Taming two imposters: triumph and disaster

The joy of ownership

When I set up Allingham & Co back in 1982, I was not sure where the firm would go,  whether I would enjoy it or what I would be doing in 1983, never mind 2003.

The only thing I was sure of was that I wanted to be my own boss and to be responsible for those two imposters,  triumph and disaster.

During the first 3 years  the business blossomed and I found myself doing all sorts of new things – employing people, appearing in court, collecting debts.    

There were downsides,  such as the impossibility of holidays and the need to fire as well as hire. But the positives easily outweighed the negatives  – the pure  joy of receiving my first fee,  for example  (marred only slightly by the offer of cash in return for a reduction in the fee).

What I was experiencing was the Joy of Ownership,  the excitement which comes from total responsibility  for both success and failure.

Diminished responsibility

With the enlargement of the partnership,  the degree of responsibility slowly diminished,  particularly as junior partners became more senior and started to accept responsibility themselves. Accounts had to be audited, partnership meetings required minutes,  spending decisions had to be agreed. Quite a difference from the days when payment of a feenote meant I could treat myself to a new stapler or a typist’s chair.

Never again would the monthly late night accounts session with my cashier (who was also,  in her spare time,  my wife) end with a spontaneous meal at Bar Italia  (if the results were good).

I have advised many firms on business and management matters,  and from the evidence of numerous consultations (formally or in the bar) I have created Allingham’s Law of Ownership –  that the larger the firm,  the lower the sense of ownership that each partner feels.       

Taken to extremes,  the giants such as Clifford Chance  can hire and fire partners at will. In such firms, Partnership Contracts are no more than glorified contracts of employment,  particularly in the case of junior equity partners and salaried partners.

Indeed,  in many firms,  there is very little difference (apart from matters of status and potential liability for the debts of the firm) between a salaried partner and an associate.

Size matters

I have estimated (and I accept that (a) this is only an estimate and (b) there are some apparent exceptions to the rule) that the belief in Ownership,  which is more or less absolute in 2 partner firms, starts to reduce when the partnership grows to 3 partners, diminishes slowly with 4, 5 or 6 partners, and gradually disappears thereafter, finally vanishing as the partnership reaches double figures.

Nevertheless,  for most firms in Scotland, the partners will have a substantial sense of ownership,  coupled with responsibility and accountability.  For many of us, this provides a real sense of achievement,  the pride that comes from building up a business, establishing a good reputation and (of course) making a profit, instead of receiving a wage.

The true owner of a firm judges his own performance and should be able to take satisfaction from his judgment.

Flipping the coin

However,  with every advantage from being your own boss,  there comes a  disadvantage. With the pleasure of having no-one to report to comes the responsibility of providing employment for others. Your employees have children to support and careers to build,  and you are a major part of their lives.

With the flush of success which follows a good year,  there is the worry and apprehension which comes with the not-so-good years.

Running a small business is not for everyone. If you are having a bad year,  there may be no-one else in the firm to have a good year at the same time. For the one man band or the specialist firm, the risks are higher,  and while this can mean that the rewards may be greater,  the lean years may be disastrous.

No-one should accept a partnership in a small firm,  or set up their own business,  who is not prepared to accept the rough (and it can be very rough)  with the smooth (and it is never all smooth).

Predictably unpredictable

With larger firms, it is easier to predict the future.    The loss of one or two partners or a major client will not have the same effect in a 40 partner firm as it will have in a 4 partner firm.

In addition, the life cycle of the small firm may be very quickly changed. I recall one 3 partner firm, where the junior partner became discouraged at the failure of the older partners to agree retirement dates. He accepted a job in a bank and left the firm.    Within a year,  both the older partners had died (from natural causes) and the firm’s demise became inevitable.

This unpredictability makes life in a small firm exciting and stressful (although I accept there are different stresses in larger firms). If you are not equipped for an exciting and stressful life,  then small firm partnerships are probably not for you.

Nor are you likely to find high levels of profitability in the smaller firms. About 25% of  one-man bands are reported to be making profits of £75,000 or more per annum, but another 25% are making profits of £25,000 pa or less.  Moreover,  I suspect that firms with low profits tend not to contribute to the Law Society’s survey,  and,  in general,  firms with 2 to 4 partners are earning higher profits per partner,  and firms with 5 to 9 partners are doing even better. Firms with 10 or more partners are well ahead of the rest of the field.

In addition,  small firms cannot usually afford to hire experts in non-legal fields,  so you have to be your own Finance manager,  IT manager,  Marketing expert and Human Resources department.

There are,  however,  some resources available from the Law Society (in addition to their training seminars for potential partners). In particular,  the Law Society offer free marketing advice, under their Marketing Advisory Service and free Management Advice,  under their Practice Advisory Service.

In addition,  the Law Society provides a free Starter Pack to new practices and a certain amount of free advice on their website,  including some basic marketing advice. The Law Society, CLT and other providers offer a number of CPD management courses.   There are also a few books which deal specifically with the Management of Law Firms.

So why do we do it?

Why, indeed, do so many solicitors join or set up small firms?   

There are many reasons,  including:

• They cannot persuade a larger firm to offer them a partnership
• Their own firm has imploded
• A mistaken belief that they will make easy money
• Unwillingness to have anyone else as a partner

However, no-one should join a small firm or set up their own firm,  unless they are independent,  flexible, healthy and willing to work long hours to make the firm successful.

There is (and always will be) room in the marketplace for small firms,  particularly those which are willing to specialise in 2 or 3 fields of law,  and those who can provide a level of personal service which the larger firms cannot hope to provide to smaller clients.

The local law firm should be an important part of any community.

But the demands and stresses which face partners in such small firms should not be underestimated. In many ways,  the problems facing small firms are greater than those which beset the larger firms. Which only increases my admiration for those who accept the challenges.

Brian Allingham founded Allingham & Co in 1982.  He is now a Management Consultant  to small and medium-sized law firms and a regular writer and  lecturer on management matters. He has an MBA in Legal Practice and a Certificate in E-Business.