Why do lawyers go out of business so infrequently?


According to The Bureau of Labor Statistics, 70% of business owners fail by their 10th year in business. In some industries, the failure rate is much higher.

So why do lawyers and law firms fail much less often?

Lawyers close shop because they don’t like the work or they find something else they’d like to do, but not so many leave because they couldn’t make it. Even with plenty of competition and tough times, lawyers can hang in there if they want to.

But why?

Many people start a business who have never run a business before. They may be good at making widgets or installing water heaters, but as Michael Gerber points out in The E-Myth, those skills don’t necessarily qualify someone to start and run a business.

But isn’t that also true for lawyers?

Just because we know how to prepare a lease or take a deposition doesn’t mean we’re qualified to run a law practice.

In addition, lawyers are far more risk adverse and often lack “people skills” that are the driving force of many businesses.

So why do we have better numbers?

Overhead and margin.

Lawyers have no inventory, lower rent, lower debt service, and a lower cost of doing business. It takes a lot less income to keep the doors of a law office open compared to many other businesses.

In addition, most businesses have smaller margins compared to a law practice. A business might markup their products by a few percentage points, requiring a lot of sales to make a profit, whereas a lawyer might need only one or two cases or clients a month to do the same thing.

The bottom line, therefore, is the bottom line. Lawyers don’t go out of business as often because they have staying power.

Lower expenses and higher margins give us time to learn how to build and manage a practice. We can survive lean times and growing pains and stick around long enough to become successful.

But don’t take anything for granted.

There are still lean times. Competition that wants to eat our lunch. A lot to learn and a lot to do.

If you’re like a lot of lawyers I know, you wouldn’t have it any other way.