Posted by Nigel Wallis, partner at Legal Futures Associate O’Connors LLP
With the government, the Competition and Markets Authority, the Legal Services Board, the Law Society and the legal services regulators all flashing their sequined blouses like contestants on Strictly Dumb Downing, the idea of leaving a ‘secure’ job and setting up a new law firm is likely to feature alongside bareback-rodeo and base-jumping on most people’s personal risk register.
So it’s surprising that recent SRA data shows a significant net increase in UK law firms year on year. What, you may ask, is driving such risky behaviour and what are the hallmarks of a successful start-up?
Legal professionals are trained to spot the downside in situations and, in the past, this innate caution may have restricted the level of entrepreneurialism in the sector. But changing client buying habits and regulatory relaxation has given birth to a new generation of legal business venturers.
Some have brought welcome new thinking and trading models from outside the legal profession. And, inevitably, the lure of profit has attracted a few snake oil salesmen who like to rattle cages with prophesies of artificial intelligence Armageddon and multi-disciplinary wonder drugs. Who knows, I wouldn’t bet my dwindling pension pot against them being right.
Most encouragingly, this environment has also liberated some startlingly good entrepreneurs from within the legal profession itself. In the olden days, these lawyers would have been called mavericks; non-conformists who are always challenging the status quo and being accused of peddling ‘hair-brained schemes’ for winning new business or improving client service.
Well, perhaps their time has come. We are certainly meeting an increasing number of lawyers planning to unleash themselves from the strictures of traditional business models and build innovative, high-growth specialist firms from the ground up.
Starting any new business (let alone a highly regulated one) is not for the faint-hearted. So for those girding their loins to give it a go, here are our top 10 tips for success:
- Choose your co-owners as carefully as you’d choose your spouse
Unless you are planning to be a sole practitioner (in which case you only have yourself to blame), choose your co-owners with great care. Just because someone is a technical genius, it does not guarantee a marriage made in heaven. You generally only find out you’re in a marriage made in hell when the business is making too little or a great deal of money.
- Don’t overdo the professional advice
This may sound a bit odd but not all professional advisers are entrepreneurs and advice should be used to manage risk rather than eliminate it. As Susan Jeffers once wrote, sometimes in life you have to feel the fear and do it anyway.
- Choose the right legal structure
Having said don’t overdo the professional advice, choosing the right legal structure for a start-up is best done with at least some legal, accountancy and tax input. Nobody goes for an unlimited liability model these days, so the choice is between a limited company and a limited liability partnership (LLP).
Sole practitioners and tightly-owned law firms (where equity ownership is small and likely to be fairly stable over time) tend to favour limited companies, whereas widely-owned law firms (where there are likely to be numerous equity owners joining and leaving over time) tend to favour LLPs.
Whichever option you choose, get some tax advice and put a robust governance agreement (shareholders’ agreement or LLP agreement) in place. And if your legal structure includes non-lawyer owners you will, of course, need an alternative business structure (ABS) licence.
- Control your route to market
Most successful law firms have a direct route to their clients without relying on third parties to introduce them. If you have to buy work in from others, make sure you ‘partner’ with trusted introducers and have effective and compliant contractual arrangements in place with them. Preferably, spend your money on building your own brand to secure control over your own destiny.
- Data beats emotion in business plans
We see lots of law firm business plans and the best are based on solid data, secured through meticulous market research. Others we see are based almost entirely on gut instinct and don’t generally stand up to close scrutiny.
- You’re already thinking, so think big
Let’s be honest, most new businesses are evolutionary rather than revolutionary but you have to at least start out wanting to change the world. One day, someone is going to do for the legal sector what Rightmove did for house hunting or eBay did for car boot sales, so why not you? It’s usually easier to scale back a plan than scale one up.
- Self-fund for as long as you can
Self-funded businesses tend to be in better control of their future and exude greater confidence. That said, if you need funding to seize the opportunity of a lifetime, try to find a funder that shares your vision and buys into your business plan. Professional advisers who specialise in the sector should be able to point you to appropriate sources.
- Practice (management systems) make perfect
If you are like Mel Smith in the Not the Nine O’Clock News HiFi Shop sketch (YouTube it), find yourself a skilled IT consultant and invest as much as you can afford to get a system that helps you compete effectively and stay compliant. It’s perfectly possible to change boats mid-stream but it’s costly and disruptive.
- Appoint a specialist insurance broker
A good insurance broker will not only help you secure professional indemnity insurance with a quality insurer but also assist you with any claims and mid-term changes such as acquisitions or re-structures. Your broker should be a key business partner.
- Stand out from the crowd
Be noticed and remembered for what you do and how you do it. Brand loyalty is the hardest thing to achieve but it’s worth a lifetime’s income.
And finally, remember that failure is never total failure. As T.S. Eliot once wrote, “Only those who risk going too far can possibly find out how far it is possible to go”.
If things don’t turn out as planned, you’ll have learnt a heap about business and about yourself. And it’s rare to find anyone who’s regretted trying.