Law Firm as Startup

September 28th, 2011 by Zeke

This blog is a side project of Adler Vermillion & Skocilich LLP – a law firm I founded recently with my partners Eric and Joe. I like to think of our firm as a boot-strapped startup, out to disrupt the sclerotic world of lawyering. I’m not the first to apply the startup analogy to a law firm by any means.

To read the NYT or National Law Journal today, one might think that the profession is in a state of crisis and unprecedented change; too many high-priced lawyers for the demand, big law firms with unsustainable structures. One prominent general counsel famously described the practice of law as one of the last vestiges of the medieval guild system to survive into the 21st Century.

In an idle moment today I sprang for a $63.20 Google e-book download of The Cravath Firm and its Predecessors, 1819-1947, Vol. I, by Robert T. Swaine. It’s a fascinating read (for a commissioned history of a law firm), and in particular I was entertained by the observations on lawyering therein, which have withstood the test of time surprisingly well. For instance, that according to Niles’ Register, June 27, 1818:

Lawyers are as plentiful as blackberries. From a late census of the New York Bar, it appears there are 1200 counselors and attorneys at law that are fostered in the bosom of the State! 290 are practicing in the city of New York.

So, New York has long been an over-lawyered territory. There may be real problems with the state of lawyering today, but perhaps not unlike the old problems. A subject for a later post. For now, I just want to share a few observations on the art and science of building a law firm, the first in a series of posts chronicling our endeavor.

These are the main ingredients for starting a law firm (or any service business) today, as I see it. Over the coming weeks I will try to post in more detail on each one.

Dependable Cofounders

The mix of people launching a new business–their character, motivation, and talents–is the most basic and important determinant of the endeavor’s success. Anyone who builds or invests in startups will tell you this. Finding good people who are willing to tie their prospects to a common project is tough, much tougher than finding a worthy project, so I am fortunate to have partners whom I trust as much for their business integrity as I do their legal judgment.

Paying Clients

However edifying it may be to practice a skilled trade, there is no point to it without clients. We apply our professional skill and judgment to help clients resolve disputes, protect their interests, and pursue their own business opportunities. They give us a chance to participate in their affairs in a privileged position, to hone our craft; they recommend us to other clients; and most importantly, however awkward it is to say it, they pay us. Usually cash, sometimes in debt and/or their own stock.

We spend about a third of our working hours marketing, networking, and otherwise attempting to land new, paying clients, and get more business from existing ones. A healthy lawyer-client relationship requires that the client have reasonable expectations about what goes into the process, and how much that is worth; achieving reasonable expectations requires an effort on the lawyer’s part as well as the client’s. Beyond that, I am agnostic about what makes for a good relationship. A firm should seek a diversified client base, in terms of industry, development stage, and scope of legal needs.

Adequate Financing

To start a firm from scratch, my rule of thumb is that you need financing enough to cover all startup costs, reasonable ongoing overhead, and living expenses for 6 months. Ongoing overhead and living expenses should be kept as close to zero as possible to increase your runway. Startup capital requirements these days are theoretically minimal. You can work out of a home office, use cheap or free cloud-based software services, use a free placeholder website, and in some states (including New York) go without professional liability insurance. That said, I think there are big advantages to making a small investment in each of these areas.

Efficient Technology

My partners and I put a lot of thought into our technology. We use both mac and PC hardware, a variety of mobile devices, and mostly cloud-based software and file systems for ease of access and interoperability: Google Apps for e-mail and simple sharing, MediaTemple for web hosting, Quickbooks for accounting, switching to Harvest from Clio for billing and practice mgt., Google Voice and 8×8 for call forwarding and VOIP conference calling, Egnyte for our secure file system, and RightSignature for managing document authentication (I can’t say enough good things about RightSig–it’s awesome). The notable exception to our efficient tech deployment is that we are forced to use Microsoft Word and Adobe Acrobat. I have detailed opinions about all of our technology choices, and could go on at length about all the accounting, billing, version management, secure cloud file systems, etc., that we have tested. Maybe one of these days I will. If you are starting a new law firm on a budget, please shoot me an e-mail or tweet; I would be happy to share my hard-won knowledge in this respect.

Office Space

Most established law firms have fancy offices, at least the conference space. As a new law firm, one of the best ways to lower overhead is not to pay for fancy space. You still need access to it, though. Corporate suites, co-working, and subletting are the best ways to get this. Each has its benefits, and the cost-benefit tradeoff varies significantly by geography.

Insurance

If you make a living providing professional services, there is always some risk of a dispute with a client. You can minimize this risk by careful client selection, and of course by not screwing up, but you still should have insurance, whether or not the authority for the jurisdiction where you practice requires it.

The cost of insurance (and whether most carriers will even write you a policy) depends on your location, practice area, years in practice, and claims history. If like our firm you handle high-risk practice areas such as intellectual property and securities law, insurance can be expensive even with a lily-white claims history. The only advice I can give is to shop around, but pay extra for 100% cost of defense outside limits.