The recession has brought changes to the business of law, including lower fees and less costly billing arrangements, say industry reportsand managing partners in firms large and small. And that can mean advantages for small-business owners, provided they know how to find a law firm that suits their needs and they know the right questions to ask.
Some entrepreneurs who have been around a while offer pointers. Juliet Huck is founder of the Huck Group, a 10-employee consulting company that is based in Los Angeles and creates graphic presentations to help participants in litigation tell their stories in court.
Ms. Huck said that she has found ways to make less costly billing arrangements — even when she hasn’t found lower fees. “A large firm might assign me a junior associate at a lower billing rate,” she said, “and that is all right because I have access to the firm’s expertise when I need it for difficult questions.”
Ms. Huck engages different lawyers for specific issues, like employment law or intellectual property protection, and finds them by referral. Because she runs a courtroom-based business, this is a relatively easy task for her, but she is careful to follow up. “I ask a lot of questions about work an attorney has done in a particular field,” she said.
Stephen Marsh, founder and chief executive of SmarshInc., agrees. “When choosing a law firm,” he said, “I would ensure that the firm has many other clients in your field, your size and much larger. You’ll also want to know the types of law they have expertise in. And if you are considering the possibility of merger and acquisition transactions in the future, make sure the firm has a significant amount of transactional experience.”
Founded in 2001 in Portland, Ore., Smarsh archives e-mail and file-transmission information to help corporations comply with financial regulations. As those regulations have increased, he said, Smarsh has grown to 70 employees and about $14 million in annual revenue.
Based on his experience, Mr. Marsh stresses two points: “Make sure the attorneys understand your business — who your customers are, what your biggest areas of risk are, and so on.” And when it comes to billing arrangements, Mr. Marsh recommends paying by the hour rather than by retainer: “I prefer the simple billable hours model. It keeps legal expenses predictable and allows us to use as much legal assistance as we need, when we need it.”
From the other side of the equation, Brian L. Davidoff, managing director of Rutter Hobbs & Davidoff, a 30-lawyer firm that is based in Los Angeles and that provides legal services to clients like Smarsh Inc., offers similar advice. When small businesses are choosing a firm, he said, he encourages them to ask around.
“It is best to use a referral from your accountant or other business owners,” said Mr. Davidoff. “Another way is to use an attorney network, such as Primerus, which is a network for small law firms that are highly rated by Martindale-Hubbell, an organization that rates attorneys.”
But keep in mind, Mr. Davidoff stressed, that while the quality of the firm is important, you are really hiring an individual lawyer. “Make sure that the chemistry works,” he said. “Ask about the attorney’s experience and the law firm’s prior cases in that area of law. Ask for an estimate of what the costs are likely to be.”
Establishing that chemistry can be tricky. Both new and ancient trends are at work in relations between small businesses and the legal profession, said Sanford I. Millar, a Los Angeles tax lawyer. One issue, he said, is a traditional distrust of lawyers shared by many entrepreneurs: “They see the lawyer as saying no to daring business moves. The truth is, lawyers are there to advise on what has been possible and not been possible in law. No business owner wants to be ignorant on that score.”
Case in point: Marc Madnick, who founded Final Draft, a software service for screenwriters in 1991, was referred to a law firm by his accountant. Mr. Madnick, a native New Yorker who had moved west to pursue screenwriting, was wary.
In the East, he said, many business people assume lawyers are out to get them. Mr. Madnick said that he and Joel Weinstein, the Rutter Hobbs lawyer on the Final Draft account, “discuss beforehand what a legal proceeding is likely to cost. Will it be $2,000 or $5,000? So we set a limit.”
Final Draft, he said, is now a company with 40 employees and close to $10 million in sales. In one instance, Mr. Madnick recalled, “Joel advised me not to proceed with an acquisition. It was good advice and saved the firm a lot of money.”
Last August, in a further sign of how the market is evolving, Concord Law School of Kaplan University, began offering an online degree program in small-business practice. The initial courses focus on commercial real estate and employee benefits.
Over the two-year degree course, said M. Ellen Murphy, director of the program, “we will teach about succession issues in family businesses and about taxation and protecting intellectual property.” The goal, Ms. Murphy said, is to help lawyers offer small businesses the services they really need at a price they can afford.
Law firms can also reduce their fees by reducing the overhead costs that they pass on to small-business clients. For example, Steven M. Weinberg, head of the Weinberg Legal Group, a small firm in Malibu, Calif., that represents Ms. Huck’s company among others, is now forming a “virtual” law firm to be named Trusted Legal Counsel. His idea is that a network of independent lawyers can be called on for specific questions on taxation or patent protection and so on.
“We can offer low overhead through flat rates and project fees that are less expensive,” Mr. Weinberg said, “and experienced lawyers are available as larger firms downsize in the recession.”
Mr. Weinberg said he heard about the idea for Trusted Legal Counsel from a client of his firm, Marcia Wieder, who in 1990 founded Dream University, a San Francisco-based company that offers career counseling, trains speakers and conducts motivational events for corporations.
“My first encounter with legal services was in protecting my brand, the name Dream University,” Ms. Wieder said. She found that another company calling itself University of Dreams had started up. So she hired Weinberg Legal Group, she said, “because it was obvious that an authoritative voice needed to contact the user. And it worked. The other company changed its name.”
Dream University, meanwhile, has trained 1,000 motivational coaches, has $1.5 million in revenue but still has only two full-time employees along with Ms. Wieder. That decentralized structure helped give her the idea for Trusted Legal Counsel, she said. “I needed access to a trusted source and only to pay for it when I use it, like weekends and so forth. I use my attorney also to brainstorm ideas.”