Growing Pains: The Firm's Approach to Strategic Growth, Part I
By Beth L. Kaufman
“Who’s going to move upstairs?” The question—the latest in a series of questions arising as a result of the expansion of our firm from a one-floor law firm to a two-floor law firm—was emblematic of the sea change that we faced. For a recently 14 person law firm and now a twenty person law firm and hopefully a 28 person law firm within two to three years, that change presented numerous challenges and opportunities.
Our law firm was started in 1969 by two associates at what was then Debevoise, Plimpton, Lyons & Gates. Peter and Mike found themselves on the 21st floor of New York’s Lincoln Building (one of the city’s original skyscrapers and an office building noted for its many small law firm and solo practitioner tenants and its own law library), hired a secretary and set out to practice law and find clients. By 1973, they had added another partner and in 1976 and 1977, two more. By 1978, they had three secretaries and a file clerk and had moved to the 39th floor of the Lincoln Building, where they occupied offices on two sides of a corridor, their neighbors being a wealthy widow who managed her investments from an office on the floor, and the Christian Broadcasting Network, which occupied the rest of the space on the floor.
For all intents and purposes, I was the firm’s first associate when I arrived straight out of law school in 1978 (there had been another “associate” before me, but she later confessed she never viewed herself as an associate because she was older when she came to the firm). I was soon joined by two other associates, one of whom has remained and is a partner of mine today, and the other of whom left after a couple of years. Some associates came and went in the ensuing years, and one of the founding partners left in 1979, but our numbers remained at under 10 through the early 1980s.
The hallmark of a small firm is that growth is never assumed; you expand to meet the needs of the clients you are servicing and .must satisfy yourselves that the business is “there” before taking any major plunge. We took over the entire 39th floor (10,000 square feet of space) in 1983 when we were a firm of six partners and six associates; by 1986, when I became a partner, we were eight partners and six associates. Over the years, we grew some and shrunk some, until we found ourselves in the winter of 2001-2002 a firm of nine partners and six associates. Facing a decision that would shape our future.
The two and a half floors above us in our office building had been occupied for the last ten years at least by a medium sized IP firm. That firm, we learned, was about to merge with the New York office of a large out of town firm and intended to vacate its space in the Spring. Were we interested in taking the 40th floor, the one directly above us?
How does a small law firm go about answering a question like that? We had three and a half years left on our lease on the 39th floor and, had we not been confronted with the possibility of expanding, we would likely have only started to think about renewing that lease six months or so before it expired. We filled the 39th floor up pretty well but did have a couple of vacant offices (so room to expand a bit), and had some back office space elsewhere in the building (and the ability to get more of that, if necessary). What issues need to be considered before making the decision to double the square footage of your office, double the rent you are paying?
The discussion within the firm focused on the following:
1. Did we have the ability to occupy the space fully ourselves? The answer to that was possibly. We could do so if we got an influx of new business from existing or new clients. The prospect of that coming from existing clients was daunting—how does a firm of nine partners manage double the amount of work and double the number of lawyers, paralegals and support staff? If certain partners were responsible for that growth of business, then wouldn’t they have to spend more time managing it and supervising others and doing less work themselves? In a law firm which prided itself on having partners who were working partners and who loved being working partners, the prospect of such a change of culture was not received well. And, of course, there was the age-old question of whether the additional work from existing clients could be counted on.
We also could develop the business to support the added staff and space by seeking new clients. And new clients could come from the marketing efforts of the partners within the firm already as well as new partners. As a firm that had turned down numerous merger opportunities over the years—both from New York firms (large, medium sized and small) and from large out of town firms—“merging” with another small firm also was not received well.
Ultimately, we pursued a hodgepodge of strategies—marketing to existing and new clients by the partners in our firm, adding two young partners to help support and manage the hoped for expanded litigation practice and speaking with friends and colleagues at other firms about the possibility of their joining us with their own portfolios of business, or referring us to others they knew who might be interested in joining us.
Depending on what all of these efforts yielded, we concluded we could occupy all of the floor.
2. If we couldn’t occupy the floor ourselves at the outset, could we still take the space without it being a financial drain? We confronted this issue at the outset of our ruminations, because it was clear we would not know with certainty whether we would be able to develop the business in the ways we had decided to work to try to do so, before we would have to let the landlord know that we were interested, and indeed before we signed the lease. The prospect of such uncertainty was nerve-wracking; other firms, some larger than us, some our size, had disbanded in financial ruin because their lease obligations became too overwhelming.
We set out to find out if there were a sublet market available to us, should we not be able to occupy all or any part of the floor, and learned that there was. We identified friends of ours at other small law firms or who were solo practitioners, who expressed immediate interest in becoming our subtenants, should space be available.
3. Why were we even considering doing this, if we knew at the outset that we did not “need” the space immediately for our own needs? This question was at the heart of our discussions and remained so for the nearly one year it took us to make our decision, negotiate the lease and actually sign it. Some of my partners are quite conservative fellows and are risk averse. Why not fill the 39th floor to the gills and only look for new space when it was absolutely needed, they asked? The answer to that question had many components and produced a lot of discussion and soul searching:
a. We did not want to be a law firm that was spread out on non-contiguous floors. Although we had no immediate plans to put a staircase in, connecting the 39th and 40th floors, we knew that if we were to expand beyond the floor that had been our home for close to 30 years, we did not want lawyers and staff to have to take an elevator (perhaps even one from the lobby in a different elevator bank) to seek out others in the firm. That is not our culture—we are a close-knit family and all of us like the interaction we have everyday with our associates and partners and long-time, loyal staff.
b. We did not want to find ourselves in the position of having to move at the end of our current lease. Apart from liking the building we were in and its convenience for the commuters from the northern New York suburbs and Connecticut who were among us, its midtown location and its proximity to the subways we often rode to get to the various New York courts in which we practiced, we all recognized that moving would entail huge expense. Newer office buildings in midtown charged rents that were higher per square foot than we were paying and likely would be paying if we entered into a new lease for the two floors; moving expenses,including a new phone system, networking of our computers, new stationery, new furniture and the like would be high; and the psychic benefit of staying in a beautifully designed office in which we had all worked for so long all were factors in the ultimate decision not to leave open the possibility that we would have to leave the building in a few years.
c. We knew that we had to expand in order to be able to stay small. This sounds like an oxymoron, but actually it isn’t. Our practice boasts first class clients, for whom we do first class work, at lower billing rates and, we like to think, more efficiently than at the big firms who also represent the same clients. We knew, instinctively and through direct evidence, that those clients did want to give us more work, but often could not because we were not large enough to handle the work. We realized that if we were going to keep these clients, and keep doing the interesting work for them that they gave us, we would need to get somewhat larger. We knew we would never become a “big” firm or even a medium sized one; but we had to grow beyond the 15 lawyers we then were. And if we were going to grow, we had space constraints that could not be ignored.
There were several bumps in the road as we began to lean toward taking the extra floor and as negotiations with the landlord began. First, we identified some prospective new partners who had the potential to join us and bring business, staff and the ability to rapidly fill up the 40th floor (indeed, for a brief moment of insanity, we even thought that perhaps we should take on the 41st floor as well….) Discussions with some of them progressed quite far, only to collapse in the end because being a partner in a small firm was perceived as carrying with it financial risk that being a partner in a large firm does not. We quickly lined up subtenants to fill nine of 22 offices on the soon to be renovated 40th floor, only to see two of them, who were going to take three offices drop out. We learned that there was more work needed on the floor than we had originally anticipated and the construction costs were going to be higher. When the landlord was insisting that we have a presence on the floor and not sublet all of it; we struggled with how we could possibly accommodate that request at this juncture, when we still had vacant offices on the 39th floor.
Ultimately, we made the decision to expand, negotiated a good lease, settled on a construction plan that did what was needed and would produce a comfortable space, in keeping with the design of the 39th floor, and have added yet another partner, are talking with another potential partner, and added four associates. New business has arrived—from existing and new clients. We plan to occupy between seven and nine offices on the 40th floor, keep a number of additional offices on that floor and on the 39th floor open and available for our own expansion within the next year and have offered a range of lease terms to the subtenants on the 40th floor that will allow us to expand even further—occupying the entire floor—over the next five years.
The next question we are confronting is the one with which I opened this piece. Who moves upstairs? That is not only a practical question—obviously, a number of people need to do so, if we are to occupy between seven and nine offices at the outset—but also one that will lead our firm into the next phase of its growing pains. Who leaves the 39th floor, where many of us have practiced law alongside each other for more than 25 years, to become the pioneers on 40? Do whole practice groups move? Should new people be integrated into the firm on 39, and those who are more established with the firm move upstairs? What sort of supervision will those on the 40th floor need?
The target date for the completion of the construction and the move upstairs, for those who are going to do so, is mid-July. But even after that is achieved, the firm will still be addressing its growing pains in ways that have nothing to do with office space considerations. Rather, we have begun to turn to the fundamental issues of how to manage a practice that had been at one time contributed to by lawyers and staff totaling 30 and is now 44, and is projected to be 60 or more within the next five years and still maintain the quality that we and our clients expect, keep the small firm qualities and ambiance that we all chose when we joined this firm and prudently adopt the bureaucracy that may be needed but avoid the bureaucracy that can stifle us.
