Over the last few years, the legal market has changed dramatically. We live in a buyer’s market in which the clients hold the upper hand and can demand financial concessions from their attorneys that go beyond lower hourly rates.
This good news for clients might sound like bad news for lawyers. If lawyers can’t charge as much, they likely won’t make as much. But although greater price competition might lower revenue for some firms, it surely presents an opportunity for others. Small law firms often compete with bigger firms on price, and increased client sensitivity to legal fees can be a marketing boon to firms that can undercut their competition (with the familiar caveat, of course, that the smaller firm must be able to provide the resources and quality required by the particular matter).
The changing market invites, if not demands, lawyers to offer concessions for clients. Happily, many of the concessions have relatively little impact on the firm’s bottom line, but can garner significant goodwill with clients. For example….
I’ve written before about some of the challenges a small law firm faces when hiring employees. But more fundamental and difficult questions are why and when should a solo or small law shop expand by adding employees?
Like all businesses, most firms with excess demand for their services have a natural incentive to grow. A company is leaving money on the table if it is forced to turn away work because all of its lawyers are at full capacity with their billable work.
The incentive to grow might be tempered by concerns over preserving a valued culture. A small law firm might resist growth because it fears disrupting a favorable workplace environment. With each new associate hired, however, the reasons for not hiring the next associate get weaker.
The major disincentive to growth is the inability to predict future business. Litigation is especially fickle. A case might go to trial, and generate hundreds of hours of billable work, or suddenly be dismissed or settled. In litigation especially, sometimes the line between swamped and dead is razor thin.
This uncertainty makes hiring additional associates extremely risky — even if the immediate workload warrants it….
I hate to invoke a cliché, but “David versus Goliath” captures the challenge a smaller firm faces when litigating against an Am Law 200 firm. A small firm can feel like David when facing a larger firm that can bring more resources to bear on legal research, drafting motions, reviewing documents, etc.
The challenge increases when applied to clients. Many of my firm’s initial clients were startups or emerging companies with limited litigation budgets. Their adversaries often were much larger, established companies with seemingly unlimited budgets. Thus, we faced not only the challenge of litigating against brand-name firms with hundreds of attorneys, but we also initially had clients who simply could not afford to spend as much in legal fees as their well-heeled opponents.
So how can a small firm, especially representing a smaller company, effectively litigate against a proverbial army of lawyers representing a client to whom money is no object?
For attorneys who bill by the hour, one of the less enjoyable aspects of the job is recording time. For many associates, entering time is a necessary evil done only under coercion. The process also can be fraught with pressure. Associates know that all too often their worth might be measured by their billable hours.
Of course, for big and small firms alike, we tolerate the timesheets because they are our firms’ lifeblood. Recording our time enables our firms to generate their invoices. The inherent purpose of entering our time is to generate this request for payment.
But an invoice can and should do much more, especially for a small firm or solo practice….
This post is dedicated to William A. Rutter, who passed away last week. If you’re not a lawyer in California, you might not recognize the name. But at least in my world, Rutter is the guy who produced the invaluable and ubiquitous Rutter practice guides, covering a wide range of practice areas and procedures.
If you’re not from California, you might be more familiar with other Rutter creations, like the BAR/BRI prep course he founded, or his Gilbert Law Summaries for law students.
My firm, like most firms in California, has a series of Rutter guides on our shelves. And even though we run a virtually paperless office with Lexis, Westlaw, and other electronic research options, I still love my printed Rutter guides. We even have a joke about Rutter. Whenever a colleague questions their ability to handle a particular matter or solve a particular issue, we joke, “I’m sure there’s a Rutter Guide for that.”
The joke has a serious point, namely, that the basics of most practice areas can always be learned. And if it’s easy enough to learn a practice area, why shouldn’t a lawyer forming a solo practice or small firm become a true generalist, handling everything from family law, wills and trusts, civil, criminal, and essentially whatever walks in the door?
A general counsel recently asked me, “Why should my company risk hiring a lesser-known, small firm?”
I told him that it shouldn’t. I don’t think any company should unnecessarily “risk” its business without good reason. I’ll be the first to admit that there are some matters that simply demand big firm attention.
But I also told the GC that there were many matters that I thought my smaller firm could handle just as well as could a big firm, and with cost savings that would be relatively significant given the amount at stake.
I wouldn’t ask someone to hire me if I thought that doing so was risky for them. A client should not have to choose to lose or win; it needs to make sure the small-firm attorneys have the necessary skill and experience. But with that caveat, some matters are particularly well suited for boutique treatment.
Assuming a client can afford to hire a Biglaw firm for a particular matter, why might it consider a small firm or boutique — beyond the obvious lower cost?
When Above the Law first covered my “adventure in shingle hanging,” I remember someone quipping that our only business came from attorney referrals and that we didn’t have our “own” clients. The comment wasn’t true, but I still found it interesting. Is a client who pays you money somehow not “your” client, or not a “real” client, just because the client was referred to you by another attorney? That doesn’t make a lot of sense to me.
But it is worth thinking about the different ways that solo and small law firms try to generate business. There is a valid distinction between approaching a prospective client and asking him to engage you, and approaching other lawyers and asking them to refer cases to you. I’m not sure one is necessarily superior to the other, but they are different approaches. I think of them as “direct” and “indirect” client solicitation.
I also distinguish “active” and “passive” methods. An active approach is where you identify your client and solicit them. A passive approach is where you do something that encourages clients to solicit you. Passive isn’t a pejorative; for example, a good website is an important part of passive business development.
So, I think business development efforts can fall into a matrix. Check it out, after the jump….
For some, the phrase “small law firm” implies certain stereotyped practice areas, clients, and attorneys. At its worst, the stereotype invokes unsophisticated clients and matters that are routine and uninteresting. I doubt the stereotype is wholly true anywhere. I know for sure it isn’t true in San Francisco or Silicon Valley.
I know many attorneys in small firms who have specialized, high-end practices. These specialized practices are often called boutiques, and they are perfectly suited to serve the entrepreneurial, high-tech client base that abounds in the San Francisco Bay Area.
It remains to be seen whether we’re experiencing a boom or just another bubble, but I guess it doesn’t matter anyway. I’m not an economist and I’m not making predictions. I am only remarking on some great practice opportunities for smaller law firms which exist here, maybe because we are fortunate to have so many imaginative, passionate, and savvy entrepreneurs working on exciting projects in so many different industries….
Thanks to everyone who has sent me emails; really, I’m flattered. I promise I will get back to everyone. A lot of people have asked me questions. For example:
“I am currently a third-year law student . . . . I am hoping to eventually open my own firm (sooner rather than later perhaps) as I am willing to suffer the first few years of practice and not making money in hopes that I can recoup that years down the road . . . . I do not feel that my best years should be wasted working for somebody else (my opinion of a firm is that they are useful right out of school to ‘learn the trade’ but outside of that the firm benefits more from an associate than the associate benefits from the firm . . . .”
I’ll answer this one publicly:
If you are in law school and you have the choice between working for an established firm — big or small — or working for yourself/starting your own firm, it’s a no-brainer that you should go with the established firm first. You can always leave the firm to pursue your own practice at any time, but the converse isn’t true: Once you go out on your own you might forever lose opportunities you have as a student.
In any event, I disagree that a firm necessarily benefits from an associate more than an associate benefits from the firm. I’ll stick with the only thing I really know: my own personal experience. I wrote in my first-ever blog post that “none of my limited success would have been possible without my Biglaw experience.” I think there are three reasons this is true for me….
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….
If your firm is in ‘go’ mode when it comes to recruiting lateral partners with loyal clients, then take this quiz to see how well you measure up. Keep track of your ‘yes’ and ‘no’ responses.
1. Does your firm have a clearly defined strategy of practice groups that are priorities of growth for your office? Nothing gets done by random chance, but with a clear vision for the future. Identify the top practice areas for which you wish to add lateral partners. Seek input from practice group leaders and get specifics on needs, outcomes, and ideal target profiles.
2. In addition to clarifying your firm’s growth strategy, are you still open to the hire of a partner outside of your plan? I’ve made several placements that fit this category. The partner’s practice was not within the strategic growth plan of my client, but once the two parties started talking with each other, we all saw how it could indeed be a seamless fit. Be open to “Opportunistic Hires.” You never know where your next producing partner might come from, so you have to be open to it. I will be the first to admit that there is a quirky element of randomness in recruiting.
Ed. note: The Asia Chronicles column is authored by Kinney Recruiting. Kinney has made more placements of U.S. associates, counsels and partners in Asia than any other recruiting firm in each of the past six years. You can reach them by email: firstname.lastname@example.org.
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