It seems Lee Rosen hasn’t lost his touch as his provocative post The 5 Dumbest Things New Solos Do generated a lot of blowback when I posted it to a LinkedIn Group I frequent.  (Feel free to join Solo Practitioners Forum).

The biggest issue was whether or not to get malpractice insurance immediately upon getting your license.  This has always been a big issue because conventional wisdom is you need to get it right away along with your business cards.  Lee suggests otherwise and I’ve always maintained it’s not necessary the minute you are handed your bar card:

4. Buy malpractice insurance. 

New solos usually buy insurance right after they open the business bank account (which they don’t need). Maybe it’s required in some places? Let me help you with this: if there’s no money coming in, you don’t need a bank account to put it in, so why are you comparing banks? It’s the same deal with malpractice coverage: if you have no clients, you can’t commit malpractice. Don’t worry; you can commit malpractice later. There’s plenty of time for that, and you’ll want the insurance before you do it (unless, of course, you’re judgment proof).

Some of the comments included the following:

“I firmly disagree with the advice in the article to NOT purchase malpractice insurance. How stupid. When you start a practice, the insurance is very cheap. Penny wise and pound foolish.”

“I also disagree with not buying malpractice coverage right away. One of my referral sources required $1MM in coverage before they would send me their mid-range SEO overflow, another bar-approved lawyer referral source also required at least $300k in coverage. I could not have received referrals from those sources had I gone bare.”

“Of course, a solo needs a bank account before receiving the first check.”  (No, a solo needs a bank account before ‘depositing‘ the first check)

“I would argue that in the beginning, getting a system in place is more important than ‘getting clients’. The initial focus should not be on signing up clients. Once the office is set up and running, then take on a small amount of work to test the system, and adjust accordingly. Finally, once the office is running smoothly, ramp up marketing efforts.”

“Agree that systems, insurance etc is key. I know I’ve been solo twice (separated by a five year teaching stab) and both times I did that despite the fear of going broke. It paid off to plan, even though I will never advocate a business plan. I just do it by feel–works for me.”

This went on and on implying it was irresponsible.  And with a few exceptions, most seem to miss the point.  If you don’t have clients aren’t you putting the cart before the horse?  If you were shopping for a home, would you buy homeowner’s insurance while you’re looking?  Of course not.  Not only wouldn’t you, you couldn’t.  There is nothing to insure and nothing to insure against.  Same goes for car insurance.  You can’t insure a car you don’t own, nor would you even think to insure it until you’ve actually purchased one.

It is no different with getting professional liability insurance. If you don’t have clients, there are no mistakes to be made or to protect against.  You need to get your clients first.  Therefore, why spend money you don’t have on things you don’t need…yet.  And if you spend money on what you don’t need, where is the money for things you do need?  What happens if your practice never gets off the ground?  You’ve thrown your money away because conventional wisdom said you should even though logically it makes absolutely no sense.

Anything not generating revenue is overhead.  New solos cannot afford overhead until they get clients. It’s that simple.

And to show you I walk the walk, my partners and I went bare until we got our first several clients.  We didn’t have an office until we got more than our first client.  We did not open our business bank accounts until we had an actual check in hand to deposit.  You might ask how was this possible in the day and age before virtual office space and all this technology?  We were honest with our clients. We told them we were all working out of our respective homes while we were looking for the right location to establish an office and we weren’t going to rush it. We were happy to meet with them at their homes or places of business or use another attorney’s conference room. We had a PO Box. It took more than six months after being sworn in before we found the space, another three months to fix it up.  We were still practicing law and meeting clients for nine months until then.

When I started practicing, insurance was claims based meaning that you had to have coverage at the time of the claim, not necessarily at the time of the alleged infraction.  This certainly made our decision much easier but the principles are the same. We bought it when we needed it. (And this includes buying it if your client requires it or a lawyer referral service demands it and you want their referrals.) Then we bought our insurance with retroactive coverage at a premium but it was also when we had cash flow to cover it. As an aside, last I checked the greatest numbers of malpractice claims comes between years 8 – 10.  Newbie insurance is cheap for many reasons; still not a reason to get it before you need it, though.

The thrust here should be obvious.  Nothing matters until you get the clients.  Getting caught up in the ‘trappings’  (notice the word ‘trap’) can be counter-productive and expensive.

In addition, not getting certain items prior to your first client is not saying you shouldn’t have a plan.  You should certainly know the attendant costs, scope out where you are going to do your banking, know what type of entity you wish to establish so when you get that first, second or third client, you can quickly pull the trigger and everything is in place.  You just don’t need to spend money (for the most part) before you generate revenue.

Lee did not become the successful lawyer he is, nor advise thousands of lawyers in North Carolina as a law practice management advisor for the North Carolina Bar by not understanding priorities for successful practitioners.  Look at professional liability insurance as you would any other insurance.  Get it when you have something to insure…and for some of you this may very well be the minute you open your doors because you already have clients.

But let me conclude with very wise words from our own columnist, Barry Seidel, who also joined the discussion:

The reason this article is so correct and so on point is not so much that those are dumb things to do, it’s that compared to the challenge of how to market and build your practice, they are easy. That’s why people do those things, because they are easier than the thought, planning, work, effort and time that goes into having actual clients. Not to mention some creativity and the willingness to have some trial and, dare I say, error.

You have to get clear about what kind of clients you want, develop a marketing plan, and implement it. Much soul searching and much energy goes into this.

You can overthink entities and offices and malpractice insurance, but when you get right down to it, they are just some things to do. The entrepreneurs challenge: what do I really want to do, what’s the market like, how will I reach it, how will I grow, how will I become known, how will I establish an internet presence….this is where the muscle must go.

Those other things, the “dumb things”, are just a sideshow.

Yes, Barry, let’s stay with the main event, not get distracted by the sideshow.