Biggest Reasons Why Startup Law Firms Fail

Congrats! You recently passed the bar. Rather than slaving away as an associate at a law firm, you’ve decided to take the plunge and open your own little practice. But you’ve got two big strikes against you right off the bat. First, you’re starting 100 grand in the hole. No biggie, you can finance law school payments. More of a concern, however, is that starting a law firm, like any new business venture, carries the risk of quickly going belly up. According to the U.S. Bureau of Labor Statistics, approximately 20% of new businesses—including law firms—fail within the first year. By the end of the fifth year, roughly 50% have shuttered. 

And if you’re an associate at a firm looking to hang your own shingle, don’t naively think that you’ll have an easier go at it. No matter how competent an attorney you are, it does not always translate into possessing business acumen. That’s why before officially opening your doors, it’s prudent to educate yourself on tips for building a successful law firm and avoiding the following common pitfalls. 

Reason #1 Startup Law Firms Fail: Lack of Business Acumen

Being passionate about the law with a desire to serve the best interests of your clients is a great start. But those enviable traits will only take you so far. If you want to strike it independently, you must be a competent CEO. If the idea of being the chief decision maker and marketer, lease negotiator, etc., intimidates you, rethink your decision or get legal marketing help. 

You may be the greatest legal mind on your side of the Mississippi. However, at least in the early stages, referrals will help grow your practice only so much. It will likely be a very slowly rising tide that will raise your ship. In other words, you can’t only rely on organic growth. Doing great work for your first clients will help establish your reputation, but it won’t keep the bill collector at bay. Starting a new business requires a decent initial investment and overhead.

If you lack a solid financial planning roadmap, you can have cash flow issues for rent, salaries, and other operational costs. Additionally, without effective legal marketing strategies, a firm may struggle to attract clients, leading to insufficient revenue and eventual closure. 

Insufficient Leads 

To support your budding law practice, your parents have gifted you $34,000. ($17k each to avoid the gift tax). You allocate a significant portion to drumming up new business via digital advertising. A third of the pie goes to Google Ads, a third to Facebook ads, and a third to directory listings.

Despite spending a significant chunk of change, new leads are only a trickle. What gives? For starters, you’re competing for fresh blood in a very large pond and you’re the tiniest fish, at least at the moment. Established law firms with massive budgets swallow up the competition. And it’s not just that your budget is like spare change in comparison. Large firms tend to effectively manage their online reputation and citation listings management (described in more detail here), which play an important part in search engine positioning. 

 

Poor Potential Client Communication 

 

While your legal start-up is starting to receive a trickle of inbound leads, the conversion rate is low. Too few leads are booking consultations. 

 

This is because of poor intake practices and communication. Even if a potential client called your startup firm because they saw your bus-stop bench ad, they might also have called competing firms. Don’t just assume that having a secretary to take down the lead’s contact information is enough. Always assume that all your leads are also considering hiring competing firms. Because of this, frequent communication with the potential client is paramount for booking consultations. 

 

This is why the most successful firms use automated messaging like email and text follow-ups, several touch points beyond the initial inquiry. Potential clients are busy. They will forget to follow up with you even if you or a secretary personally leave a voicemail. While waiting for the lead to call you back, a competing firm contacts the same lead via automated texts and emails. Because of the frequent email and text touch points, the competing firm is at the forefront of the lead’s pre-frontal cortex. Meanwhile, the lead hasn’t even listened to your voicemail yet and has long forgotten they contacted your firm.

 

That’s why you must keep the conversation going with the potential client. Otherwise, you’ll be one of the startup law firms that fail

 

—> Client Clerk features a CRM, proven lead generation strategies, and automated client communication for attorneys.

Request a demo here. 

 

Being Resistant To Automation

 

Automated messaging may seem impersonal. But you probably don’t have the time or human resources to follow up several times per day. The bottom line is that automated texting and emails are proven effective for booking consultations.

 

Salesforce reports that businesses that use marketing automation to nurture prospects experience a 451% increase in qualified leads across various industries. And if you’re concerned that bombarding your clients with text messages is highly invasive, consider that SMS messages have a 98% open rate and a response rate of 45%.

 

Not having a legal marketing automation strategy in place is a contributing factor to why many startup law firms fail. To eliminate this pain point, consider Client Clerk.

 

Inadequate Cash Flow Management

 

This may seem like a no-brainer, yet it’s often an overlooked reason why startup law firms fail. Start-ups looking to bust open right out of the gate sometimes blow through their capital on digital advertising, only to get a very poor return on investment for reasons mentioned earlier. This is another reason to consider Client Clerk—with minimal investment, your startup law firm will have reliable and affordable lead generation assets, including a landing page, marketing automation system and a streamlined CRM. 

 

Ideally, you should have a solid business plan that gets you through at least the first year of operating expenses. Building relationships and getting referrals is important. But it takes time.

Reasons That Startup Law Firms Fail: Conclusion

To run a successful firm, having a brilliant legal mind isn’t enough. In this dog-eat-dog competitive environment, it helps to have the tenacity, dedication and smarts of a Fortune 500 CEO. Yes, the best CEOs work their asses off. But they also know how to work smarter. Letting technology book consultations while you sleep is a good starting point. 

 

See Client Clerk’s marketing automation for attorneys in action. Schedule a demo.

 

And good luck with building a thriving practice!

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