4 Steps to a Profitable Small or Solo Law Firm
September 3rd, 2019
Contributor: Chris Attig
The Business of Law - its not something we really think about until we need to know something about it.
Every time I’ve needed to find a lawyer who can help me understand the law, argue a point in a motion or brief, or figure out the practice of law, I’ve been able to find a lawyer willing to help.
Sometimes in the form of education or advice. Other times, in the form of mentorship and professional development
The same cannot be said when I’ve needed help with the business of law.
Whenever I’ve tried to work through an issue with the business of law, I have been unable to find attorneys to help.
It’s not malicious. Plenty of lawyers tried to work through my “business of law” issues.
Here’s the problem, though.
Lawyers are generally not good business owners.
I think there are a few reasons for that.
First, there is this old idea that the law is a learned profession, and that when we treat our practice like a business, our motive shifts from justice to profit. A not-so-small contingent of the legal profession turns their nose up at concepts like profit, overhead, capital, or anything related to the business of law. You can spot these folks by their response to the phrase "legal marketing." If they blow a gasket, you've got a #LearnedLawyer on your hand.
Second, lawyers are just never taught the business of law. Business development courses were not available at my law school, and though I can’t say I’ve looked at every law school, I have not yet seen a program that helps law students understand the inner workings of the business of law.
Third, when we hang out our shingle, our number one focus is finding clients. We have mouths to feed, and don’t worry too much about figuring out our margins, or overhead hourly rates, or any other such statistic.
Fourth, attorneys do not like to talk about money. Perhaps we are too obsessed with avoiding the appearance of weakness that we are unwilling to talk about the extent of our war-chest. Perhaps it feels awkward to classify the problems of our clients as profit or loss.
When I hung out my shingle in 2006, I did not have a concept of the “business of law.” The phrase wasn’t even on my radar.
The Business of Law is more than "Work. Bill. Collect."
The extent of my understanding of the business of law was three steps. Work. Bill. Collect.
I’ve made it as far as I have in the legal industry for two reasons: luck, and the willingness to learn from successful business owners outside of the law.
Over the years, my firm has seen its share of ups and downs.
The first time I saw a check for a quarter-million dollars in attorney fees, made payable to me, I stared at it for an hour. I shit you not – a full hour. I’d never seen that much money in my life – or imagined I’d ever see that much money in my life - and I had no clue what to do with it. But damn, was it nice looking at that check.
The night after I let go all of the firm’s employees a few years back, I sat in my backyard and cried. Over the previous 3 years, I’d implemented an ill-advised growth plan that slowly brought the firm to its knees, and I wasn’t going to be able to make payroll for the foreseeable future. Darker thoughts than tears crossed my mind that night.
Through all the ups and downs – and there have been more than those two - I’ve learned a lot about what it takes to build a profitable small or solo law firm. And I’d like to share what I’ve learned with you.
Running a law firm as a business is a challenge.
Running a law firm as a profitable business is a necessity.
The Absence of Profit is the Absence of Autonomy and Control.
If we don’t “mind our own business” and focus on ensuring that our practice is profitable, we will fail.
If practicing law was just about success or failure, though, we could just pick ourselves up, knock the dust off and try again like other business owners.
But practicing law is not just about success or failure.
Profit, and a profitable business, does more than just make us money.
Without profit, we are constrained – indeed, restrained - by our own problems and struggles.
We can’t have an impact on society.
We can’t change people’s lives.
We can’t help people navigate their way out of a jam.
We can’t help people buy their homes, or take care of their family members.
It is precisely our ability to understand and practice the business of law that helps us find happiness in the practice of law.
The absence of profit is also the absence of autonomy and control.
I don’t think that building a profitable law firm needs to be difficult though. It will require thought, planning, focus, follow-thru and measurement, to be sure.
The business of law is all about rolling our sleeves up, and taking smart steps to ensure that even while we do the Lord’s work in our legal practice, we are mindful of the business of law.
The 4 Steps to a Profitable Law Firm Business.
Beyond personal commitments to seeing the work through, I believe there are only 4 steps we need to take to ensure that we are “minding our own business” and ensuring that our law firm is profitable.
Step #1: Define the DNA of your Law Firm.
I borrowed that phrase – Business DNA – from a business coach who taught me a lot about how important it is to define your law firm’s purpose, establish a vision for how you are going to get there, and lay out the values that will keep you on track throughout your journey.
These concepts often get a bad rap. Like “Mission Statements” and “Elevator Pitches,” these phrases have become tired and hackneyed corporate excuses to justify another meeting.
But it is vital that we as attorneys define our “Purpose."
What raison d'être does our firm exist to fulfill? What is the point of having this law firm in the first place?
Nobody exists to practice veterans law or criminal law. That’s the service the business offers.
Our purpose is both intensely personal and intensely private.
It is not the tag line on your website.
It is likely not even something we might share outside of the firm.
You may – but need not – share it with the attorneys and employees in your law firm.
You may – and should – revisit it from time to time.
But if you can’t write down in a sentence what your business exists to do, then you are very likely to become a Door Attorney.
Door Attorneys take whatever cases come in the door. This type of practice is a greased rail to failure.
Defining vision and values are the concepts that set the foundation for your firm’s success and, by extension, its profitability.
There was a time that I used to think that my firm’s vision was some grandiose idea of how I would change the world. It’s far less and, simultaneously, far more.
It is the answer to this single question: What tangible measurable goals do I want to achieve?
Your firm’s values are the bumpers on the lane, to use a bowling metaphor. Our values keep us on track to fulfill our vision and achieve our purpose.
If we compromise those values, it becomes infinitely harder to be a profitable law firm.
Step #2: Write down your Annual Goals.
The self-help industry has sucked all the fun out of setting achievable goals.
“Goals have to be S.M.A.R.T.” they’ll tell you. “It must be ‘specific,’ ‘measurable,’ ‘attainable,’ ‘realistic’ and ‘timely.’ ”
You’ll embark on hours of contemplation, navel-gazing, word-smithing, and evaluation trying to make sure the goal you’ve crafted meets the “SMART” criteria.
You’ll pack so much information into your statement of your goal that it will become a sentence of meaningless drivel that lacks excitement and energy.
Do you think an Olympic marathon runner spends hours crafting a goal that is SMART?
If they did, it might sound like this: “I will win the gold medal and beat the German runner by running the first 10k of the marathon at 15 seconds below my tempo pace, the second 10k by …. Blah blah blah.”
There’s a time and place for assessing if a goal is “SMART,” and its not in the annual planning that is necessary to the business of law.
Goals are fun.
Goals are energizing.
Goals are motivating.
People coalesce around simple, fun, energizing and motivating goals.
So keep your goal simple. Keep it clear. Keep it brief.
I am going to show you how to do just that, with the answer to one question.
I’m going to encourage you to set the bar high. We tend to hit the mark we aim for.
Why not set that mark high?
Step #3: Fulfill those Goals through the 6 Key Areas of your business.
While setting a goal should be quick and easy, energizing and fun, laying out the steps to reach that goal requires a lot more work and thought.
To fulfill any business goal, the full force of the business has to fall into step behind it. Every facet of the business must work towards achieving that goal.
And, if you are a small firm or solo practice, your annual goal will need to be broken down into manageable bites.
How do we do this?
First, we have to understand the six key areas of our businesses. Second, we have to write down 1 – 3 things in each facet of the business that need to be done to achieve the primary annual goal.
Briefly, these are the 6 key areas of a business:
1. Financial. This aspect of our business requires we continuously monitor the cost of running the firm and the revenue the firm is bringing in. It is the world of cash flow and profit.
2. Operations. This is the core work of the business. To meet a business goal, you have to do certain things in your day to day business. You have to hire the right number of clients. You have to work your cases efficiently. You have to get the work done in the handful of hours you get each day to work in your business.
3. People. If you are a small firm, you need people to meet your goal. And you need those people to be on the same page as you when defining and executing your goal. And you need the right people in the right jobs.
4. Systems. If operations are the core work of the business, systems are the tools we use to perform that core work and create a work product or service. Systems include tools like file management, calendaring, CRM (customer relationship management), reporting, accounting, email. Systems are the tools that we use to slowly replace ourselves in the daily work of the firm.
As the author of the book “Work the System” teaches, systems include our operating procedures and the methods we use do the core work of our firm.
5. Marketing. This facet of the business is often the one that most attorneys dread. Nobody wants to “sell” for a living after spending 3 years in law school and almost a year of life trying to pass the bar. Marketing is not sales. When you market your practice, you are not trying to sell your legal acumen, or your firm’s success or values. You are bringing your services to market to sell. Marketing is about learning more about that market, not about how you sell to them. Lawyers sell by their reputations and their accomplishments. But lawyers bring their firm to the right market by understanding the needs of their ideal clients, and how their firm or practice is uniquely capable of fulfilling those needs.
6. Golden Eggs. This facet of the business is the most important amd the most ignored. By not focusing on this aspect of your business, you will eventually kill the goose that lays the golden eggs. We as attorneys must maintain our physical, mental, and spiritual health, and build the strategic relationships that make our lives fun and empowering, and our work enjoyable and profitable.
Step #4: Scan the horizon for threats and opportunities.
Remember earlier I told you about the time I had to let go the entire staff because we couldn’t make payroll?
It happened because I was blindsided by a threat to the firm.
I was vaguely aware a threat was out there. In hindsight, I can see how I might have foreseen how that threat would wipe us out if it materialized.
But at the time I was so focused on growth – growth that was not consistent with my values, mind you – that I never took the time to scan the horizon for both threats and opportunities.
As GI Joe used to say: “Knowing is half the battle.”
So these days, I make a point to look for threats and opportunities. I’ve used a tried-and-true method of scanning the horizon.
I don’t have to protect against every threat, only those that are truly existential.
And I don’t have to chase every opportunity. But knowing they are out there, and how close or far away they are, can be a game changer at your firm.
More about that later.
What I’ve outlined above is my basic philosophy of the Business of Law. There’s more to each step that I’ve learned the easy way and the hard way.
And, there are aspects of each step that I have yet to fully learn. For example, after 13 years in private practice, I read a book at the beginning of 2019 that changed my entire conceptualization of “cash flow.” Implementing that strategy has launched my firm to levels I thought would take 3 times as long to reach.
My point is that “minding our business” is not a once and done thing.
It is a method that allows us to constantly improve our business profitability so that we can spend more of our time doing the things that we became lawyers to do.