Surviving During an Economic Crisis
Experience and Advice from a Successful Solo Practioner, Mr. Gaurav Kalra
Anurita Varma
Posted Monday, February 1, 2010

Q: What factors did you consider before deciding to go to a big law firm after graduation, and how did you become interested in business litigation?

A: When I was a law student, we were faced with a very different market. Opportunities were abundant for most of my Boalt colleagues and there wasn't a fear of not getting an offer by a big firm. Firms were being very aggressive. 

As a 2L, I interviewed with about 14 to 18 firms and I was able to secure about 10 offers.  My initial job was at a large law firm, which had about 500 attorneys; now they probably have about 1,000.  I was offered an initial salary of $95,000, and then by summer it went up to $105,000.  Then came the salary wars of Silicon Valley.   By mid-summer the law firm all 35 of the summer associates were offered a starting salary of $125,000.  Then at end of summer, the salary went up to $135,000. This was really the height of optimism during the summer 2000.  Everyone felt that the technology boom related liquidity and work would be never ending. 

I did not think much of my decision to start at a big law firm; it just seemed like a good place to start my career.   I was told the training was excellent and that I should go there for 2 years before starting a career. In fact, I never thought I wanted to go into litigation either. I ended up in litigation because the economy was contracting at the time. Transactional work was drying up, but litigation was staying strong. 

Q: Please tell us about your experience working at the big law firms? What were things you liked about the firm culture? What did you not like?

A: I think that the culture of each law firm is very distinct.  When you are in an organization of 500-1,000 attorneys, it is hard to say what the culture of that particular organization is.  Cultures are often dictated by particular office practices and the city it is located in.  The culture in Silicon Valley might be very different from that in Los Angeles, New York, or D.C.  At the law firm I worked at, there was a very friendly atmosphere and lots of opportunities, but your primary partner or mentor overwhelmingly affected the culture of the law firm.  This made it even more important to find a good mentor as a summer associate so that when you came back as an associate, you would have a good anchor as to what to do in certain situations.

What I didn't like about working at a big law firm is that there is sometimes less room for entrepreneurship.  You are not dictating your billing rates, your clients, or whether you are taking contingency work.  You are working under a partner or set of partners, under their practice areas, and under an existing business model that has been overwhelming successful over time.  At the same time, you are not given the option of handling different matters at different rates or different relationships with clients.

Q: When did you decide you wanted to start your own law firm; what were the advantages and disadvantages to doing so at the time? And what were your considerations?

A: There appeared to be feedback from clients that they were frustrated with the $300-$400 an hour rate that was common even at regional firms in the Sacramento area. That meant a seventh or eighth year associate was billing out at $300-$400 an hour and that gets very expensive for what we call mid-market clients (clients in the $10M-$100M in revenue per year).  Also, at that point in your career you are handling a large part of those matters not under the supervision of a partner, and you are trying to build relationships with those clients.  Some of those clients have very candidly said they would like to engage with the law firm more but that those billing rates were too high.   Also, there weren't simple matters that you could just send to the attorneys at $150an hour or $200 an hour or a more complex securities question that a $500 an hour partner could solve at a blended rate of $300-$400 an hour.  I felt there was certainly a business opportunity to serve the mid-market at a competitive rate. My strategy was to monitor overhead so that I was essentially making more and while my clients were still able to pay less.

There are advantages of being part of a small law firm that are easier to see, for example, casual Fridays as well as dictating our own schedule. But the primary advantage is just finding a profitable business model in a contracting economy.  So while mega firms are reevaluating their business models and rates the smaller firms (3-50 attorneys) are growing because a lot of the work that was sitting with the mega law firm is moving to another market of attorneys. This is what our law firm has seen in the last three years, and it's because we are operating at less than 50% of the cost of a large law firm. 

As far as disadvantages, it's a blessing to have so much work, but it's also very daunting to have that much work at a small firm.  You have to put in a lot of time because you are learning how to run a business while handling the litigated matters for your clients at the same time.  So, what law school and mega law firms don't teach you is how to run a business.  Learning how to do all the registrations, taxes, filings, handling client issues and dealing with litigation matters can be quite a challenge. 

Q: Please tell us about Veda Counsel and what struggles you had in starting Veda Counsel.

A: Getting clients was not a struggle, but keeping up with them was.  When we first started we had an antitrust litigation matter between two tech companies. I had worked on a case similar to this before, however I no longer had the luxury of 200+ attorneys working on it at all times and a group of temp attorneys working on it at night while the attorneys slept. 

The upside, however, is that a small law firm can handle wrongful termination cases, breach of contract cases, and similar cases that involve a couple million dollars.  Larger companies are taking more risks with our smaller firms because they have a lot of pressure to cut costs and often they are frustrated with paying a first year attorney $300-$400 an hour. 

Q: How has the current economic downturn affected Veda Counsel, both in positive and negative respects? Are there specific types of cases you see more often as a result of the economy?

A: The economy has been a business opportunity for small law firms.  We've been referred cases from different states, litigated against some of the most prominent firms in CA against some of the most prominent companies.  To be paying $150 an hour for a sixth, seventh, or eighth year attorney with big law firm experience puts us in a very competitive position.  That's equivalent or less than what big law firms or regional law firms charge for paralegals. 

The big difference is in our profit margin.  Most large law firms are operating at a 20% profit margin, and that's considered a pretty good business model.  We operate at about 80-85% profit margin.  So while I reduced my client's rate by at least 50%, I was earning 4 times as much.

Also as a result of the economy, we are seeing an active amount of wrongful termination cases.   We are also seeing more real estate fraud claims by people who did not see the returns they were promised.  I have cases in about 4-5 different counties right now just involving allegations of fraud and real property.

Q: If you could make the decision again as to whether to start Veda Counsel or how to start Veda Counsel, would you have done anything differently?  Are there more or less options today?

A: I think I took a pretty big risk when I started my law firm.  I didn't do it with any financing, but just with a modest amount of savings.  I knew that if I didn't obtain work very quickly, it would be very difficult for someone leaving a large law firm with a security of a paycheck. 

As far as starting over again, I think I would have considered a partner right off the bat, to help out with the growing pains, and just to have someone there to help with the firm.  When you start off by yourself initially there's no one to cover for you.  Having a really good partner would have been a good idea at that time.

Q: What advice do you have for students looking to start their own law firms? What advice do you have for practicing attorneys who are looking to start their own law firms?

A: I probably wouldn't recommend students starting their own law firms right out of law school.  There's a lot of subtleties of transactional or litigation practice that can benefit from some experience.  I don't think I was ready to start my own law firm until I started to handle cases from beginning to end at the law firm under the supervision of a partner.  So starting at a smaller law firm of 2-3 attorneys seems like a place where there are opportunities right now because those law firms do appear to be growing and are competitively positioned. 

I'll share a story that happened my first year out of law school.  In September of 2001, that was of course when the economy contracted considerably with the tax on the country, was when I was starting as an associate.  My law firm laid off over 100 attorneys in one day in the spring, and I was one of them. I went from making $135,000 to starting at a small firm of 20 attorneys where I was making $65,000.  In one way it was great blessing because I always questioned the stability of a large law firm.  We are too often under the impression that nothing can go wrong because it's a large firm.  Well, I came out in 2001 and so I saw everything go wrong; I saw prominent law firms just go under. 

Perhaps my generation of lawyers was more willing to take risks outside of the mega law firm model because we saw the shortcomings of those models.  So when I went to a smaller law firm, I didn't care how much they were paying me.  I just worked hard, and in 3 months they gave me a raise of $25,000 and guaranteed bonuses.  So, what I would suggest to law students is to stay focused on finding any job where you can develop your skills as a lawyer and eventually opportunities will find them as they develop.