As the second half of 2022 progresses, the world is still experiencing ripple effects from the COVID-19 pandemic, with rising inflation and a high demand — further complicated by a drastically low supply of everything from medical supplies to computer chips — adding to the fickle nature of the economy.
Proper guidance helps business owners stay afloat, therefore influencing consumers to do the same. In a free SCORE Princeton webinar led by Dror Futter, the attorney offers advice for entrepreneurs in making sensible decisions for their financial situations, all while understanding how to not overstep fine legal lines.
“Legally Speaking — 6 Tips for Running Your Business in a Rocky Economy” is on Thursday, July 21, at 6:30 p.m. Register online for the free event at princeton.score.org.
Futter has been a partner at the Rimon PC law firm since 2017, working from his home office in Teaneck at the virtually based company in two areas of practice. He describes the “venture finance” side as setting up companies, getting them financed, and even sold, while the “technology” aspect is focused on technology and IP agreements.
The reason for this, he explains, is because of his decade and a half of in-house experience. Prior to those positions, Futter received his bachelor’s in politics from Princeton University, his JD from Columbia Law School, and an executive mini MBA from the Stanford Executive Graduate School of Business.
In 1997 Futter became corporate counsel for Lucent Technologies in Murray Hill until the company spun out to form New Venture Partners, a venture capital firm where he served as general counsel. As a reference to its origin, New Venture Partners is centered around corporate technology “spinouts,” a term for when a new, independent business is created from a parent entity or division during the realignment of an organization.
Futter then took on the role of general counsel and secretary for Hackensack video conferencing startup Vidyo in 2010, which helped expand his professional knowledge before his time at Rimon Law began.
The 1986 Princeton graduate is a mentor for both Princeton University’s Entrepreneurship Council’s Mentoring Program and the Jewish Entrepreneur nonprofit. He is also the Entrepreneur in Residence for the Stevens Venture Center at the Stevens Institute of Technology in Hoboken.
“When you’re working with these early-stage entrepreneurs [from] various academic institutions that I [mentor] for, they tend to ask questions on things you take for granted, like ‘yeah, why do we do it this way?’ So a lot more thought can be required advising them because they ‘hadn’t played the game’…they’re trying to figure it out, so it forces you to constantly re-evaluate kind of why we’re doing things a certain way,” Futter says.
“We’re entering — particularly for venture-backed companies, but I think even the broader economy — a period of a lot of economic uncertainty. We’re transitioning from an environment where for [many] companies, capital was readily accessible, to an environment where they’re being told by their investors to do more with less for a longer period of time. The seminar is designed to get people in the framework of [thinking about what] they can do to adjust to the new environment.”
In the webinar, Futter will introduce his acronym RIAR2, a five step process of figuring out how to adapt: R is for reassess — deduce “what the assumptions of your business plan are and how they respond to the current environment,” as Futter says; I for inventory —identify obligations to third parties; A for analyze — discern “how much flexibility you have and what conditions” are constraining; another R for respond, or examine “how you can proactively reach out to third parties;” while the final R is to repeat the method all over again.
“This should be an iterative process. It’s not like you do it once and your readjustment stops. This is a very fluid market, so you want people to readjust,” he adds.
Futter aims to discuss employee layoffs as well, because they “often entail legal liability, so discussing [and] developing a process for how you go about terminations” can help. He observes that small companies might make common mistakes such as renegotiating agreements without the necessary expertise, or simply having lacking insurance.
“In this environment, the likelihood of lawsuits becomes higher,” he continues. The webinar includes material on how to deal with “a very high level with insolvency, and in general, the subject of company shutdowns” resulting from being unable to pay back debts.
Two themes that Futter stresses are the importance of communication and reputation.
“The natural tendency is, when you have bad news, to hunker down, because nobody likes hearing that news. The reality is, the earlier you communicate, the more forthright you are,” he says, it’s beneficial because “one, you have greater flexibility, and more tools to negotiate with. Two, the other side appreciates it.” Futter notes that waiting for the other party to discover a problematic situation often traps business owners “in a situation where you don’t have a lot of options,” creating obstacles and tension.
He adds that “it’s really hard to undo a bad business reputation. If you’re particularly ruthless and heartless in terms of how you deal with employees, customers, and suppliers, in the short term, that might solve your pain point, but business can be a small world — and what goes around comes around.”
In May of 2020, Futter wrote an article for U.S. 1, “The Entrepreneur’s Guide to Surviving Corona,” which outlined how the pandemic might impact areas such as fundraising, personnel, real estate, insurance, and more.
Futter, who has endured two other tumultuous “down cycles,” says that the venture industry feared “money was going to dry up” in response to COVID. As the world first locked down with no vaccines and little optimism, the question Futter found himself asking was “would government aid stop the Great Depression?”
“Instead, due to I think in large part, the stimulus, we launched into the biggest, most [booming] period venture capital has ever known…it became very clear quickly that, outside of a handful of industries like entertainment and dining, a lot of businesses had record performance,” he explains.
“The reality is, they might have caused some other issues, but it probably staved off some real depression-like scenarios because the government response was so massive. But now, we’re dealing with some of the consequences of that, compounded by some of the impact of the Russian invasion of Ukraine and what it’s done to commodity prices in other places,” Futter continues.
“It’s seeing a slowdown as funding appears to have fallen off a cliff in Q2 of this year,” he says, referencing the $108.5 billion industry drop reported in CB Insights’ latest “State of Venture” data findings, but “again, most of the conventional wisdom would say recession is likely. The part about venture finance beginning to dry up — that you can see in the numbers. The one big caveat is that 2021 was so ridiculously good. Even though numbers are down to large percentages, we’re still well ahead of certainly 2019, and even 2020, numbers.”
“But at the end of the day, the squeeze on financing looks like it’s going to be more of a long-term effect,” he explains. “If [I] was going to compare it to the 2020 environment, I would say 2020 was really dealing with unprecedented dramatic shocks to the system. What we’re dealing with now is navigating the possibility of a recession and how inflation affects the environment, and that’s something we haven’t had to do since the ’70s.”
With years of near-zero interest rates behind them, Futter says that companies and consumers were both affected by the notion that essentially, they did not “have to factor in cost of money to an environment,” which now has changed spending and investment decisions.
Futter’s current advice is that America “could be in for a prolonged slowdown, and liquidity is going to be way down,” moving away from the initial chaos to the impacts of an enduring, “poor operating environment.”
To help the overall financial future, Futter adds that Princeton is working on becoming “a regional tech anchor to help the broader community while leveraging the great academic technical knowledge in the university.”
Rather than being “viewed in the New Jersey tech community as an isolated island,” he explains, “over the last decade, Princeton has started to work really hard to be an integrated part of the ecosystem and more than that, a leader.”
Following the webinar, Futter wants attendees to understand how being proactive, having conversations early in the process before problems worsen, and approaching others with compassion can steer business owners on that economically rocky road.
“Be sensitive to the human aspect of this,” he emphasizes, whether it’s laying employees off or paying suppliers. “Understand here that the impact you’re creating on the other side, and do the right thing for two reasons — one, because it’s the right thing, and two, because it’s good business.”
Another way, he suggests, is to use legal advisors as resources.
“I recognize that lawyers are not an inexpensive budgetary item for most companies, but the greatest bang for the legal buck is consulting a lawyer early in a process rather than waiting for problems [to appear],” Futter says. “The attorney can give you ideas of how to address [your issues], and that will improve the outcome. If you can go out and negotiate an agreement, a settlement, or something, and they just come back and use the lawyer as the paid scribe to document it — you’ve lost a lot of the value and the experience an attorney can bring.”
Businesses of any size can utilize those tools as they move forward, but for no cost at all, Futter shares his own perspectives at the upcoming SCORE webinar with a professional understanding of these fluctuating times.
