It has become an all too frequent occurrence — the story of yet another law firm closing its doors. The headlines rarely convey everything — displaced personnel, inconvenienced clients, and the pain and disruption for the firm’s owners.
What drives this result? How has this become almost commonplace?
I believe any one of five things can lead to crisis within a law firm. Execute two or three — certainly all five — failure is virtually assured.
- Spend indiscriminately
- Borrow to pay partners
- Recruit, associate with (and pander to) partners because of the size of their practice
- Grow simply because you believe bigger is better
- Assume successful partners equate to effective leaders
If you want to avoid these missteps, consider seriously addressing each issue. Here’s how.
- Make commitments/incur cost at a modest and sustainable level.
There is an almost unexplainable inclination to lease more space than necessary in expensive office buildings, and to add permanent personnel in advance of an assured level of client work. Be slow to make long-term commitments on space and to people.
- Live within your means.
Duh. Every single one of us knows this. Yet, bank loans and lines of credit have become the norm for today’s law firms. If you’re using a line of credit to pay partners before the profits have been earned, you have embarked upon a proverbial slippery slope. Surviving the ride depends on taking some quick action.
- Associate with those who share your values and aspirations.
Maybe the most under appreciated aspect of building a successful law firm is affiliation with those who share a common set of values and aspirations.
Today, a huge factor in deciding whether or not to add a new partner to a law firm is the size of that lawyers practice. There is no institutional glue associated with a large practice. When tough times come (and they always do) practicing with people that are trying to get where you are trying to get and who have a similar perspective on what is important along the way will help get you through to better times.
- Grow prudently
The days of adding lawyers and their capabilities to serve the needs of existing clients has largely gone by the wayside. The new norm is to add lawyers (one at a time or through mergers) because they are willing to come — and the apparent belief that being bigger makes us better There are countless studies that indicate that half of law firm mergers fail to deliver the expected benefits, and the results of lateral hiring aren’t any better. The bigger is better theory is significantly flawed. Pursue it at great peril.
- Develop leadership capabilities
The skills necessary to become a great leader are developed over time, through a combination of reading, educational programs, mentoring, affiliating with other leaders and through the fires of experience. Rainmakers are not necessarily good leaders. Strong personalities are not necessarily indicative of great decision making skills. The prudent lawyer that seeks to improve their firm’s future will invest in the development of firm leaders. It doesn’t matter if you are in a one or one thousand lawyer firm the message is the same — leaders are made through hard work and the honing of those skills essential to decision making, consensus building, compromise, collaboration, and listening. Leaders skilled in these areas have a shot at leading long-term success.
Is your firm taking steps leading to success or failure?