My First Business Lawsuit Changed the Way I Looked at Entrepreneurship

There are certain milestones in business that you expect to remember forever. Your first customer, your first big contract, the first time you hire an employee, and the first year you realize the company you started might actually become successful are all moments that tend to stay with you.

Then there are the milestones nobody puts on the entrepreneurial bucket list.

I remember my first lawsuit.

When I started my first company, being sued wasn't something I spent much time thinking about. My attention was where you would expect it to be. I was trying to find customers, generate revenue, manage expenses, build a reputation, and figure out how to turn an idea into a sustainable company. Those were the risks I understood because they were right in front of me every day.

I also had a fairly simple view of legal problems at the time. I assumed lawsuits happened primarily when someone had done something wrong. If I ran an ethical company, treated customers and employees fairly, honored our agreements, and delivered what we promised, I believed we could largely avoid that world.

My first lawsuit changed that assumption.

What I discovered is something I wish more entrepreneurs understood before they experience it themselves: being sued and being wrong are not the same thing.

Someone can believe you harmed them even when you believe you acted appropriately. Two people can interpret the same agreement differently. A business relationship that seemed perfectly healthy can deteriorate. A customer can remember a conversation differently months later. An employee can leave with an entirely different perception of events than the employer has.

Once a disagreement crosses into the legal system, however, it takes on a life of its own. It no longer matters that you have customers to serve, employees who need your attention, proposals waiting to be completed, or a company that still has to operate. Deadlines have to be met, documents have to be located, conversations have to be reconstructed, and questions have to be answered. Suddenly, something that had nothing to do with your plans for growing the company has earned a place near the top of your priority list.

That was one of the first things my first lawsuit taught me. The financial cost of a legal dispute is only part of the expense. The other cost is the amount of your attention it can consume.

As entrepreneurs, we tend to think of our resources in terms of money, people, equipment, technology, and perhaps inventory. We don't always think about management attention as a limited resource, but it is. When you own the company, there are only so many hours in the day when you can think clearly about strategy, solve problems, work with employees, respond to customers, and make decisions. A lawsuit can suddenly begin competing for those same hours.

It can also become very personal.

That surprised me. A corporation may be a separate legal entity, but when you built the company, signed the contracts, hired the people, and put your own reputation behind the business, it doesn't necessarily feel separate when someone challenges it. You can tell yourself that it is simply a business matter, but it can be difficult not to replay conversations in your head and wonder whether you could have handled something differently.

Over time, I learned that this emotional response is understandable, but it isn't particularly useful. A legal dispute requires facts, records, contracts, emails, documentation, and good professional advice. Anger doesn't strengthen your position. Neither does indignation. And spending days telling yourself that the other party is wrong doesn't move the matter toward resolution.

That realization changed some of my business practices permanently.

I Started Looking at Documentation Differently

Before experiencing a serious dispute, documentation can feel like unnecessary administrative work. When a relationship is going well, you don't expect to need an email confirming what everyone agreed to during a meeting. When a customer is happy, you don't imagine needing proof of what was delivered. When an employee is performing well, you don't necessarily think about documenting conversations that might become important years later.

A lawsuit changes the way you look at all of that.

You begin to understand why attorneys are always asking for documents. Memories are imperfect, particularly when months or years have passed. Two honest people can walk away from the same conversation with very different recollections of what was said. Add money, disappointment, anger, or the possibility of litigation, and those differences can become even greater.

A written agreement doesn't eliminate every disagreement, but it gives everyone a common starting point.

I became much more deliberate about putting important business matters in writing, maintaining records, saving correspondence, and making sure agreements actually reflected what the parties intended. I also became less comfortable with the phrase, "We don't need to put that in writing. We trust each other."

Trust and documentation are not opposites.

In fact, good documentation can protect a good relationship because it prevents people from having to rely on memory when circumstances change.

Success Creates Risks You Don't Have When You're Small

Another lesson became clearer as my companies grew. A business with a handful of customers and no employees has a relatively small number of relationships that can create conflict. As that business expands, the number of relationships expands with it.

More customers mean more customer interactions. More employees mean more employment decisions. More vendors mean more contracts. More revenue means larger transactions. More marketing creates greater visibility. More intellectual property creates something worth protecting. More success can even make a company more interesting to competitors or people looking for an opportunity.

None of that is an argument against growth. I have spent much of my career building and advising growing companies. But growth changes the risk profile of a business, and owners need to recognize that reality.

I used to think about growth primarily in terms of whether the organization could support more sales. Did we have enough employees? Could our systems handle the volume? Did we have sufficient cash? Could operations keep up?

Eventually I added another question: What new risks are we creating as we grow?

That question is just as important.

Being Right Is Not a Business Strategy

Perhaps one of the hardest lessons for entrepreneurs is discovering that being right does not necessarily mean a problem will disappear quickly.

You can have documentation supporting your position and still have to defend it. You can believe a claim has no merit and still have to pay an attorney to respond. You can eventually prevail and still lose something along the way in legal fees, management time, lost sleep, or opportunities you weren't able to pursue because your attention was somewhere else.

That is why I became much more interested in prevention than winning arguments.

Sometimes a better contract prevents the disagreement. Sometimes better communication catches a misunderstanding before it escalates. Sometimes insurance transfers a risk the company shouldn't be carrying itself. Sometimes asking an attorney to review an agreement before signing it is far less expensive than asking an attorney to interpret it after a relationship has fallen apart.

There is no way to eliminate every legal risk from owning a business, nor should fear of litigation prevent an entrepreneur from making decisions. Business requires risk. The objective is to understand which risks you're taking rather than discovering them after something has gone wrong.

What I Would Tell a Business Owner Today

After decades of entrepreneurship, I would encourage business owners to pay particular attention to a few things:

• Put significant agreements in writing, even when you trust the other party.
• Keep good records and establish a sensible document-retention process.
• Have important contracts reviewed before you sign them, not after a dispute begins.
• Understand what your insurance actually covers and where the gaps are.
• Protect your company's intellectual property before there is a problem.
• Document important customer and employee matters consistently.
• Build relationships with qualified legal and financial professionals before you urgently need them.

None of these practices are particularly exciting. They won't generate the enthusiasm of a new marketing campaign or the satisfaction of closing a large sale. You probably won't post a picture on social media celebrating the day your attorney reviewed your contracts.

But that isn't the point.

The point is to give the company you are building a better chance of surviving the events you cannot predict.

My First Lawsuit Changed More Than My View of Lawyers

Looking back, my first lawsuit wasn't simply a legal experience. It was part of my education as a business owner.

It taught me that entrepreneurship has two very different sides. One side is about creating opportunity. We build products, find customers, hire people, pursue growth, enter new markets, and take calculated risks because we believe we can create something valuable.

The other side is about protecting what we've created.

I didn't understand the importance of that second responsibility when I started my first company. Like many entrepreneurs, I was so focused on building the business that I wasn't spending enough time thinking about what could threaten it once it became successful.

Experience changed that.

Today, when I look at a company, I don't simply look at its revenue, marketing, profitability, or growth potential. I also want to know where it is vulnerable. I want to know what would happen if a major customer disputed a transaction, a key employee left, a partner relationship deteriorated, a competitor challenged its intellectual property, or a legal notice arrived tomorrow morning.

Those aren't particularly comfortable questions, but good business strategy isn't limited to asking comfortable questions.

My first lawsuit taught me that a successful business owner has to learn to do both: build the company and protect the company.

I wish someone had explained that to me before I learned it firsthand.

Written by Darlene M. Ziebell