Starting a Litigation BoutiqueBy Elizabeth A. Starrs
When I decided to leave the established Denver law firm where I had spent more than 20 years—5 as the firm’s president—to start a litigation boutique, I and the partner who left with me wanted more independence and autonomy. We wanted to take on plaintiff contingent-fee cases, an impractical and controversial move in a defense firm. We wanted to leverage our legal malpractice trial experience into more business-oriented litigation. We also eventually wanted more money.
We faced three sets of problems. First, we had the expense, logistics, and administrative stresses inherent in forming any new law firm. Second, our reputations were as defense counsel, so we had to convince a skeptical legal community that we were not dabbling and truly meant to be plaintiffs’ counsel. Third, we had no clients.
Although the financial and psychological rewards of practicing in a boutique can be wonderful, there are significant risks. The boutique will often lack highly trained staff to solve every problem; usually you, the lawyer, must be the problem solver. If you become overwhelmed with work or have a family crisis, you may not have backup. And there are the incessant needs of cash flow. Overhead is as relentless as the tide: just as one month’s demand subsides, the next month’s rolls in on you.
Before signing the lease, filing the articles of organization, or making the announcement to soon-to-be former law partners, it is critical to articulate a clear vision of what you want your new firm to be. A new firm is like a marriage: It is difficult even if the couple is madly in love. If there is no agreement on shared ideals at the outset, the firm is probably doomed.
Regardless of the type of entity formed, one essential decision is how the founders will make decisions. Will one person decide everything? Which decisions must be unanimous? Which will require a simple majority or a super-majority? We decided to limit the number of decisions requiring unanimity to those that would have individual rather than collective impact, such as personal guaranties for lines of credit. Other decisions were by a majority.
The compensation plan must also be committed to writing. The very process of creating the plan flushes out unspoken expectations, misunderstandings, and other potential problems that can destroy the esprit de corps. We initially decided to divide our profits three ways, in an “all for one and one for all approach,” expecting that all would work and contribute equally, and that one of us might bring in more one year and not so much the next, particularly because we planned to take contingent-fee cases. This formula worked well for the first three years. Eventually, we changed our system to allow for flexibility in compensation for origination, productivity, and other tangible and intangible measures.
Certain problems are unique to a litigation boutique. Although we neither wanted, nor were we able, to be all things to all people, we were tempted at first to take any case that came through the door. When that happened, we had to stop ourselves. We harkened back to our basic motivation for opening a litigation boutique: to practice in a narrow area. We reassured one another that by leveraging our skills and expertise, we could distinguish ourselves from the other large and small firms competing for business-related litigation.
Over time, we found that certain mid-level and senior executives—and even in-house counsel—hire outside counsel not necessarily based upon cost or expertise, but because of the “CYA effect.” If the case goes bad, the executive could be faulted or fired for entrusting it to a small and relatively unknown firm, even when the lawyers were personally well-known in their area of expertise. If, on the other hand, the case went bad after the executive had retained an international firm, he or she stood a better chance of surviving the disaster. Thus, while our boutique picked up pieces of major litigation, mostly as local counsel for large out-of-state firms, we found that we were typically not considered for major litigation even though we clearly had the capability. We had to find a different niche.
This proved to be representing privately owned companies and cost-conscious individuals in business litigation, mostly involving fraud. We also found a market for handling certain cases on a contingent-fee basis, or a hybrid of contingency fee and lower hourly rates. Larger firms typically lack this flexibility because they are not set up for that type of risk. But creative fee arrangements can be appealing to individuals or small businesses that are strapped for cash. As a boutique, we can and do offer these options to clients regularly.
We also began to receive plaintiff legal malpractice referrals, both in and out of state. Our referral sources were other lawyers who wanted to send us a problem discreetly and knew we would not accept anything but well-founded cases. Other lawyers in the community learned that we do not need to have our names, or the names of potential defendants, in our local media. In short, the focus of our practice proved to be pretty much what we thought we would do when we started.
Without quite knowing what that really meant, we decided to make our new firm “paperless.” (Hint: It means “less paper,” not “no paper.”) We invested $60,000 in computers, software, and IT training for our firm of four lawyers and five non-lawyer employees, which was a lot of money for us in 2003. The hardware was the cheap part of the investment; more costly were the software licenses, training, and productivity lost in learning how to use it. Once we were trained on the equipment and software, our IT investment paid for itself.
We invested in the technology because we wanted to be “cutting edge,” to compete with larger firms in speed and quality of work product. Our secretaries can each manage the practices of at least four lawyers. By going “paperless,” and having systems in place to scan, route, and store every document that came into or was created by the firm, we were able to significantly reduce the number of lateral file cabinets needed. We now manage a firm of seven lawyers, using only seven lateral file cabinets.
We have millions of pages of documents at our disposal, but they are stored in digital form on our network server and backup tapes. Our digital document storage system eliminates the huge amount of photocopying that occurs in most law firms and also allows us to check out digital copies of the documents on our laptops when we travel. With the expansion of discovery and e-discovery, digital document storage is crucial for a litigation boutique. In the fluid context of litigation, clients also expect and need to communicate with counsel and provide input on work product remotely. This is far more realistic with digital technology.
At a litigation boutique, the mixture of hourly and contingency-fee cases makes cash flow unpredictable. Occasionally, you must rely on the fact that you are smart and you have a line of credit. Cases tend to be shopped more before they get to us, and they can be more complicated. This provides opportunities to be more creative and better problem solvers. Individuals and businesses seek the right balance of advocacy and counsel, however, and they want a boutique to be a step ahead of them. That can be a challenge, but the intensely client-centered nature of the boutique environment can win the day. A boutique must compete on things it can do better than larger firms: listening, counseling, making the client feel better about the experience. In addition to receiving good representation, clients must feel represented as well. One thing a smaller firm can deliver on is making clients feel special.
Our boutique does not want to replicate the environment of the established firms its founders departed, but I do want to leave a legacy. I want ours to always be a firm with the mentoring, collegiality, and personal loyalties that continue to attract excellent lawyers and good people. Nearly six years into this, was it worth the upheaval of leaving an established firm to form a boutique? For me, and my founding partner, the answer is an unequivocal and resounding “Yes!”
Keywords: starting your own business, litigation boutiques, lifestyle
Elizabeth A. Starrs practices law with Starrs Mihm & Pulkrabek LLP in Denver, Colorado. She wishes to thank Michael Mihm for his contributions to this article.
- April 8, 2010 – I very much appreciated reading the original full length article in Litigation and again today. Thanks for sharing your experiences with us. We have a small litigation firm and it has been a wonderful experience.