The Hidden Cost of ‘We’ll Fix It Later’ in Early Contracts

Mark Zuckerberg famously urged startups to “move fast and break things.” For most startups, action and traction are the name of the game. VC funding often depends on having paying customers using a company’s products. This bias toward motion often means not letting little things get in the way of building a business.

While understandable in principle, this mindset often lets important things get overlooked. I have seen many a startup sign terms presented by a business partner on the assumption that time is money and the agreement will never get litigated anyway. This often comes back to bite later. Contracts are not just about what happens when something goes wrong; they govern the entire business relationship.

In addition, fixing it later is often not a realistic option. Sure, it is possible to present new terms when a contract is up for renewal or when the startup gains some bargaining power. The existing contract, itself becomes leverage for the counterparty. They can use it to extract payments or force renewal—assuming your startup is even entitled to terminate under the existing agreement.

A bad initial contract can also impede a company’s growth. If the counterparty isn’t required to use reasonable or best endeavours to market your product or protect user data, users may end up having a worse experience through no fault of your own. This can slow uptake and make your business less attractive to potential investors.

A few terms—or a lack thereof—can age particularly badly:

1. Undefined IP ownership. Intellectual property is often treated as a ‘term for the lawyers,’ which many startups don’t even have on staff. Many early agreements are thus silent on who owns what and who can use it in what contexts. This can have massive implications later, often in fundraising, acquisition diligence, or disputes.
2. Open-ended exclusivity. Exclusivity is often given away early as a way of sweetening deals. After all, many startups have very little money and giving away exclusive rights seems like a low-cost way to bring partners on board and gain traction. Exclusivity can become a minefield, particularly when scope, duration, or performance benchmarks are unclear.
3. Vague Termination Rights. Termination is an awkward conversation at the best of times. No one wants to discuss potential dissolution of a still-blossoming partnership. This is particularly true for foundational partnerships being negotiated by co-founders rather than emissaries. Thus, many early-stage agreements are silent on termination, have one-sided rights, or require cause to get out of the contract. Post-termination obligations—such as return or destruction of materials—are often missing as well.

Suboptimal agreements are difficult to fix later. Once a lawyer is able to review the terms, the partnership has often already fizzled. Even if the partnership is good, a company may be locked in an exclusive relationship that impedes its growth or forced into awkward conversations about IP ownership. In a worst-case scenario, a startup may be facing litigation that threatens the viability of their future business.

So, what can be done? A few key steps can be taken:

1. Review Carefully. While involving a lawyer is recommended, a simple cursory review often surfaces major risk factors. If you run a Control + F and find the word exclusivity, you know closer attention to risk may be needed. Ditto if the “Termination” clause only allows your counterpart to terminate.
2. Use One’s Own Template. If your company has a template for a similar type of contract, it is almost always best to insist on using it. Even heavily redlined versions by skilled lawyers often retain the framing of the original draft. Using your template ensures that the items you care about are covered and gives you greater bargaining leverage.
3. Involve a Lawyer. While one doesn’t need legal counsel to review every single NDA (see our previous post), strategic agreements benefit immensely from early legal review. A good lawyer can help to surface risk factors, restructure clauses, and put you on better negotiation footing.
4. Know When to Walk Away. If a partner insists on oppressive terms and exit would be difficult, consider other partners. Chances are, there are many other companies out there with similar offerings and lower risk factors.

In conclusion, don’t let the desire to move quickly get in the way of your long-term leverage. Contracts are not merely something you consult when something goes wrong—they govern the entire business relationship. Having a strong contract that protects your company’s assets and maximizes leverage can be crucial to getting the most out of a partnership. This in turn can help a business gain traction for more sustainable long-term growth.

While one shouldn’t let the perfect be the enemy of the good, neither should haste excuse avoidable sloppiness. Early contracts should be survivable.

Disclaimer: This blog is for informational purposes only and does not constitute legal advice. Reading or interacting with this content does not create an attorney–client relationship. You should consult a qualified attorney for advice regarding your specific situation. Mehaffy, PLLC disclaims all liability for actions taken or not taken based on this blog.