limitation. If something bad happens is limit. Consider limiting your liability to your insurance policy limits or to the amount of compensation you've been paid by the client for the engagement. So I'm going to pause for questions in a second. The slides will be available for you. In addition, if you go to agencylegalprotection.com there's a downloadable checklist and one part of it is what to make sure is in your contracts. The other side of it is what to look for when the client presents a contract to your agency. So dual sided checklist. It's free. I hope you'll take advantage of it and download it. Guys have been a great audience. Thank you so much. I'll hang around for questions afterwards.