Top 7 Reasons Small Law Firms Fail

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There’s no drama when a small law firm fails.

It’s rarely written about in the media. The practice simply closes its doors and disappears.

In fact, the failure often looks like a lawyer accepting a job elsewhere; friends and neighbors congratulate the lawyer like it’s a step up. It’s not. The lawyer knows what it feels like and it doesn’t feel good.

By the time he shuts down, the lawyer is emotionally exhausted, saddled with outstanding debt, and burdened with the knowledge that he will have to spend months or even years living with the stress of closing out cases for clients to whom he made commitments before he closed up shop.

Business failure doesn’t need to happen.

Law firms don’t need to fail. Of course, it’s tough for many small firms to become wildly successful. But it’s certainly possible. It simply takes a combination of smart decision making and hard work. Making a decent income is well within reach if you’re diligent and determined. Unfortunately, failure happens far too often.

It shouldn’t.

Here are some of the reasons it does.

1. Disharmony among partners

The theory is that bringing in a partner shares the risk, creates synergy, and doubles the odds of success.

The reality is that many law firm partners spend all their energy fighting for a bigger share of a pathetic little pie.

I just finished advising a lawyer to extract himself from a partnership because the two lawyers couldn’t stop squabbling over money. The “successful” partner is grossing under $200,000 a year. The “failing” partner is grossing $130,000.

These two are so wrapped up in their arguments about money that they aren’t marketing. They’re both failing and they’re each blaming the other instead of themselves. They’re both losing. Having one another keeps them distracted from the reality that neither is winning and both need to get busy growing a real practice.

If you’ve got a really good reason to form a partnership (like you’re married to a lawyer and they insist) then go for it. But be aware: getting along with your law partner often proves more challenging than building a successful practice.

2. Door law

What kind of law do you practice?

“Door law,” she replied.

What?

“Whatever walks in the door,” she explained.

It’s funny, but for many lawyers it’s an accurate description of their practice.

Door law fails us in numerous ways. It prevents us from gaining traction in our market. While “door law” sounds funny, it doesn’t get people talking about us. There’s no word of mouth for door lawyers. It’s hard to tell the story of our practices because our practices have a murky story.

Door law fails when it comes to expertise. We can’t learn any one thing thoroughly when we spend our days doing small amounts of everything. We can’t level up on knowledge or experience. We’re always scrambling and never climbing higher.

Finally, door law inhibits our relationship-building. Because we’re always advocating in a different venue or forum, we never build the relationships that are essential to create trust. We don’t have time to get to know the judges, bureaucrats, and others who could help us help our clients. Without trust, we’re just ghosts drifting through the process. There’s no human connection, and that hurts us.

Pick a service you can master and become the best in the world at delivering that service. Stop answering the door unless the prospective client knows the magic words for entry and needs exactly what you offer.

3. Bad pricing decisions

The practice of law is a business. We buy low and we sell high. When we price wrong, we’re buying low, selling low, and eventually we’ll go broke.

You can’t do the work for free. You’ve got to cover your costs–even if that simply means your food, shelter, and student loans.

It’s common to fall into a pattern of getting desperate, taking any fee offered, then taking on more low-fee cases, getting buried in the busyness of too many low-fee cases–and drowning.

Once the cycle starts it’s hard to stop. Low-fee clients refer other low-fee clients. The lawyer loses confidence and won’t ask for more money for fear of being rejected. The lawyer feels the financial pressure to pay the bills incurred from running a money losing business and accepts more low-fee clients to increase “cash flow.” It’s painful to watch and it’s hard to recover.

There’s an old Saturday Night Live sketch about a bank that does nothing but make change. The punchline comes when one of the representatives says:

All the time, our customers ask us: How do you make money doing this? The answer is simple–volume.

It’s easy to laugh when it’s put in those terms, but it’s often impossible for struggling lawyers to see that they’re making an even worse mistake.

Taking on a client who can’t afford to pay is worse than not having a client at all. It’s a major source of law firm frustration, burnout, and ultimately failure.

Start with a pricing structure which allows the business to thrive. If the market won’t support the fees required, then improve your marketing so that it will attract clients who can afford what you offer, or offer something different. Losing money on every sale is a perfect way to lose lots of money.

4. Poor marketing

Marketing is a systematic process. It’s shockingly similar to getting married.

  1. Create a Tinder account
  2. Do some swiping
  3. Meet up for drinks
  4. Stir in a combination of time, proximity, and self-disclosure
  5. Keep staring
  6. Get married

Same deal with getting clients. Get people talking about you and telling your story. Amplify the talk with content marketing, advertising, networking, etc. Meet people and stir in a mix of time, proximity, and self-disclosure. Get clients.

Marketing requires a marketing plan. The plan doesn’t have to be complicated or sophisticated. It can be as simple as swiping on Tinder.

But a marketing plan does require focus. You’ve got to stick with it and follow your plan. Execution is key. The biggest cause of poor marketing is lack of effort. We lose focus, get distracted, and stop taking action on the plan.

Marketing only works if it’s part of your day, every day, all year long. It’s essential that you make the effort or you’ll end up accepting that job offer and closing up shop.

The saddest part (aside from the personal disappointment you’ll feel when you pull down your shingle) is that the new firm will insist that you get busy marketing. Ultimately they’ll kick you to the curb if you don’t generate some business. Welcome to the practice of law, unless you go to work for the government.

Why not get on with the marketing now, if you’re going to end up doing it anyway?

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Come up with a plan, take small steps each day, and score some victories. Marketing needs to be the first thing you do each day, even if it simply means making a couple of calls to arrange lunch dates. When you don’t put marketing first it nearly always gets put off and shifted forward on your calendar. Do something small each day and you’ll see the results.

5. Fear

We don’t like to talk about fear. Those of us who feel afraid often describe it as a “lack of confidence.” Call it what you will. Personally, I have a “lack of confidence” about snakes and alligators. My wife gets a “lack of confidence” when she has to walk along the high edge of tall atriums.

When you’re:

  1. Afraid to ask for money
  2. Afraid to ask for help
  3. Afraid to follow up with prospective clients
  4. Afraid to cold call potential referral sources
  5. Afraid to stand out from the pack with your marketing

You’re doomed.

Fear doesn’t work for small law firm owners. It’s a stone-cold killer. You have to get out there and face your fears. You have to be willing to make things happen.

Do whatever is required to face the fear. Smile at it. Dance with it. Fake it if that’s what you have to do.

But don’t let the fear stop you. Push forward into it and soon it becomes a way of life. What used to scare you becomes routine as you move on to bigger and more challenging efforts. Push past it.

6. Passion deficit

Passion is the antidote to fear. It’s what gets us going even when we’re not sure how we’re going to get there.

Passion is energy. Passion is commitment. Passion is bravery.

Passion comes from complete commitment to our cause. We’re 100% invested. The game is on and we’ve burned the bridges behind us.

Lack of passion is evident when the lawyer keeps scanning for employment in a another firm. Lack of passion is evident when the lawyer has opened a practice, not because she wants to do it, but because she has no better options. Lack of passion is evident when she can’t decide what to do or how to do it, and won’t jump in and start.

Passion sometimes makes us blindly optimistic. And that optimism is necessary, because there are inevitably dark moments when things go badly. But our passion lifts us up, fills us with energy, and presses us forward, because it’s the only path left to follow.

Some lawyers seem impartial, emotionally disconnected, and lacking in energy. Those lawyers will struggle. The lawyers with enthusiasm, commitment, drive–passion–they are the lawyers who succeed. Let yourself feel it. Turn it into energy and burn it as fuel to keep you moving.

7. These are not the only reasons

There are plenty of ways to fail and I’m just hitting the highlights.

Some lawyers hire too early and run out of money.

Others fail miserably at accounting and go broke without even realizing it. They measure their success based on whether the ATM will give them more cash today.

Some lawyers won’t talk to their clients and end up with piles of negative online reviews.

I could go on and on. You probably could too.

But success is not only possible, it’s likely if you put in the effort. Most lawyers who set out to build a practice are successful at creating a business which sustains them. With a bit more focus, a good marketing plan, better pricing, less fear, and more passion, they become dramatically more successful.

When you move beyond survival mode and get serious about growth, it’s time to add a comprehensive vision that will keep you moving in one direction over the long term. Then you can flesh out your marketing stories so others will spread the word for you. That’s when the revenue growth accelerates and you start to build wealth.

[ Ready to put these ideas into practice? I have a 10 day email course called Rosen's Rules that will help you take action starting right now. It's completely free, and this time in 2 weeks, you'll be a lot closer to having the practice you deserve. Sign up here. ]

There’s very little drama when a small firm fails. It’s hardly noticed. But a successful law firm gets recognition and reward.

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