Nivi · June 12th, 2008
I learned a lot from a recent twitter by Andrew Chen:
“Other people teach you the rules of the game. Venture Hacks teaches you how to play it.”
First, I learned that lawyers are referees, not coaches.
Second, I learned that advisors are the coaches of the startup game.
Lawyers teach you the rules of the game. But they usually can’t teach you how to play it.
Lawyers say whether you can do something, within the confines of the law and your existing contracts. Lawyers will also write the contracts and do the filings. But they usually can’t tell you what to do—that’s what coaches do.
Here’s a classic startup mistake that illuminates the difference between a coach and a referee:
You’re negotiating an investment and you’ve agreed to a board with 2 investors, 2 common, and 1 independent.
You’re almost ready to sign the term sheet when your prospective investors say, “Sorry, we forgot, one of the common board seats needs to be the CEO.”
You’re thinking, “I’m the CEO and I was going to elect myself to the board anyway, so that’s fine.” Your lawyer agrees and says, “That’s standard.”
This is a mistake. If you hire a new CEO and he’s aligned with the investors, the investors will gain control of the board. Instead, you should create a new board seat for a new CEO.
A lawyer knows that you’re not breaking any laws or contracts if you give a common board seat to a new CEO. He also knows how to write the contract. But an advisor knows the possible outcomes of that decision.
Third, startups without advisors often assume their lawyers have good business advice. That’s a mistake. You need a coach, not a referee, to teach you how to play the game. And most referees aren’t good coaches (but some are).
Fourth, not every coach is a Phil Jackson. Not every coach has won 9 NBA titles as a coach. The effectiveness of coaches in the NBA varies widely. Why would the effectiveness of advisors be any different? Is your advisor a Phil Jackson?
Fifth, there’s more than one way to play the game. Phil Jackson doesn’t have a monopoly on coaching. And neither do we. Go find a coach who can teach you how to play the game. There’s only one Phil Jackson in the NBA because basketball is a zero-sum game. Fortunately, there’s more than one great startup advisor in the world—life is not a zero-sum game.