Life Beyond the Briefs

Law Firm Life Cycle Unpacked: Ethical Exits & the Equity Trap | Jonathan Hawkins

• Brian Glass

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Ever drafted the “I’m out” email and saved it as “send after bonus”? In this episode, Jonathan Hawkins returns to talk about the messy middle of law firm life: when to leave, how to leave without stepping on landmines, and how to know if “partner” is a leap or a leash. We get into the kitchen-table talk at home, what you can and can’t say to clients before you give notice, and the quiet costs of equity that no one puts in the brochure.

We also dig into the parts owners whisper about: slowing down departures without playing games, conflict waivers when friends want to be partners, when to update the partnership agreement, and what M&A really looks like for smaller firms, especially in PI. If you’re plotting an exit or trying to keep your team from plotting theirs, this one will feel familiar and useful.

Jonathan’s new book, The Law Firm Life Cycle, is our guide throughout, with simple checklists and plain-English frameworks you can use the minute the episode ends.

Connect with Jonathan:

If this episode sparks a decision, start with the book chapter on planning your exit, then replay the section on client communications and do the kitchen-table talk tonight. Your future self will thank you.

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Brian Glass is a nationally recognized personal injury lawyer in Fairfax, Virginia. He is passionate about living a life of his own design and looking for answers to solutions outside of the legal field. This podcast is his effort to share that passion with others.

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SPEAKER_01:

But how often should firms be coming back and looking at that and maybe adjusting what's in the agreement? Is that something that should be done annually, every couple of years when there's a problem? Like what's your advice on that?

SPEAKER_03:

So I'd say certainly anytime you add a new partner, you should look at it. If you did it yourself back in the day and you've never looked at it again, you should definitely have it looked at. When I do mine, I like to break out the compensation piece and have that separate outside of the agreement. And that is something that is meant to be dynamic and change over time because facts on the ground change. And I like it outside the agreement. So you it's much easier to crack open just the compensation instead of the entire partnership agreement. So if you're talking about compensation, that's something that, you know, I would say no more than once a year, but really probably every two to three, maybe you look at it. But the partnership agreement itself should be built in a way that it can grow with the firm. Again, with any time you add a new partner, you may want to look at it again because the power dynamics may change depending on who's coming in and what it looks like.

SPEAKER_00:

Ever typed your I'm out email, then saved it as send after bonus. You're not the only one. Quick story: a friend chased the word partner, then learned it came with a dress code of meetings, politics, and golden handcuffs. That's why we're unpacking the real playbook today. And yes, I will pull straight from Jonathan Hawkins' new book, The Law Firm Life Cycle. Hey friends, welcome back to another episode of Life Beyond the Briefs, the podcast where lawyers build a life they actually want. Jonathan Hawkins is back, law firm owner and author of The Law Firm Life Cycle. We're getting specific on what you can say to clients before you give notice and what you absolutely cannot. We'll run the kitchen table talk you need at home before you s you blow up, you know, blow up your calendar. We'll do the simple math that shows if a partnership offer is a leap or a leash. We'll cover conflict waivers without awkwardness, how to keep rainmakers without handcuffs, and where PI roll-ups are pulling the market next. If you're plotting an exit or trying to keep your team from plotting one, you're in the right place. Grab your coffee, hit play. Let's go.

SPEAKER_01:

Hello, everybody. Welcome back to Life Beyond the Briefs. Today, a special episode. They're all special episodes, but it's rare that I have a returning guest, Jonathan Hawkins, who is the owner of law firm GC down in Atlanta, Georgia, has recently written a book, The Law Firm Life Cycle, Council for Every Stage of Your Law Firm's Journey. Jonathan exclusively represents law firm owners in all stages of growth. And you know, as we're coming up now on the end of the year, which is when people start thinking about leaving their law firms, like the bonus isn't what I want it to be. Maybe I'll go rent space and get a URL somewhere. I thought it would be a good time to have Jonathan back on the show and talk about his new book, The Law Firm Lifecycle. So Jonathan, welcome back, man.

SPEAKER_03:

Thanks for having me back. And you're right, this is my busy season starts about now. What?

SPEAKER_01:

It's funny. Your busy season starts right now. Is that because people are thinking about breaking up, because they're thinking about getting together? Like what makes this season more busy than most?

SPEAKER_03:

So it's it's both. So they're they're the people that want to come together. And whether that's they're at two separate firms and they're coming together, or maybe there's an established owner that's bringing a new partner up from underneath, but they want to start January 1. So they're they need to do all that now to be ready to launch. But then on the other side, everybody is basically planning to leave uh to be ready to go January, maybe February next year. So now's when they start really planning for that. But they want to make it to the end of the year, get their year-end bonus, see if they're getting a raise, and then they announce shortly thereafter every year.

SPEAKER_01:

I see it every year. So sometimes it doesn't matter. I had a lawyer one time come and negotiate salary with me and it we didn't reach an agreement. And he gave his notice a couple days later. And sure enough, I went back and I checked the Virginia clerk website and the URL and the and the firm had been registered like three days before we negotiated. Like, why do why do we just do that? Why do we come in and butt heads about that? And so do you see that happening like as a result of the result of the small bonus or the lack of raise or whatever it is? Or or or do people plan it and then get the bonus in and then this is my launching pad?

SPEAKER_03:

I think they've already made the decision before they get the bonus. They're just waiting to get it. And you know, a lot of people, it's a it's a slow, almost a simmer. I mean, look, you're you're an entrepreneur, you deal with a lot of entrepreneurial lawyers. There's some people that it's just it's inevitable. I mean, I feel I was inevitable. It was just it was not if, it was just when. And there are people like that. And you know, you're come to September, October, you're almost there. You might as well just get to the end and and get that bonus that you can hopefully use or they think they can use as a sort of a war chest to help get them started.

SPEAKER_01:

Aaron Powell So one of the things you say in the book is that a lot of lawyers will step on a landmine as they leave the firm, sometimes by telling the wrong people too soon, sometimes by doing things you're not supposed to do with clients on your way out the door. What do you see as the most common ethical and strategic mistakes that lawyers make on their way out the door at their current law firm?

SPEAKER_03:

Well, certainly there are people that will start telling their clients, hey, I'm leaving, and maybe even get them to sign at their new firm before they tell the firm that they're leaving. That's a big no-no. Um and you know, there are there are variations of this too. Maybe you've got a client that wants to sign and you're like, just wait. Just wait a few weeks. I'm going to be at a new place, and then we'll sign you there. See that? It's hard to prove that, but it I know it happens. I've seen it happen. And then in an hourly firm, what you sometimes see is people will uh stop logging hours at their firm and build it up. And then the second they start, all of a sudden at their new firm, they've got 80 hours to log at their new firm. So they're basically stealing hours from the existing firm and putting it into their new firm. Those are some of the big things I see, and you just should not do that. Should not do that.

SPEAKER_01:

So I've only worked at an hourly firm for like a cup of coffee. But I'm curious, uh, on the way out the door at an hourly firm, if I have clients and my firm is billing at$600 an hour, whatever it is, and I know that on my departure, I'm gonna work from my home office and my expenses are gonna be rock bottom, and I'm not gonna have to kick anything up to any partners or owners. Where is the line with me going to current clients and saying something like, I know we're charging you$600 an hour now, but next month I can get you in at$300 an hour?

SPEAKER_03:

So it's really all about timing, right? So um, and it's a spectrum. But generally speaking, you should not approach your clients before you tell your firm. And once you tell your firm, you can you can go to the clients that you have a closer that you have worked for and say, hey, I'm starting a new firm. I'll charge you half or I'll charge you whatever. Do you want to come? And they have a right to tell those clients that, and the clients have a right to choose. Now, now we can get into really deep in the minutiae, but maybe some very, very sophisticated clients. And by that I mean like if you're the general counsel of Coca-Cola is your main client contact, you can probably, I think, ethically tell them before you tell your firm. Because what you don't want is, hey, I'm going to firm down the street, Mr. GC, I'd like you to come with you, come with me. And GC says, I don't like that firm. I'm not sending you, you know, uh, I don't want you to go in there. Sometimes the GCs have firms that they would approve and they would disapprove of. So in some circumstances, again, case by case, maybe you could have that discussion before you tell your firm. But it's not without risk. I'll just say that.

SPEAKER_01:

Well, and and I would imagine like again, this is the kind of thing that I have not thought about since the MPRE in law school, right? Like conf conflicts in with corporate clients. But I've got to think if you have a marquee name client and you're going not to your own shop but to a different firm, that that client has got to do their conflicts checks and and you really could get over your skis thinking you're gonna take three, four, five clients with you. And as it turns out, they've got conflicts over at the new firm, and now there's no book of business going with you.

SPEAKER_03:

Absolutely.

SPEAKER_01:

I mean, absolutely. Outside of talking to to clients and to uh the firm that you're at currently, like there's a whole family dynamic that goes on, conversations around the kitchen table about what it's gonna look like when I'm leaving. What, if any, recommendations are you giving to lawyers to having these conversations with their family, with their spouse before they get up and and leave and take on these big life changes?

SPEAKER_03:

Well, certainly if you are going to start your own firm, you've got to have those conversations because anybody that's done it knows that you it would be atypical that day one, you're making you got money coming through the door. Even if you've got hourly clients, just through the the billing cycle dynamics, it's gonna be at least two months before you see any of that coming in. And you're gonna be leaving the sure thing on the table and your spouse needs to be okay with that and and realize that, hey, we're in this together, because that's gonna be a very difficult conversation to have. Uh I mean, PI attorney would be a great example. It might take six to eighteen months before you really start to see cash coming in. And then while while while you're staying afloat there, the savings at the home on the home front is just dwindling and dwindling, dwindling. Um and if your spouse is not on board, it could put pressure on everybody and really, I mean, really strain everything. You got to make sure everybody's on board. So that those are conversations I highly encourage people to have if they're thinking about going out on their own.

SPEAKER_01:

So that's if you're thinking about going out on your own. But on the flip side of that, as an employer, if you have an employee who comes to you and says they're going out on their own, what are the kind of things that we're not allowed to do with client files or communications or anything like that? Like how how much are we allowed to put up the fence and maintain the thing that we've often built with our own marketing and with our own assets?

SPEAKER_03:

Yeah, it's it is a tough spot. I mean, as an owner, you you you build this thing, you, you know, you go through all the risk, all the you know, the ups and downs to build this thing, and someone comes in and they could just sort of take a piece of it on the way out the door. And there's not a whole lot you can do to stop them. And the clients get to direct where they want to go. And if clients say, send my files with so-and-so as they leave, you have to do it. A lot of firms will slow play that. They may refuse to do it for some period of time. They may say, I'll give it to you if you pay what you owe us. And the firm that's that is left behind is in that situation, you've got to be very careful because you may start getting bar complaints from the clients because you're hurting their case. Now, on the flip side, if you're leaving, you should not be taking the files unless and until a client directs the firm to send them with you. I've seen that too. I've seen the, you know, midnight run where they're just taking files out the door.

SPEAKER_01:

It's a little different now because everything's digital, but you know, before they'd be taking boxes uh but with everything being digital, it comes with a whole another mess of problems, including like what actually is the file, right? Is it all of the file notes? Is it all of the notes about the correspondence that the paralegal or the other lawyers who have been working on the case have generated in the file? Is it is it I don't know, like all of my software, all of my files now are in FileMine. I've got to imagine it would be really hard for somebody who was leaving and wasn't taking or wasn't opening their own account with Filevine to take all of their data. And now I'm I'm not the first person who's ever asked this question. So I'm sure there's a way to export it all, but if I'm exporting it and then trying to open it like in Microsoft whatever office, like it's probably hard to interpret. And so how do you how do you like what is the entire file?

SPEAKER_03:

That is a great question. And there are ethics opinions around the country that sort of discuss what is a file, what is not. Uh probably I don't want to get in the weeds there. Yeah. Sure. But the other issue that you raise. Oh, yeah. But uh the the downloading of the file, uh, which I've seen, you know, you stick a thumb drive in and you just download all in one swoop all this stuff. That leaves a major digital fingerprint uh behind. That in and of itself could get you in some big trouble. And open and and you sort of create claims maybe that would not be there otherwise. It's better to just get the client to say, send me the file, and then you get it. But you know, you click you stick in a thumb drive and just do a dump, data dump. Um, then there's all these state and federal sort of computer, you know, type laws that you may be violating. Uh and it, you know, I had a case, it was not a law firm case, but I had a case many years ago, a sales guy, and he had uh an employment agreement about confidential information and firm inform or company information. He had a bunch of personal photos on his firm or his company computer, and he stuck in a thumb drive and just downloaded all his family photos and then deleted them off the computer. And it created this whole issue that would not have been there otherwise, particularly the deletion part of it, but it was all just a bunch of family photos. Um, and it's just like if you had come to me, I would have said, Don't don't do that, work it out. Now, the deletion part, the download, you may have to just no legal advice here, but you you might might have to do that if you want to keep them. So well, number one, don't save your family photos on your company computer. Personal computer or computer.

SPEAKER_01:

Personal computer or computer. Um all right. Now on on the talent retention side, what kinds of things are you seeing being successful in small firms in retaining these entrepreneurial or entrepreneurial kind of lawyers long term? Golden handcuffs, 10K matches, like what actually works to keep talent in-house, other than build a great culture, right? Which everybody says, but at the end of the day, most people who haven't left yet but are thinking about leaving has something to do with hours or money, right? And so what are the things that you've seen that are in place that law firm owners can do to retain great talent?

SPEAKER_03:

This is the hundred thousand dollar question here, but you know, some things that I think would work. It depends on the person, of course. Some people want money, other people want freedom, whatever that means to them. But I think you can't, if they are high performers, you've got to pay them. Don't nickel and die dime the high performers because they will leave. I think educating them as well. I mean, starting a firm from scratch, it's easy to start, but actually to build something, it's it's it takes time, it's a lot of starts and stops. It's much easier just to stay on an existing platform. And I think educating people on that would be helpful. Now, you know, this is the other thing. Uh, a lot of firm owners want lawyers that will go originate cases. Usually the ones that are really good at originating cases.

SPEAKER_02:

They go, Why am I doing it for you? They are entrepreneurs. Uh so it's you want to be good, but not too good.

SPEAKER_01:

This is this is the thing, right? Is like, and you're in our icon mastermind group, and so you've seen it. Sometimes law firm owners sit around and complain that the other lawyers in our firm aren't interested in this stuff. They're not interested in building a business, they're not interested in originating cases, they're not interested in marketing. And I will say, yeah, dummy, if they were interested in all this stuff, they would go and compete with you. Exactly. You have to be grateful that people want all of the various want to perform all of the various parts of being a lawyer that that maybe you don't want to. And it's often a gift that you have somebody who's a great lawyer who has no interest in learning how to market themselves.

SPEAKER_03:

You know, another interesting thing, I'm sure you've seen this, but uh, you know, I represent lawyers and law firms of all types. And, you know, the plaintiff's bar within the legal space, they're just more entrepreneurial. They're more the cowboys. And it's you've seen it, you know, part of the business model is you go work for an established firm, earn your chops, and then you roll out and you start your own firm. You just see it over and over and over again. So there's more, and just by nature of the plaintiffs work, they're just more risk tolerant and they gamble. Where on the defense side, the hourly side, the lawyers are way more risk averse and they're scared, frankly, to go out, lots of them. And they don't want to go out on their own. So it's interesting within even within the law, there's different sort of pockets depending on the practice area and the type of personalities that are in it.

SPEAKER_01:

Yeah. Plaintiffs' lawyers tend to be more entrepreneurial and they tend to be more interested in the marketing and the technology, in part because those are the things that make make us more money, right? If you can leverage technology and work cases faster, then you can work on more cases. And if you can become good at marketing, you could acquire more cases, right? And we're not wedded to the hourly fee. And so you can have, with the benefit of tech technological leverage, you can make your hourly effective hourly rate whatever you want it to be. You don't really see the same thing in family law uh or in criminal defense or in um in trust and trust and estates a little bit. So trust and states is starting to come along as people have systematized those practices, but insurance defense, you know, corporate hourly billing stuff, the same economies of scale just don't seem to apply.

SPEAKER_03:

And the leverage is different too. Like you like you said, yeah. In personal injury, quote, leverage it could mean just getting bigger and bigger cases, where on the on the hourly stuff, it just means getting more hours. That's a whole different discussion. That's a whole new discussion.

SPEAKER_01:

You have to pull the hours from somewhere in your life. Yeah. It's it's really interesting on them. So I've been a little bit on the conference circuit. I've been to like three conferences this fall, and then ours is coming up uh a week from today, and and it'll be after this, before this episode airs. But everybody wants to flex about how many cases. Oh, we acquired a hundred cases last month. Well, what's the average fee? Oh, I don't know. Like, well, no, who cares? Doesn't that doesn't matter. The only thing that matters is how much revenue, and then that doesn't really matter that I'm saying how much profit did you bring in? How much of it did you keep?

SPEAKER_03:

Anyway, that's the lawyers I know that have made the most and make the most um maybe have 25 cases at any given time a year, and they are killing it more than anybody else out there.

SPEAKER_01:

Yep. All right. So we've talked about leaving, we've talked about keeping people from leaving. Let's talk about joining. So and there's really there's two flavors of this, and I I do want to hit them both. If I've left my firm and I'm partnering up with a buddy and I'm coming to you, you're in a unique position because you can't represent both of us. You can represent one of us, the other one, or quote, the business, but there is no business yet. And so how are you navigating those early stage relationships between two lawyers who say, Jonathan, we want to be partners and we want to go into business together?

SPEAKER_03:

So I can represent both with conflict waivers. The MPRE. Yeah. But if they get sideways, and so I I can't favor one on the over the other, and I can say these are the pros and cons. You guys have to make the decisions. And then if they get sideways, then I have to bow out and can't represent either of them. But so I approach it different ways. So sometimes I re may represent both with that sort of the conflict waiver. Sometimes I just represent one. Sometimes it's a firm that is bringing in a new person. So I'm representing the firm. And so that that's how I navigate it. And it's really, you know, the issues are they're the same. I mean, almost every time it's, you know, and the big issue, you said two buddies coming together. That that is be very careful on that. You may be friends now, but you may not be friends in two years from now. So you really got to think through that on the front end. And I I help walk people through that.

SPEAKER_01:

Is that the most common reason for formation? You know, we both like practicing law. Maybe we've done a case together. Gosh, it'd be fun to practice law together.

SPEAKER_03:

That's a huge part of it. Um the other thing I see a lot of that people think, and I hate diesel, but they think there'd be some sort of synergy between their practices. Uh, but they haven't really thought through it. Like somebody may say, you know, I'm a divorce lawyer, and you know, Brian's a PI lawyer, and we're just gonna refer cases back and forth and we'll both do better. But before they even join, they're not really referring cases to each other now. So it's like, why is that gonna change? And the and the business models are completely different. Lots of reasons why that probably would not work. And hopefully I can, you know, let them think through that on the front end. I usually part of what I do in that scenario is I have, you know, I have a list of questions that it's it's almost like a premarital counseling type exercise. You're talking about vision, you know, what where do you see your practice? What's your personal life like? You know, are your kids are all your kids in private school and this other person wants to live at the beach all the time? And are your work styles the same? You gotta talk through all that stuff on the front end because you really don't know what it's like to work with someone else until you do. And jumping into ownership together is a really big decision.

SPEAKER_01:

So then, I mean, how do you ever do that as with the conflict waiver then, right? Because there's gotta be these premarital counseling sessions where you go, dude, this is not a good deal for you. Like it's a great deal for this guy over here. But I know it's not a good deal for this one. But if you've if you agreed to represent both of them, I would imagine you can't go to the one and say, like, are you sure? How do you handle that?

SPEAKER_03:

In that scenario, I would not be able to represent both. Absolutely right about that. Um, and that usually comes into play more typically when you've got somebody that's got an established firm that's doing pretty well, and they're maybe their buddy or somebody wants to come join them. And in that scenario, I represent the one or the firm. Um, for sure. Because, you know, I often say, you know, when you're forming a partnership, one plus one should equal three, not two. It should be some compelling exponential reason for it to come together versus just additive.

SPEAKER_01:

So almost every partnership thinks that they have some compelling exponential reason to come together, right? What what are actually some exponential reasons that come together?

SPEAKER_03:

So I think combining geographically could be one. I think there are scenarios where if you have really big cases and you need um to share risk more, more capital, more risk, that could be a scenario where, you know, if I'm a solo, I would always have to associate with someone because I can't carry the risk by myself. That might be a scenario. Sometimes they're, you know, there are attorneys that they are just really good at trying cases. That's all they want to do. They don't want to do any of the operational stuff. So maybe have a different personality to role physicians. That can work. So it's got to be something like that. But if it's both, hey, we're both the best trial lawyers in the state, it's probably we'll stay together that long, at least based on what I've seen.

SPEAKER_01:

That's where I thought you were going with synergy was to the one who's really great at acquiring cases and then the one who's really great at trying cases. And I think the challenging part about that dynamic is having the upfront conversation about what hard work looks like to each of us. Because on the acquiring cases side, hard work might look like a bunch of lunches, dinners, and happy hours, right? If I'm if all I'm doing is out meeting referral sources. And hard work on the trial side is late nights, weekends, depositions, and and of course, trial, right? And so if you haven't had that conversation about what does success look like to each of us, I can imagine, you know, two years, three years, five years down the road, a great amount of animosity building up when you look over and you see the one guy who's just out, you know, nurturing referral sources and you feel like you're quote, doing all the work.

SPEAKER_03:

Absolutely.

SPEAKER_01:

How do you is is that like, hey, let's memorialize this in a in I mean, even if you write it down in a document, you change your mind about whether I agree with that. How do you how do you get people to commit? Or how do people commit to themselves and to each other that no, this actually is something that I want to see through, and I'm not gonna get jealous that the other person doesn't appear to be working very hard to me.

SPEAKER_03:

There's only so much you can do, I mean, on that. And I see that a lot too. Visions change. And, you know, so for example, I see a lot you've got one person that is super ambitious, wants to grow, grow, grow, grow, grow. The other one is like, hey, I'm comfortable. I've got I've sort of hit my number. I like working halftime and going to all the baseball games and whatever it is, and then there's a misalignment. And once that happens, if you don't fix it pretty quickly, it's inevitable that it's just not gonna work. And so you see that a lot. There's a generational aspect to it as well, sometimes where the older partner is getting towards the end. They don't want to take any risk. They just want to coast till the end, where the younger partner may want to spend a bunch of money and expand and do all these things. And that's where I see a lot of things break down. And so again, it comes back to you should have these conversations on the front end. And if you're misaligned on the front end, you know it. But even if you're aligned on the front end, it could change over time. You just again, that comes back to sort of the the actual partnership agreement. So you at least build it with the idea that it might happen at some point, and you've at least on the front end, while you're still friends, have a structure of how that would look to end it.

SPEAKER_01:

And so most lawyers out there probably began with a partnership agreement drawn up by one of them.

SPEAKER_03:

Yes.

SPEAKER_01:

Yes. Which is a mistake, and you should hire somebody to draw your partnership agreement for you because if you're like me and you're an injury lawyer, you actually don't know anything about contracts. And the number of questions that you'll be asked as you're generating a partnership or an operating agreement, things you've never thought about before will blow your mind. But how often should firms be coming back and looking at that? And you, I don't know, if revitalizing is the right, the right word, um uh uh maybe adjusting what's in the agreement. Is that something that should be done annually, every couple of years when there's a problem? Like what what's your advice on that?

SPEAKER_03:

So I'd say certainly anytime you add a new partner, you should look at it. If you did it yourself back in the day and you've never looked at it again, you should definitely have it looked at. When I do mine, I like to break out the compensation piece and have that separate outside of the agreement. And that is something that is meant to be uh dynamic and change over time because facts on the ground change. And I like it outside the agreement. So you it's much easier to crack open just the compensation instead of the entire partnership agreement. So if you're talking about compensation, that's something that, you know, I would say no more than once a year, but really probably every two to three, maybe you look at it. But the partnership agreement itself should be built in a way that it can grow with the firm again. With any time you add a new partner, you may want to look at it again, because the the power dynamics may change depending on who's coming in and what it looks like.

SPEAKER_01:

Right. And so we've gone through leaving, getting people to stay, starting your own, coming together with a friend. As lawyers bring up the associate into the partner partnership agreement, are there what are the conversations that you should be having? Or more importantly, because I think my audience is tends to be younger lawyers. What are the conversations and things that a younger lawyer should be looking for when they're evaluating, do I become a partner in the firm that I'm working at currently, or would I be better off on my own?

SPEAKER_03:

So for younger lawyers, the first thing I'll say is I'm a big believer that equity should not just be expected to be given. Usually you got to pay for that. So you need to expect that. Now, how much you pay for it, that's a different conversation, but expect to pay something for it. And and there's a reason for that. There are lots of reasons for that. But and I have worked, I have come up as an associate, made a partner at a firm. I joined a firm as a partner that had already been there, and now I've sort of built mine. And it's different. It is very different to build a firm from scratch than to join an existing platform. It is very easy to join a platform. It's you just plug in and you can sort of just do your thing. And so there is value in the existing infrastructure. It should be the people who built it should be compensated for that. So that's the first thing I'll say. But as a young lawyer, I think, you know, it's it's part of it's equity. And not everybody wants equity. That's the other thing I would say. A lot of people just want the title because also with equity, yeah. They want to raise and a title. But it's, you know, owners get paid last. They take all the risk, they're signing guarantees on lines of credit and whatnot. And a lot of people don't want that. They don't want that. And that's fair. But you don't get as much of the upside if you're not willing to do that. So know what you want. And owning equity is is, you know, for lawyers, we're always looking for the next achievement starting from grade school. You know, we're always at the top of the class and looking for that next trophy. A lot of lawyers think equity partnership is that next trophy. And it's not always what you think it is. So that's one thing I'd say.

SPEAKER_01:

I've been told over the last several years that venture capital is coming into the law, law firms, and you have in Arizona and Utah and DC, I think, these alternative business structure structures. Have you seen many small law firms transact in a way that's not, you know, one partner to the associate as as he's on his retirement way out? In other words, have you seen many uh what I'll call roll-ups of small law firms into larger regional firms? Aaron Powell From like an institutional backing perspective or just from a I mean, I said VC, so I understand that question, but from a from an acquiring larger firm perspective. Because because this is what we've been told, right? Is you shouldn't have your name on the firm because trade names are better and more attractive, and you should be building ultimately a business that you can sell to somebody. And and that's right, it's a relatively new line that's being preached, I think. Or maybe it's new to me. But from what I've seen and noticed, seems like the only people acquiring firms are the senior associates who are there. I and I don't know whether I'm I'm just looking at a market that's that's too small and it's not large enough to be attractive to MA. But are you seeing any law firms with say less than 10 lawyers that are getting acquired or doing VC deals?

SPEAKER_03:

Yes. I'll say yes. So very loaded question, but I'll say this. So it's very hard to sell a firm externally. Absolutely. It's not easy. Most firms, as structured now, would not be attractive to any large buyer. And you don't have to be really big to to maybe be attractive if you have some elements that they would want that they could combine with others. But I am seeing uh, you know, I've seen external purchases for sure. I've seen some where they are starting to roll up. The other thing about the roll-ups is you got conflicts and other issues. So it's usually sort of geographically diverse. But we're seeing more of that. And I I see a lot, I've seen a lot of uh letters of intent. I'll say that. Uh don't don't necessarily make it all the way. And I've seen it and and mostly I've seen it in PI because that's I was gonna ask, what yeah, what practice there is PI? There's a perception that that's where all the money is, so they're chasing that. But I have also seen some that are more, I'd say, traditional type firms that are starting to get looks at least or interest. Again, I don't know how far it'll go with the institutional buyers. But the question too is you know, if you're uh a two-person shop, it's it's gonna be hard. But if you can grow it big enough and streamline your firm in what in certain ways, you at least have an opportunity to do it. And so if you want to go through and push through those, through that heartache to get there, then you can at least set yourself up. And the other ironic thing, and I've talked to some lawyers about this, if you do get your firm set up in a way that it's easy to sell, in other words, where it doesn't really rely on you, then most of them don't want to sell at that point.

SPEAKER_01:

It's great. Well, here's I mean, here's the thing is the law firms are, especially PI firms, it's a fantastic cash flow vehicle. You know, I don't know what what EBIT a multiple, a small law firm would go for, but I can't imagine that if I got that multiple on my firm, I could take the capital and get a better return by placing that money anywhere else. You know, and yes, I have to show up and do some work in the firm. Great point. Great point. But what else are you gonna do with the money? You know, if if the it's it's not like you can come in and buy, I don't know, buy a buy a plumbing franchise and get better at answering the phones and get better at marketing and increase the EBITDA and then sell it to somebody else, right? It's just not it's not the same type of business. And so for most of us, it's like if you do all the things that are in your book and you're running a healthy organization and you're pretty good at marketing and you're good at attracting um a good talent, like just keep the law firm. Absolutely.

SPEAKER_03:

Well, well, let me let me talk the flip side. So the younger lawyers, you know, if you had if you had a hundred grand and you could uh invest it anywhere. You could invest it in a uh money market, get, I don't know, four or five percent. You can invest it in the SP and over time, maybe get 10 or 12. You can invest it in a real estate deal, maybe get 20%. Uh but the more the higher the returns go, the higher the risk goes. And it's usually in somebody else's hands, not yours. If you could take that hundred grand and invest it and buy into a law firm, your returns, I guarantee you, are gonna be way better and you have control over it. You have more influence over the returns. And so as a young lawyer, depending on the type of firm, that probably would be the best investment you've ever made in terms of capital. That's my perspective.

SPEAKER_01:

I think that's I think that's right. Feels way riskier um than putting it into the SP, right? Because there's um there's a non-zero chance, but it's pretty close to zero, that the SP goes to zero. The law firm is kind of a different story. And so it feels way risky, but to your point, with greater risk comes greater return. And, you know, if at a well-run law firm, it's hard to get a better return in any other business.

SPEAKER_03:

And part of it is you have influence over it and and you you're you're building the skills. Even if the firm went to zero, you could pop out and start a new one, and you would know how to do it.

SPEAKER_01:

All right. The book is Law Firm Lifecycle, Jonathan. Where do you want to direct people to pick it up?

SPEAKER_03:

Uh they can go to my website. There's a landing page, uh, lawfirmgc.com, or they can go find it on Amazon, or they can reach out to me. Uh I'm on LinkedIn. That's a good place to find me. Or you can my email is on the website as well. Just reach out.

SPEAKER_01:

Yeah, to be honest, that's the best thing to do is just reach out to the author, get a copy of the book. And that way, I mean, this is the meta learning point, right? That way, when you come back and you say, Hey, I've read the book and now I want to engage you to help me with whatever the problem is, you've got a touch point. And it's always better if you could just reach out to somebody directly than if you buy it on Amazon. Small plug for small market booksellers. Jonathan, good to see you, man. And I'll see you next week up in the past.

SPEAKER_02:

Looking forward to it. Looking forward to it. Thanks for having me back, Brian.

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Brian Glass

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