The Dynamics of Starting Law Practice

It is difficult to start law practice, but there has never been a really good time, and there never will be. It is hard to get started. A number of books have been written which claim that it's easy to start a practice. Read them with a large measure of skepticism.

If, as a newly licensed lawyer, you find that you have no choice but to open your own office, you might give it a try, but be sure you are sufficiently capitalized, and have the characteristics of an entrepreneur. If you can get a paying job as a lawyer anywhere at all, take it. It does not have to be your life's work.


When you complete law school, you will not have learned all you need to know about practicing the profession. Most of this information can be learned in an established practice where there are more experienced people who can answer questions, or perhaps even engage in training you.

The easiest way to open a law office is to work in an established practice for a few years, and then to take along enough clients to give you a start when you leave. That is how most law firms get started. In time, expect to make your own contribution to someone else leaving you with some clients. One of the ways that the legal profession differs from other professions and businesses is that lawyers cannot enforce covenants not to compete against one another. The courts always find that the client's right to select a lawyer is more important than agreements between lawyers.

Just as general practice is an anachronism in a larger metropolitan area, solo practice is also an anachronism--almost anywhere, although about half of the practicing lawyers practice alone. In today's complicated legal world, one lawyer cannot effectively wear all the hats of legal specialist, salesman, manager and planner. Therefore, if you want to start a firm, try to find other, compatible lawyers to join you. Right from the start, define the strengths of each person, and make assignments accordingly. The sum of the parts of a good partnership is greater than its individual components.

In general, lawyers don't really begin to generate clients until they are past age 30. (Like all generalizations, this one has exceptions.) Most lawyers reach the height of their business-generating abilities in their forties and fifties. There is an explanation for this. We move through life with a group of contemporaries, and we are always most at ease with people about our own age. When a lawyer reaches his thirties, so do his friends. That's when schoolmates and contemporary friends begin to get the power to make business decisions in their areas of employment. In their forties and fifties, successful businesspeople begin to accumulate some wealth, as well as position and power. When they need legal services, they will often turn to someone the same age.

This fits right in with what we've said about getting started. After law school get a thorough grounding in all aspects of the profession, from performance of work through the economics of practice. It's hard to get important clients on your own when you are 24 no matter how bright and capable you are.

When you do decide to set up a practice, consider these economic facts:
 

1. General practice law firms generally have accounts receivable and work in process equal to one-half of a year of gross receipts. This means that for the first half year, a new practice will generate a cash loss because expenses start the day the office opens, but cash does not flow in (in significant amounts) for quite a while.
2. It will usually take at least one year before a new practice will provide substantial personal income.
3. The most expensive component of a lawyer's overhead is labor. Therefore, start with the most efficient office you can afford in terms of equipment and books. Don't give an expensive secretary an inefficient typewriter or other equipment in an attempt to save money.

Starter Work

Many a law practice has started out with commercial collection work. It is paid on a contingent fee basis, generally 50 percent for smaller amounts, and a declining scale for amounts over $500 or so, if collection is affected. This kind of work can be obtained from doctors, hospitals, banks, loan companies, retailers and a host of other businesses. It is often available for the asking.

If you are successful in getting into collections, set up a system on a personal computer. A small computer, if properly programmed, can keep track of accounts and remittances, and can pump out "original" demand letters to debtors. Most firms use collection work only until more lucrative and more interesting alternatives develop, but some make it a highly organized specialty, and do very well with it.

Another entry type of work is insurance defense. Defense cases are assigned by claims representatives of insurance companies. Many, but by no means all, of the companies are as interested in price as in quality, especially for smaller claims. Consequently, claims adjusters may be willing to take a chance on a young law firm if the price quoted is low.
Insurance defense work is obtained by "solicitation." It always has been. Arrange to meet some claims agents, take them to lunch (they expect it), and tell them what you can do for their company.

Some law firms manage to upgrade low-level insurance defense work into work for the other insurance companies which are willing to pay more properly and have the more complex types of defenses, such as products liability and medical malpractice. Others become overly dependent on the low-level work, and never break free from it. Immersed in claims cases, they neglect to market their services to other types of clients. Insurance defense can be a great place to start a practice. It is, with some important exceptions, not the best place to spend one's professional life.

Courts assign lawyers to indigent defendants in some areas, and some judges will consider new lawyers when doing so. Other lawyers get started by advertising for routine work, but there is a lot of that competition. Finally, the lawyer starting a practice can ask for referrals from more established lawyers in the community. Many busy law offices are happy to have help with small or undesired cases, and firms must sometimes refer out work because of conflicts.

Devise a Plan

What Is a Marketing Plan?

A law firm is an enterprise and every enterprise needs a basic business plan. The plan may be traditional and unwritten, or it may be a carefully prepared and often-revised document. Things do not just happen in a business, at least not on a sustained basis. Things happen because someone or a group of people makes them happen. A football team may "get a break" when the other side fumbles or makes a bad pass, but a team that wins more often than it loses does so because of a good program and a careful game plan. The same generality applies to the business of law. There are two questions you should ask yourself in beginning your business plan:

Question 1: Is yours an entrepreneurial firm?

In talking about private practice, we mean practice in the entrepreneurial environment of the small private law firm. Large, big-city firms are more like corporations, and can include some lawyers who are not entrepreneurially oriented. Successful smaller firm practice requires more than being a good and capable lawyer. The book How to Build a $100,000 Law Practice lists "ten essential requirements for success: (1) drive, (2) broad interests, (3) ability to organize, (4) ability to rise to a challenge, (5) self-reliance, (6) ability to be realistic, (7) intelligent use of time, (8) stamina, (9) originality of ideas, (10) knowledge gained through extensive reading and study." Two important items should be added to the list: (11) a sense of where the opportunities are, and (12) the ability to close sales.

This is a very imposing list of credentials. Lots of good lawyers miss a few of them, but they are nonetheless good lawyers, and may function well as partners in large firms or as in-house counsel. Every private firm needs some lawyers with these characteristics.

All of these 12 characteristics need not be found in a single individual. If a partnership of two or three lawyers can assess the strengths of each, and let each partner operate in the areas needed, they may be able to do as a team what none of them could do alone. However, these "essential requirements" are needed by each one-drive, self-reliance, intelligent use of time, stamina, and general as well as professional knowledge.

Question 2: In what business are you?

Here are descriptions of some successful law practice groups which have started in the last few decades:

Institute for Business Planning, Englewood Cliffs, NJ.

Customs Law Practice: This small firm challenges the duties levied on commercial imports, and is paid a contingent fee by the importer, based on duty reductions won.

Negligence-Plaintiff Practice: This sole practitioner in the 1970s determined that his small town could use a specialist in plaintiff representation. He convinced the eight other lawyers in town that he could do a good job for their clients, and that he would not do other legal work. He prospered through cooperative arrangements with the other local practitioners.

Immigration Law Specialty: A Philadelphia lawyer began to market this specialty to law firms and to corporations trying to get work visas for scientists as well as to the immigrant community. It has turned into a multi-city, multi-lawyer practice.
Pot Law: An enterprising young lawyer in a college town used his school connections to begin a specialty in representing young people accused of drug offenses. He has become an authority and is looking for avenues of expansion.

Personal Bankruptcy: Personal bankruptcy specialty firms have emerged in many cities since changes in Federal law provided a basis. These practices can be supported with advertising, and they are susceptible to systematization.

In each of these cases, the lawyers chose a specific area of practice, aimed at a certain market segment. This enabled them to (1) target their marketing efforts and (2) devise an organization and system designed for a narrow range of services. This is precisely what most lawyers do not do. Lawyers often try to be all things to all people, and therefore progress comes slowly. Focus is important to compete well. That's why a plan is needed.

A business plan may be multi-faceted. A law firm may provide certain services in one market, and other services for different constituents. For example, several large law firms contain litigation groups which work primarily for insurance companies. Other groups, in these same firms, may practice in commercial real estate, or in corporate-tax areas of practice. Often, no work or personnel flows between these different practices. Such a firm will have a different component in its business plan for each practice group. It will want the insurers to believe that the firm is dedicated to insurance litigation. The local business clients must think that the firm is in corporate practice, with a good ability to litigate when necessary.

Most smaller firms should have a limited number of objectives in the services provided and the clients sought. It takes all the time, energy and financial resources available to such a firm to crack one market at a time. There is a similarity with retailing. A small retailer can compete with Sears Roebuck in one area, be it shoes or hardware, but not in all of Sears' lines of merchandise. A small law firm that tries to provide every type of legal service will perform all of them inefficiently, and sometimes ineffectively. The small practitioner who wants to be known to all segments of the community will be known well by none.

Creating a Plan

Most established firms have a business plan, usually in the minds of the partners rather than on paper. The partners know what types of cases they want and whom they want for clients. This information should be written down by each practitioner, and the memoranda exchanged among the group. A master business plan should then be devised. The first part should deal with:
 

• What types of law cases will we accept?
• What kinds of lawyers do we want to join us as we grow?
• Which lawyer will perform what services? (And the reverse: What services will each lawyer avoid at all costs?)

The second part of the business plan must deal with the internal organization needed to support the first:
 

• Legal Work systems
• General support systems and organization
• Compensation plans to provide incentives

Lawyers have always engaged in the marketing of their services. Traditionally, however, it has been each member of the firm doing his or her own thing. There has been no single, coordinated firm-wide program to achieve agreed-upon objectives. As long as virtually all law firms operated that way, this type of marketing could work. In the aftermath of Bates this free-for-all approach to marketing has become an anachronism. Firms which develop new, coordinated business plans will beat the competition.

A considerable amount of effort is required to devise an initial plan. The process of defining the types of cases to be handled, and the client groups to be targeted, involves consideration of the following:
 

1. Profitability of various types of cases
2. Preferences and capabilities of various lawyers
3. Opportunities

Profitability can be measured only when complete time records are maintained by lawyers and legal assistants, so that labor costs can be allocated to cases. Unless a firm honestly determines the cost and profit available in various types of practice, it will not be able to come up with an economically sound business plan.

Unfortunately, emotion is sometimes substituted for accounting in the determination of profitability of areas of practice. Lawyers will argue that volume will substitute for a good hourly rate, even when mathematics demonstrates the contrary. Good plaintiffs' cases may overshadow the time wasted on cases with no or little recovery. Only where there is an adequate accounting of time and it is related to expenses and income can profitability be established.

If you are one of many law firms in your area, all with similar characteristics and capacities, it will be best if you target specific markets in order to narrow the competition. A market can be an industry, a neighborhood, an ethnic group, a group of unions and their members, or some other definable group of users of legal services. Here are a few real-life examples.
A Los Angeles law firm for years provided counsel to most of the independent savings and loan associations in that county.

A small suburban Philadelphia firm provides services to hospitals located throughout the country.

A city lawyer specializes in providing counsel to lawyers' wives in their divorces.

There are many special-need groups. If you can identify them, they can be part of your targeted markets.

Organize for Legal Work

Most of the law firms we have seen over the years are not well organized internally to perform legal work. Lawyers tend to think that management is limited to supervising secretaries. The few firms in which professional roles are carefully defined, and in which there are methods to ensure that the definitions are followed, practice more efficiently. Therefore these few firms can earn more and may even charge less per service.

Part of the business plan is who will do what, in terms of specialty, as well as how simple work can be delegated to the least expensive workers, how supervision and quality control are provided, and related management problems.

In order to implement an organizational plan, a firm needs a management hierarchy to deal with the production of legal work. One or more partners must have authority to assign, monitor, review, accept and reject. All of the partners in the firm may have a voice in devising a plan, but only a few must have and exercise the authority to implement it. The absence of such a structure is the single greatest failing of many law firms, and one of the principal reasons small firms stay small. A football team composed of eleven quarterbacks will surely lose every game.

The sole practitioner has only one structural component. He or she is the total organization who decides what cases to accept and what to charge, and performs the actual work and bills and collects the fee. The sole practitioner should out-line in his or her plan exactly what standards for acceptance will be developed, what fee arrangements will be standard, what commitment there will be to production of quality, what timely work will be adopted and how the billing and collection function will be handled. Even in a "one-man shop" this should be done in writing to form a plan to guide the organization.

Summary

Write out your business plan. Review it once a year. The plan must answer these questions:
 

1. What types of legal cases do you wish to handle?
2. For whom do you want to perform these services?
3. How can you best organize the firm's professional and other re-sources to (a) obtain the work, (b) perform the work effectively and efficiently, and (c) get paid for your efforts?