low overhead is great
As Carlos Slim Helu (considered to be the richest man in the world) mentions, it is important to focus on low costs in good times "when the cow is fat with milk" as this means there is less reason to cut in bad times.
There are two (secret?) rules to our business model that allows first rate work at lower cost or, another way to say it, permits us to be “the low cost producer of high-quality legal work”:
Keep Overhead Low
Keep Overhead Low
As Carlos Slim Helu (the often richest man in the world) mentions, it is important to focus on low costs in good times “when the cow is fat with milk” as this means there is less reason to cut in bad times. For example, the best ways to never have to cut administrative personnel are (i) not to over-hire in the first place and (ii) attract and train personnel of the highest talent.
All of this gives rise to our simple but poignant rallying cry: Low Overhead is Great!!!
Ultimately, low overhead is a huge competitive advantage for a law firm. We believe, anecdotally, the our Implied Overhead per lawyer is about $150,000 less than major law firms. With about 70 lawyers at the Firm this gives us about a $10,000,000 competitive advantage over law firms with higher overhead. We use this “extra” money to be benefit everyone:
- Our lawyers and administrative personnel get paid very well
- Our clients enjoy lower billing rates
- We are able to be profitable even when work is slow
- Our partners enjoy higher profits
As noted, we have two secret ingredients in our business model: First rule – keep overhead low, Second rule – keep overhead low. The savings from these two rules are enormous – some of these savings flow to our lawyers and some flow to our clients. However, simply “lowering” the billing rates doesn’t work. The reason is that if we just did that then over time the profits we earned would not be enough to justify super-highly-talented attorneys staying with the Firm. They would be underpaid and would eventually leave the Firm. So we have to be more creative:
First – we watch our overhead and come up with creative ways to keep it low (roughly 50% of our competition). This is obvious to the Firm, but for some reason does not seem to be obvious to much of our competition. For example:
- We keep our rent low.
- We avoid expensive “build-outs” of our space.
- We have very few support staff. As any large company eventually learns, the more staff that is hired the greater the bloat and then someone has to pay those costs. We have less than one support staff person for every two attorneys – cutting our administrative costs by roughly 50% over most of our competition.
Our thesis is that lawyers are selling their brainpower, their ability to reflect their clients’ intentions in written form, and their negotiating abilities – all to achieve excellent results for their clients. None of the foregoing costs are germane to anything of importance to our clients, so they can be, and have been, jettisoned by the Firm as unnecessary.
Second, we focus on keeping people in the Firm on a long-term basis. We have found that the efficiencies that arise from attorneys who learn the Firm and learn the clients, as opposed to new people coming in all the time, is a quite significant cost benefit for our clients. Indeed, there is nothing more inefficient than the first deal for a new client with new inexperienced people.