As Halloween approaches, we wanted to address one of the scarier parts of running a business: ensuring you have adequate legal protection for yourself and your business. In part 6 of our 7-part series on Growing a Profitable Jewelry Business, we’re enlisting Shapeways’ own IP and General Counsel, Michael Weinberg, to help. We had a Q & A, during which we talked through the legal considerations involved with transitioning from B2C to B2B, contracts, conflict resolution, and finding legal counsel for your business. Below, you’ll find an abbreviated transcript of our conversation.
Ross: For a lot of small business owners, the transition from business-to-consumer to business-to-business can be a really daunting task with a lot of uncertainty. From a legal perspective, what are some of the core considerations you would suggest to a small business owner who’s making that transition?
Michael: The biggest thing to remember when you’re switching from B2C to B2B is that all of a sudden, you’re going from selling small numbers of things to many people to having one or a couple large transactions. That means that documentation and thinking through everything that’s involved with the transaction is more important. Because you have one transaction, you want to make sure you get it right. If something goes wrong, there’s a lot of money on the line, there’s potentially a lot of merchandise on the line, and so, it’s worth pausing and taking the time to think through the details.
The most important part of that is the contract you have. Whereas you probably did not have a contract with every customer that you were selling things to, you probably do want to think about having a contract with every company you’re selling to. At the front end, it really helps you make sure that you and that company are on the same page. At the back end, if something goes wrong, you can go back to that beginning and say, ‘no, no, we agreed on this at the beginning, we agreed on this before we were fighting, we decided this is the way it was going to work, and so, this is what we need to do.’
Especially as you’re dealing with a larger company, where you’re talking to a couple different people or a whole [legal] apparatus on their side, you want to make sure you’re prepared.
Ross: On the topic of contracts, what are some of the key items to be aware of when writing your own contract for another business or when accepting a contract from another business? For example, what types of things do you need to make sure are actually in writing?
Michael: When you’re thinking about a contract, you really need to consider what’s written down. You can have all sorts of conversations, you can all have all sorts of assurances that this or that is going to happen, but if it is important, make sure that it’s written down.
If the person you’re working with recognizes that something is important but is not willing to write it down, that’s a giant red flag. If you think you have a deal that you’ve worked out with someone and they’re not willing to write it down, that means you probably don’t really have that deal.
Make sure to write down the obvious items like prices and quantities, make sure you know what the timetable is, when you need to deliver these things, what happens when they get sold, what the payment schedule is, and what happens if they don’t get sold.
A big part of the contract is agreeing in advance what happens if things go wrong. You’re often in this moment where you’re thinking you have this great opportunity and it’s going to be fantastic; but sometimes, there’s value to stepping back and and thinking a little bit like a lawyer. Say to yourself, ‘what are the two or three ways that this could go wrong?’ and make sure that you have something which addresses those situations written in the contract. If that thing happens, it’s really easy to show we agreed about this in advance, this is how it’s going to work, and we can already work through it. The core advice really is that if something is really important, if you’ve even talked about it or discussed it, make sure it’s written down.
If you get to a point where that contract needs to be challenged, e.g., I assert you aren’t paying me or you assert I’m not delivering what you need to be delivered, it’s the written words on that contract that are going to be most important. That’s going to be what’s really looked at and what’s gonna be the core of a legal challenge. Even in a pre-legal challenge, that contract is what people are going to be using.
Ross: What happens in the situation that those things are not actually executed? For example within the small business world, particularly within jewelry and and other types of fashion transactions, larger companies often have a reputation of preying on smaller companies by simply not paying.
For example, a common business practice is to arrange payment with payment terms of net 30, 60, 90, etc. If that payment doesn’t actually happen at the end of that period, what do you do?
Michael: You have this contract with all these terms you’ve worked out and all of a sudden, one of them is violated. It can be really frustrating. The ultimate remedy is to bring the other person to court and say, ‘we agreed on this contract, you’re violating the term, I’m gonna sue you.’ Basically, when you sue someone in that situation, you’re suing so that they make you whole again — they fix whatever they failed to do. While this is the ultimate threat, it’s important to remember that that’s a threat and an inconvenience for everyone involved.
While sometimes it might take going all the way to court, sometimes it may just take discussing and saying, ‘you’re in violation of the terms of this contract. We can go to court if we have to, but it’ll be faster and cheaper to just resolve this and figure out a way to make it work.’ Going to your partner and saying, ‘we have a contract, these are the terms, you’re in violation, I need you to fix this’ is a really important first step. If they refuse to fix it at that point, then you need to start thinking about being more serious about bringing them to court. Sometimes it’ll be small claims court because that’s how much money is involved, sometimes it can be a higher level.
You have to remember, though, that at every step of the way, there’s an opportunity to work it out and avoid going through the entire legal system. Especially if you’re dealing with a big company, it also costs them a lot of money to go to court. You shouldn’t frivolously threaten people with lawsuits; but, if you really have a claim and they’ve really violated the contract, telling them that you’re going to bring them to court and sending them the initial documents creates an opportunity for that other company to say, ‘whether or not we think they were right or wrong, maybe it’s cheaper to just settle this.’
The takeaway is that it’s not a binary thing: it’s not everything is fine, or we’re in a year of litigation. If things go wrong, we may have to go to court, but let’s work things out so we don’t have to go that far.
Ross: Are there any other preemptive protections that small businesses should be thinking about as they’re preparing these contracts or preparing to engage with other businesses?
Michael: First and foremost is getting everything in writing, but the other thing to remember is that you’re part of a community. If you’re working with or thinking about working with someone, there may be someone else in your community who’s had that experience already. Ask around about whether that company pays on time or is always late, and figure out what you can learn before you get involved. Understanding a company’s reputation in your community is really important.
On the flip side, if you are having problems with that company and you don’t want to go to court, one of the solutions is making sure that other people in your community understand that you’re having problems. That reputation is important to the community and if they are really failing to meet their expectations with you, you should share that with people.
Ross: The last question I have for you today is regarding legal counsel itself. When is it actually appropriate for a business to seek out legal counsel and what are some of the ways that a small business owner could go about finding an appropriate legal counsel to represent them?
Michael: Seeking legal counsel if you don’t already have it is a big step, primarily because of the associated costs. It’s possible that if you bring a lawsuit and win, you can get damages that cover your costs. If nothing else, though, it’s going to cost you some money upfront. It’s not something that you should do lightly; however, if it affects an important part of your business, it’s something that you should consider.
There are a couple ways to find lawyers who can help you. If there’s a trade association or another group of people who are in your industry, they’ll probably be able to refer you to lawyers that people in your group have worked with before. You can also call up your local Bar Association for referral lists.
Very often, if you get connected with a lawyer, you’ll be able to talk to them first and outline the situation. Before they start charging you money, they should be able to evaluate what’s happening and give you an honest answer as to what your chances are of winning and what it will really cost to do it.
Another option is legal clinics. If you’re in a business, you should look around at law schools that are in your area, because they may have low cost or pro bono help where law students and attorneys who supervise them can walk you through straightforward transactions or disputes.
Contact us if you have any questions on growing your jewelry business
or have a bulk order that you’d like to scope out.
About the authors:
Ross Keong is a Strategic Sales Manager specializing in growth development for B2B users in the industries of jewelry, fashion, art, and design.
Virginia Gordon is the US Jewelry Community Manager, helping designers build a successful jewelry business using Shapeways and 3D printing