(UPDATE: I will publish have published the follow-up to this post Monday, November 1st. Responses are still coming in so I’d like to give you more time to think on it!)
A while ago I started a new series called, ‘Case Studies’. (follow up links available at bottom of this hyperlink after comment box.) The goal was to present real world business/marketing problems while allowing others to express their opinions about solutions. Then I would follow up with how the situation was actually handled.
Case Study #2 – Do You Fire A Client To Save Your Practice (and Sanity)?
I still work with a couple of consulting clients, ones who’ve been with me for years. This particular client contacted me last week about whether or not to fire a big client. Here’s a little background:
This lawyer is a solo with one paralegal. She has a very good practice but two diverse areas, major personal injury cases and debt collection. No matter how she tries to leave debt collection work her reputation is known even though she’s never really enjoyed it. It was bread-and-butter business while she grew her practice. And now the business just comes to her. Last year she settled several major PI cases providing sizable cash flow. Just as all her PI files closed the percentages of her practice shifted from fifty percent PI work and fifty percent debt collection to nearly 90% debt collection. Here’s why.
A new client came to her with nearly 100 files and this was just the tip of the iceberg. She had just recently started representing the new client. Within another week there were another 100 files on her desk. The headaches and anxiety started because this was not the direction she wanted her practice to go in – top heavy with debt collection work she no longer enjoyed, especially the litigation, and primarily with only this major new client funneling work to her. With this new major client she would be completely tied up in the sheer volume of their work making it virtually impossible for her to market any other practice area or work with any other clients within debt collection if she so chose.
However, the cash flow had dried up from the PI work and this new client represented quite a bit of money. To make matters worse, her paralegal casually said, ‘if you don’t take these cases will we survive?’. So she started working the cases for the new client, hesitant and concerned maybe she’d made the wrong decision in accepting this client. She wasn’t sleeping.
Then the red flags started.
RED FLAG #1: She and the client negotiated a detailed agreement for fees, a novel agreement as the new client wanted to present a non-traditional approach working on these cases and how to handle attorneys’ fees. After the original agreement was signed, there needed to be an amendment which further protected the attorney fees. Between the time of the signing of the original agreement and the signing of the amendment, the client had turned over the first 100 files for suit. These operated under the old agreement. When the lawyer asked the agreements for the 100 files be re-signed, the client balked saying it was too hard to get all the necessary paperwork done and time was of the essence. So the attorney reluctantly filed these suits under the old agreement due to cash flow concerns.
RED FLAG #2 Several files within the first 100 batch of files could have been closed almost immediately with the debtor paying $.75 – $.80 on the dollar. When the lawyer presented with a recommendation the client accept, the client took the position they were not going to settle on any files immediately. This changed the profit per file and risks/benefits analysis of the work based upon the agreement entered into.
RED FLAG #3 Within a few weeks of the original 100 files being presented for suit, the client e-mailed the attorney on a Friday late afternoon saying he had 75 more files coming overnight to be prepared on Saturday.
RED FLAG#4 Within one week of this event the client e-mailed the attorney and said, ‘better get some extra help next week as I have 100 more files coming your way on Monday.’ This e-mail was also sent on a Friday.
The attorney then called me and said, ‘what should I do?’
Learn how this attorney handled this situation this coming Thursday Monday in a follow up blog post.
Now, you tell me. What would you do in this situation? Let’s discuss possible solutions.