#194: Building Your Legal Practice (Watch Out For These Hidden Weaknesses)

[00:01:00] Hello there everybody. This is your host, Heather Moulder. Welcome to the Life & Law Podcast. Today we are going to talk about building your legal practice. Specifically a couple of hidden weaknesses for you to watch out for as you build your practice.

Now these are three things that I have seen throughout my career. Both in my own practice as I was building my own. I also saw it in spades with other people’s practices – from the time that I was a baby lawyer on out. And I’ve seen it in some of my client’s practices.

These are quite common. I want you to really think on and think about how not to do, and how to ensure that you safeguard your practice for the long term.

Now this does not mean that nothing will ever happen that will hurt your practice. Because sometimes political changes, the economic winds change. There are things that happen that can impact your practice that you could never have expected and there are things that you cannot necessarily plan around.

That being said, there are three weaknesses that I’ve seen quite a lot come into play and really hurt people and bite them later in their careers that I don’t want to happen with you. So that is what we’re going to cover today.

Now caveat…

Most of these issues are primarily applicable to lawyers who represent entities, commercial entities. So I’m not really talking about those of you who, you know, practice with individuals whose clients are individuals. So if you’re a PI attorney, if you are an estate planning attorney, some of these could be an issue for you in that practice. I just don’t think it’s quite as dire. If you’re a family law attorney, this may not be as applicable to you either.

But go ahead and listen and think about how it might and how you might want to apply some of the principles regardless. Okay, so…

Problem number one: Too few clients.

[00:03:09] So this actually happens with number of clients, which seems more obvious, right? If you only have a couple of clients that are generating, you know, most of your income or all of your income, this is a problem. And we tend to think of this as well, I only have two or three big clients, right?

Well, maybe you have 10 clients or 12 clients. And so you think, oh, this isn’t a problem for me at all. I’m just going to skip right on past that. Not so fast.

Pay attention to how much you collect off of these clients. If one or two clients are, let’s say, 50, 60%, 70% on up of your revenues over the course of a year or the last couple of years, that is a big red flag, okay? Because guess what? What if something happens to that one or two of those clients?

[00:04:00] Then all of a sudden you’re not bringing hardly anything in. And it’s really surprising to me how often this happens.

But guess what? It’s really, really easy for this to happen. And here’s why.

Hidden Reason (and Solution)

We don’t like our clients to use other law firms and lawyers. We want to be the only one.

But as clients grow and as clients have more and more work, that is actually not a good idea. And this is one of those reasons. So it’s insurance for both of you, right?

Clients usually want more than one main lawyer or one law firm because they don’t want everything to be invested in that one law firm or that one team or that one lawyer, right? What if something happened to them? What if something happened to the team? Heaven forbid something went wrong and you didn’t get along anymore, right? They need more than one lawyer, one law firm involved.

Well, for the same reason you actually want them to have more than one, because as they grow, you want the ability to have more than just them as a client.

Now, this doesn’t seem like a big deal when you’re starting out, and it’s not when you’re starting out because you can’t help the fact that you only have one, two or three clients. And that’s where most of your work is coming in.

But just understand that it’s okay to let go of a little bit so that you can give yourself some of that insurance. Because if you’re, you know, if you, if what’s coming in if the revenues are primarily one client, it can be devastating if something happens to them in the future. And you really do want to guard against that.

This is especially the case, and I’ve seen this happen with people who have huge teams that they employ for years, and it’s primarily to service one or two clients. And then something happens. And not only did they lose that business, not only do they have to hustle and have a lot of stress, but they have to let people go.

You don’t want that to happen. So this is why this is so important. Yeah. At the beginning stages, there’s not as much you can do. But as you start to grow and as your clients start to grow with you, don’t be so difficult with your clients about hiring other law firms. Don’t allow yourself to feel like they shouldn’t.

[00:06:19] Get confident enough in your abilities and understand the reasons why. Be okay with it and allow yourself to go out and get more clients.

Okay. So that’s number one.

Problem number two: Not enough variety in clients.

So this could be variety in industries. This could be. Maybe you’re, you know, you don’t need to change industries, but there’s a specific type of work or niche. Now, I know I’ve said before that you want to niche down, and you do. It’s how to start growing a book.

But as you grow a bigger book and as you get to that million mark and above, you want to start diversifying a little bit. There are a lot of ways in which to diversify. It somewhat depends on your practice area, your industry, the type of work that you’re doing, who you’re working with.

An Example Of Why (and How) To Diversify

[00:07:13] But let me explain to you why this can be an issue. So when I was a young lawyer, I did a lot of energy lending work. I was at a law firm that did a lot of energy work in general.

[00:07:25] And the energy business was booming initially. But a couple of years in, the energy work became politically not as profitable. The political winds changed a little bit. So one of the partners that was in my section, who was probably one of the biggest originators in the entire firm, went from one of the biggest to one of the smallest in the course of a year because of the political winds changing. And it was all because he primarily represented banking institutions in the energy lending industry.

[00:08:04] And many of those banking institutions got rid of those departments completely or drastically reduced them.

[00:08:13] So what did he do? Well, he had to spend the next two to three years going out and hustling and building his book in other areas and pivoting.

[00:08:21] And what he found was he was not going to get away from the energy industry. But he started getting more into some renewables. He started to also represent different types of companies.

So he didn’t just represent financial institutions, he started getting into the funds that were getting into it. He started getting into non-bank lenders. He started doing more borrower-side work as well. He expanded so that even though he was still an energy lending lawyer, there was enough diversity there that even when things went south in the industry in general, he wasn’t impacted as drastically.

Now, it didn’t mean he didn’t have ups and downs. He did. But it wasn’t to the same extent in the future when those types of things happened as drastically losing most of it. Right.

[00:09:16] So you want to take a real careful look at, okay, who am I representing? What is the industry, what’s the niche?

[00:09:25] How might I be impacted by political changes? How might I be impacted by economic downturns? How could I diversify a little bit here if there is a downturn economically or if the political headwinds change and there are some differences and changes that could really reduce at least some of the work I’m getting? How much of that would that be and how can you better diversify?

[00:09:51] That’s number two, final one. And this one a lot of people don’t see until it’s really late in the game. And so I want to try to head this off early on with you.

The third problem: Taking what comes in easily.

Let me say that again, taking what comes in easily.

[00:10:11] The question to ask is: Is it really the right work and or the right client for you? Is it the right industry niche? Or maybe you love the work but because of how it’s paid, let’s think contingency fee work.

[00:10:25] There’s only so much of it that makes sense. So you want to take a look at, you know, what’s coming in easily and am I taking it just because I feel like I need to take work on, or am I taking it intentionally because it’s good work for me, it’s good work for my practice, it’s good work for my team. It makes sense.

An Example of Taking The Wrong Work

I had a client who came in very unhappy because they were basically, she had had a practice that she was building and over time the work that was coming more naturally to her firm that she then felt obligated to say yes to because her firm wanted to be doing this work, she was taking in more and more and more of it. And it became something like 60, 70% of her practice.

And that particular work was not stuff she really felt that good about. She didn’t like that type of work. She didn’t love the clients who were in that work.

[00:11:16] And so we had to actually, it ended up being one of the reasons she was unhappy. She hadn’t realized it, but it was. We started working together, we figured out this is the real culprit. And so over the course of a year, we started to flip it.

Now, it didn’t mean she dropped everything, but slowly but surely, she started giving more and more of it away to other partners in her firm. She started increasing the work she really enjoyed doing, seeking out those types of clients.

[00:11:45] And she kept a little bit of it. She basically determined, look, if it’s 20 to 25% of my book, I’m okay with that, but I don’t want it to get above that.

[00:11:55] So that’s one example of what I’m talking about.

An Example Of Too Much

I have another client who was in a small law firm who had a partner who did a lot of contingency work. In fact, it was probably 80 to 90% of that lady’s litigation work was contingency fee-based work.

[00:12:12] The problem was my client, she was not contingency fee-based, but she stressed out over the fact that, what if we don’t collect? Like, we have employees we have to pay, we have bills we have to pay. And so we had to get really clear around guardrails within that firm. That made sense for them in respect of how big of a percentage can be contingency fee work versus how much work do we need to be bringing in that’s paying month to month to ensure the bills get paid, payroll gets made, the lights stay on, and also to ensure that this particular partner didn’t stress out over it all the time. Right?

So they basically, they didn’t need to get rid of the contingency fee work. They needed to set some guardrails around it, set some limits, and meet regularly.

[00:13:03] So the fix for this last one is to be a lot more intentional, have goals, know what you want your practice to really look like and why, and revisit those at least semi-annually, maybe even quarterly, to ensure that you are on track, to ensure that you haven’t busted any of those guardrails or boundaries that you were trying to set up for yourself and so that you can pivot more quickly as needed instead of getting into a place where you’re like, oh my gosh, we’re in trouble, right?

[00:13:37] Do not just let things come in as they are. Be intentional.

[00:13:43] Okay, when it comes to building your legal practice, think through all three of these things to ensure that you’re intentionally building the practice not only that you want, but a practice that’s going to sustain you for the long term. That is it for this week. Bye for now.