Making the decision to start a law firm is difficult. It’s nothing but nerve-wracking until you press start and you’re into it — without a safety net, and too busy to care about hypotheticals anymore.
The choice to move forward with launching is multifactored and different for everyone. That said, everybody has the same thought: I think this is a really good idea, but I don’t want to kill it like that fern I gave to Aunt Mildred that no one was supposed to be able to kill. Nobody wants to be Aunt Mildred — least of all you.
The Best Weapon Against Paralyzing Uncertainty Is Practical Knowledge
You go to your doctor because you want to spot problems. You go to a specialist to restrict or resolve problems. It’s much the same when you’re establishing a new law firm. You can easily pinpoint (or have your spouse pinpoint for you, in my case) all the things that could go wrong. But that needs to be tempered by a realistic view toward longer-term viability.
So, let’s address some of the misconceptions you may have about starting your own firm and take a measured view of the situation.
Misconception No. 1: There’s No Way You’ll Make Enough Money
When contemplating the leap into a future that lacks regular income, all you see are the expenses. The question of how you will meet your office expenses — let alone your home expenses — when you can barely do that on your current, regular salary is a valid one. And, yes, it’s a cheap answer to say you just kind of figure it out — even if you do: I mean, if you’re being attacked by a bear, do you try to fight off the bear or do you meekly shrug your shoulders and say, “Just not the face”? Humans are the most adaptable creatures in nature, and that includes an ability to generate revenue when threatened.
That being said, right now, starting a law firm is far less expensive than you probably think. Cloud services have flattened technology costs. Traditional office lease terms are passé. Salaries and benefits continue to stagnate. It’s actually a pretty darn good time to be opening a business. It’s not gonna be easy, but it’s not going to be as hard as it was 10 years ago.
Misconception No. 2: All Small Business Are Doomed to Fail
It’s true that most small businesses fail. But it’s also true that most small businesses that cross a certain threshold — three to five years of operation — will not fail. The temptation when starting a law firm is to focus on major gains in the near term. But building a business is mostly about commitment to an idea, with a willingness to see it through to the end. If you have something of a financial runway to get started, and the will to scrape and crawl through the first three years, your chances of building a successful business increase exponentially. And, after that, the turns on the racecourse start to come at you faster: By year five, you may be looking hard at growth strategies.
It’s impossible to control all the things that happen to your business. There are external, complicating factors you’ve probably not even thought of. The best quality to drive success is mostly a willingness to stay on the horse.
Misconception No. 3: You’ll Never Figure Out Your Fees
Setting fees is probably the single most difficult financial choice a new law firm has to make — unless an incoming book of business has mostly settled that issue for you. But starting from scratch can be daunting. Your competitors will not tell you what they charge, and the vast majority of lawyers do not post their fees online. Nor do bar associations facilitate rate discussions, for fear of price fixing and antitrust law accusations. Secret shopping for rates is cheesy. You can backdoor the rate question, though, while simultaneously setting revenue goals for yourself.
Here’s a simple trick. Figure out how much your personal expenses total for the year. Then, figure out how much your business expenses are likely to be. Pick a rate, any rate ($200 per hour?), then divide your total payment requirements by that number. That’s how many hours you’ll need to bill for your first year.
Did the first hack at it feel comfortable? If not, make adjustments and try again. Start with hourly rates, because the math is easier, and you can create a value billing program with time spent as a primary component. Remember, you can adjust up or down over time, as the need arises. In any event, you should review your rates at least annually.
Misconception No. 4: Embrace the Virtual Workspace
Running a “traditional” law practice is just not viable for a startup firm. Honestly, it’s probably not recommendable for an established firm. But, when starting up especially, you can save time and expense by creating a modern work environment. This is not intended to be an exhaustive list, but there are two ways you can save money over traditional office requirements.
- First, don’t acquire a lease for office space. Office space is the biggest expense for most traditional businesses, and it is especially costly in large metropolitan areas. At this stage of the game, almost every business is internet-based, so take advantage of that fact to work wherever you want. Start with a home office, which is free. Or upgrade to a shared space, or ultimately a virtual office. Do that, and you’ll save yourself thousands (perhaps tens of thousands) of dollars every year.
- Second, hire a dispersed workforce, if necessary. Think about it: If you can work from anywhere, then so can anyone else who works for you. Plus, if you’re not hiring with an attached requirement that your new employees work in one, specific physical location, you can save on traditional office hardware and IT costs.
Tethering everyone in your workforce to a physical office is so 2017.
Misconception No. 5: You’re One Ethics Blunder Away From Disbarment
Probably the chief concern I talk lawyers down from in terms of starting a firm is the fear of immediate disbarment. If that sounds totally irrational to you, that’s because it is. Nonetheless, it does not prevent lawyers starting law firms from expounding on the notion that they will shortly make an ethics blunder, which will inevitably destroy their new business, all their family members and themselves. First of all, slow your roll. It probably won’t happen that fast. Start by destroying your business, and then work on your family. But, in all seriousness, statistically speaking, new lawyers are less likely to commit malpractice than more senior lawyers, because they’re more careful — and the same goes for lawyers starting new practices. So, let the fear motivate you to be careful but don’t let it consume you. Chances are, you’ll be alright.
If the concept of starting a law firm seems to you like working out a Rubik’s Cube covered in super glue, I’m hosting two immersive Build Your Own Law Firm workshops, where I’ll answer your questions and help you to create a viable business plan for the first year of your new law practice. For more information, visit www.buildyourownlawfirm.com.