Best Practice Tips: Is Growth Always the Best Strategy?
Asked and Answered
By John W. Olmstead, MBA, Ph.D, CMC
Q. I am the sole owner of a five-attorney litigation firm in Mesa, Arizona. I started the firm 12 years ago after leaving a large firm. I was an income partner in that firm. For a few years I operated as a solo with a legal assistant. Then I began adding associates and staff. Now we have four associates, an office manager/bookkeeper, two paralegals, and two legal assistants. Our annual gross fee revenues are around $1.2 million, the overhead is high, and my net income is not all that much more than what I was making as a solo. My associates aren’t willing to put in the time to generate the billable hours that we need. Then there is the time and stress of managing all of this. Is growth a good thing?
A. Not always – it depends on your goals and your area of practice. If your area of practice is a low billable rate ($150-$175 per hour) practice area such as insurance defense or municipal law, it will be difficult to reach a desirable personal income level without associate attorney leverage. However, if you are in a practice area with billable rates of $300 to $500 per hour, you may be able to attain the personal income levels that you desire without associate leverage and growth. It all depends on your personal income goals, your ability to support and handle the work that you have, and your ability and desire to manage a group of attorneys.
Growth requires that you manage others as well as yourself. More office space is required – more overhead to support the additional people. Growth puts a strain on cash flow and requires additional working capital. A new set of skill sets (people skills) is now required.
Some lawyers never develop the skills needed nor do they have the desire to go to this level, and firm growth is restricted as a result.
I refer to this phase as “sole owner phase.” I have client law firms in this phase than consist of an attorney owner, a handful of employed associates, paralegals, and staff. These firms may have three to four people, or 10 or more. I have sole owner law firms with more 100 employed attorneys and staff. I work with other sole owners that choose to remain solo (without other attorneys) and are quite successful. It all comes down to what you are comfortable with.
John W. Olmstead, MBA, Ph.D, CMC, (www.olmsteadassoc.com) is a past chair and member of the ISBA Standing Committee on Law Office Management and Economics and author of The Lawyers Guide to Succession Planning published by the ABA. For more information on law office management please direct questions to the ISBA listserver, which John and other committee members review, or view archived copies of The Bottom Line Newsletters. Contact John at firstname.lastname@example.org.