How to Design a Law Firm You Won’t Burn Down (Full Transcript)

[00:00:01] Speaker 1: Hi, I'm Stephanie.

[00:00:02] Speaker 2: And I'm Zach. And this is episode 600 of the Lawyer's Podcast, part of the Legal Talk Network. Today I talk with Stephanie about how to start a law firm in part one of our four-part series where you can find the rest of it on our YouTube channel. Stephanie, what are we talking about today and what is this how to start a law firm series?

[00:00:28] Speaker 1: Yeah, I would say, I mean, I love you, Zach. I would even go a step further and say it's not even how to start a law firm, it's how to design a business that you love and that you want. Because the reality is starting a law firm doesn't make you a business owner, but designing one does.

[00:00:47] Speaker 2: Oh, man. Okay. I'm going to stop right there and we're going to go right into part one of our four-part series on how to design a law firm.

[00:01:07] Speaker 1: Hi, I'm Stephanie, one of the founders of Lawyer's Lab, where we help lawyers build law firms that they love and don't want to burn down.

[00:01:24] Speaker 2: Stephanie, I think it was tough making the decision of whether you should introduce yourself as a guest on this show. I hope that you need no real introduction on this. I hope that people that are listening to this show know that you're one of the founders of Lawyer's Lab and what we do in lab. One of the things we do is help lawyers start and run their businesses. I wanted to do an episode, I think this is episode 600, but we wanted to do an episode or series of episodes on how to do just that, some of the things that we think about when starting law firms. We've done episodes on this before and we'll put in the show notes other episodes on how to start a law firm. We've done five steps you should take. We've been on the mechanics of starting a law firm, there's checklists, there's setup, a lot of the practical stuff. But you and I wanted to have a different conversation this time. What's different about this one?

[00:02:23] Speaker 1: Yeah, I think this episode really is focused on the business model decisions that lawyers should be making and not simply hanging a shingle, practicing law and thinking that the business decisions can come later. Because by their very nature, you've just made strategic decisions, whether you realize it or not, like deciding to do the same thing that you've always done, but now you're just going to do it under your own name is a business decision. And what I want to talk about today is, are you making the right ones? And you may be, but I think it's worth a little bit more discovery, if you will.

[00:03:14] Speaker 2: Right, because we think, I know I'm told a lot of times as an attorney, it's like, well, you're never out of a job as an attorney because you can just go hang a shingle. Yeah, you can. And there are things you need to do to get that going. But we don't always hang a shingle deliberately.

[00:03:36] Speaker 1: We're not here to help people hang a shingle. We're here to help them avoid building the wrong law firm.

[00:03:44] Speaker 2: Love that. Okay, well, let's dive into it. What is the biggest myth you see with lawyers that they buy into when deciding to start their own law firm? What's the biggest? Because I know I had a lot of people tell me a lot of things. What's the biggest myth?

[00:04:04] Speaker 1: I think that the idea that if I'm a good lawyer, the firm will just work itself out. Right? Like, I can practice law. I'm really smart. I know how to win cases. So I'll just do that. And all this, all the rest of the stuff, we'll sort of just, we'll figure it out as we go, or it'll become obvious. I'll get referrals. Maybe even I'll fix that later. Like this is just a temporary problem. Let me just dig in and get clients in the door, and then I'll have time to do all that other stuff.

[00:04:42] Speaker 2: Because well, you can see where you would potentially think that as a lawyer. Because being good at these things meant you were good at law school, most likely.

[00:04:53] Speaker 1: I mean, most of us, I feel like most lawyers are probably pretty high achievers, and we've succeeded at most things in our life. Right? So we're probably getting good grades and achieving. And so then there's this idea that, okay, this is just the next challenge. And just like I've proven my success and done really well by getting good grades and going to law school and graduating, this is just that next little checkmark on my resume. Of course, I'll be good at this. And it's almost like, in a sad way, our competency might create some overconfidence when it comes to building a business.

[00:05:37] Speaker 2: Yes. I was going to say that. Is there a point, is there something about being really good at law that might even make it harder to run the business, to be good at the business of law?

[00:05:51] Speaker 1: Yeah, because I think, one, good lawyers, we tolerate broken systems longer. And what ends up happening is what I'm going to call heroics over structure. Right? We're really good. So we're just going to fly in and muscle through it because we're smart and we can figure it out and we can do the work. I was just on a call with somebody who's like, I've just got to dig into these three cases. And once I get these cases done and off my plate, then I can dig in and figure out the strategy for the business for 2026. So he was like, I'm going to get to it, Stephanie, I promise. And so what we instead, right? So being good at law, like table stakes at this point. But our effort is not a substitute for structure. And if we could do it differently, if we could actually realize that our job as the business owner is to be the architect of systems and structure and not rely on our personal heroics to come in and do the work and fix all the things, we could actually then do the thing I'm suggesting, which is intentionally build this business that works for us.

[00:07:04] Speaker 2: Yeah. Because if it's our personal heroics that are getting things done, it doesn't feel like we need to fix it, right? I remember- Until we break. Yeah. And that's exactly right. And being really good at law, being really good at law school, being really capable can kind of make you feel invincible in that way.

[00:07:30] Speaker 1: Yeah. And most lawyers, they don't fail at law. They fail at design. And that's what's showing up. And they don't realize it because they're like, but I'm a good lawyer. I should be able to figure this out. I'm a smart person. And again, not realizing that they've unknowingly, by failing to be intentional in creating this structure of their business, they have set this themselves up and honestly just made it a lot harder than it needs to be.

[00:08:00] Speaker 2: Yeah. Okay. Well, then, if we're not failing because we're bad lawyers, if we're not failing because we can't do the law, then what is it that actually makes these firms break down? What is it that makes the failure?

[00:08:15] Speaker 1: So there's three real constraints that we know exist for most businesses, especially when they're in that startup mode. And so usually one of these three things is going to show up in their business. The first is cash volatility, right? We know this a lot of times, especially when we're in startup mode. Cash is coming in. Revenue is coming in, but it's very uneven. We see these dips, highs and valleys, right? But sadly, with our business, our expenses are fixed. Like we're paying.

[00:08:52] Speaker 2: Rent has to be paid every month. Exactly.

[00:08:53] Speaker 1: The landlord doesn't care that you didn't hit that contingency fee, or so-and-so didn't pay you, or I just wrote a blog article that you can find on the website talking about lockup, right? A lot of times we're doing the work on day one, we're not invoicing it for 30 more days. And then a lot of times if we say it's not due for 30 days after that, and then we have AR issues, it might be four or five months or more before we're receiving the cash for the work that we're doing, and yet those expenses need to be paid. Rent has to be paid, and the lights have to be paid, and our payroll has to be paid. So that cash volatility when we're a startup is really prevalent.

[00:09:35] Speaker 2: And I don't care how good a lawyer you are, being good at law doesn't change that.

[00:09:41] Speaker 1: I think the second constraint that we really see a lot, and this is probably why most people are coming to us because it's that personal decision, it's founder time. The owner becomes the bottleneck for everything. Every decision is running through them. Even if they're able, they get to the point where like, okay, I can scale, I can hire a few people. If they haven't thought about that intentionally in building those systems, everything's still coming to them. And we hear it so much. I know you hear it too, like, I'm the bottleneck, and nothing happens without me being involved at some point. Or similarly, and this can be just as problematic, if I'm not paying attention to things, they start to slip and fail.

[00:10:26] Speaker 2: And that's a systems thing, yeah, absolutely.

[00:10:30] Speaker 1: And then the third constraint is decision fatigue. And we're really seeing this right now, too. Everything that runs through that one brain, it's so weighing on us individually. And I think one of the things that is important to acknowledge is that law firms rarely collapse. We don't wake up one day and suddenly everything, you know, is drops. Instead, it's like they quietly trap their owners over time.

[00:11:08] Speaker 2: Oh. I'm going to sit on that for a second, because I can feel a lot of people going, I feel that. You know, how do I get out of this? Because you look at the first two things, or the second two things, the founder time and the decision fatigue, 100% that's dealt with through heroics. And if I don't have the heroics put into that, I'm trapped.

[00:11:35] Speaker 1: Yeah, and so by not understanding that these are the constraints our businesses are going to face, we hang a shingle, we're really great at law, so we're going to go practice law. We don't even understand that these constraints are coming, and so we don't design around them, we don't prepare for them, and they sort of just hit us in waves and kind of keep knocking us back, right? So the good news is, we don't have to do it that way, like there's a whole nother way to do it where we can actually build intentionally, understanding that these constraints will be things that we face, it gives us permission to set ourselves up differently for success.

[00:12:19] Speaker 2: Okay, so talking about setting ourselves up differently for success, because we want to get, let's get to the positive here. You talk about, you talk a lot about different types of firms people can build. What decisions do most lawyers, are most lawyers not realizing that they're making when they're building these firms?

[00:12:45] Speaker 1: Every firm is implicitly choosing a business model, whether they're consciously realizing it or not, they are making these decisions when they decide what they want to do. And what I want to tell everybody right now is that you're deciding your practice area is not deciding a business structure or business model.

[00:13:10] Speaker 2: Okay, so saying I want to be a, I want to do wills and when in states, that's not, yeah, that's not a business model. That's just what type of law. Exactly.

[00:13:22] Speaker 1: And it may impact then how you deliver your services and what pricing structure like there's, those are the decisions that matter and that we start to make. So of course, having your practice area is a component of this. But I think a lot of times people just put on the hat that they've always worn and say, okay, I'm going to just go practice this area. So instead of really thinking about some paths that, that we're deciding. And so the first path, I'm going to call it lifestyle solo. So it's a, it's a path, right? And it's a high control because you're, you're, I mean, some people, you're the, you're the firm. Yeah. Maybe you have a little bit of outside help, virtual help. Maybe you're working with a bookkeeper, you know, I'm not saying that you are the only person in the business, but you're the primary person delivering legal services. And so really you are the product and that is perfectly fine. There's no judgment by the way, with any of these decisions you get to decide, like I always say no judgment by me, I don't care. But it's just realizing that if that's your path, one, you're, you know, your revenue is capped. You're like, you're not going to be able to scale that beyond what you personally can do. And so that's, that's just a business model decision that you're making.

[00:14:50] Speaker 2: Yeah. And like you said, it's a valid one. I mean, like you can build pretty good hours and make good money doing like plenty of people make good money doing that.

[00:15:00] Speaker 1: I mean, there are people I've, I've talked to who are like, I don't want to manage a big team. I don't want to have to keep up with other people. And it's like, that's fine. Like again, no judgment, but just realize, you know, how much is going to be dependent on you. And especially, especially if you, well, let's get to the second path because that kind of, I think starts to highlight some of the differences. So what, what I'm going to call the second path is our scalable niche firms, right? So these are firms we're going to, the owner's going to let go of, I do everything and instead design systems and delegation that they can leverage. So it's moving past, like I am the firm. You don't, again, it doesn't necessarily require a huge team. This has nothing to do with the number of people in your team, but now you're saying, okay, I'm going to design a repeatable package. For example, I, again, was just on a call with somebody this morning who was like, who's designed a do-it-yourself package that they're going to sell to, to the public with, for a fixed fee. And then there's add-ons. So like, if you want to have, you know, just like we're used to buying, but that product looks very different than somebody coming and saying, Stephanie, I want to hire you to represent me in this case. And I say, okay, I'm going to pay, I'm going to charge you a hourly rate. And I'm going to exchange, you know, my value is, is basically my time. We all know how I feel about that, but like, that is a business model decision that I'm making versus me saying, okay, I'm going to, even if I say, okay, I'm going to do your estate planning, I'm going to package it. And I'm going to leverage technology and have templates and I'll still do a personal review and I'll still have personal meetings. Like I'm still going to be involved. It's not a hundred percent, you know, like an online package. Like I was explaining that this guy's doing. But those are repeatable systems where you can leverage, you can delegate, they can scale beyond just what one person's billable time offers.

[00:17:09] Speaker 2: And theoretically, I'm not the bottleneck any, anymore in that.

[00:17:13] Speaker 1: I would hope. Yeah. And then the third kind of model, if you will, is the founder for exit asset builder, right? This is the kind of person who's starting out the firm, thinking long-term, thinking replaceability matters. I'm going to build, and we have this lawyer, like I, you know, I have the privilege of working with this person. So I have someone in my mind when I'm thinking about this. From the day one, they were like, I know what I'm going to sell. So everything I build and design, I'm going to be thinking about, it's not built around me. It's built around systems. It's built around ideas and technology, but designing from day one that this is something I'm going to one day not own.

[00:18:00] Speaker 2: That goes back to that quote that I really liked from the beginning of this and the myth, the I'll get established and then I'll fix it. You know, that really fights against that. When you talk about these three, it actually, it makes me think of my father and his practice. Dad started out kind of creating a job for himself. He started out in that lifestyle solo, and he was able to make it to my soccer games. He was very independent, very able to do blank. But when we were, you know, when he was retiring, he wanted to sell the firm for value. Let's talk about that. What happens when someone says they want one path, you know, at the end he wanted path three, but all the decisions he ever made in that firm, he was acting like he was in path one. So what happens there?

[00:18:58] Speaker 1: I mean, yeah, like again, no wrong paths here, only unconscious ones. I think the example of your dad is a perfect one, and I think that that probably shows up a lot. A lot of people come to us and they say, I want path two, I want path three, like I want this thing, and yet unconsciously they're stuck on path one, and they designed for path one, right? And that's where the frustration comes in. They want to scale, but they priced it wrong. You know, they want freedom, they want their time back, but they refuse to delegate. And so this conflict, it shows up as burnout and resentment and even chaos, but it really comes back a lot of times to, well, what's the design? What's the business model that we've designed and we've built knowingly or not? And is that design going to support those ultimate goals that you have?

[00:19:58] Speaker 2: Because I can see all the things, as we're talking here, I can see all the things that I hear from attorneys that make them feel like they're trapped in one of the paths, and it goes back to choice one. It goes back to day one of what am I building, how, because that client that you can't quite shake the way that you're billing them because you want to go to a different billing model, but they're on hourly, well, if you had wanted to do this new billing model, you probably would have started differently with them. If someone's listening to this and they think, I don't want to do the wrong thing, I know which one I want, I want to choose one correctly, how do they actually decide which one of those paths? Again, any of those paths has value and is great. How do they decide which one of those paths makes sense for them?

[00:20:53] Speaker 1: I think it comes back to a couple of questions. And the first question is, how do my clients actually buy? Because that really is such a fundamental piece to all of this, what is it that we're delivering and who are we delivering it to and how are we pricing it? There's so many options. There's so many more options beyond just the billable hour. We have so many, I know we've done shows on this before, and this is obviously something I get excited about, but you don't have to only bill by the hour. There's a lot of possibilities in there. But part of that is thinking about, so it's not necessarily just how you charge, but what is it you're selling? Is it something that's urgent and comes in fast or something somebody's contemplated over a long period of time? Is it a one-time, they're coming to you once, or is it repeatable? Going through what you sell, how your clients buy from you, what you're selling them is obviously the most critical step. And if you take nothing else away from this episode, it's that don't just do that by default, because that's what most lawyers do, is they just know how they did it at their old firm, or if they've never been at a firm, how every firm down the street does it. And they just pick a rate based on what everyone around them in the same number of years seems to be charging. And that's the default decision that's setting a whole bunch of other, that's like the domino in this path that I'm suggesting. Hit pause and really be thoughtful about who you're serving and why you're serving them and what that looks like, whether, and again, there's lots of variables in there. Do you want to be high-end and bespoke, or do you want to serve more people, maybe at a limited scope, and scope that out and price it differently? Again, there's so many things, but that's really the first step. We could probably spend a whole episode on that, but...

[00:23:01] Speaker 2: And I'm sure we will in the future, but the thing that I get out of that is looking at it from their perspective instead of looking at it from my perspective. And I think that's fundamental to what you're saying here too, is how does my client actually buy from their perspective?

[00:23:17] Speaker 1: Yeah. And how do you want to sell to them? Right? You get to have some agency in this. Maybe that's the message here, is that you have agency and it's not a default decision.

[00:23:28] Speaker 2: I like that.

[00:23:29] Speaker 1: Yeah. Me too. All right. Question, second diagnostic question that somebody could, if they're listening right now and they're like, okay, what else do I do? Ask yourself what breaks first if demand doubles? If suddenly tomorrow, twice as many potential clients were knocking on your door, what's going to break?

[00:23:51] Speaker 2: I love that. If I'm wildly successful, where do I fall apart?

[00:23:56] Speaker 1: Yeah. And is it you personally? Because that's going to be telling if you can't handle any more work, if your delivery model breaks because it's not set up to scale, then again, this is just information that you're gathering about the systems and the way you've designed them.

[00:24:13] Speaker 2: Yeah. And do you not have enough cash? Do you not... Yeah. Do you not have proper intake? Yeah. I like that.

[00:24:20] Speaker 1: And then the third thing I'd say to for people to think about is, what do I want from this firm to be able to do for me personally in five years? Because we're the owners, we're building this business. You've heard me say this before, this business should exist to serve us. Like to your point, hopefully we aren't just creating a job for ourselves. We really are being intentional about creating a business. So what is it we want from that business? Do we need it to provide us income or flexibility or leverage, or are we setting up for an exit? Whatever that is, there are again, no wrong answers. You just need to understand which path you're on so that you can start building and being intentional with your decisions now.

[00:25:03] Speaker 2: For me, in my brain, this sounds like a place where people would overthink, would get stuck, would just turn their wheels for a while.

[00:25:15] Speaker 1: Totally get that. And I guess here's what I'd say. As lawyers, because I'm a lawyer, so I can say this, we're often perfectionists. And that's the trap we get into is thinking, okay, I need to be perfect. And so we don't make decisions because we're so worried, are we making the wrong ones? So I guess I would just say clarity beats certainty at this stage. Can you pivot in the future? Of course. But making sure we're taking the first couple of steps down this path and being intentional about what that path is, is going to really help. So you probably know in your gut, even just listening to this just now, you probably have a sense of, okay, I know where I want to be. Do you have to have it all figured out? No. But you need to know, are we headed north, south, east, or west? We need to have a general sense. And then we can start designing it.

[00:26:13] Speaker 2: Yeah. It's easier to turn a moving car. That phrase used to make more sense before we had automatic steering. But it's easier to turn a moving car, I remember my father would always say. And I think that gets to clarity beats certainty. But what do you mean by clarity beats certainty? What is clarity versus certainty? I think people might get hung up on that.

[00:26:40] Speaker 1: Let me give you some takeaways, right? Decide. Decide which path do you want to be on? And just write down, what is your firm? What is it? And what is it not? Simply starting with that clarity will take you a long way, because you'd be surprised how many people kind of come in and they just say, well, you know, I just want to practice law. I just want to make some money or have some flexibility. I mean, none of that's wrong, but just having a little bit more clarity around what does that actually mean? Do you want a lifestyle solo practice? Do you want to build a team? Or you want it to primarily be about you? Again, no wrong answers, right? Do you want to be able to scale this thing? If so, what does that mean to you? Scale doesn't have to mean people. It can be caseload, but we got to build intentionally for that. So what does that growth look like? And how big do you want to get? Again, not necessarily in terms of people, but money, like how much income do you need this thing? And be realistic. Like, I mean, I love dreaming and shooting for the sky too, but and that's one of the things that I do with people is like, okay, we have this goal. Now we're going to back into and understand what that would take to get there. So again, you get to dream, but then we got to dream within reason and say, okay, what does that look like? Do we need, because sometimes people say, oh, I just want to make a million dollars because it's a nice, it's a good number. Yeah. Me too.

[00:28:18] Speaker 2: I'd like to.

[00:28:19] Speaker 1: I'd like that as well.

[00:28:20] Speaker 2: That's my goal for today.

[00:28:23] Speaker 1: Okay. Well, how many people, you know, would we have to serve? What's our average? So then there's math that we could use to back into that, right? And we do capacity planning inside a lab with folks too, like, all right, well, what, what's our average value of a case? What does it cost us to deliver that case? So then we, then what's the capacity that we need to deliver that case in terms of people or tools? What resources do we have to take to deliver on that? Because those are real constraints that we have. And then we can understand if that million dollars is possible or not.

[00:28:58] Speaker 2: Gotcha.

[00:28:59] Speaker 1: I feel like I went down a rabbit hole there that maybe took us off course. Sorry.

[00:29:03] Speaker 2: We went, we went more into some certainty than, than clarity. And what we're saying is we, we want to answer the questions that we were, that we were just talking about the, the big clear, they're going to change your path questions. And let's say someone finishes this episode and they realize that they need to be more intentional. They, they, they want to do this. What should they actually do in the first 30 days?

[00:29:28] Speaker 1: So step one, we just said, define which path is your firm going to be on, on purpose, at least for now, maybe you don't have to say forever, but for the next three to five years, what do you want? Which path do you want? You know, then step two, start to define it. So what is one ideal client that you would like to serve? What is one core offering or outcome that you want to deliver to that client? Not five to 10 packages. You mean we could come up with a whole bunch, but what do you want your core offering to be? Just start with one and then maybe try this on for size. Start to say no to everything else temporarily. If your finances allow it or, or, or be intentional and know, cause one of the things we do also is we help people kind of say, if this is where you want to go, let's actually make a transition plan to get there so that you, cause at some point you have to say no to a certain type of revenue and yes to others. And that I'm again, getting into the weeds, so I'll get myself out, but there's a strategic way to do that. So you don't go broke in the process, but then, and then step three really is to start to model those things that we talked about. So now if you have that core offering and your core client, what does that look like in terms of real revenue targets? How many clients would be required? And then reality check your pricing and then understand your capacity. With those constraints known, you should start to be able to map out a path for where you need to go and what you need to focus on. And really, and that's what we do too, is help people really decide and understand these are all the things that need to happen for me to be on that path. And here's the good news that I want to leave everybody with. We don't do this all at once, right? So that's, and that's sometimes the hardest thing. And this is where having an advisor can really help you is, what do I do first? And then what do I do next? Because we really only have the capacity to do a few of these things and to start getting us in the right direction. We can help you kind of figure that out. Hopefully, sometimes looking at the list, it's a little obvious, okay, this is the next right step. Sometimes it's a little bit harder, but I just want to give everyone permission and understanding that you may have a list that you feel like is 25, 30 things long. You're not going to be able to do all of them. This is oftentimes, it really is a two, three, sometimes five-year journey. Because again, remember where we started is, the plane is up and running, like we're flying, we're practicing law people, right? Like we hung out our shingle, and nobody, Stephanie wasn't there to help me understand all these things when I did it. So again, no judgment, I get it, but you got me now, and now you understand, right? Like the eyes are open, and so now you get to be intentional. And so just give yourself some grace that we are trying to pick your metaphor, turn the barge in the middle of the ocean. It doesn't necessarily turn on a dime, or the plane is flying and we've already built it and we're trying to put more things on top of it. So we're not going to just, unless you have the luxury of like shutting down one firm and kind of starting over, most people don't, we're going to be intentional, but now you're going to start putting those pieces in place that you can feel good about, and you're going to see a path to, okay, this is possible. And the good news here is for people like, I have seen it done. This isn't pie in the sky thinking, I have seen people make these kind of shifts and transitions and now are on the path of the firm that they want.

[00:33:12] Speaker 2: I like that. Okay. I like firm steps. I like firm direction, but this episode obviously is intentionally pretty zoomed out. This is a companion episode with some other videos that we have on our YouTube channel. But if someone wants help building the pieces, the market pricing, the systems, all of that, where should they go next?

[00:33:40] Speaker 1: Well, the good news is you can head over to our YouTube channel because we've recorded new series of videos that are going to go deeper into some of these questions. So if you're kind of intrigued and wondering that, I'd say head there first and absorb that content. If you're ready to really dig in and you're like, actually that strategist sounds really good. I could use that extra help. Then give us a call, email me and we'd love to talk to you about that. That's the work that we do with firms inside of lab. And it's not always easy by design, right? But the good stuff never is, right? Like to really get this thing cooking, it might be some hard work, but I promise it's worth it.

[00:34:21] Speaker 2: I like that. Well, we'll make sure that we put all the links to the website and the other videos into the show notes anywhere that you're hearing this episode. Stephanie, thank you for being with me and for going through all of this. This was a jam packed episode. I appreciate it.