Avoid These Mistakes and Make Legal a Profit Center

A conversation with Legal & Creative founder Sharon Toerek. 

A lot of digital agencies treat lawyers like firefighters that they only call when the building is in flames. 

It’s a reactive approach, and there are lots of reasons agencies take it, says Sharon Toerek, intellectual property lawyer and founder of Legal and Creative. 

Whether it’s because they think it will save them money to keep attorneys at arms’ length or because they only work with larger clients who provide their own service agreements, Sharon argues that’s a mistake.

Instead, legal services should be looked at as a profit center: not just a way to manage risk, but also a way to signal your worth to potential clients, monetize your intellectual property, and stay on the right side of regulations. 

That strategy will end up growing your bank account and, ultimately, shrinking your lawyers fees. 

Here’s what I learned from Sharon about the most common mistakes digital agencies make when handling contracts, and how they can use their attorneys to help capitalize on untapped potential. 

Use Contracts to Level the Playing Field

Small and mid-sized agencies generally don’t have in-house counsel. They don't necessarily love proactively investing dollars and time to minimize risk. That means they end up having to throw money at fires once they occur, which tends to cost a lot more dollars and time than anticipated. 

Some agency owners will tell Sharon, “I don’t believe in contracts.” They think that if the client is unhappy and wants to go their own way, no problem. They worry that requiring extra paperwork will make them look uptight or that adding any friction to the relationship might get in the way of closing a deal. 

To those owners, Sharon points out: If you have a signed document with the client – whether you call it an estimate, a proposal or a birthday party – it’s a contract. There’s no reason why you can’t let that document work for you as an agency. Agencies have more leverage than they think, when it comes to legal. “Enter into those transactions on your terms,” Sharon says. 

What about agencies that work with larger enterprise-sized brands or government agencies, who think there’s no reason to have their own version of a contract? To them, Sharon says, “At least understand your baselines if you’re going to sign the client’s version of a contract.” But even better: “Get to the table first with your own master service agreement.” 

Just because a company has in-house legal, you won’t necessarily end up signing the paper that the client creates. First of all, Sharon says, “if you get your MSA to them faster than they get theirs to you, that helps them understand that you know your worth and that you know how to negotiate the points that matter to you as an agency.”

“Second of all, if the deal is structured well enough or if it's small enough, even a big client might sign your agreement,” she says. “And that's a beautiful thing.” 

But even if those two things are not the case, “having your own MSA becomes your internal punch list for when you're negotiating the distance between what their agreement says and what your baseline is on specific terms and conditions.” 

Even if you do end up signing the client’s agreement, at least have someone vet it. It's good to have someone on your side, protecting your interests. By going through the process, you know what you're getting yourself into, and you know where to push back. Even as a micro-agency, you're positioning yourself as an entity that understands their worth. 

“The client certainly thinks through what ROI they’re expecting on their relationship with you,” she says. “Show them that you are giving it the same care and consideration on your end of the transaction.” 

The Most Common Mistakes Agencies Make in Their Contracts

Sharon’s reviews a lot of agency contracts, so I asked her about the most common mistakes. 

There are several, she says, but they stem from a common cause: wanting to close a deal quickly. 

For example, she explains, “agencies tend to be reluctant to talk about confidentiality and non-disclosure in the business development phase of their conversations with potential clients. They're reluctant to ask for a mutual non-disclosure agreement. They think it makes them hard to do business with or seem like they're not laid back or cool enough to work with. 

Meanwhile, she adds, “most of them are signing the nondisclosure agreement that the client has shoved across the table, which only protects one party and not both of them.” 

Sharon recommends agencies put their stake in the ground about how they value what they’re bringing to the table during the business development phase. “Because most agencies discuss strategy, present ideation, sample concepts or campaign ideas, or even do spec work.” 

“It's fine to make that business decision,” Sharon says, “But if you're not protecting the agency in terms of ownership of those strategies that you're popping into a written proposal, or those concepts that you're sharing during a pitch meeting, then don't be surprised at the outcome when the prospective client either decides to execute that internally or another agency wins because you're competing against somebody who offers to do it cheaper.” 

What about mistakes in the actual contract itself? Sharon sees: 

• A reluctance to trigger the transfer of owning the rights to the work upon getting payments. Everybody's always quick to say the client will own the work product, usually at the end of the day, but the agencies are not always careful enough about saying you don't own anything until we’ve been paid for it. 

• Requests for exclusivity in categories. The double-edged sword of being a specialist agency is that you end up being really effective and very sought out, either for a particular skill or in a particular client vertical, and so they want you all to themselves or at least they don't want you working for their competitors. 

• Fair competition covenants. Talent is tight in the agency industry. Agencies need to think about protecting themselves in the client agreements with appropriate non-solicitation language so that they're not embedding somebody with the client whom the client loves so much that they end up saying, "Hey, come work for us. You have all our institutional knowledge, so we won't need the agency anymore." 

The way you solve these issues, Sharon explains, is not black and white. You need to know what your goal is, and having a legal advisor enables you to customize your strategy accordingly.

Don’t Leave Money on the Floor: Protect Your IP 

Another upside to putting legal motors in place proactively? It opens the door to potential revenue streams you didn’t even know you had. 

Working with digital agencies, I’ve personally seen clients say, “We're just this little shop, we don't have intellectual property that could be considered an asset to us.” Or: “We just do work for hire. Everything belongs to the client.” 

“I cry foul on that,” Sharon says. 

It starts by understanding what your client avatar might need or find value in, and looking at patterns of problems that you’ve solved for clients in the past. You might be able to automate that or help clients DIY it, so you can create varied, more affordable access points – rather than losing a sale.

But really, the underlying obstacle for agencies is that they tend to avoid this kind of exercise. “An agency is a problem solver,” Sharon says. “They've got a lot of internal knowledge, if they learn how to productize it and turn it into additional revenue streams. We've seen it over and over again.” 

Agencies can create:

• virtual events sold for a per-seat license fee

• training Modules or DIY, on-demand courses

• an original, licensable content library

• individual proprietary research in a particular industry 

So many agencies don’t invest enough time or energy into protecting the intellectual property that can become passive revenue streams down the road. “It's amazing to me how little time they're willing to invest sometimes in doing that,” Sharon says, “because you're just leaving money on the floor if you don't think about that strategically.

Treat Your Counsel like Your Other Professional Advisors – as a Part of Your Team

The more I talked with Sharon, the more I understood her recommendation that agencies meet with their counsel regularly and have a relationship with them, like with their accountants and operations people – people who understand the industry, the trends in their discipline, and how they make money. “The people,” Sharon says, “who help you make money by either reducing risk or taking advantage of opportunities to generate revenue that you might not have thought of.” 

“Legal is a profit center in your agency,” she says, “or it should be. Think of it that way, and you will ultimately spend less on legal.”

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