Small Law Firms

Back In The Race: Why Your New Year's Resolution Niche Practice Will Probably Fail

There is more to creating a successful niche practice than just effort and networking. What can you do to succeed?

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Now that 2015 is here, I am going to minimize gym time until around late March. This is because during the first few months of the year, the equipment, weights, and classes are taken by the “New Year’s Resolution” crowd who want to reinvent themselves. You know the type: they only show up once every few months, aerobics classes slow down because they can’t keep up, they are drenched in sweat after 10 minutes, and walk to Dairy Queen after their “workout.” A lot of them are noticeably out of shape. After a few months, most of them disappear feeling discouraged because they don’t see six-pack abs after doing 10 sit-ups and switching to Diet Coke.

In the solo practice and small law world, I noticed some similarities when lawyers try to reinvent themselves by trying to start niche practices. During the holiday parties, I heard a lot of spirited discussion among lawyers about starting a niche practice. They gave the usual reasons for starting one: It’s easier to develop expertise, easier to market, you get to work on areas that you enjoy, and clients are willing to pay larger fees. But for many, it’s back to the usual grind once the booze wears off and the huge January credit card bill arrives. Some will move forward with the niche plan, but even among this group, a large percentage of them will give up after a few months (or after a few years) because they don’t see results.

At this point, the critics will say that the lawyer’s niche practice failed because she put in the effort equivalent to doing 10 sit-ups and drinking Diet Coke while expecting six-pack abs. But there is more to creating a successful niche practice than just effort and networking. So today, I want to talk about why I think many niche practices fail.

One reason is because some people start them on a whim through some combination of passion, past work experience, and desperation. In other words, they neither do any (or minimal) research nor have a solid business plan. They just start and deal with the problems as they arise — the cornerstone of entrepreneurial spirit. I discussed this problem at length when I wrote about deciding to start a solo practice. But in niche practices, preliminary research and planning is very important because your goal is to identify, locate, and service specific clients. This might prove to be difficult and expensive. For example, you may learn that your potential clients tend to meet at conferences. If this is the case, you will have to pay large fees to attend these conferences. Also, if your potential clients are other lawyers, in particular in-house counsel, expect a substantial Biglaw presence that will be competing for their business.

Look, it is important that to be passionate about your work because it will motivate you to work the extra hours or put up with the stress just a little longer. But if you learn that the clients you are seeking are not in your geographic area or are otherwise unavailable to you, your niche practice will fail before it begins. So take steps to ensure that your niche practice will be profitable.

Now let’s say that the entrepreneurial attorney has done some market research and has a viable business plan. A second reason why niche practices fail is because the clients are not willing to pay the “niche premium.” Why is this? There are numerous reasons: the economy, competitors’ fees, and the silliness of the niche to name a few. But a lot of times, the lawyer has not proven to the potential client that her specialized skill is worth the extra cost. The classic example of this is family law attorneys who only represent men or women. This sounds more like a preference than a specialization. It is great that there are divorce lawyers that understand soon-to-be single mothers’ needs and it may appeal to potential clients. But in my opinion, it will be hard to convince a client that your “niche” will provide a tactical advantage in a contentious divorce thus justifying the higher fee. As Mark Herrmann points out, you will have to prove that your premium fee will be cost-effective in the long run. Or you have to prove that hiring you will maximize the client’s chance of winning.

Finally, if your niche practice ends up becoming successful, it might tempt other lawyers to be competitors. In medicine, board certified specialists make more money than primary care doctors because there are fewer of them and it is very difficult and uneconomical for doctors to change specialties after graduating medical school. On the other hand, lawyers can change or add specialties simply by adding a line on their website or their business card. Those with strong sales skills and a bigger advertising budget will have an easier time breaking into the market. Of course, they will need some guidance, and guess who they are going to contact to answer some “simple questions” that results in 30 minutes of follow up questions….

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Now having competitors enter the market is not necessarily bad. You can refer out incompatible clients. Competing attorneys can work together on larger cases. And if a Biglaw firm wants to enter the market, the firm may consider hiring you on a contract basis or buy out your practice if it is large enough. So while competition does not necessarily mean that your niche practice will fail, it will make your once successful practice more difficult to run. You may have to change your business model — including reducing fees — to meet market realities.

Starting a niche practice can be a great way to practice in a specialized area of law that you enjoy while commanding higher fees. Just make sure that you can locate your clients, service them properly, and discourage other lawyers from entering your niche. And of course, do more than the daily 10 sit-ups and cut back on the Diet Coke.

Shannon Achimalbe was a former solo practitioner for five years before deciding to sell out and get back on the corporate ladder. Shannon can be reached at sachimalbe@excite.com.

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