I had some free time this weekend and watched “Empire of the Sun” starring Christian Bale and John Malkovich. The movie came out in 1987, but I saw it for the first time Saturday.

The premise of Empire of the Sun is that an aristocratic British child is separated from his family (living in China) at the start of World War II after the Japanese invade China. The child is forced to live on the street and is eventually interned in a Japanese POW camp.

I’m glad I did not see Empire of the Sun when it first came out, because I would not have fully-understood the characters’ emotions. In fact, I would have likely grouped the movie with other “where are the parents?” movies like The Goonies or Adventures in Babysitting in the late 1980s.

While I was a child in 1987, I have 2 children in 2008. My experience as a parent helped me understand the anguish of losing a child.

However, there will be situations where you (and I) will lack experience and be at a disadvantage in understanding another person’s emotions and subsequent decisions. In these situations, you must do your best to put yourself in the other person’s shoes. How would you feel and react if put in the exact same situation? Answering that question before every negotiation or interaction will yield positive results for your startup.

As an entrepreneur, it may feel as though the world consists solely of you and your idea. And for a period of time, that may be true. But eventually, and in order for you to implement your idea, you will have to interact with and rely upon many individuals and groups. And they will all come with their own sets of emotions, decisions, and priorities.

For example, when hiring an employee, you should understand that no matter how many stock options you throw at an employee, those stock options will not feed his or her child for some time (if ever). Thus, an employee’s hesitance to accept stock options in lieu of other compensation may not have anything to do with his or her view of your startup’s future. He or she may just have a child to feed today.

In the startup world, reducing egocentrism and increasing empathy will have positive effects for your startup when dealing with employees, vendors, co-founders, or venture capital firms. By better understanding others and their motivations, you will increase the potential for agreements. Focus on the reason and not the answer. You may be able to find a way to make it work.

A few months ago, I was on a conference call with opposing counsel to negotiate a client’s deal. Things got a little heated (the only time I’ve ever experienced a hostile communication with another attorney) and eventually I got hung up on. I was about to call the attorney back and show him what I learned from 15 years of listening to gangsta rap, but thankfully I didn’t.

Was I upset? Sure.

What it have felt great to go 2pac on the other attorney? Very Sure.

Would I have regretted it 2 minutes later? Extremely Sure.

Instead, I waited a day and called the attorney back. We ironed out the terms of the deal and got it done. Everybody was happy.

But here’s an even better example of why you don’t burn bridges unnecessarily: Three weeks later, another client of mine asks me to handle an acquisition. He gives me the contact information for the other company’s lawyer. You guessed it…the same lawyer.

If I had burned the bridge with that lawyer, it could have negatively affected my client’s current deal. Or, it could have gotten me removed from the transaction. Luckily, both were avoided.

As an entrepreneur, there will undoubtedly be frustrating moments where you will reach a boiling point and be tempted to let it rain fire on a co-founder, employee, vendor, or other 3rd party. In these situations, don’t throw your MacBook against the wall or burn bridges with other people.

Burning bridges is a short-term (emotional) solution with long-term implications. Of course, there will be situations where a relationship can not be salvaged, but those situations are rarities. And your startup will be better off the rarer they are.

Ernst & Young LLP filed a complaint yesterday in federal court against Entrepreneur Media, Inc. (publisher of Entrepreneur Magazine) alleging that Entrepreneur Media is infringing upon Ernst & Young’s “Entrepreneur of the Year” trademark registered with the USPTO.

For more than 20 years, Ernst & Young has bestowed an “Entrepreneur of the Year” award upon successful and innovative business leaders in the United States and around the world. Prior winners include Michael Dell (Dell), Steve Case (AOL), Jeff Bezos (Amazon), and John Mackey (Whole Foods).

In the complaint, Ernst & Young alleges that Entrepreneur Media first infringed in 1994. At that time, Ernst & Young objected in writing and Entrepreneur Media stopped using the phrase “Entrepreneur of the Year” in conjunction with a contest. In fact, Entrepreneur Media’s corporate counsel at the time thanked Ernst & Young’s counsel for “bringing the matter to Entrepreneur Media’s attention.” This 1994 letter is now Exhibit 2 of the 2008 complaint.

Now, Entrepreneur Media is currently running a 2008 Entrepreneur of the Year contest. And just like 14 years ago, Ernst & Young sent Entrepreneur a ceast & desist letter. But this time, Entrepreneur Media rejected Ernst & Young’s demand to stop using the phrase.

Enter lawsuit.

Ernst & Young seeks a permanent injunction, destruction of all Entrepreneur Media materials related to their contest, an order directing the USPTO to cancel Entrepreneur’s Media’s registrations, Entrepreneur Media’s profits from the use of the “Entrepreneur of the Year” mark, damages, attorneys’ fees, and any other relief the Court deems proper.

Like reading legal complaints? Click here to get the PDF of EY’s complaint.

Have you ever tried to polish your sneakers? I have. And no matter what method or device I used to refurbish my sneakers, they remained unrefurbished sneakers. The problem wasn’t my washing machine, detergent, or shoe polish–it was that my sneakers just weren’t worth the attempt. Unlike other forms of footwear, sneakers just aren’t made to be polished.

This can be a valuable lesson for startups attempting to incentivize their employees: not all employees have the ability to be incentivized.

A startup can choose from a variety of carrot-and-the-stick incentive options to get the most out of their employees (capital-willing, of course). These options include salary, commission, bonus, stock, vacation, health insurance, retirement accounts, stock options, warrants, phantom stock, and other deferred compensation plans. But a startup must realize that some employees will not respond to any combination of incentives. Thus, your startup may have the right incentive plan but the wrong employee.

In Economics, the problem of motivating an employee to act on behalf–and in the best interest of–the startup company is known as “the principal-agent problem.” This problem arises when a principal compensates an agent for performing certain acts that are useful to the principal and costly to the agent, when it’s costly for the principal to supervise the agent. (Sound like your startup?) Basically, you solve the principal-agent problem by finding the right combination of incentives for the employee. However, the difficulty of selecting the optimal structure is reflected by the multitude of carrot-and-the-stick compensation mechanisms.

Economics assumes a lot of things, and the biggest assumption Economics makes is that people will act in a rational manner. But as we all know, people don’t always act in a rational manner.

Thus, you should not assume that your employee will respond in a rational way to your startup’s incentive offering. It may not matter what or how many carrots you dangle in front of your employee. Not all employees are made to be incentivized, just like not all footwear is made to be polished.

#5 - In your latest attempt to go viral, you call in to the Suze Orman Show and ask if you can afford to purchase your startup company, constantly letting her know how fantastic it is.

#4 - You start a blog about your blog about your startup company.

#3 - To get more street cred with VCs, you and your 2 co-founders change your names to Brad Feld, Paul Graham, and Dharmesh Shah, respectively.

#2 - Your startup company’s twitter account has less followers than I have.

#1 - You offer to pay your pizza delivery guy by issuing him common stock, and he counters with preferred stock and a 10x liquidation preference.

Think back to the last time you wrote a business plan for a startup. Do you recall your estimated expense for legal fees? $1,000? $10,000? $0?

How much to spend on legal fees is a common issue for startup companies with more than one correct answer. However, there are a few factors that suggest your startup should loosen up the purse strings.

Back in my college days (post-Prodigy, pre-Google), I wrote a business plan for a Web 0.01 startup company and allocated a meager $500. I had no idea what I’d be getting for that $500, but I figured my business plan software included the “legal fees” entry for a good reason and I did not want to leave it blank.

Fast forward to today. Going to law school, running my own startup company, and now representing dozens of other startup companies hasn’t led me to the exactly-how-much-to-pay-your-startup-lawyer magic number. Instead, I’ve learned to spot the issues that suggest a startup company should be spending more rather than less on legal fees:

(1) Number of Founders: If your startup is going to have more than one founder, this would indicate you’ll need to add to your legal fees total. Establishing and documenting the co-founder relationship is one of the most important aspects of a having a successful startup company. I wrote a previous blog article regarding startup co-founders.

(2) Raising Capital: If you plan to raise capital from any third party, whether from your mother or Oak Investment Partners, your must increase your legal fees. No exceptions.

(3) Public Company - No, I don’t mean a “publicly-traded” company. Rather, the more your startup will have a public presence, the more you will need to spend protecting your startup company from infringers (such as trademarks, etc.) and other 3rd parties.

Guy Kawasaki provides us with a real-world example of how much startup legal fees may run. Guy paid $4,824.13 in legal fees when he started Truemors. And his legal fees included the following:

-Trademarking Truemors
-Drafting a Terms of Use
-Discussion of copyright, liability, infringement, IP, and insurance issues
-Organizational resolutions and bylaws
-Stock purchase agreements

Guy’s post also has some wise advice about how much to spend on startup legal fees:

You could do less legal work and do it cheaper, but if you ever want to raise venture capital much less go public or get acquired for more than scrap value, this is not the place to save a few thousand bucks.

While Guy paid $4,824.13, I do not recommend using his number as a benchmark for your legal fees. There are too many variables to consider which are both internal and external to your startup company. Thus, I am hesitant to even provide a range of estimated startup fees. But if you consider the three issues (number of co-founders, raising capital, and public company), you will know whether paying your startup lawyer a larger amount is warranted.

A frequent issue entrepreneurs, myself included, deal with is having to handle negative situations with due care and class so as to not erode startup company goodwill, not to mention other business tangibles and intangibles.

You can create goodwill for your startup company many ways. And most are fairly obvious. But truly great entrepreneurs have the knack for turning potentially bridge-burning situations into positive ones for their startup company.

Click on the following link to read a Craigslist ad that showcases how one startup entrepreneur likely changed a usually negative situation–laying off employees–into a positive one, both for his startup company and the developers he had to lay off:

Three Amazing PHP/MySQL/Perl Developers Now Available - Story

(I must credit the Hacker News at YCombinator for this find…)

Many entrepreneurs worry that someone, whether a potential partner, a VC, or a boogeyman will steal their startup idea. If you are worried about having your startup idea “jacked,” I recommend you take a deep breath and relax a bit–your startup idea isn’t worth that much.

Paul Graham, in an essay derived from a talk at Startup School 2005 had this to say about the value of your initial startup idea:

I think people believe that coming up with ideas for startups is very hard– that it must be very hard– and so they don’t try do to it. They assume ideas are like miracles: they either pop into your head or they don’t.

I also have a theory about why people think this. They overvalue ideas. They think creating a startup is just a matter of implementing some fabulous initial idea. And since a successful startup is worth millions of dollars, a good idea is therefore a million dollar idea.

If coming up with an idea for a startup equals coming up with a million dollar idea, then of course it’s going to seem hard. Too hard to bother trying. Our instincts tell us something so valuable would not be just lying around for anyone to discover.

Actually, startup ideas are not million dollar ideas, and here’s an experiment you can try to prove it: just try to sell one. Nothing evolves faster than markets. The fact that there’s no market for startup ideas suggests there’s no demand. Which means, in the narrow sense of the word, that startup ideas are worthless.

You should still take precautionary steps to protect your idea even though Paul Graham (and I) don’t assign a lot of value to your startup idea. The best way to protect your startup idea is to keep it secret. Help prevent your startup idea from being stolen by being selective with both the amount of information you reveal and to whom you reveal such information. A nondisclosure agreement will help, but any piece of paper drafted by a lawyer like myself is only a reactionary document–it only benefits you after your idea has been stolen.

The Business Association of Stanford Entrepreneurial Students and Y Combinator are co-sponsoring the 2008 Startup School at Stanford on April 19.

Are you a hacker who has thought about one day starting a startup? Have you already started it? Then you’re invited to a free, one-day startup school this April 19 at Stanford.

We’ll have a range of experts speaking on every aspect of startups, from technical details like how to incorporate, to bigger questions like how to build something that millions of people will want. Many hackers consider starting a company at some point, but are put off because the process seems mysterious. The goal of startup school is to remove that mystery.

To find out more about the 2008 Startup School, including the application to attend, visit startupschool.org.

I got lucky. I bought a suit “off the rack” and it fits me perfectly.

I purchased this suit in true emergency fashion about two years ago while in Phoenix on a business trip. I ended up not needing it (of course) and stuck it in the back of my closet when I returned home from the business trip.

Last week, I did an early spring cleaning and was certain this suit was destined for the donation pile. But I figured I should at least try it on. I’m glad I did. It felt like a good fit when I put it on and I got visual confirmation of the perfect fit after strategically using the mirrors in my bathroom. This left-for-dead emergency suit was promoted to the big leagues.

The next day, I suited up and ventured out with my new addition. And I’m happy to report the suit performed well.

So what does this mean for your startup company?

Well, let me start by repeating the first sentence of this post: I got lucky. I used and depended on something that was not customized for me, and I did not suffer because of it.

Your startup company will probably not have to worry about suits (lucky!), but it will be faced with similar “should this be customized?” decisions every day. Of course, your startup can not always have custom work done. But pick and choose wisely, because cutting corners at every turn is not advisable. And while generic products or services will sometimes work out perfectly for your startup, those instances will tend to be rare occassions.