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What are the recommended types of insurance my tech startup will need?

What are the vital/recommended types of insurance my tech startup will need?

1. Workers Compensation: Fairly straight forward here. This is mandated by the state if you have employees. Get it or get fined. Workers Comp provides disability payments to employees that are hurt on the job. Some states (NY and CA are a couple) will also mandate that your company purchase State Mandated Short Term Disability Insurance as well. Like Workers Comp, if you don’t get it you can be fined, so get that too if you are in an applicable state.
2. General Liability/Property/BOP: Comprehensive General Liability is foundational coverage for your business. It covers aspects such as ‘slip and fall’ incidences, product liability, damage to rented premises and advertising and personal injury. A company can tie in both General Liability and Business Property into the same policy by getting a Business Owners Policy or BOP. For startups, a BOP will cover more ground at a lower price by tying together multiple coverages on one policy. It covers a lot of ground and the basic risks for your business.
3. Technology Errors and Omissions: This is the one that is really going to count. Tech E&O is the coverage that is going to cover your company in the event that your services fail. E&O covers risks that stem from the services provided by your company. If that service is technology related, most of the risk associated with your company is going to be covered by this component.
4. Cyber/Privacy: This used to get overlooked as not worth the money some years back, not anymore. Cyber/Privacy’s major purpose is to cover a security breach in your company’s systems that results in the loss/theft of sensitive client data. This is especially important if you work in the financial or medical space where the information you have custody of is personally identifiable data such as medical records, SSN’s or financial data such as banking account or credit card info. Cyber/Privacy will typically be tied to a Tech E&O policy. You will need this, make sure you have it.

Next Level Stuff:

1. Directors and Officers: This goes a little next level for a startup but it should be on your radar screen. D&O covers your management team against risks that stem from leadership decisions and the management of the company. For a tech startup, a couple of the more common triggers is a VC round or a prerequisite by a potential board member. Claims that stem from these types of risks have been on the rise and without it your company leadership (including founders) are potentially exposed to litigation with no coverage to back you up.
2. Employer Practices Liability Insurance (EPLI): EPLI Insurance (Employer Practices Liability Insurance), provides coverage against claims stemming from employees and former employees allegations of Discrimination, Harassment, Retaliation, Wrongful Termination and Improper Workplace Conduct. This is an area where there is a lot of claims action. You read about a new high profile case every day. While startups may think this doesn’t apply, make no mistake, it does.

These are issues I talk to clients about quite a bit so here comes the shameless plug. If this is something you feel warrants some discussion feel free to reach out with a call or an e-mail. I will be happy to act as a resource for you.

Nate Therrien
Founder
Business Insurance & Investment Services of MA
9784007014 p
[email protected]
https://bibsma.com

How does Directors and Officers Insurance work?

Company officers and board of directors’ members make a flurry of decisions that have a profound impact on a company. Some of these decisions will be difficult and will have an impact on many interested parties. Put simply, not every decision is going to sit well with everyone.

If a board of directors or a company officer takes an action that harms another party, that party can turn around and sue not only the company but the directors and officers themselves. Because directors and officers can be sued personally, this can result in their personal assets being put at risk. This is where the D&O insurance comes into play. It insures directors and officers against such risks.

What if a company makes it a point to protect their directors and officers by indemnifying them in the event of a lawsuit? In this case D&O insurance indemnifies companies when they go out of pocket to cover their directors and officers. Either way, the Directors & Officers Insurance sees to it that neither a director, officer or the company itself is left holding the bag.

Directors and Officers Insurance is becoming more and more prevalent these days as a necessary protection for companies and their management. Quite often, I am asked how does Directors and Officers Insurance work? This post will give a pretty broad and detailed response.

Directors and Officers insurance protects the management of a company against an array of potential claims. If an act should occur that triggers one of these types of claims, what happens next? How does the coverage kick in? To answer this, we need to look into the different parts that make up a D&O policy. Most every policy begins with three main parts known as Side A, Side B and Side C. These components determine which part of the coverage would be responsible to pay for defense and damages in the event of a claim.

Side A D&O Coverage

Side A coverage of a directors and officers insurance policy is the component of the policy that will indemnify a director or officer for defense and damages when the company is unable to do so. This is especially important to directors and officers because a situation like this can put their personal assets at risk.

Nine times out of ten, a company will cover the costs to defend directors and officers if a claim is levied and needs to be defended. If the suit is lost, the company will typically cover the damages as well…. nine times out of ten. But what if there is a situation where the company can’t indemnify a director or officer?

A common cause of this is bankruptcy. If a company goes belly up and there is a claim against a director or officer of that company, how would that director or officer be indemnified? The answer is he or she wouldn’t unless there was insurance coverage in place. Another cause where a director or officer may not be indemnified by their company in the event of a claim would fall to regulatory rules. There are instances where laws will not allow for a company to indemnify a director or officer in the event of a particular claim. As with bankruptcy, if there is no insurance to cover the breach, a director or officer may be on their own to cover defense and damage costs.

This is where Side A coverage of a D&O policy would kick in. Since the director or officer would not be indemnified in certain scenarios, the Side A coverage steps into the gap to cover defense costs and potential damages for which a director and officer would be liable. As mentioned, in absence of such coverage, if the company is not in a position to indemnify, the officer is on the hook for defense and damages.

Side B D&O Coverage

Side B coverage of a directors and officers insurance policy is the component of the policy that will indemnify a company when such a claim arises. As mentioned, nine times out of ten a company will defend and indemnify a director or officer if a claim is filed. If a company indemnifies a director or officer once a claim is defended and damages paid, there are substantial costs associated that the company must cover. So where does that leave the company? This is where Side B of the Directors and Officers policy comes into play.

Side B does not cover directors and officers personally. Side B covers the company if the company is picking up the tab for defense and damage costs associated with a suit brought against that company’s directors and officers. Side B coverage reimburses the company in this event. This is how a company gets made whole.

Side C D&O Coverage

Side C of a directors and officers insurance policy is the part of the policy known as ‘Entity Coverage’. For publicly traded companies this policy part is specifically designed to provide coverage against securities claims. The nature of such claims deal primarily with shareholder actions against the company based on movements of the stock price.

An example of such an occurrence would be a drop in the stock price of a company due to a financial restatement. An error in reporting of financials that requires a restatement can have an immediate negative effect on the stock price of a company. Stockholders may view the company and its directors accountable and file suit. Because the nature of such actions is predicated on the drop in the value of the company stock, Part C of the D&O coverage would be applicable toward defense costs and damages the company may be liable for.

Side C coverage provides entity coverage for privately held companies as well. The primary difference between coverage for a private company versus a publicly traded one is that Side C coverage will be broader considering it is not typically contingent on a securities claim.

Claims coverage for private companies would protect against clams made by customers, vendors, competitors and regulators. Claims can also be made by shareholders of private companies. While a private company may not have publicly traded shares, that does not negate the fact that there may be private shareholder interests that directors and officers need to be concerned with.

Side D D&O coverage (sometimes)

Side D coverage, or Derivative Investigation Coverage, is a portion of the policy that covers costs associated with a shareholder derivative claims. So what is a shareholder derivative claim?

A shareholder derivative claim is a suit brought by a shareholder on behalf of the corporation against a company’s directors and officers. Such claims give the shareholders a legal means to protect a company against its own leadership. Side D coverage covers the costs associated with such actions on behalf of the directors and officers in question.

Retention

Retention is just another word for deductible. A retention amount will typically be assigned to Sides B & C and range from $10k to $50k. The choice of retention is up to the company and will affect the cost of the policy. The higher the retention, the lower the cost and vice versa. In the event of a claim, the retention becomes the company’s responsibility after which the insurance kicks in.

In most cases, Side A coverage will have a $0 retention. The rationale behind this is that Side A is the part of the coverage that covers directors and officers personally when a company does not provide cover. Because of the personal cost nature of Side A, a large retention such as $50k becomes untenable. Hence, Side A coverage is typically first dollar coverage (or $0 deductible).

So here comes the obligatory pitch. If this is something you’d like to talk about in a little more detail, feel free to reach out. I’d be happy to act as a resource.

Nate Therrien
Founder
Business Insurance & Investment Services of MA
9784007014 p
[email protected]

https://bibsma.com

Directors and Officers coverage: Hogan vs. Gawker, Hogan puts the smackdown on CEO Nick Denton

Somewhere in the back of my head as I write this I can hear the intro music for Hulk Hogan as he heads toward the ring.  ‘ I am a real American…fight for the rights of ev’ry man …. Da,  da,  da da da …….da da da da….’

If you have been following the news lately, you may have seen that Hulk Hogan recently won a huge judgment in his invasion of privacy lawsuit against Gawker Media. $115 million in compensatory damages for invasion of privacy stemming from the sex tape that Gawker posted on their site without permission. Putting aside the morality of posting a sex tape of someone online and then defending it by calling it newsworthy, that’s a noteworthy amount. If it doesn’t come down in appeal it could bankrupt the company.

I personally can’t get enough of this case, it has everything. Sex tapes, lawsuits, new media, 80’s wrestling legends… and now a smooth segue to Directors and Officers insurance coverage.

For the purposes of this blog post I am going to focus on what happened in day two of the penalty phase of this trial. A key point to remember in this is that Hogan not only sued Gawker Media, Hogan sued both the CEO of Gawker, Nick Denton, as well as the editor-in-chief, AJ Daulerio. In day two of the penalty phase, Nick Denton was hit with a $10 million dollar judgment and AJ Daulerio for $100k.

Somewhere in my head on 80’s wrestling commentary…..

Gorilla Monsoon:                  ‘ Ohh look out Brain, Hogan’s hulking up!!!’

Bobby ‘The Brain’ Heenan: ‘Wha… this guy’s not human, GET OUT OF THERE NICK, GET OUT OF THERE!!!’

Gorilla Monsoon:                  ‘Too late for that Brain! Here comes the big leg!!!’

Now for a guy who is at the head of a huge media empire, odds are Nick Denton will be covered by Gawker Media’s Directors and Officers coverage. Good thing too because even on appeal, Mr. Denton likely won’t get completely off the hook for the damages that he is personally liable for at this point. Depending on the kind of policy Gawker has, perhaps AJ Daulerio could be covered as well. Some policies will cover non-executive directors to a limited degree.

As far as the argument that ‘Hey, even if he gets nailed for $10 mil, he owns the company. The company will pay him back’. A good argument, two things go against it. One, if the company is solvent after all is said and done, who pays Gawker Media for making their CEO whole? The D&O coverage, that’s who. Without it (provided Gawker reimburses officers in such cases as standard operating procedure), Gawker Media would be out another 10 million. With the coverage, Gawker will be covered for the amount needed to make its officer whole.

But what if the $115 million dollar judgment holds up on appeal? What if the worst case comes to pass and Gawker goes under? That $10 million dollar personal judgment is still there. Nick Denton would still be personally liable with no entity to make him whole. Once again, here’s where having a comprehensive D&O policy becomes so important. If a company goes under due to a lawsuit and a firm’s directors and officers are still liable, there had best be a healthy D&O policy in place. The policy would be there to cover said directors and officers against a judgment, protecting their personal assets. Without it, well….. someone will get left holding the bag.

Now Gawker is not a publicly traded company, note that this is a perfect example of how Directors and Officers coverage isn’t just for publicly traded companies. In this day and age, if there is a lawsuit worth pursuing, it’s worth pulling everybody in, and that includes a company’s leadership. In this case, company policies that filtered down to what Gawker saw as admissible to post as news came back and bit them…hard. Ultimately a jury found Nick Denton had a personal responsibility for the actions taken at Gawker that lead to where we are now. Hogan hit ’em hard on it in day 2 on the penalty phase.

Note to directors and officers of a business, even small businesses, you don’t need to be a huge publicly traded company to have a risk. This is just a recent example in a long line of examples where directors and officers find themselves in the line of fire. If this is something your company has not taken up yet and merits discussion, please feel free to reach out. I would be happy to act as a resource for you on the matter.

Management Liability policies: Is it just Directors and Officers coverage?

When you are putting a full Management Liability policy together there are a few things you will need to take into consideration. Here are a few of the big ones.

Is Directors and Officers coverage all you will need?

Directors and Officers coverage protects a company’s directors and officers from claims that fall within the policy provisions. In a complete Management Liability policy, there are other lines of coverage that protect against different management risks. EPLI (Employee Practices Liability Insurance) is probably the best known.

EPLI coverage is the insurance that covers management in the event that a claim stems from a company employee. Harassment, discrimination, wrongful termination, there are a number of issues that can be brought to bear against directors and officers of a company. EPLI protects specifically against those risks. EPLI would be a separate component in a Management Liability policy.

A company would need to be sure that any complete Management Liability quote included such coverage as it is a distinct line of coverage from Directors and Officers. With the rise in the types of claims covered by EPLI, these days it’s a must.

Shared versus separate limits?

If you find that you do need EPLI (and if you have several employees you really ought to) as well as D&O, you will need to consider whether you need shared or separate limits.

With shared limits, the stated coverage limit is the overall amount of coverage you get for a given policy year between both coverage lines. Say you purchase a Management Liability policy with D&O and EPLI coverage with a 1mm shared limit. All the sudden, here comes a claim and you lose. The claim ultimately costs 700k between defense, settlement and any associated costs when it is all said and done. The amount of total coverage going forward for either a D&O or EPLI claim would then be 300k.

Separate limits means that each coverage line has its own separate coverage limit if a claim was directed toward it. Separate limits means that you would have 1mm for each coverage aspect. In practice, if you had a D&O claim and lost and the whole thing cost you 700k, you would have 300k left in coverage for D&O, but the EPLI would maintain a 1mm coverage limit…separate limits.

Separate limits certainly will cost more. It also is an important consideration to make.

Do you want a separate defense limit?

So what is a separate defense limit and do I really need it? A separate defense limit sets aside a separate bucket of money purely for legal costs surrounding a suit. This limit will typically be the same amount as the standard coverage limit. If you have a 1mm limit on Directors and Officers coverage and have a separate defense limit, it’s likely to me 1mm as well.

Defense costs can account for huge sums of money when one is forced to defend themselves from a D&O claim. The average cost of a D&O claim including defense cost, settlement and judgments is $697,000. A large piece of this cost is associated with the legal costs of defending the claim in court.

The separate defense limit protects a policy holder from exhausting the coverage on legal defense and not having enough if you lose a case. For example, say you had a straight up 1mm D&O policy and a claim came in against you. If one were to mount a $500k legal defense, you are already down to 500k in coverage. Legal defense would go against your 1mm in protection.

If you lose, and the judgement is 1mm against a director or officer, someone is going to be out $500k. Without a separate limit, the $500k defense cost goes against your original 1mm coverage, leaving $500k in protection. If the judgement against you comes in at 1mm, you only have $500k left after you’ve mounted a defense. Not good.

If you have a 1mm separate defense limit, the $500k defense cost goes against its own 1mm bucket of money. In this example, a $1mm D&O coverage with a $1mm separate defense limit means that after defense costs have been accounted for, the 1mm judgement against a company director or officer would be completely covered.

Since 2014 the Affordable Care Act, AKA Obamacare, has been giving employers fits with regulations and rules that they need to be in line with. It’s been fluid to say the least as far as determining what is in bounds, what is out of bounds, what was once ok, isn’t anymore. It’s a regulatory minefield, and the feds keep laying out more mines it seems.

The most recent change to the rules isn’t so much a change as it is a running clarification that has recently come to a head. Prior to 2014 it was a common practice for employees to go out and get individual (non-group) medical insurance and have an employer reimburse the premium cost. This would be used with a section 105 HRA in most cases. Technical guidance from the IRS prior to Obamacare’s January 1, 2014 kickoff dictated that these plans were considered to be group health plans and subject to market reforms.

Reimbursements for Individual Medical Plans

You better watch out doing this now. Reimbursements by companies for individual medical plans (HRA’s, Section 125’s or otherwise) has been deemed out-of-bounds by the ACA (Obamacare). There have been several technical releases by the IRS, Dept of Labor and HHS on the matter. At the end of the day, if a company is reimbursing employees for individual health insurance policies, or direct paying insurance companies for individual health insurance policies you are opening yourself up to a fine by the Feds.

This link The Affordable Care Act Implementation Part XXII goes to technical guidance released November of 2014 and goes into detail and clarifications from prior (Sept. 2013 and May 2014) releases from the IRS. The fines are as much as $100 per day per effected employee or up to $36,500/year.

More recent guidance from the IRS in February 2015 with Notice 2015-17 (Employer Health Care Arrangements) gave a moratorium of sorts to companies to get in line by June 30th 2015. While it may seem magnanimous on one hand to give companies a break, it would seem that the gloves will come off as of July 1.

The one way I’m aware of that you can do this and stay in bounds is to pay employees more salary. You can’t dictate to employees that it is used for coverage (per mandate as it would constitute a reimbursement) and there is the tax issue and expense because it can’t be treated as a pre-tax deduction.

My advice, don’t do it. Go with the group plan, PEO or otherwise. Stay out of the Feds crosshairs. If you need more help on the matter or to find a suitable plan, I’d be happy to help (shameless plug).

Do members of a board of directors need insurance? Why?

Members of a board of directors will be making a flurry of decisions that will have a profound impact on a company. Some of these decisions will be difficult and will have an impact on many interested parties. Put simply, not every decision a board makes is going to sit well with everyone.

If a board of directors makes a decision that could potentially harm another party, that party can turn around and sue not only the company but the directors and officers themselves. Because directors and officers can be sued personally, this can result in the personal assets of such directors and officers being at risk. This is where the D&O insurance comes into play. It insures directors and officers against such risks.

What if a company makes it a point to protect their Directors and Officers by indemnifying them in the event of such a lawsuit? D&O coverage also insures companies from going out of pocket to reimburse directors and officers by indemnifying the company in that case. Either way, the insurance sees to it that neither a director, officer or the company itself is left holding the bag.

D&O Claims Cost

D&O actions can stem from many different parties, company stakeholders, customers, competitors, even a company’s own employees. It can come from a lot of places. The stakes are high, according the Chubb 2013 Private Company Risk Survey, the average total cost of a D&O claim was $697,902 including judgments, settlements, fines and legal fees.

Needless to say, we’re talking about big money. Companies need to take steps given the rise in D&O claims and the exposure that they encompass.

Pre-requisite to Funding

Another potential key reason to this doesn’t directly speak to risks a board runs, but more to a requirement by a third party. Funding mechanisms such as venture capital and seed funding will typically require Directors and Officers insurance as a pre-requisite to closing out a funding deal. These outside parties want to see that their interests are protected and as such will make it a contractual obligation that a company get this in place before signing off.

How much do first year startups pay in employee benefits per month?

Employee benefits, this is something that startups tend to have problems with. If for no other reason, money is tight but it is something you have to have if you expect to be able to recruit and retain employees. For the purposes of this Q&A, let’s assume that you want to limit this to the basics, medical and dental. Let’s also assume that you want to make a competitive contribution of 75% on a moderate to high level plan for both benefits.

On medical coverage, a good cost yardstick for a plan in CA, NY or MA (a few of the higher cost markets) would be $500/month for a single employee, $1,000/month for couple or single parents and $1,800/month for a full family. For dental coverage, yardstick numbers would be $50, $100, $150/month for single/couple or single parents/family plan price points.

If you are a funded startup looking to recruit and retain employees, that 75% employer contribution will make for a good yardstick as far as how much an employer will contribute. If a startup isn’t funded it will be less. If you are not a startup at all and in the tech space, it will likely be more. Industries where perhaps the fight for talent isn’t as bad (manufacturing, retail) this may a lesser percentage for startups.

Getting to the bottom line on a 75% contribution on medical and dental, the employer contribution costs break out a follows:

• single participant: medical is $500/mo, dental is $50, $550 total. 75% of this would be $550 x .75 or $412.50/mo ($4,950/annual)
• couples or single parents: medical is $1,000/mo, dental is $100, $1,100 total. 75% is $825/mo ($9,900/annual)
• family: $1,800/mo, $150 dental, total $1,950/mo. 75% is $1,462.50/mo. (17,550/annual)

Employee Contributions

Keep in mind, properly set up the 25% employee contribution will be pre-tax payment on the coverage. Both parties would gets the tax break on the contribution so it’s not straight after tax dollar expense. These employer contributions in the mock up example would constitute what a startup would pay in benefits per year in pre-tax dollars on medical and dental coverage. It’s not directly paid to employees as the question is written, but if you are doing a group medical plan for the company, direct payment isn’t how it works. If a company is paying or reimbursing employees directly for non-group medical policies that an employee directly owns, that’s a violation of the ACA/Obamacare laws which is a whole different can of worms you don’t want to open.

Consider Employee Demographics

I advise my clients to take these numbers into account as well as the demographics of their hiring. Use a figure the works as an average total annual outlay for benefits expenses per employee and figure that into a total compensation package when setting up and offer for a potential hire. Don’t just throw extra salary at a potential employee with a family while having a very low contribution level on benefits and expect things to go well. Benefits matter to those with spouses and children.

If you’ve read this far and feel this is something you could use more guidance on, here comes the shameless plug. I work with my clients in the startup space quite often on getting medical plans established. If it is something you could use some help with feel free to reach out. I’d be happy to act as a resource.

Nate Therrien
Founder
Business Insurance & Investment Services of MA
9784007014 p
[email protected]
https://bibsma.com

When should a startup buy life insurance for its founders?

Life insurance for founders in a startup is going to become an important factor for a company at some point of the lifecycle. If such a company is still considered a bootstrapping startup, it may be a little premature. The question here is when should a startup purchase such things. From a bootstrapping startup perspective, my answer would be ‘when your hand is forced’.

The most common ‘when’ will be when securing a VC round. Quite often there will be a couple of prerequisites to finishing off a deal and getting the cash. Two of these prerequisites often include taking on some form of insurance. One is procuring Directors and Officers coverage, the second is getting key-man coverage on certain people in the company.

A VC or private equity entity will want to see that the company they are investing in will be protected if something were to happen to a key person or people. In many cases this will involve the founders. Founders will typically have particular experience or knowledge that makes then invaluable to the future of a company. VC’s will want to mitigate the risk against the death of such a key person with this type of coverage.

From the standpoint of a company that is not a bootstrapping startup, I would suggest the time frame is ‘when you can afford it’. If your hand isn’t being forced, it will still be important to secure your company against losing a key person as explained. You will also want to secure the company against ownership issues that arise from the death of an owner. This is where a funded buy/sell agreement comes into play. Life insurance is the primary funding mechanism toward this end.

Buy/Sell agreements are a key component to protecting the company and its ownership in the event of a death of a founder, allowing for the seamless transition of ownership should such an event occur. That said, if yours is a startup company with little or no dollar value attached, you don’t really doesn’t need to spend the too many resources here immediately. Once a company gets out of bootstrapping mode, gets some traction and revenue and has the resources to pay for the funding that goes along with a buy/sell, go ahead and do it. This also goes for key-man coverage. If you’re not having your hand forced, wait until you’re ready and then implement such coverage when the company has the resources.

Insurance brokers will almost always tell you that both is a must. Frankly the buy/sell is more of a must in my mind but that doesn’t mean the key-man isn’t important. Just be sure the timing is on your side if you can control such aspects.

Do your homework.

In Boston, there are so many networking events out there it can become a blur. If you wanted to you could literally go to a professional networking event, mixer, forum, fireside chat or any number of events every day of the week. You’ll never get to all of them, and you shouldn’t try. If networking is going to be a part of your marketing plan, then you need a roadmap. Are you looking to cast as large a net as possible or trying to focus in on a certain industry or segment? Does a large room full to the rafters make for a good environment for you or something a little more low key and intimate?

This speaks to two questions you need to answer, who are you trying to meet and what kind of environment is you best suited to?

For my purposes, I steer toward startup related tech events and I like a big room full of people. This speaks to the audience I want to meet and what makes me comfortable. I deal primarily with technology startups in my business. Over the course of time, I’ve been able to find the nicheier (I might have just made up a word there) events in town. It didn’t start that way. First it started with more generic chamber of commerce events, wide net stuff with a little bit of everything. Over time I was able to break down and target my audience and then find those events. If you can do the same thing quickly you can save yourself a lot of time.

The second question of environment plays a big role as well. I like a bigger room because it allows me to blend in a little more, especially if I don’t know anyone and I just hang back a bit. It’s easier to do that in a room with 150 people than in a room of 15, that’s just me. Some people may be intimidated by a big crowd full of strangers, especially a big crowd where a lot of folks already seem to know each other. In this case you may want to find smaller events with more structure than just an open networking session. The structure can keep the ‘it’s a zoo in here’ mentality at bay and simply be a less intimidating event environment.

Have a goal.

When you go into a networking event, don’t go in without having a goal in mind. If you go into an event with the goal of ‘I’m going to meet everyone there’, you can go that route. It better be a smaller event and it better be geared toward your favored audience.

A better way to go would be along the lines of ‘I want to meet 3 new people tonight’ or ‘I want to meet at least one person who would make a good strategic relationship’. The best events I see are those that  have a registration list. This is a huge tool and a leg up if you take the time to use it. Such a list will allow you to narrow down your focus more. Instead of ‘I want to meet 3 new people’ you can put together a list of 3 specific individuals.

Point being, have a game plan going into an event, have an idea as to what you want to accomplish and go execute.

Introduce yourself, then make an introduction.

Some people I know that are fantastic networkers do this. If they meet someone at an event, especially if it is someone that they have never met before, they will have a conversation. During that conversation these really good networkers will pull someone else into their conversation and introduce that new person.

It does a few things. It establishes credibility that you are not just there for yourself but are there to help other people. This extends not only to a person you have just met but also to the 3^rd person who just got introduced to someone new. I know this works because I’ve been the guy having a conversation with such a networker and that someone introduces me to a 3^rd person brought into the conversation. I’ve also been the 3^rd person. There have been multiple instances in both situations where I have been able to establish worthwhile business relationships.

Take it upon yourself to introduce yourself and introduce others.

What can you do for others?  

A big mistake people make is to go into a networking event only looking for what they can get out of it for themselves. It’s the old ‘givers gain’ approach, and it works a whole lot better than most approaches. When you see posts similar to this giving advice on how to approach a networking event, one item that you will see again and again is don’t sell. Don’t go into an event looking to pitch everyone you see and try to sell them. If you are going to network, the likelihood is that most of the people you will meet will be people you have never met before. I don’t know anyone who likes to be sold, even less so by a stranger.

Networking is about establishing relationships, that means building some trust and that means not pitching every person you come across. The hopeless approach, and I’ve seen this, is to go in with your polished pitch, try to sell everyone in the joint, get nowhere, say it was a waste of time, stop networking entirely. Awful, just awful.

One of the better networkers I know says two things when he meets someone new at an event. After introducing himself he says ‘what can I do for you/how can I be of help to you’ and ‘who can I help you meet’? I run an event myself, and if you’ve been, you may know who I’m talking about (looking at you Stevie Z). It’s a great approach, it’s not salesy, it’s helpful. It’s an honest attempt at trying to help someone out that you haven’t met before. People remember that. It builds trust more quickly and effectively than another stale sales pitch.

I have been steered toward quite a few valuable resources by this gentleman because he doesn’t just do it once, he says the same thing to me every time I see him. And you know what? I leverage the heck out of him because his contacts are fantastic. Think I won’t try to help him out the next time I get an opportunity?

This last point is probably the best piece of advice I’d have for someone navigating networking events. See how you can help out others, and then go out of your way to do it. Your chance to pitch will come. You won’t even have to because others will be looking out for you so long as they know what you bring to the table. Let people know what you do and what your capabilities are, but leave the sales pitch at the door.

Avoid the horror show, get a buy-sell arrangement done (part two)

In part one of this two part post, I wrote about buy-sell arrangements and how that will protect business partners against the unexpected death of one of their own. Circumstances that come with the death of a partner can vary, but in the end, surviving owners need to be concerned with people and entities that will have competing interests if such folks wind up with the the decedents ownership stake in the company.

In this part of the blog we will tackle what happens if a partner in a company becomes disabled. In an instance such as this, the dynamics change. In the event of a partners passing, co-owners would need to deal with outside parties. In the event of a disability, you’re not dealing with outside parties, you’re dealing with your cofounder or partner. This is going to change the way things are treated.

A disability to a co-owner can create some uncomfortable problems if the event is severe enough. What if such an event is bad enough that a co-owner can no longer work at all? Maybe worse than that, what if you have to break the news that while a partner may feel he or she is good to go, they just can pull the weight anymore?

To start, we will discuss the worst case scenario, a permanent disability that simply will not allow one to work in the business anymore. Over the course of one’s working career, the chances of suffering a disability versus the chances of dying are about 3.5 to 1. In your younger days, that ratio is higher and as you age that ratio decreases. Given the chances of such an occurrence, the need for disability as part of a buy/sell arrangement becomes pretty clear.

So what happens? In the event of total disability, the disability buy/sell arrangement will dictate a process, a valuation model and if done properly, a funding method using disability insurance to fund the buyout. Within a complete corporate buy/sell arrangement, there will be a component in the event that a disability that will not allow for a partner to continue in such a capacity. Should this occur, it would trigger the terms of a buyout per the terms of the arrangement. For funding purposes, disability buy/sell insurance coverage should be put in place in order to finance the arrangement. Without the insurance proceeds, one partner would have to either have cash on hand, or raise the funds independently to finance the buyout.

Short of that, what you have is one partner running a business with a second partner simply along for the ride. Not the scenario the partner running the show at that point would feel to be fair to him or her.

What if there is no total disability? What if it isn’t permanent and all parties feel that the owner will fully recover and be able to return to work? This is where Disability Key-Man coverage comes into play. This becomes the middle ground that will cover a company for the expenses incurred while a key person is out on disability. It should be tailored to sufficiently stabilize the company while determinations can be made regarding an employee return or ultimately replacing said key person. This issue is more complex than the brief description given here and will be explored more completely in a different blog post.

The disability recovery scenario is why most buyout triggers of a buy/sell agreement dictate that a partner be deemed totally disabled and that a long probationary, typically 12 months, be subject to the triggering of a buyout. A business owner will not be too quick to hand over a stake in a business if he or she were to believe that they will be able to recover from an incident. Quite frankly, a business owner may plain and simple never give up the stake regardless…unless there is a preset arrangement with parameters in place.

As a disabled owner, without a formal agreement there is nothing forcing the issue to trigger a buyout. A disabled owner could set their own price that a co-owner doesn’t agree with or is simply an unfair valuation. A disabled owner could go out in the open market and find another buyer to take over their stake if he were to find someone other than a co-owner to meet his price. Where does that leave the healthy partner? Without the arrangement set in stone, one could be looking at running the company essentially by himself, a new business partner, and if things come to a head, the disillusion of the company entirely.

It doesn’t need to happen and both parties owe it to themselves to get ahead of such things. When an instance such as a disability occurs and the potential impact of business becomes an issue, egos and feelings get involved, that helps no one. Take it out of the equation now.

For more information on the topic or guidance, use the form below or reach out directly to Nathan Therrien at 978-400-7014 or at [email protected]

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