Starting Your Own Practice – Three Perspectives

By Jeremy Pasternak

CAOC “Forum” – May 2006

This article stems from a round-table discussion among three lawyers at different stages of their own practices. Carter Zinn has had his own firm for just a few years. Al Stoll has had his own practice for about ten years, and Chris Dolan, longer than that. The sizes of their firms are commensurate with the amount of time they have been in business. The following are some of the topics they discussed, with their insights into how to start your firm, finance and grow it, who to hire and how to keep them, and other subjects which should interest any plaintiffs’ lawyer who has or is thinking of starting their own firm.

I have tried to quote the panelists as much as possible, with a few exceptions, where no names are used to protect the potentially embarrassed.

How to Commit to Your Own Practice

For those of you who are just contemplating starting your own firm, even if it is something you want to do, you surely know that to do it means giving up a certain payday and all the others perks of working for someone else. So where will you find that final push to go out on your own? It may be useful to consider the lesson learned from our three panelists’ experiences: consider misery and/or termination. Seriously.

Get fired

One panelist literally did get fired. Although Al was working at a plaintiffs’ firm at the time, the mass-tort cases in which he played only a small part were not engaging him, and he was already planning how he would make the transition to his own firm. But in the meantime, his work suffered, and he lost his job. Serendipitously, he received a fair severance, which gave him the capital he needed to start his own plaintiffs’ firm.

Hate your boss

Another panelist had wanted to do plaintiffs’ work from the start, and was at a large firm which was trying to develop a plaintiffs’ practice. Unfortunately, the firm’s commitment to this new practice area was minimal. Our panelist also found himself working for a distasteful boss. Late one night/early morning, he found himself contemplating urinating in his boss’s potted tree. Realizing that this was simply no way to live, he made the commitment to “get out.”

Realize That You’ll Never Have a Real Stake

Our third panelist, lured by the high salaries of 1999 dot-com madness, and the promise of a “progressive” firm where he could do “a lot of pro-bono,” went to a large, “white-shoe” firm that represents large corporate clients. He found that instead, he was spending his time defending class actions and saying to himself, “Gosh, I’ve got this amazing education and I’m using it to defend big corporations.” Disillusioned, he soon left for plaintiffs’ work. His first step was a medium-sized plaintiffs’ firm, but he was still frustrated by simply working for a salary, without a stake in a good result and without control over his cases. He had, as he put it, “no equity” and realized he never would.

How to Finance Your Start

In addition to that cushy salary, you’re also going to have to give up a lot else. Don’t forget what your firm may be covering for you: bar dues, malpractice insurance, MCLE costs, and health care, not to mention all other things you are going to need, such as an office, a staff, supplies, computers, a phone system, ad nauseam. Here is how our panelists did it.

The unexpected windfall

People can come into money in a variety of different ways, and it may take less than you think to give you the modest security you need. Of our three panelists, not one started with a war chest of more than $50,000.00.

Our terminated panelist got a reasonably healthy severance, and used that to at least help with financing his start up firm. In addition to that, he had slowly been saving money, keeping his rent down, foregoing extras, and doing the other distasteful things one does to save money.

The expected windfall

Another panelist was doing OK at his plaintiffs’ firm, but did not have the money to break out on his own. Fate stepped in when he was in a bicycle accident and severely injured his ankle. He decided to litigate the case on his own, and did so for some time:

I ended up taking it as far as I could on my own and then, about three weeks before trial, I realized I was clearly over my head – I hired Al Stoll on an hourly basis to see if we could kind of get everything under control, get a continuance and maybe bump up the settlement. It worked exactly as planned, we got a good settlement and I used that approximately 50 grand to start my own firm.

Go on a wing and a prayer and a cause

Our last panelist had a good friend die in an accident and had been handling the case for the widow, while still working at a firm. When he left he took the case and few others with him:

I had about $5,000 and I had some cases. I told the secretary, I can guarantee you six months’ worth of work. I paid for a rental space for 2 months in advance and I prayed. And I resolved some cases and then I took a huge case against the State that everybody told me I would lose. I poured every penny that I had into it and I tried my first case. And I got a $2.4 million verdict that helped me to finance the growth of my operation.

How About That Line of Credit?

On this point there was a consensus: have one, but don’t (if possible) use it. Al suggested working on building your personal credit long before you open your own firm:

I knew I wanted to open my own firm, so I knew credit was important. I began building lines of credit about four or five years before I started my firm. It was primarily credit card lines that I built up at high interest rates and then I was able to build up a Bank of America line of credit, slowly over time and that helped me.

But Al also agreed with concerns Chris had regarding lines of credit:

My practices and my belief in terms of the organized growth of the business have been to finance through operations, so that the stability that I have and governance over my firm is within my control. I have seen plaintiffs’ attorneys who have had to make decisions based upon extension, rather than best interests. I think it creates some potential conflicts in terms of the need to pay your creditors versus the need to maximize the value for your clients. I don’t think that it happens often, but I’ve seen it happen before, and I’ve seen people who have been extended beyond the tolerable risk that otherwise exists when you have to live within your means.

Carter also agreed:

To me, letting the resources and income of the firm determine the growth rate, at least at this stage, seems like a way that I can actually go to sleep at night, without being completely anxious about the plan.

But Carter also pointed out the need to have funds available to go to trial. Describing his first trial (at which time he did not have a line of credit), he put it this way:

I spent $38,000 on a soft-tissue motor vehicle case which enabled me to beat the insurance company’s offer by a hundred times. If I didn’t have that money available, I’m not sure if I could have tried that case as effectively as I did. If you are just starting out on your own, you have to think about that. For me, I would never want to have less than $40,000 in a war chest to finance that first trial. And if you own a home

and can get a generous line of credit, more power to you. More modest lines can still be obtained whether or not you own a home.

The bottom line seems to be a feeling that in terms of growing the firm, lines of credit are not a great way to go. This makes sense, in that, obviously, if your firm’s profits are not sufficient the grow the firm, you may have to face the fact that they also aren’t going to be sufficient to service a debt load.

On the other hand, all three agreed that it is good to have that line of credit, in case you need it to finance a case that is already in litigation.

For the plaintiffs’ lawyer considering starting out, a line of credit may simply be a necessity. After all, probably for the first time you are going to be without income, and unless you have substantial savings, you are going to need to go somewhere for money to get you through until you can start generating income in your new venture.

Staff – The Big Issue

The one subject which took up more of our discussion than any other was staffing. Who to hire, how to retain them, and when to grow. All three of our panelists had approached these questions in different ways early on in their practices. But they all agreed that staff is one place where you need to devote your resources.

Staff can be, and likely is, the single largest part of the overhead for any firm. Of our panelists, only Chris Dolan had an assistant full time when he started. Carter Zinn started without any help and now has a 1/3 time assistant, but is preparing to hire at least one more full time staff now, and more down the line. Al Stoll had no one to start, and did not for a full year, doing all his own work.

Who to hire?

Al’s current hiring practice provides an interesting perspective. His first assistant had no experience, but in working with her, he and she had a very rewarding experience, and this has become his hiring practice.

I’ve had nothing but wonderful success in finding new college graduates who are just dying to work in a law firm. I have my assistants set up an action plan and steps to do all the work, so that as long as the person is smart they can do the job. I look at their writing sample, and if they’re smart and they can write, they are going to be able to do a good job for me in my office.

Chris also finds that hiring smart people who did not necessarily have experience can work:

We also hire some enthusiastic people who want to learn and use our office as a training ground and many of those have gone on to law school and some have even returned and are now working for us as attorneys. Our practice has developed to the point where we need people who can hit the ground running, so we either promote from within from other positions, such as calendaring or reception, or we seek to hire people who come equipped with legal secretarial skills, and we also put out feelers to paralegal training schools as a source of support.

Carter finds his staff “through connections in the law school. And it’s not always the same person – sort of on an as-needed basis.”

The critical question for all three of our panelists was whether to hire a smart, though inexperienced, person who commands a lower salary and can be trained to do the job, but will likely leave in a year or two, or an experienced career staff person, who comes with the commensurately higher compensation demands.

How many to hire?

Not surprisingly, the size of the staff seems to correspond directly to the amount of time the lawyer has had his practice.

As the lawyer who has had his own practice for the shortest period of time, Carter’s example is perhaps most instructive. For several years, he has run his practice with only part time help to keep his overhead controlled. Initially, this approach worked as it allowed him to keep overhead down. However, he reports now that his caseload has outgrown his support, and one of his top priorities is to add additional full time staff to keep up with the growth of his practice.

Al’s is the next largest staff:

My staff now is a full time bookkeeper, a full time calendaring clerk for all of the litigation deadlines (dates, discovery, settlement conferences, OSC, CMC) and full time file clerk/medical records clerk, demand letter organizer-type person, and then two who are basically 30-hour a week contract lawyers.

It is worth noting that as his practice has grown, so has Al’s need for organization. Even with only one full-time lawyer, he still has a full-time calendaring clerk and a full-time medical-records clerk, to be sure that the basics of his cases are under control.

Chris, who has been in business the longest, also has the largest staff. It is organized this way:

We have teams. A more senior lawyer reviews the work done by the other lawyers and some of the support staff on their team, such that they are able to monitor those things and bring them to my attention.

That said, Chris still believes it is important for the owner (or owners) of a firm to maintain a level of control:

However, I still manage. Because it is incumbent upon me as the owner to make sure that it is managed appropriately, and I am very blessed to have others who work with me who have the capability to monitor. And that becomes a whole new dynamic in terms of now asking people to be relied upon to do legal work – to start thinking about the issues of monitoring and supervision, because it’s a different skill set that no one really comes trained with. Then you have to encourage those people to encourage the people who are working under them. For somebody like me, who is very task-focused to have to develop a process focus, becomes a challenge.

How do you keep them?

Al and Chris’s practice of hiring inexperienced people looking for experience begs a question: how do you keep them?

Al first mentioned health insurance. He provides it after three months of service, and believes it is “significant’ in retaining employees. But he also admits that employees who are new to the workforce are just not that likely to stick around:

When you hire somebody right out of college, if you can get two years, that’s a real victory. I think the average is about a year. So, I just take that as a given and I keep the overhead low. When I hire them, I know that I’ll be lucky to get a year and a half, and then I’ll just bring in somebody very similar. To get away with that, I make sure they have every single responsibility written down in an action plan so that they can easily train the person who comes in to replace them.

This is a good example to remember as your firm grows. Replacing employees is a costly endeavor, in terms of both finding them and training them. And though Al admits that the nature of his hiring practices means shorter-term employees, he has found that the costs are outweighed by the benefits, and he simply accepts those costs of doing business.

On the other hand, sometimes the costs of retaining employees through better compensation are a reasonable alternative to the costs of turnover:

The model that Al is talking about is a very workable model, but if a firm has grown, these inconsistencies in the turnover ratio with staff can be problematic where they’re outweighed by the benefits of offering people more competitive salaries and attracting people who have a longer term horizon for us.

When to grow and/or hire people with experience?

The question is, when does this happen? Where are the crossovers from hiring people on an “as-needed basis,” and also the more critical distinction between inexpensive, inexperienced staff to more experienced staff? There does not seem to be one clear answer. For Chris, the difference occurs when the firm has grown to a point where it has “jobs,” that is, tasks that fit within a defined structure, as opposed to simply hiring “people”:

As our firm moved from an organic firm to a more structured firm with assigned tasks, we found we can suffer turnover in certain tasks that we can’t suffer in others, because we lose the institutionalized knowledge. On a paralegal level, I have no interest in hiring somebody who’s going to be there for a year or two, because I’ve just finished training them and getting them associated with our structure by the time they leave. With a receptionist or a file clerk, we can see if their intention is short term or long term, and then they can migrate from that position outward.

Al has also found the benefit of hiring experienced staff:

It’s a risk. I just went through it by having a full time bookkeeper. I was doing all right financially, but wasn’t really sure that I could carry the salary; but I just did it, and it really, really, really worked out. It gave me so much time and I was able to generate significantly more income. It really surprised me to see all the time that was opened up. I had so much fear of doing that, but I just did it – like the Nike commercial – and it really worked out. I think I underestimated the value of my time drastically. Even though I’m very happy with where I’m at after ten or twelve years doing this, had I hired more staff earlier, I think I would have gotten farther along than I am now.

Even Carter, who has had his own practice the shortest period of time, agrees that it is worth taking the risk devoting time to experienced staff:

I’ve been going for almost three years now and, if I knew then what I know now, I would not do it the same way. I would do much more what Chris and Al did. I’d take a risk and invest front-end in a staff person, because now I’ve got a Catch-22 – am I going to work, get in a bigger office and staff, which, financially, I’m in a position to do, or am I going to get ready for my trial next week? I would say if you can, do what Al and Chris did – invest in staff early on, even if it means taking some front-end risk.

Chris compared accepting this risk to the risks of going to trial:

When you’re faced with a trial, if you’re making decisions about whether or not you’re going to do the right things to win that trial – there’s a problem. Most of us in this business say – we’re going to do this. We have the faith in ourselves that spending on the costs of trial is going to work. Just as you need to hire the right experts to win at trial, you need to hire the right people to get you to the field. There are things that you find you can’t sacrifice, and those are the things that make your job work.

The bottom line seems to be that staff is not the place to look for savings, regardless of what level of savings you’re talking about. All three panelists agreed that although staff is certainly a high-end cost, it makes sense to just accept a certain level of risk that you have spent “too much” on this item, so that you will have the staffing “room” to grow your business.

This of course begs the question: when do you grow your firm? On this, there was clear consensus: let it happen naturally, and do not try to force some pre-conceived time-and-task driven plan. In light of some of the comments above, this makes perfect sense. For example, you may have the money in a line of credit to hire attorneys and staff and spend all the other money that growth takes, but does that mean that you should? If it’s done in accordance with the fees being generated and the cases being litigated, then it just makes sense.

Relying on the Wisdom of Others and “Paying it Forward”

One of the reasons this panel was chosen was because of the relationships they already had. They all spoke of how important mentoring is, and particularly the informal mentoring, advice really, that comes from other members of the plaintiffs’ bar. Carter:

If I knew then what I know now about the mentoring and support that are available within the San Francisco and state-wide trial lawyer community, I probably would have made this jump several years earlier. Not to disparage the defense firm I worked for, which was a fine place to work, but I found the internal list serve at the big law firm to be far less helpful than the external list serves that we have at SFTLA and CAOC. I get orders of magnitude greater help from people who are nominally my competitors, like Chris and Al, than I did from the partners and senior associates at the defense firm where I worked. I think that has a lot to do with the dynamics and organization of large law firms, which is a subject for another day, but it also has a lot to do with just the unbelievable generosity of the trial lawyer community.

In addition to receiving help in his first trial from both Al and Chris, Carter spoke of another local attorney who has been very generous with his time:

I meet with Tom Brandi on a regular basis every 6 to 12 weeks, and he goes over my entire case load with me, one at a time, for two hours. That’s just something he’s decided to do – just to help me. When I asked what I can do to pay him back, his answer was just to “pay it forward” and when I’m in the position to help someone else down the line, just do that. It’s been exciting for me in the last six months as I’ve started to do that.

The Value of Plaintiffs’ Bar Organizations

When asked how they find these mentors, the answer was simple: the local, state, and national plaintiffs’ bar associations. CAOC, San Francisco TLA, and ATLA were all mentioned.

These are also the organizations which provide the list servers which all three of the panelists believe are excellent tools for sharing and getting information and advice.

Office Space

The discussion here revolved around sub-leases, as all agreed that this can be a fantastic solution for the new firm. A sub-lease provides only the space you need, while also providing access to things such as copiers, postage machines, and telephone systems. Chris pointed out another advantage to subletting, when it is from another plaintiffs’ lawyer:

I think it is very worthwhile to consider subletting, partnering, or joining in with others that are more established, for so many reasons – access to knowledge, information and resources.

Al put it this way:

You want to make sure you’re in a suite with other lawyers you respect who are, hopefully, plaintiffs’ lawyers. They’re wonderful people to talk to, get information from, inspire you, lead you, and there are plenty of good reasonably priced sublets around town.

Chris also noted, however, that as your firm grows, subletting can have its problems:

You’re the redheaded stepchild, and they come first. As your firm grows, it can be problematic as you absorb more of the resources of the person that you’re subletting from.

Computers, Technology, and On-Line Research

As the lawyer with the smallest practice, Carter is a model of technical efficiency:

I have one laptop computer. The second I knew I was going to leave my practice, I bought the fastest, fanciest, lightest little number I could buy from Dell, and I hooked it up to giant, 19-inch flat panel. I can take it everywhere with me, and I have a PDA that links with my computer. And, honestly, I run my whole practice through a $400 Canon laser printer. I probably had six to seven thousand dollars of up-front office costs to start my practice, so it wasn’t that much. I have a nice printer (one of these all-in-ones), a good computer, and a nice monitor, plus a cable Internet hook-up for $45 a month.

When a copy job gets too big for his all-in-one, he also relies on outsourcing, and specifically mentioned Kinko’s for big copy jobs.

But even as the practice grows, it is important to have strong, current technology. Al:

I have a computer for every staff member, a laptop to take with me to trials and depositions, and a PDA that I carry around with me for contact information.

Chris echoes this, and noted that good technology can relieve burdens on staff: “I see people who defer investment in technology and equipment, and it causes the staff to have greater problems.”

Chris also noted that having the right technology can help provide the control that, presumably, all lawyers starting their practices are looking for:

A common thread in this discussion – and for most people who enter into this practice, which is so full of risk and so full of reward – is to be in control of your destiny. By having the right tools and equipment for the people who need them, I am better able to control that destiny and serve my clients.

Carter also noted how important it is not to skimp on technology when it comes to on-line research:

I want to make a quick comment about Lexis or Westlaw. I get the impression that a lot of people try not to spend on this. In my view, computerized legal research is not a place to skimp – I think everyone should have the basic Westlaw package and the Rutter guides and the California Practice materials. Having those on-line resources really makes what I am doing possible – practicing on my own more than a mile away from a real law library – because I have much of what is in the large libraries all a few mouse clicks away.

Final Words of Wisdom

When asked for final words of wisdom, our panelists had this to offer.

Al:

Malpractice insurance – make sure you get it. Get a good relationship with an agent. Have a good relationship with an ethics attorney. Be careful in that area. Study in that area. Be deliberate in that area and that will help you significantly in the long run.

Chris:

We’re seeing a generation of people who are leaving the defense practice and entering the plaintiffs’ practice because they want the satisfaction of being real lawyers. I think we are a community of real lawyers, who pick up the ball when there’s no one else around. That is a very unique skill – it just has to be tempered with good business sense, as well.

Carter:

If you want to take your law school education and use it to help people who have serious problems and really need your help, it’s absolutely doable. Especially if you are willing to out-work the other side five-to-one. But as much as I’d like to encourage people to make this jump, I should also add that I don’t believe it serves our collective goals to add to the perception that plaintiffs’ lawyers aren’t out there to help people by taking cases we are not prepared to follow through on and then abandoning our clients when the going gets too rough – so never take a case you can’t afford to try, either economically or experientially or that you are not willing and able to refer out to a firm that can.

Jeremy D. Pasternak has law offices in San Francisco. He is a member of the Forum Editorial Board.

Carter M. Zinn has law offices in San Francisco. He is a member of the CAOC At-Large Board of Governors.

Albert G. Stoll, Jr. has law offices in San Francisco. He is a member of the CAOC Board of Governors. www.stoll-law.com

Christopher B. Dolan has law offices in San Francisco. He is a member of the CAOC Board of Governors. www.cbdlaw.com