Practice Management

This is the time of year in which I get any number of attorneys writing me about going out on their own come the new year.  And, the issue of borrowing money to start the practices comes up.  My advice, almost always, is do not do it.  This often leaves attorneys in shock as in how can they not do it?

One of the benefits of the Third Wave practice of law, if that is what you really want to achieve, is that you can cut your overhead to nothing, if you need to, in order to get started.  Then, the only thing you really need is some cash flow.  This comes with discovering a niche and pounding the pavement for clients or cases, and not from debt. 

In reality the job of doing what is necessary to find clients and cases is what attorneys try to visualize themselves doing and, yet, it is the task they put off and do not do.  Strange to say, but at least as to myself and others, I have viewed money in the bank, even borrowed money, does no help you get over that emotional hurdle to get out there and get this task done.

The same is true once you are established.  This past summer my firm was litigating and settling cases, making a good deal of money, and living (at least my version of) the high life.  As a result, we let up.  It was just easier to concentrate on other things.  Take a little time off.  The problem was that we were not filing enough cases to make up for all of the cases we were then settling and litigating to completion.  In short, we had money in the bank, so we did not think the keeping up with our referral sources was as necessary.  I can assure you that if we did not have money in the bank, that would not have been our posture.  We would have been reminding everyone we were out there and reminding them what we do.

The best way that I can describe the problem is that what all lawyers need is a proper taste of humiliation.  I think we all have that taste in our memories, but too often it is misplaced and just plain screwed up.  This leads to problems.  It is the society we live in to some degree.  Debt is easy and overly acceptable, while making contact and asking for work can be perceived as humiliating.  Where it is not seen as acceptable to ask for work, it seems to be okay to ask for a loan.

Taste can mean to test a food or beverage for flavor.  But, it also means to perceive in some way or to appreciate something, no matter how limited or slight.  In short, you can project your feelings of how you might feel or respond if future events do not pan out.

Humiliation is also called stultification, and it is the abasement of pride.  It creates a feeling of mortification and then of being humble.  Both humiliation and humility, I guess, can be created from within, if not from different perspectives.  Humility can be sought alone as a means to de-emphasize the ego.  Humiliation involves other persons, but not necessarily directly or willingly.  For example, humiliation can be linked to a personal belief.

What is suggested here is that we as lawyers need to show more humility when starting out, but we also need to put our personal beliefs in perspective concerning debt and satisfaction now, as opposed to finding ourselves belittled by others later.

Maybe it is just me, but when I was stating out, what I found to be humiliating was the act of borrowing money.  I remember struggling to come up with 10% down to buy my family's first home.  Even at that, the only way we could get a home for 10% down was to buy a foreclosure.  The local bank held the mortgages it made.  As a result, I remember when visiting with the vice president of the bank being grilled about everything down to my business strategy, whether my wife and I had ever considered divorce, the justification for having more children, whether we had family members that would co-sign.  We refused the co-signers, but then had to discuss if we had family members that would naturally help us out if we found ourselves in financial trouble in the future.

Needless to say, it was uncomfortable.  I had not even thought of many of these issues, much less discussed them with my wife.  Worse, having to discuss them for the first time in front of a stranger just to borrow money was humiliating.  I still have that taste in my mouth.

The banker was not necessarily out of line.  The bank was gambling on potentially a 30 year investment on a property they had already taken back from the builder they trusted.  He would rather I be a little humiliated in getting the loan than be ultimately humiliated later should they have to involuntarily collect on the loan.  He understood that too many personal decisions are made in life without regard to loan obligations and money (in fact almost all personal decisions), and it many times leads to unfortunate consequences.  The banker wanted to inspire humility now so that I might not be humiliated later.  But, at the time, I did not take it well.

Later, when I was more established, I went to my banker with plans to build a new house on a lot I had purchased.  I had hired an architect to design the house of my dreams.  It was reasonably priced as well.  I remember it had no corners -- no right angles.  The front was a giant atrium where the planting migrated from the outside to the inside.  It was stucco and not brick.  It had a flat roof.  The floors were stamped concrete.  The kitchen was out in the open in the living area.  The duct work was painted and exposed.  In the 80s it was a house that was ahead of its time, especially in a small rural-based community like Texarkana.  I had the 20% down, including my lot.  My banker looked at it and said, "No".  He said I could buy any other house in that price range on the market, but if I defaulted on the loan for that home, then the bank would have too much trouble disposing of it.  I had planned this house, promoted this house, and reveled with my architect over this house.  Frankly, I think I had visions of this house leading me into a second career as a developer.  I felt humiliated again.

Over the years I have purchased a number of vehicles for my family.  Some have been on credit and some not.  But, it had never been anything but easy to get the loan.  About a year ago, after the economic meltdown, I tried to take advantage of a 1.9% interest rate deal that one of the major car companies were offering.  To get the interest rate I could not go through my normal bank and had the use the manufacture's bank.  I gave them my normal information, I was told I was approved, the car was ordered, I put down my down payment, and then I got a call from the bank.  I guess their bad lending practices had caught up with them and the bank was now second guessing everything.  All of a sudden the bank wanted me to fax it two years worth of tax returns, since I do not have pay stubs given my self-employment.  And, I had to endure a number of personal questions like, "Why do you feel you need two car's Mr. Newton"?  "Are you planning any extra long trips in the future, Mr. Newton"?  "How many children do you have"?  "Do you plan on letting any of the children dive your new car"?  I had a flashback to the 80s.  I had previously sent the tax returns, but felt humiliated by the questions and told the dealer and the bank to forget it.  I waited and bought a car elsewhere later.

These are a few examples of the taste of humiliation I have acquired of debt over the years.  There are others.  Let us just say that I have that taste firmly on my pallet.  It is something that I generally want to avoid.

I have practiced bankruptcy law and now litigate in the practice area.  Over the ten plus years that Congress and the lenders waged battle over bankruptcy reform measures, the constant refrain from conservative lawmakers was that the problem was that the filing of bankruptcy had lost its stigma that use to prevent it, and for that reason the option of bankruptcy had to be highly regulated.  Of course, nothing was further from the truth.  The thousands of consumers and business people that I had met with over the many years were always deeply humiliated by their debt problems and the fact they had (and that was really the operative work - had) to file bankruptcy.  The proclamations and observations of the industry were just wrong.

What has changed is the stigma of debt.  Generally speaking, there is no humiliation in the acquisition of debt, and especially debt when the origins of repayment are not exactly known.  The perfect example is our society's belief that college and professional students can somehow go into debt, often well over a hundred thousand dollars in debt, with no known way of repaying it.  This taste of humiliation has been lost as to debt.

So, now it comes time to start a practice and the taste of humiliation is not there, and there is no great incentive to discourage lawyers from going into debt to get there practices started.  There is, however, some strange humiliation that many lawyers feel about practicing at home, and not being associated with the accompaniments of a traditional law practice.  If there was a good taste of humiliation over going into debt, especially high interest debt, I can assure you no decision would be made in the establishment of a practice that would result in borrowed money.

I have spoken with a number of new attorneys lately.  I am not sure they want to hear what I have to say, but I appreciate their questions.  Most are borrowing money in some form to get started.  And, on what are they spending the money, or causing their overhead to go up to the extent they need the money?  Almost all of them are broke, are working for themselves, do not have any business, but feel the need to incorporate.  They are renting office space in choice facilities.  They are paying to have websites designed by others who know nothing about the practice of law.  They are buying expensive software with no cases to input, they are creating commutes with no income coming in, and they are signing up for legal research with no issue to explore.  In short, they are building the store before they have any customers.  Much like a home builder building on spec without any idea of feasibility for what he is building.  It is a recipe for disaster.  But, what few of them are doing instead is figuring out conclusively how they are going to get clients and cases, and executing aggressively and consistently on those plans.

So, there is a taste of humiliation for not playing the part, while there is no taste of humiliation for the money borrowed with no means of paying it back.

I understand the dynamic of what is happening.  It is instilled in us by our education system where it is okay to borrow a $100K for an education without knowing how that is going to be paid back easily.

It is all a crap shoot as to whether we succeed, but what does not make sense is to increase that chance of failure not because your practice area did not work, but because it did not work to your grandiose expectation.  It is possible to go broke while being moderately successful at the same time.

If you did not have the money, and could not get the money, and felt that every dime counts, most attorneys with a desire to go into solo practice would find they need none of this.  No office.  No commute.  No incorporation.  A handmade website for now.  No special phone system.  No overhead but what it takes to live otherwise, and they would be better for it.

My point is that before starting out establish for yourself two things.  First, an understanding that debt comes in many forms.  It does not have to be a loan.  It can be leases, gas for commutes, and any expense which is required.  Second, imagine yourself filing bankruptcy in the future on every dollar that you borrowed.  Develop, in other words, a taste of humiliation for debt now so you can enjoy the sweet taste of ownership and achievement later.

The main point is to have some humility now, and acquire a taste of humiliation for debt now, so that you can prosper from your work later.