A Penny Earned
Josh Reynolds’ Lawyerist piece last week spent a good bit of time railing against the costs associated with technology and certainly went off the technophile reservation. Unfortunately, he came off a bit like Kenny Powers bashing on Technology. A number of the post’s comments took issue either with the perceived attack on the evolution of technology past the slate and chisel and the implication that one’s competence and business acumen is somehow proven lacking by the ownership of a tablet or smart phone.
What (I think) Josh was trying to say is that you don’t need a bunch of toys to be a good lawyer. Here, he’s correct. I recently wrote about just a few of the ways you can become a good lawyer. Nowhere did I mention smart phones or data plans. Hell, I know attorneys that have been successful for 50 years who never typed anything on a typewriter, let alone a computer, and still view a fax machine with a hefty dose of skepticism and distrust. Josh was also right when he asserted that you have to keep your ability to support yourself and your dependents in mind when you are making decisions to outlay costs and that you should make your purchases with ROI in mind. In some ways, I agree with what Josh is saying. We have a tendency to focus on our own little bubble within our business and justify expenditures based on want and convenience rather than necessity and ROI. But, you can’t take it further than that. You have to spend money to make it. You should spend it wisely, but you have to spend it.
The post and comments that followed got me thinking about how lawyers establish economic priorities for their business and how these priorities can subvert what their real economic goals should be. This can be especially troublesome considering that an attorney often finds himself caught between the opposing needs of his profession and his business. It certainly doesn’t help that nothing about the prevailing legal education system is even remotely designed to aid in the actual practice of law or the business of operating a law firm.
The legal profession and the business of the law are inextricably intertwined. You will never have a chance to become a good lawyer if your business fails. When making choices about your business, especially as a new solo or startup of any kind, increasing profits in the short term cannot be the superseding goal of the business. Running your business on profit margin rather than revenue is tantamount to the tail wagging the dog. You must instead be focusing on increasing revenue above all else. I’m going to tell you why, but first let’s talk about how to get there.
In his post, Josh says:
“I sat down with a judge two days ago, an older gentleman who survived a very successful practice. Our discussion eventually reached the new lawyers in his courtroom. He asked me how they afford all the toys they carry. I told him I didn’t know. We ran through the monthly cost of the various necessities du jour, and each of us winced in unison.”
Sound familiar? This is the old, “This way worked in the past so you shouldn’t do it differently today” argument. Lawyers have been falling back on that argument since, I don’t know, the dawn of time. Maybe stare decisis has been drilled into our brains to the point that we let the concept bleed over into our lives . Maybe it is because many attorneys either begin their careers as a illiberal bastards or develop that particular personality attribute somewhere along the way.
I tell you now, for the sake of your business, don’t fall into this trap.
In case you haven’t noticed, there are way more lawyers than the market can support. And it isn’t expected to get significantly better anytime soon. Seriously, read those last two links if you haven’t already. The legal job market for new lawyers is the worst since NALP came into existence 38 years ago. Law School Transparency thinks the number of 2011 law school graduates with full time jobs requiring a law degree is close to 50%. What is a young lawyer to do?
Innovate. Don’t just talk about it, do it. Ignore the old lawyers that shake their heads at you. They have clients. You don’t. They can afford to be intellectually lazy right now. You can’t. Think outside the box. Figure out new ways to reach the legal market and to differentiate yourself from your competition. Creatively approach the management of your firm and the technology you use. I know that your investment in law school resulted in all your creativity being beaten from your brain and was simultaneously devoid of the impartation of any substantive practical preparation for your legal career, but necessity is the mother of all invention. Innovate or die
Make smart choices in the internal aspects of your business. The benefit of technology in business is efficiency; it enables you to do more work faster and cheaper. This efficiency is an absolute necessity in today’s legal services market. Use a VOIP phone system or that smart phone of yours instead of landlines. Go paperless and implement a practice management system to stop looking for stuff all the time and kick all the costs associated with paper files. Use a virtual receptionist. Rock out with your tablet out. Operate from a virtual law firm.
But much more importantly, innovate in the way you deal with the external forces on your business. Spend your money on marketing above all else and advertise in creative and cost effective ways. Stand out from everyone else. Identify and dominate a niche legal need in your community. Market yourself creatively. Be cool. Create a mobile app (Lee Rosen got one for $50!) Capture earned media . Give speeches. Call referral sources. Create a wizbang website in 30 minutes for less than $300 and drive traffic to it and your business through word of mouth or by teaching yourself SEO and how to run a PPC campaign. Innovation in how you get business is the most important thing you can do. These concepts are simple and you don’t have to reinvent the wheel, but odds are that not many of the guys with tons of business in town are as hungry as you are and as willing to work to grow.
Why is innovation in dealing with the external forces on your business so important? Because the market is saturated with lawyers and there aren’t enough clients to go around. Because all those old complacent guys in town have been running the same tired adverting touting their experience and aggressiveness for years and have and continue to get a good portion of their clients because no one has come along with a good strategy to take them away. Because those guys have been practicing longer and are better than you at being a lawyer and that situation won’t improve itself without you getting new cases to work on and learn from. You have to take business away from these guys in order to eat.
Above all else, innovate because you need clients or you don’t actually have a law firm. Because without clients paying you money everything else is academic. You have to have income before you worry about anything else, including costs. Use innovation to increase revenue. Revenue is what matters. It is the goal.
This prioritization of revenue over costs becomes really clear by taking both approaches as far as they can go. Let’s say you cut all costs associated with your business to zero. If you have zero costs you will have zero revenue. You can quote me on that. If you think you can make good money with little or no investment, these guys have something they would like to talk to you about. Now, take maximizing revenue to its ultimate zenith, which would theoretically be revenue equal to all the money on earth. Think you can live with costs under that scenario? To paraphrase Bill Clinton: it’s economics, stupid.
Borders and Barnes & Noble were happily on cruise control raking in profits until Amazon invested a bunch of cash into the Kindle and later the Kindle Fire and snatched the rug out from under them. Remember those stores that used to sell physical copies of music and movies? Apple doomed them to extinction.
Amazon and Apple and all the other successful companies that have dominated their industry didn’t do it by cutting costs. They did it through innovation and by taking on debt and selling equity and increasing costs and overhead. They didn’t spend money haphazardly and without a careful plan, but they did increase costs in the short term for the long term gain. If you are smart and leverage costs correctly, profit will come.
One final example: In 1930, a Dupont scientist created a synthetic rubber that the company named Neoprene. Despite being in the midst of The Great Depression and suffering through a drastic drop off in sales, Dupont substantially increased R&D spending to develop the product. Neoprene was introduced commercially in 1937 and by 1939 every automobile and airplane produced in the US had neoprene in its components. At about the same time, another Dupont scientist discovered Nylon and Dupont also invested heavily in it as well, bringing it to market in 1938. A few short years later, WWII broke out and Dupont’s business exploded even further practically overnight.
Don’t try to maximize profit by minimizing costs. Be smart with how you spend your money, but focus on maximizing revenue even if it means increasing costs. If technology allows you to increase your revenue pull the trigger on that new iPad. Josh was right that you don’t need high tech gadgets to be a good lawyer. But don’t let the argument go so far that you throw the baby out with the bath water. Costs are necessary. Revenue is the goal.