Do you need to employ other lawyers?

The point of this post, as with all posts in the series, is a challenge to throw away all the “traditional” options, and assess critically all available options. Do you really need to employ expensive resources in your firm – are there any other options?

Even today, law firm profitability is linked strongly to “leverage”, i.e. the ratio of fee earners who do not share in the firm’s profits to those that do. Very simply, (providing work is available) a sole practioners is more profitable doing less work him or herself and delegating to assistants, than he or she would be if they tried to do all the work themselves. Bluntly,  the key to profitability is paying your staff less than your client’s pay for your staff’s time.

So, all other things being equal (essentially the availability of work), it’s more profitable  to have 2 or 3 assistants to whom you delegate, than to try and do all the work yourself.

However, employees are a big responsibility (read “expensive”!) which you might not want to take on at first. Do you need to employ anybody?

Virtual Law Firms were “all the rage” a few years ago. While the exact nature of the arrangement varies, they usually have a few things in common. Typically, their lawyers are not employees, but “contractors” who share back office costs, and have a fee sharing arrangement among themselves, and with the virtual firm. Very much an “eat what you kill” approach to organising a firm. However, typically, they also carry out work for other solicitors. So if you do not need a full time assistant – could a virtual law firm provide a “contractor” to do the work you need done on an ad hoc basis? This might also work where a client needs a specialisation you don’t have – perhaps one of the “contractors” at the virtual law firm can provide that service?

However, this might be too loose an arrangement, or you may feel you will have enough work from the outset to justify an assistant or two. But again, who do you want to employ, and is the traditional employer employee arrangement the way to go?

You need to think very carefully about the firm you want to create, and why you want to create it. If your target market requires high volume low margin transactions, then employing paralegals might be the best option. However, if you are working at the bleeding edge of the law, on high value transactions, you will need to employ highly skilled (read “expensive”) solicitors to assist. What arrangements might you negotiate to persuade them to join you? What about incorporating your practice and giving them shares? In this way they have an equity stake, but (providing you keep control, and they are not directors) no say in running the business. Might that motivate them more than a large salary?

If you are planning to sell your business, share options are another possibility.

So, while good people will always be your greatest asset, they are also your most expensive. Is there a way to get the assistance you want, without the downside of employing expensive resources?

David

If you have answered the first three questions, this one should answer itself. If you have decided that you want to create a niche firm specialising in a particular area of law, acting for a relatively small market segment, and those clients will instruct you because of that expertise, you probably do not need to create a huge firm. However, if you want to create a firm acting for a wide range of commercial clients, across a wide range of market sectors, then you need the scale your business to allow you to do so.

The point is – let your market decide the scale of your business, not the other way round. There is no point in creating a large business, with all the costs that involves, if there is no need. Alternatively, a small business may find it hard to service the clients you intent to work for, or the work you intend to do.

The size of your business will also determine the capital required to launch it. All things being equal its easier to launch a small business than a large one. However, it’s easier to launch a larger business now than it was.

If you have compelling answers to the first 3 questions (What sort of law firm do I want to own, who are my prospective clients, and why should these clients instruct me?), then it will soon be possible to attract external investment to law firms. This should allow legal entrepreneurs to create firms with greater scale, more quickly than was possible in the past.

For a topical example, Google  Brilliant Law.

David

This is the first article in the “Creating a Law Firm From a Blank Sheet of Paper” series, and it’s perhaps the most fundamental. Before you start ordering computers and letter head, think hard about what sort of law firm you want to create.

How many lawyers take time to think about exactly what kind of law firm they want to work in, and then set out to create that firm? Very few I suspect.

It’s a very personal question. It touches on the fundamental reason of why you became a lawyer in the first place. I dare say it’s different for each of us. But it is the key question to ask when creating your law firm.

If you became a lawyer because of the legal profession’s role in fighting for individual rights, then you probably don’t want to create a large commercial law firm acting primarily for large corporations. If you became a lawyer because you are interested in the process of starting and growing business, which create wealth, opportunity and employment, you might not want to create a niche criminal defence practice.

Trivial examples I know, but they illustrate the importance of the question.

But it goes beyond these trivial examples, to encompass all aspects of your  firm. Do you want to have partner’s meetings in a lecture theatre, or do you want all your partners to fit round a board room table? Do you want to practice in a very specialised area of the law, perhaps in a specific sector, or do you want to act for a wide variety of people, helping them with more general legal problems?

The point is – spend time thinking about what sort of lawyer you want to be, and what sort of firm you want to create. These decisions will (and should) have a significant impact on how you create your firm.

The next question is  – “who do I want to act for”.

David

Here’s an interesting article I came across about how lawyers do what they do (https://legalprojectmanagement.co.uk/blog/index.php/2012/12/client-need-and-some-trends-in-legal-service-delivery/?goback=%2Egde_4613980_member_193690011). It’s interesting in itself, but it really chimes with something I wrote a while ago about designing a law firm from a blank piece of paper.

One of the themes of this article is the process lawyers go through when completing client work. Most of us (and I include myself in this) approach a client assignment by jumping straight in and getting on with the first thing that needs done. Few of us stand back and plan the transaction in any detail.

But more importantly, how many of us analyse the process as a whole. By this I mean,how many of us look at the process of buying a house, or conducting litigation, or processing an executry, or selling a company, and consider precisely what needs to be done, and how we do it, and then go on to critically analyses all the steps involved from the client’s perspective? If we did, could we re-engineer that process to make it more efficient, quicker, cheaper, and more client friendly? I bet we could.

And if we can do it once, we can document that process, replicate it, train staff in doing it that way, and suddenly the client experience is consistently better in everything we do.

And if we have a consistent process, that is distinctive to our firm, and which delivers excellent client service, we are a long way towards creating a brand for our business that is distinct from everybody else, and while crafted by you, does not need you to make it work.

And that’s crucial if you want to sell your firm!

And that’s a theme to which I’ll return.

David