The Art and Science of Building an asset from your Legal Practice
Tuesday, October 11, 2016
Since 2010, Cubism Law has been focused on recruiting lawyers, teams and firms (predominantly on a fee split deal) and helping them to build their practice under our umbrella. More recently, we achieved the first internal sale of one of those practices – which was billing almost £1 million per year – for a very significant sum. It was a considerable achievement and delivered on a key objective I had set for the firm.
I created Cubism to address what I perceived to be one of the major issues in the traditional partnership model. I was a partner in a City Firm when a conversation with one of my entrepreneur clients prompted me to totally re-think the business of law. He suggested that an issue with being a partner in a law firm was that you could not build an asset out of your achievements. Partnership capital was paid in and out (generally with no uplift element on exit other than some interest) and there was nothing to sell when you retired since the goodwill was locked up in the Partnership. Even small niche firms found it very difficult to generate any value on exit since the multiples achieved for those businesses were tiny compared to other industries. In such cases an exit simply meant retiring or finding a firm to take on your run off cover and getting a small percentage of future fees. I felt there had to be a better way.
How, I asked myself, could an individual who had built a substantial practice and a loyal customer base be left with little more than a pat on the back? It was a question I was determined to answer.
There is often a sense of lethargy in law whereby critical questions – I would say building an asset out of what you do is such a question - are left wholly unaddressed. For too long, lawyers have followed the status quo which tends to be focused on PEP and turnover rather than the equally important question of how to transform what you are doing into an asset. If this is addressed, you can literally double or triple your long term earnings; in fact you can do far better than that if what you are looking at is your actual net return after tax.
So, how does one do it?
- Understand the Individual or Firm
Building the value of any law practice often starts by (1) defining the direction, goals and vision and (2) dealing with the unaddressed or unconsidered areas of the business. Most people have a sweet spot of skills and it is the areas outside of those that are often neglected. So, firstly focus on finding the value - a certain client base, specialism, practice area, way of working, precedent base, people or brand – and then look to drive the business in a way that chrysalises that value.
Secondly, look at the untapped potential which can be harnessed such as:
1. stripping away the lost energy and money (1) in dealing with partnership politics and unprofitable work, (2) by streamlining systems and processes to make the delivery of work far more efficient and (3) considering ways in which to sub-contract certain operational, administrative and compliance aspects of the firm.
2. focusing on growth opportunities by (1) opening new lines of work to existing clients, (2) promoting the brand as a centre of excellence in existing specialist areas or sectors and (3) building greater strength in depth and complimentary practice areas around the core team.
So, from my experience, it starts with (1) understanding the key players, (2) agreeing the vision and goals and (3) putting in place an environment and structure that plays to the strengths of key individuals and frees them up to focus on delivering a stellar performance.
- Engage the Vision
As an intuitive lawyer, my strengths lie in capturing the overview and picturing the creative possibilities. It is only when you fully explore the synergies, and what may be possible, that you can begin to work on the vision. Often this starts with unconnected ideas or themes that need to be pulled together into a powerful and compelling proposition.
For me, the vision creates the pull and magnet for the future direction. So, I always start with the end in mind and, once that’s nailed, you can focus on the steps required to make it happen.
3. Put together a clear and well considered route map and keep it alive
It is rare for lawyers to take time out of their practice to reflect and invest on their long-term goals. More often than not, the focus is on the day to day and any plan (even if it exists) is left firmly locked away in a drawer. It is very difficult to reach any destination without a clear route map.
For me, the route map is far more complex than the vision. It needs to articulate the whole journey and, in particular, the chronological set of steps, tasks and milestones on each of the various paths that need to be taken to build the asset value.
A route map needs a compass - this is the regular review of the plan to make sure you are heading in the right direction and not being blown off course.
- Build the Team
It may be difficult to build an asset if the practice or firm is reliant or beholden to one individual. So, any plan is best actioned by putting together the team – the right people, doing the right jobs at the right time – with a clear division of roles, responsibilities and accountabilities.
On any project, we take an owner’s (rather than renter’s) care for success. This is all about taking genuine ownership and accountability not only for our own performance but, more importantly, the performance of the team as a whole. I think of this as the T-junction of responsibilities where the horizontal part of the T represents the broad responsibilities and the vertical the specific accountabilities.
- Adopt the Right Mind-set
Attitude is everything and having the right mind-set is, from my experience, the most critical factor to success. This means a can do approach - if you want it, you will achieve it because you will find a way.
In helping my children when they were very young, I realised that I took a different approach to answering a question. I always started the task with an assumption that, with the right amount of work, I could find the solution. By contrast, I noticed that they would sometimes look at the problem as impossible unless an answer became quickly apparent. I began to show them that with the right approach and hard work, what initially seemed impossible became more possible, what was possible became more probable and what was probable became increasingly certain.
The legal market is changing and evolving quickly with new entrants, increasingly different delivery models and ways in which firms are structured and use technology. This, together with recent changes to SRA rules on compliance and ownership of law firms, means that there are increasing opportunities for solicitors – whether they are in large partnership, smaller firms or even sole practioners - to re-think the way they work and focus on new horizons.
In that context, I would leave with one simple question for your new horizon - what are you doing to build an asset out of your legal practice?