Reasons Why Law Firms Fail
Every single year in the United States, law firms close up shop and send lawyers scrambling in search of new jobs. As you navigates the trials and tribulations of the industry, learn the common reasons why law firms fail so you can protect yourself against falling victim to this reality.
Fighting Between Partners
Good lawyers are tough fighters with strong opinions. That is what makes them good at what they do. However, when those lawyers start fighting among themselves while trying to run a law firm, the law firm will likely fail. If your firm’s owners are fighting, you must use your mediation skills to come to an agreement.
Too Many Partners, Not Enough Associates
Too many heads and not enough feet can lead to the death of a law firm. There are some law firms where up to two-thirds of the attorneys are partners! This does not work well. It’s very unlikely that all of these partners are contributing to the company’s bottom line. Everyone needs to be productive and carry their weight, whether they are new associates or senior partners.
Failure to Focus on Clients
The most important person in your law firm is not you, your partner, or your lead attorney. It’s your client. If your law firm is all about you and your partners, then your clients are going to start looking for services elsewhere. Put your clients’ needs first, and watch as your reputation and client base improve.
A law firm will struggle if it focuses too much on inner workings and neglects marketing efforts and client services. Your procedures and policies will not matter if you have no clients. Point your focus outward and build a strong client base.
Refusal to Learn
Law school represents a sizeable investment of time and energy. Yet when it’s over, lawyers aren’t done learning. You must take the time to stay current on changes in the law, up-and-coming strategies to win cases, and new management or marketing skills. Leaders in the firm must spearhead the effort and encourage continued growth and development through training, seminars, and other educational opportunities.
Hiring Without a Strategy
Do you bring enough new associates onboard, and do you hire them with a clear vision of the future? When you hire, exercise due diligence to ensure the new hire fits a specific, long-term need for your firm.
As many law firms move forward, they fail to groom successors. When partners are ready to retire, their hard work goes up in smoke when they pass on their firm to a managing partner with no leadership skills. To ensure your firm’s longevity, hire and promote with future leadership in mind.
Lack of Focus
What is your primary focus? Is it chasing the next big source of revenue? Is it finding a specialty and growing as an expert in the field? If your law firm is constantly switching directions and choosing a new focus or practice area, you will confuse your clients. Instead, take the time to build a consistent practice. Your clients will come to trust your expertise and recognize your unique abilities.
Clients “Owned” By Partners
If partners work independently of each other with major clients, you run the risk of losing significant income if a partner leaves the firm and takes the clients they “own” with them. To limit this risk, use a team of lawyers for each client. If one chooses to leave, they will be less likely to take the client with them.
While focus is important, so is experimentation. While your firm develops its primary niche, try some new things. You may discover a new marketing strategy or niche area of practice that is a big revenue generator.
No Growth Budget
Smart law firms are always planning financially for growth. As your firm delves into a few experiments, you will need funding. Sometimes, these experiments will fail, sometimes they will be even more successful than you had hoped. It’s important to budget for the cost of growing pains.
Failure to Adapt and Change
Law firms that fail to change with the times are going to struggle and probably fail. No firm can last for decades without adapting to the needs of clients, technological advances, and changes in the practice of law. Stay on the forefront of these changes and keep your law firm up to speed in order to succeed.
Reliance on a Single Industry or a Small Number of Clients
Variety is essential to succeeding as a law firm. While it’s important to focus on a few specialty areas of practice, be sure to choose a niche that has enough clients and demands to support the firm. You may also consider if you need to expand your offerings to include multiple industries to gain a larger number of clients. Don’t depend on one stream of revenue or one small group of clients.
The Biggest Reason Law Firms Fail: Ineffective Leadership
A look at most of these issues points to one overriding problem: a lack of effective leadership.
Ineffective leadership led to the shutdown of Rider Bennett, a Minneapolis-based law firm that employed 91 attorneys and 100 support employees. It happened quickly and unexpectedly, surprising many industry insiders and employees. To those in the know, it was clear that the firm’s leaders were hesitant to act on tough decisions.
Law firms close every year, and ineffective leadership is typically at the heart of the problem. If you want your law firm to stand the test of time, be willing to make the tough decisions and build a strong leadership team. That, alone, could mean the difference between success and failure in a world where longevity is threatened.