[Written in April 2005. Published in Law Office Computing magazine.]
Making the Right Choices When Starting a Solo or Small Firm Practice
Obtaining the right technology is a key component of the business plan of every lawyer planning to start a solo or small firm practice. Often, however, it’s the one area over which a lawyer feels he or she has the least control.
As a result, indecision about technology can paralyze the whole process of making a decision to start a new firm. Even though I hear more talk than ever about “law firm in a box” approaches, the reality is that you cannot walk into a computer store and order up a “solo starter combo meal” and launch your practice the next day.
I have noticed over the years that when lawyers ask me for recommendations about what to purchase, they invariably have done a lot of homework. Almost without exception, the real question they are asking me is not what they should buy, but whether it would be a mistake to buy what they have in mind. Make no mistake, technology costs will make up a significant portion of your start-up costs.
In this article, you will learn my approach to making technology decisions when starting up a solo or small firm practice, based on my own experience and what I’ve learned from talking with lots of lawyers. I will show you what questions you want to ask, how to set priorities, evaluate options and get started, and give you a number of approaches that you can take. My goal is to get you to the point where you can open the doors of your new business feeling confident about and comfortable with your technology.
1. The Practice of Law is a Cash Flow Business.
Let’s start with the basics. The best advice I received about starting my own practice what that the practice of law, like any small business, is a cash flow business. The second best piece of advice was the “Rule of Threes” for new businesses: Everything will take three times longer than you expect, be three times harder to do than you expect, and cost three times as much as you budget.
For several years, the likely cost of setting up the desired technology for a typical small firm with a couple of lawyers and a couple of people on the staff easily ran into the $30,000 to $50,000 range and perhaps even higher. Those kinds of number were show-stoppers for many firms. As a result, lawyers made a lot of cuts and compromises to get the technology budget down to the point where they could live with it.
Fortunately, the world is changing. In certain cases, small firms might be available to take advantage of leasing arrangements that roll hardware, software and consulting into a single lease, giving you one monthly payment for technology. While not always at the most favorable interest rates, companies like Dell will extend credit to small businesses, again allowing you to turn your technology costs into monthly payments. New “software as services” and other hosted and outsourced services are becoming available to provide needed technology for fixed monthly fees.
These trends allow a startup firm to consider the approach of treating technology as a kind of monthly utilities cost (like electricity) rather than a big, front-end capital cost. Technology costs can then be budgeted and you can obtain more of the technology you need with the goal of using it to improve your cash flow as quickly as possible. Obviously, taking a highly-leveraged approach to starting a business has its own dangers that you must consider carefully, but the options are available.
2. The Golden Triangle ? Hardware, Software and Services.
The “sticker shock” on technology often comes because lawyers forget to consider all three sides of the technology triangle. In many cases, a lawyer will concentrate on a dog-eared copy of an HP or Dell catalog or Computer Shopper magazine and come up with a budget. Unfortunately, they are only looking at the hardware piece of the puzzle.
The surprise happens in two stages.
First, you find that the cost of software will easily exceed the cost of hardware. In fact, it’s easy today to find computers that you can buy for less than the cost of a copy of Microsoft Office. Legal-specific software, depending on your areas of practice and needs, can cost thousands of dollars.
Second, you find that you probably have neither the time nor the expertise to set up and install everything yourself. Some kind of consulting, technical and/or training services will be required. The good news is that these services can add tremendous value and help you get a substantial return on your technology investment. The bad news is that the cost of services can easily be greater than the cost of both hardware and software combined.
You must consider all three sides of the technology triangle ? hardware, software and services ? when planning for technology at your new firm. Factor in the Rule of Threes I mentioned early, especially about cost expectations, and you’ll arrive at a realistic number to use for your technology budget. Or you might think in the opposite direction ? take your planned budget and divide it by three and see what you can get with that number of dollars. These are important exercises to help you focus on key issues and set priorities.
3. Asking the Right Questions.
Lawyers often ask me questions like, “What [scanner, case management program, etc.] should I get?” Well, what do you want to use it for? The answer changes depending on your plans.
It is also essential to ask a number of core questions. Where will you be working? Will you work in one place or will you be mobile? Will you travel? How do you (and others) work best? How comfortable are you with computers and software? If a program has a significant learning curve, will you get the training you need? Will you produce a lot of paper or will your work be electronic? How important is email, Internet use, faxing and telephone service? What software might be required for your practice? For example, if you do electronic filing, you’ll need a program (or a service) to create PDF files. The more basic the questions, the better your results will be.
Finally, you need to think very carefully about what your areas of practice will be. Your practice areas will drive many of your technology choices. If you do litigation, you have an entire set of considerations and options than non-litigators have. Even in litigation, lawyers who try cases will use different technology than lawyers who handle only appeals.
4. One Key Word to Consider ? “Volume.”
The single most important driving force in your technology choices is volume. If you understand the volume of your work, the volume of your work product and volume of the demands that you will make on your technology, you will be successful in making good technology choices. If you misgauge volume, your choices will fail you.
What I mean is that you must have a clear picture of the amount of input and output you need from each part of your technology. Then, you must be sure that you make selections that will comfortably handle the volume that you expect.
For example, if my practice consists of one case with one matter, I can easily get by without a case management program. At some point, however, the volume of cases and matters mandates that you use case management software. If you fax hundreds of pages a day, then you must consider a dedicated fax machine with a sheet-feeder and all the accoutrements. If, however, you email documents as PDF attachments and only need to fax a few pages every other month, then you can save the money you would have spent on a fax machine and use a low-cost Internet fax service.
As a general rule, then, technology will make the most sense and give you the biggest payoff in areas where there is sufficient volume that can be addressed by automation or other computerized systems.
5. Outsourcing vs. Do-It-Yourself vs. Sharing.
The trend toward home businesses, even in the practice of law, has produced a lot of discussion about the notion of “core business.” If you have limited space and money, you want to consider what elements of your business really need to be done by you. What is the core or essence of your business that must be done by you and what can be done for you by third parties?
As long as the volume remains manageable, many of your technology needs can be met by a Kinko’s or other office store, as long as it convenient for you to use it. Dictation services may be better and more cost-effective than speech recognition software.
Consider putting together a group of solos and small firms and try to get group rates for training, maintenance, consulting, planning and other services, as well as volume discounts for hardware and software purchases.
6. A Few Words About Services.
The third side of the legal technology triangle is services. I use the term “services” in two ways. The first is the traditional sense of consulting services. The second is the notion of hosted services, “software as services,” or what used to be known as the application service provider or ASP model.
It’s difficult for many startup firms to pull out the checkbook for consulting services, especially after they have paid large amounts for hardware and software. There is some irony in this, since lawyers’ livelihoods depend on other people hiring lawyers to provide professional services.
There are many consulting services to choose from ? planning, evaluating, installing, training, financing, and more. You can get experts in networks, integration, communications, Windows and even single applications.
Everyone has his or her own comfort level with asking for help and paying for help. I recommend that you build into your technology budget a reasonable amount for consulting services. As you might expect, cutting corners on the front end may well cost you a lot more on the back end. Although this point is an obvious one, it’s still worth mentioning that non-lawyers often have difficulty understanding how lawyers work and the ethical and other requirements lawyers have.
The most interesting area in legal technology for startups today is the hosted services area. There are some widely-accepted examples, such as website hosting. Other options appear on a regular basis. Backup, security, email, contact management, databases, timekeeping and other traditional areas of software usage have all been turned into services to one degree or another. I’ve noticed a number of young attorneys turning to these services as a way to get functionality and features they could not otherwise afford to buy, but that they can use for a reasonable monthly fee.
7. Some Standard Models to Consider.
In 2005, startups can make a decision in favor of Windows or the Macintosh environment. If you are a Linux user, I wouldn’t discourage you from that option, but I am reluctant to suggest it as an option for the average computer user.
If you want to take the Macintosh route, go ahead, after you consider the software options in light of your requirements. Apple has put together a helpful list of legal software for the Mac at http://www.apple.com/business/solutions/ legal.htm. You can also run Windows programs in an emulation mode on a Mac and get perfectly adequate levels of performance. As long as you make your decision with eyes wide open and know where you will get support, any startup firm may consider Macintosh as a viable option.
Most startups, however, will live in the Windows world. Windows XP Professional with Service Pack 2 is the operating system of choice for lawyers. Windows Small Business Server is a great package for a server-based network in a small firm.
Rather than make a lot of specific recommendations about hardware and software, I want to describe some standard approaches to consider.
A. The Classic Approach. In the Classic Approach, you build your technology around a central server and traditional applications, giving your firm room to grow. The Classic Approach involves a lot of planning, consulting help, name brand equipment and tried and true software. As you might guess, a full-blown version of this approach can be very expensive and reach into the six-figure range even for a relatively small firm. Leasing and other financing arrangements will be important in this approach, and you often see compromises made to help cut costs.
In this approach, I’d expect to see a Windows based network running on Windows Server 2003 or Small Business Server on a server that may cost $10,000 or more, tricked out with lots of memory, storage, backup tools, backup power supplies and the like. Generally, you will see users given some choices of computers, but all within the same brand. The whole system will probably be installed by a consultant who provides continuing maintenance and other services.
I would expect to see Microsoft Office 2003, Worldox for document management, and market leaders (e.g., TimeMatters for case management) for other back office programs and a reasonable number of practice tools. You should be able to see that we are talking about a large investment, especially if you start with the traditional medium-sized firm packages from the beginning because you expect growth.
B. The Classic Lite Approach. Not surprisingly, many firms look for ways to get the equivalent of the Classic environment for a much less than Classic price. You look to focus your spending and efforts on the most important pieces of the puzzle for you and you shave pennies everywhere that you can. It’s a tricky approach and one where you can easily make mistakes.
C. The Modern Approach. The Modern Approach is another variation of the Classic Approach. It is a customized approach that requires a lot of planning and personalization. In other words, everyone does not get the same setup. Users get only the tools they need. A variety of outsourcing options are considered and used. There is a willingness to start with a reduced number of features while keeping a close eye on the need to improve features when necessary. The savings over the Classic Approach might be substantial.
D. The Outsourced Approach. The Outsourced Approach goes even further than the Modern Approach. You will see this approach from young lawyers, some tech-savvy lawyers and lawyers fleeing large firms who are accustomed to certain levels of technology they can no longer afford. The Outsourcing Approach involves a conscious effort to look for hosted services for as much of the firm’s technology as possible. Risky? Yes, but it can rocket your firm to a high level of technology, especially customer-facing technologies like extranets, for a small initial capital outlay, plus a reasonable monthly utility cost.
E. The Macintosh Approach. Macintosh has becoming a significant and growing presence in the solo and small firm legal market. Concerns about Windows security, the Mac’s reputation for usability and reliability, and the push from young lawyers have driven this trend. Don’t expect to see a lot of savings on hardware and software, but expect savings in consulting and other costs and potential benefits in productivity. Like the Outsourced Approach, the Macintosh is a bit outside the tradition legal approach, but that’s part of the appeal of the Macintosh. The Macintosh Approach may be a good one for lawyers looking to use audio and video and take other creative and innovative approaches.
F. The Barebones Approach. How low can you go? Most lawyers already have a computer or two at home. They might work for you until you get the business rolling. You can use the Internet to find free and shareware programs for everything from basic accounting to the OpenOffice suite to time-keeping. It’s a stop-gap measure, but it might be what it takes to get your practice off the ground.
8. Realistic Thinking about Costs and Cost Savings.
For many years, consultants have suggested that the rule of thumb cost figure to use for computer technology is between $5,000 and $10,000 per seat. It’s a good number to use for ball-parking your budget.
You can improve your practice’s cash flow by either bringing more cash in or reducing the flow of cash out. You have the most control over outflow.
First, do not overbuy for your needs. It’s easy to get caught up in the thinking that you need to buy certain pieces of equipment because every office needs it. I’ve seen lawyers spend a lot of money on equipment that is rarely used. A startup rarely has that kind of luxury.
Second, watch for Internet bargains. Every little bit of savings can help you and you can sometimes jump up your level of technology for the same price you expected to pay for lesser technology.
Third, look for volume discounts. A surprising number of software companies start offering volume discounts for as few as five copies. As I mentioned earlier, you might also explore ways to work with other lawyers and firms as a consortium to secure better pricing or split the costs of training or services.
Fourth, take a hard look at outsourcing and hosted services.
Finally, consider leasing and other arrangements to reduce your initial capital costs and treat your technology like another monthly utility cost.
Implementing the right technology can put you on the road to success. Technology costs are some of the biggest variables in any startup firm’s business plan. You want to make good choices while keeping your costs under control. Listen to the suggestions of others, but keep the focus on you and your business. Ask the fundamental questions and think carefully before you answer them. Get the help you feel you need. Then choose an approach that fits your philosophy and budget and be as smart in your technology implication as you are smart in your legal work.
Note: This article is one of a series of my previously-published articles that I’m making available for free on my website and incorporating into my blog. Other of my articles may be found in the Articles category archive on my blog.
[Originally posted on DennisKennedy.Blog (https://www.denniskennedy.com/blog/)]
This post brought to you by Dennis Kennedy’s consulting services, featuring RSS and advanced blogging consulting and technology committee coaching packages for law firms, corporate legal departments and other professional services providers.
[Written in April 2005. Published in Law Office Computing magazine.]