Starting – Building – Managing A Law Firm

By John W. Olmstead, MBA, Ph.D, CMC

The current national economy, downsizing of large law firms, over supply of new law school graduates, and the restructuring of the legal market generally has forced more attorneys into solo or sole owner practices. Seasoned attorneys from large and small law firms and new attorneys right out of law school are venturing into solo practice either by design or by fate. Many are simply not prepared for the challenges they must now face – practicing law and managing a business.

I receive at least ten calls a week from attorneys that are in solo practice or are the sole owner of a small law firm with similar concerns and frustrations. However, there tends to be different needs and challenges depending which phase of development the firm is in. Here are a few survival tips for each phase:

Phase I – Solo Startup

In this phase it is all about you. More than likely initially you will not have office staff. If you are a new attorney right out of law school you must learn your trade and develop competencies in lawyering and client service. Your first priority will be to supplement your law school education with nuts and bolts practice skills – and you will have to do it quickly. Since you won’t have a senior partner in your firm to mentor and train you – you will have to reach out to resources outside of your firm. You will not have an accountability partner in your firm. Your second priority will be getting clients. You will have to actively market and promote yourself and your practice. Funds may be limited so your largest marketing investment will be your non-billable time devoted to marketing and client development activities. Finally, your third priority will be getting paid by your clients. Self discipline and exceptional time management and time keeping skills are critical success factors.

Phase I Survival Tips

Strategic plan
Create a business plan before even starting the practice even if it is a one page plan. This will serve as a roadmap for your practice. See Helen Gunnarsson’s article in November 2011 Illinois Bar Journal.
Setup your practice and office
This includes everything from the selecting a suitable name and legal form for your practice; setting up your office whether it be a home or virtual office, a space share arrangement, or leased office space; acquisition of office systems, etc. (I have a start-up checklist available. E-mail me if you would like a copy.)
Develop competencies in law and business
1. Find an experience attorney to serve as a mentor. The ISBA Mentor Center has mentor program available for members.
2. Consider a business coach
3. Take all the CLE you can
Getting Clients
Time must be developed to business development. To be successful in private practice attorneys must be finders (originate new business), minders (manage client matters and relationships) and grinders (worker bees that work on client matters, provide services, and generate fees). You must manage and balance your time in a way that you cover all three of these bases.
Client Development/Marketing
1. Actively network with the general public, other attorneys, and other potential referral sources
2. Ask for referrals
3. Implement a first class website that demonstrates expertise
4. Implement a contact database
5. Develop a personal marketing plan (contact plan)
Getting Paid
1. Use engagement letters and fee agreements
2. Ask for retainers and replenish
3. Accept credit cards
4. Establish client selection criteria
Financial Management – Work the Books
Learn key metrics and “red flags” for your practice area, set goals, and measure your performance against these goals. Take corrective course actions as needed. Actively manage your cash flow. Remember – profit as reflected on the income statement and cash flow are not the same.
Manage Your Self – Self Discipline and Accountability
Partner with Other Solos

Phase II – Taking the Practice to the Next Level – New Challenges – New Skills Required

If you are successful in Phase I you will eventually need help whether it be administrative, paralegal, or another attorney. Now you must manage others as well as yourself. More office space will be required – especially if you are currently in a home or virtual office. A new set of skill sets (people skills) is now required.

Some Lawyers Never Develop the Skills Needed or Desire to Go to This Level and Firm Growth is Restricted as a Result.

I refer to this phase as Sole Owner Phase. I have client law firms in this phase than consist of an attorney owner, a handful of employed associates, paralegals, and staff. These firms may have 3 to 4 people or ten or more. I have sole owner law firms with over 100 employed attorneys and staff.

Phase II Survival Tips

Additional People
1. Know what to look for
2. Know how to compensate attorneys and staff
3. Decide whether you are looking for long term vs. short term hires and relationships
Develop Skill Sets in the Following Areas – Managing Others – Finding, Managing, Motivating, Training and Retaining Talent
1. Hiring and Firing
2. HR Function
3. Devote time to managing others
4. Delegation of work
5. Supervision of work
Use the Following HR Tools and Processes
1. Job Descriptions
2. Performance Reviews and Evaluations
3. Office Policies and Procedures
4. Office Meetings (Meeting Management)
5. Personnel Records
6. Payroll and Reporting
7. Salary Administration

Key Challenge in Phase II – Knowing When You Have the Business and You Are Ready for This Phase

Phase III – Partnership – Internal/Other Firm

Eventually the question of partnership arises – weather sooner based upon the need or desire to transition an associate into a partnership or to add a practice area by acquiring a lateral partner with his/her book of business. Maybe you are thinking about merging with another firm. Or maybe you have been solo or a sole owner for your entire career and are now contemplating retirement and are looking for a succession/exit strategy and now must either bring in a partner, merge with another firm, or sell your practice. Partnership with another attorney creates another set of interpersonal dynamics and another set of skills that will need to be developed at this stage of your practice.

Phase III Survival Tips

Partnership is like a marriage. You must marry the right person. Most partnerships that fail do so as a result of partnering up with the wrong partners. Compatibility is critical. Consider:
1. Long term goals of both parties
2. Work ethic computability
3. Common interests
4. Money and compensation
Thinking of merging? Research indicates that 1/3 to 1/2 of all mergers fail to meet expectations due to cultural misalignment and personnel problems. Don’t try to use a merger or acquisition as a life raft, for the wrong reasons and as your sole strategy. Successful mergers are based upon a sound integrated business strategy that creates synergy and a combined firm that produces greater client value than either firm can produced alone. Right reasons for merging might include:
1. Improve the firm’s competitive position. Increase specialization – obtain additional expertise.
2. Expand into other geographic regions.
3. Add new practice areas.
4. Increase or decrease client base.
5. Improve and/or solidify client relationships.
Reasons for wanting to merge and your objectives. Ask yourself the following questions?
1. Do you want to practice in a large firm? If not, what is the largest firm that you would want to practice in?
2. What is driving the desire to merge?
3. If the desire to merge is being driven by a desire to retreat from internal problems – what have you done to address these issues internally?
4. Is your name being part of the firm name important to you?
5. What are your expectations and objectives for a merger?
6. What are you looking from a merger partner?
7. Make sure that you look for a complimentary fit. If you are weak in firm leadership, management and administration – look for a partner that is strong in these areas. Strong leadership, management, and administration may be hard to find in a firm under 25 attorneys.

Are you ready for the challenge?

Dr. John W. Olmstead, MBA, Ph.D., CMC, is a Certified Management Consultant and the president of Olmstead & Associates, Legal Management Consultants, based in St. Louis, Missouri. The firm helps law and other professional service firms improve the operations and management of their practices and the lives of their practitioners. The firm, founded in 1984 serves clients across the Globe assisting them with implementing change and improving operational and financial performance, management, leadership, client development and marketing.

Dr. Olmstead’s assignments have covered the spectrum of management issues. However, in recent years most of his time is focused on engagements helping firms with:

Partner Compensation
Governance
Succession/Exit Planning
Strategy & Competitive Business Models
Profit Improvement programs
Client Service Programs

Dr. Olmstead is the Editor-in-Chief of “The Lawyers Competitive Edge: The Journal of Law Office Economics and Management,” published by Thomson West. He is currently serving as a Past Chair, Illinois State Bar Association Standing Committee on Law Office Management and Economics and as a member of the Legal Marketing Association (LMA) Research Committee. Dr. Olmstead may be contacted via e-mail at jolmstead@olmsteadassoc.com. Additional articles and information is available at the firm’s web site and the firm’s blog:

www.olmsteadassoc.com.

http://blog.olmsteadassoc.com