Ten tips for building a law firm

broom cupboardIn 1994, IP Draughts started his law firm. In 2011, he converted it to an LLP. The firm now has 5 partners and, in total, around 20 people. It is top-ranked in Chambers Directory, and several of the partners are recommended as specialists in transactional IP.

He offers the following suggestions for any lawyer who is thinking of starting their own firm. This article focuses on the business aspects. It is also important to comply with relevant regulations on the conduct of legal practice, but these vary between jurisdictions, and they are not today’s subject.

  1. Clients. It’s better to start with some prospect of work. Before IP Draughts started, a client contact offered him some part-time work for 6 months, which encouraged him to take the plunge. He had already built up some loyalty from clients of his previous firm, who continued to instruct him. Keep clients happy with your work, and they are likely to come back for repeat business. They may recommend you to others. If they move job, ideally you end up with two clients, i.e. both their former company and their new one. Many of his firm’s current clients are connected, directly or indirectly, to people he worked with in the 1990s.
  2. Markets and services. Offer your services in a thriving market. For the last 30 years, high-tech businesses and leading universities have been part of a growing market, and this is likely to continue. Within your chosen market, work out what you are good at, and focus on providing services in that area. IP Draughts found that he worked well with SME entrepreneurs and scientists, particularly on transactional IP.
  3. Unique selling point. Who are your competitors, and why would clients choose you over them? In IP Draughts’ case, he found that some clients liked his personal service, his focus on the big issues, and the clarity of his drafting, as well as his cost-effectiveness compared with people in large commercial firms. Not everyone needs or wants these things. Some clients want more of a standard service, and aren’t really interested in the personal aspects. You can’t please everyone. Don’t waste time trying.
  4. Marketing. Each person is different in how they approach marketing. IP Draughts has tried various methods, including the obvious kinds of networking. He has always come back to playing to his strengths, eg giving a talk at a conference to demonstrate knowledge and competence, rather than just attending it and hoping to meet and charm potential clients. He has written textbooks, both to improve and to demonstrate his technical expertise. He thought it was more important to build and maintain a lasting reputation for the quality of his work, than to spend time and money on subscriptions and paid-for marketing.
  5. Values and standards. Are you consistent in your values and standards? IP Draughts has always aimed for high technical standards, and a pragmatic, flexible approach, while standing up to clients and other parties where necessary. He remembers once being so exasperated with a client CEO’s aggressive attempts to try to get him to change his view, that (after years of standing up to him) he went along with something he didn’t agree with – a “yeah, whatever” moment. The CEO didn’t notice, but the Commercial Director who was in the meeting did, and rightly picked IP Draughts up on it afterwards. IP Draughts didn’t do that again.
  6. Pricing. Be competitive and don’t be greedy, but don’t undervalue your services. It helps if your competitors charge more than you; this will depend partly on your choice of services and markets. Gradually increase your fee rates over time. Small incremental changes are better than a large jump. With a new client, be sensitive on fees until they recognise the extra value of your services.
  7. Financing. Legal practice is a simple business model, and it shouldn’t be necessary to have bank loans. Don’t pay yourself what you haven’t earned. Cash flow can be a bit lumpy, particularly around the time you have to pay income tax, but you can usually plan ahead for this. IP Draughts has always invoiced monthly, to reduce the cash flow risk, and anyway clients seem to prefer this. As the firm grows, build up your financial reserves so that you have enough cash to cover the unexpected.
  8. People. Take on staff when you can afford to do so. Trainees are less of a financial risk than experienced lawyers, unless the latter have a following. When you take on staff, make sure they fit with your standards and values. Train and treat them well. Take a long-term approach.
  9. Systems. IP Draughts started with an accounts book that he purchased from the stationers, WH Smith. The front end recorded sales, and the back end purchases. He added these up manually each quarter for his VAT return. He recorded his time on paper cards for each client and matter. Nowadays his firm has sophisticated computer systems for client and work management, accounts, and even holiday booking. There are standard procedures for staff appraisals and anti-money-laundering compliance. As you grow, more systems are needed.
  10. Community. Think about how you can contribute to the communities in which you are spending your career, without being too “transactional” about it. When you are making such a contribution, respect its time commitments and don’t make it subservient to client work. IP Draughts has tried to spend a percentage of his time on non-fee-earning activities, such as sitting on the IP Committee of the Law Society for many years, and providing training at PraxisAuril and ASTP events. There may be indirect benefits from such work, eg networking with one’s peers.

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