Three questions startup CEOs should ask before filing lawsuits
Your startup has a contract with a giant corporation.
At some point, they decide they don’t want to honor it.
You–rightfully–want to sue for breach of contract and call your lawyer!
Should you?
Here’s my view from both practicing law and working with founders.
This scenario plays out at startups all the time and it’s often when founders realize legal docs have no intrinsic value — they’re just words on a page. You can’t throw a piece of paper in someone’s face to get them to pay or stop them from infringing on a patent.
For legal documents to have teeth you need to spend time, money, and attention.
You have to retain counsel, prepare reams of relevant information, and dedicate sweat and effort to protect your interests. Before you commit to this path, ask three questions:
💰 Is this worth the cost?
Good lawyers aren’t cheap. Simple lawsuits can cost six figures. IP litigation can easily cost millions of dollars. You need to be sure the opportunity cost is worth it given the stage of your organization and your objectives.
Even if you’ve truly been wronged you need to be a good steward of your limited capital and make tough decisions.
- Is the lawsuit worth more than hiring another engineer?
- Will the ROI in this case be greater or less than investing this same money in customer acquisition?
Beyond the dollar cost, you need to consider how you want to spend your time and energy.
- Do you really want to spend a day a week working with lawyers on this case, instead of recruiting?
- Can you handle the added stress of a lawsuit at this moment?
📈 What signal does this send to the market?
Beyond the merits of the case, you need to consider the optics. VCs might be concerned if founders appear overly focused on litigation before the product is fully developed or while there are big gaps on the team.
Future customers might be loath to work with a startup that appears litigious towards its customers. You might have an airtight case and be well-intentioned, but if the market perceives it otherwise you will pay the price.
🏆 What do I get if I win?
Big companies have the means to extend lawsuits indefinitely and the know-how to minimize damages they pay even if they lose. Small companies or individuals might not be able to pay, even if you win.
Do you want to get paid, or just make a point?
There are times when litigation may be worth it. Seeking an injunction to stop a competitor from infringing on your IP may not result in a financial payout, but it can help achieve valuable strategic goals. But you need to be clear-eyed about your goals from the start.
This is not to say legal protections are unimportant — in fact, they’re often critical! But if you take one thing from this thread, I hope it’s that legal docs are just “words on a page.” The law is a powerful tool — but it’s not a panacea. Pick your battles wisely!
