Do NOT Build A Law Factory Before You Have Orders For Your Product

Whether the intent is to work out of your home or small office or the local Starbucks, the one tendency I notice when speaking with recent law graduates and Big Law escapees is to try and build a law factory before there are any orders for your product.  Worse yet, is the tendency to build the law factory before you even know what legal product it is that you want to manufacture.

I understand that decision making is hard.  All of us struggle with the chicken or the egg thing.  But the truth of the matters is that you have to (you just have to) make yourself concentrate on what are your immediate needs (NOT WANTS) to get your desired clients.  Not only can everything else wait, but I think you will find that much of what you build now will not end up being what you need later -- and then you are stuck -- or broke -- and likely still paying for it.

This is the real beauty of the Third Wave.  When you are starting out, especially if you do not know exactly what you want to do, you can throw out your ideas of an outside office, a secretary, a copy machine, a postage meter, a conference table and chairs and other vestiges of the old line law firm.  Certainly you need a computer and a cheap printer/scanner, a VoIP phone and a broadband connection.  But, the rest of it is just left up to your ingenuity. Your goal is to either represent a client with a particular need or to make money -- or both.  Your objective is to find those clients.

Think back of all of the dot com businesses of the 90s.  Despite or after all of the hype, most of them failed because they were unprofitable.  They did not concentrate on the fundamentals.  They believed their own press.  They worried about the story and about the infrastructure, and they worked at building the factory before they had orders for their product.

That is what I have always hated about the fast food industry.  The model is dangerous for the individual investor.  (And is that not what you are in opening a new law practice -- an investor).  You have to buy the franchise rights, you have to find a store location.  You have to employee architects and contractors and commercial Realtors.  You have to buy freezers and cooking equipment.  You have to invest heavily in signage and billboards and media.  You have to get zoning approval and licenses galore.  You have to set up for sales tax and calculate your product costs.  You cannot afford to be wrong, but you really have no way of knowing if you are right.  You have to hire and train tons of staff. You have to stock the freezers and bread racks.  You have to test and test the system.  You have to put a couple of million dollars into it before you even know if anybody is likely to visit your location.  Or, for that matter, whether enough people are likely to visit your location.  In short, you have to build the hamburger factory (or whatever) before you can sell product one, before you know the quality of your product or, for that matter, before you even know if you really enjoy the fast food industry.

The beauty of the practice of law is that it is better than this.  You do not have to acquire the rights to, design, construct and finance the fast food restaurant or factory before you are selling the product. You might not ever have to.  You might decide it is not right you. Ingress and egress are easy into any practice area.  Change is possible.  After the golden arches are up you cannot decide that pasta might be better business plan.  Believe me when I say your bankers will not be amused.

The question is then, why do so many of you think you must build the factory before you start?

Every practice, practice area or business has a burn rate -- or a rate by which it burns cash.  The unmitigated disaster we all will face at some time (most likely when we are starting out) is when that burn rate exceeds the new cash coming in.  All  of us think we can handle it if it happens.  This is a mistake.  When you burn through cash faster than you can replace it the only two ways you are going to handle it is by begging mommy and daddy to give you money (losing respect) or by borrowing money.  Both just expands the agony.  Both can magnify the disaster.

The point is that in law we have a choice.  Cash flow to some extent is unpredictable, but we can  -- and we should --  control the burn rate. Many industries and professions cannot do this.  We  as lawyers can, however, by simply refusing to build the law factory before we have orders for the product.

Comments

[Dave]

Chuck,

I totally agree with your basic premise. Start small, work your way to whatever works for you. Monthly overhead can be tough and you don't want to do anything before you really have the client base and sometimes never.

You're absolutely right, with the current technology, it's very feasible for lawyers to work out of their home, with no staff and keep overhead to a minimum.

I started my own practice with $1,500 straight out of law school and kept my overhead very low at the beginning.

I *do* disagree with the example of the fast food industry. Fast food is a *totally* different business model.

Say with McDonald's or Burger King, you pay a whopping amount of money for a system.

In the fast food industry, you don't have to find the architect, or the location, or other items involved with the building. They do this for you.

You actually *do* know how well it will do, because based on demographic patterns of a city and the traffic patterns along the site road, they can predict very accurately how much money they'll make.

You aren't buying a pig in a poke, everyone knows the menu in McDonald's or Burger King. If you don't like it, don't buy one.

They have a consistent system for training employees.

So in short, you pay buckets of money for a proven system and a process, where you don't have to build it from the ground up. They have the site selection, the vendors, the menu, the equipment, the training and everything down to the napkins and hours. And you're not allowed to deviate from it.

I wouldn't want to be involved in a business like that, because it doesn't allow any variation or chance for creativity.

But it is a valid business model, and you're not really being surprised by what you get.