I’ve worked through three recessions in my career, in 1990, 2001, and 2007. Another recession will hit eventually, because they always do. Will you survive?
In the United States, over the past 100 years, there have been seventeen periods defined as recessions. Unfortunately, a recession in the U.S. often impacts the rest of the world--sorry about that.
Looking back over the past century we’ve had 17 recessions: 1920, 1923, 1926, 1929 (Great Depression), 1937, 1945, 1949, 1953, 1958, 1960, 1969, 1973, 1980, 1981, 1990, 2001, and 2007. By all accounts, we’re overdue.
When will the next recession occur?
Soon enough.
What does a recession look like for a law firm?
Some firms thrive during a recession. They’ve built practices in areas that boom in desperate economic times. The classic example is bankruptcy, but there are others as well. Foreclosures jump in a recession. Some employment law practices get busy, along with certain litigation practices. Doom can mean boom for some lawyers who are fortunate enough to be in the right practice at the right time.
But a recession can be pretty awful for lawyers in lots of other practice areas. A slowdown in the economy impacts in many ways, and many practices can quickly find their revenues trending downward, or perhaps even plummeting. A downturn will impact each firm differently, and it’s likely that some of the fallout will be entirely unexpected.
Typically, a recession is “technically” over fairly quickly. But the effects linger, sometimes for years. Large firms lay off associates, who end up competing with smaller firms. Medium-sized firms reduce prices, which impacts smaller firms, who lose business. Clients reduce their legal spend and take a long time to ramp back up. It gets ugly quickly and it stays ugly for longer than hoped.
Don’t believe your own bullshit
My favorite line is “We handle these types of cases plus these other types of cases so we’re recession-proof.” Another version is “When one practice area is down, the other is up, and vice versa.”
Some say the legal industry is recession-proof, but they mean the industry as a whole. Individual firms, lawyers, and practice areas aren’t. Even if revenue of the legal services industry overall remains constant, with increases in some areas and decreases in others, you’ll likely still feel it in your practice.
During the recessions that I struggled through, I watched a few large firms thrive. Within those firms, certain practice areas boomed, while others went bust. The revenue for the firm might have been maintained, or even improved, but the firm terminated associates and partners. Why? Because large firms tend not to integrate practice areas or cross train lawyers. A formerly productive partner, experiencing a steep revenue decline due to the economy, finds herself suddenly outside the firm as a former partner.
It’s easy, in good times, to believe that the good times won’t stop. It’s tempting to keep spending, keep expanding, and keep growing. With interest rates remaining low, it’s easy to coast along, just repaying principal, while continuing to invest in expansion of the team, the practice areas, and other growth projects. It’s logical, when revenues continue to climb, to invest today with the plan of reaping the rewards tomorrow. Extending yourself financially isn’t scary if you have a long history of turning those risks into rewards.
But a little fear is a good thing. Knowledge is power, business cycles are real, and, as Andy Grove once said, “Only the paranoid survive.” If reading these words doesn’t give you an anxious jolt, then you’re either well prepared for the downturn or you’re ignoring reality.
Be nervous: it’s good for you
I’m a risk-taker. I thrive on adrenaline. I’m always up for a heart-pumping movie or a big stoc…