When I started my firm, several mentors gave me the same advice: Don’t work for free. It’s easy to see the problem with working for free. Giving away what you’re trying to sell isn’t exactly in the business plan. Unfortunately, this sage advice can only really be learned the hard way, through experience.
Working for free can arise in many different ways. The most obvious example is a client who wants you to represent him but can only promise to pay you later.
Even if your gut tells you that taking on that client is a bad idea, this can be surprisingly tempting to a new firm or solo practice. For starters, there is such a thrill with getting your first client, or your first “real” client, or your first big client, or your first whatever client, that the excitement can cloud your better judgment. You will be tempted to overlook the red flags that you will not be paid for your work….
You also might tell yourself that you are building an important relationship that might pay dividends later. Here in Silicon Valley, the scent of big money is always in the air. We’re actually experiencing something of a boom, believe it or not. Startups abound and venture capital is flowing, albeit cautiously. Every startup hopes they will be the next Facebook, and some of them actually will be.
In this environment, it’s tempting to think that if you establish a good relationship with a client, the company will “grow with you” and you will end up representing a large and lucrative company. And indeed you might, but the odds are poor and the business strategy is questionable. And to make matters worse, most businesses that grow tend to “upgrade” their lawyers when they become successful, either as a sign of status or because their investors demand it, or for a number of other reasons.
Increasingly, clients will negotiate and ask you to lower your rate. This is a business decision you have to make carefully. After all, your rate likely is somewhat arbitrary and market-driven rather than determined by your expenses. So you might reasonably and correctly believe that accommodating that request is a good business decision. But at some point, lowering your rate too much becomes a more moderated version of working for free.
Rather than simply ask that you defer their payment, some clients will offer you alternative fee arrangements, such as ownership or stock in their company. Ethical concerns aside, this suggestion is especially prevalent where I practice, and especially tempting. But unless you really have an independent interest in investing in a client, it usually isn’t a good idea. This strikes me as similar to taking on contingent fee cases in which the chance of winning is so unlikely that any potential upside really doesn’t matter.
Other clients may start out paying their bills, but fall behind slowly over time. For a new firm, it can be really tough to aggressively collect from those clients, and virtually impossible to turn them away. “After all,” you think, “that client has been paying my bills so I can’t fire him now. I owe him my loyalty.” The result is that you end up working for free, and ignoring the advice that seemed so obvious.
One way to try to prevent working for free is to demand an advance retainer. But it’s so easy to slip, and if your bills are not paid promptly and you use the retainer for that purpose, you might soon find yourself back at square one, deciding whether to continue working with only a promise of future payment.
Also, especially when you’re starting out, it’s easy to worry that if you ask for too much money up front, you will scare the client away.
But that might be a blessing in disguise. Better to discover early on that a client is unable or unwilling to afford you, rather than learning that only after you become knee-deep in the client’s matter. Requiring an advance retainer can serve as a test of the client’s willingness and ability to pay your bills. In high-stakes or complex litigation, fees can mount quickly. If a client can’t afford the retainer I request, the client likely won’t be able to afford my monthly bills if we become embroiled in litigation.
Admittedly, some of my larger institutional clients refuse to pay a retainer and are notoriously slow on their payments. But with these clients, payment is virtually guaranteed, and the potential scope of work is so large that there often is no need for a retainer. For most clients, however, insisting upon an advance retainer is essential. Rather than being “scared away,” some clients respect you more for insisting, and might even subconsciously value your services even more.
* * *
Working for free is insidious for new firms and solos because when you first start, any client seems like a good client. It’s easy to believe that working for a non-paying or dangerously slow-paying client is better than not working at all. Isn’t a bad client better than no client at all?
Actually, no. Even without other readily apparent clients, the hidden cost to working for free is the time lost for business development. Nothing comes for free, and when you run your own practice, taking steps to generate business is always high-value work you can do. Instead of spinning your wheels working for a non-paying client, you could use that time to help you find clients who will actually pay you.
Tom Wallerstein lives in San Francisco and is a partner with Colt Wallerstein LLP, a Silicon Valley litigation boutique. The firm’s practice focuses on high tech trade secret, employment, and general complex-commercial litigation. He can be reached at firstname.lastname@example.org.