Let’s talk about what NOT to do when building your law firm because there are impactful lessons that can be learnt from failures, even more so than from sharing all the wins. That’s what MaxLawCon22 presenter Ty Shepherd who shares how to run your company with the wisdom of being prepared and the lessons learned from failures that he's seen while running his corporate bankruptcy firm.
Some lessons that Ty shares:
Ty firmly believes that failures are not the end, but rather opportunities for learning and growth. It’s important to share your mistakes and learn and grow from each other.
🎥 Watch the full video on YouTube here.
Speaker 1 (00:00:00) - But in today's episode we're sharing a presentation from Max Lakhan 2022. Keep listening to hear Tai Shepherd as we share his talk. Running a company Ain't Always Fun Business Lessons from a Corporate Bankruptcy Practice. You can also head to the maximum Lawyer YouTube channel to watch the full video. Let's get to it.
Speaker 2 (00:00:20) - Run your law firm the right way. The right way. This is the Maximum lawyer podcast. Podcast. Your hosts, Jim Hacking and Tyson Metrics. Let's partner up and maximize your firm. Welcome to the show.
Ty Shepherd (00:00:41) - Thank you all for coming here. And it's been a great week so far. You know, we have learned so much from so many speakers about how to overcome triumphs, about successes, about working through problems. And I just thought now that we're on Friday afternoon, we should take things down a notch. And I just want to talk to you about failure. So I'm dying. So I've done corporate bankruptcy for about ten years now, and in my practice it's focused on largely service businesses, a lot like law firms and in the 2 to $10 million of debt range.
Ty Shepherd (00:01:12) - So we're talking 3 to 15 in revenue, generally speaking. And with these clients, we've seen a lot of businesses that were led by charismatic leaders that build a business from nothing. It goes up and it grows and then something happens and it goes way down. And so through this, I feel like I have some perspective on what not to do. So hopefully let's talk about what not to do. So I have a theory about cases or theory about work we love. The stories on television Shows are about how I built this business, how I grew this. There's so many success stories out there, but we really don't talk about failure. But I don't think you really learn a lot from learning about successes. Steve Jobs might be great and have some quotes. He didn't have what to tell me, but when people talk about the things that go wrong in their business, the errors and issues, I think those have good lessons because you can look back and then reflect and think about what you did wrong.
Ty Shepherd (00:02:02) - So I really like this quote from Von Bismarck Only a fool learns from his own mistake. The wise man has been a mistakes of others. So what I wanted to do is give three lessons that I've learned from my clients and hopefully impart them for to help our practices out. First, key takeaway is that you will hear talks, conferences, television will talk about a coming recession. Is a recession? I don't know. Nobody knows. They've had them before. They've happened again. But the thing that I've seen coming out of the last recession coming into now is that recessions are opportunities. They are not distractions. It is easy to sell and easy to grow in a growing market, wider, more comfortable, more customers available, more opportunities. But when things contract, it's always the businesses that are best set up eat market share while the marginal players shrink. I think we've all seen this with Covid. Remember the lawyers who maybe thought this is going to be like 3 or 4 weeks, I'm going to shut down my practice and I'm going to write a book, take some time off.
Ty Shepherd (00:03:00) - Where are they now versus the people who double down and put effort in to growing their businesses? I have a client that reminds me of this principle, specifically this guy, Mike, in some ways would be what a lot of people would aspire to. He started a software business in his 20s, sold it to a national defense contractor, took those funds, rolled it over to residential, commercial real estate throughout the southeast, grew and grew and grew. He had over 1000 residential properties slowly living off of it. Till last recession, rates started to change. His lenders called his notes and we came in and we started working with him. Should have been an easy process of trying to renegotiate some of these contracts. The problem is, once we started getting in and doing due diligence, it wasn't just the debts that were the problem. Mike had a lot of problems in his business. Most of all, he did not trust his managers of his individual properties, didn't give them any authority to act. He kept all the notes himself, all the documents himself.
Ty Shepherd (00:03:53) - And despite being a software engineer, he had paper records. So with Mike's case, when we go to the lenders and try to present packages, it wasn't good. It was they're like, Who is this guy? We need to liquidate parts of this portfolio. We had to fire, sell some of his properties not because of the recession, but because Mike wasn't prepared for it. So now this Buffett quotes kind of fun is it's only when the tide goes out we discover who's been swimming naked. Mike was naked the whole time and just didn't know it. So again, first lesson to take from this is that recessions are opportunities. They strengthen strong firms and kill the weak. Second lesson that I've taken from these clients is that we all love growth. You're not here if you're not thinking about growth and opportunities. And there are so many books. Again, the whole purpose, you can walk around this conference, people talk about traction fractions, great fractions, a little bit of a dream because everyone wants to be the visionary.
Ty Shepherd (00:04:41) - No one wants to be the implementer. And that's a problem because like Tyson talked about earlier, our ideas kind of ain't shit without the team behind us to put them into action. I have one client in particular that I thought of who was a brilliant strategic mind. This guy Peter, had worked in management consulting. You can support for big brands. He built businesses and decided he wanted to do something on his own. His wife was a physician. They started their own practice with one doctor, one staff. The two of them grew it to two doctors, grew up for doctors, grew to eight. Doctors and support staff got it to five locations. The problem, though, with this guy was that he was a smart person. He was a jerk. He couldn't work with his people. He was demanding he would not do well with staff at all when it was just them in one location and he had his wife to kind of be this boundary between the other staff and him. It was okay.
Ty Shepherd (00:05:34) - She could smooth stuff over. However, once they grew a little bit and they got to four locations that she could not float to all those locations, it created a problem. Specifically, they had a charismatic doctor who didn't want to take this guy's shit anyone and left and took the client was with them, the patients, but left the debts and the locations. It was bad. They lost some of their locations and things could have been different because again, as Richard Feynman, we think first principles. You have to remember we are our own worst enemies. We are our own biggest advocates and critics, but we cannot see our own blind spots. So the lesson that I want to impart and thing to remember is that ideas are great. Take them, run with them, work with them. But at the same time, our ideas are somewhat limiting. We need a team behind us and we have to focus on that team and supporting that team. The third thing that I think is sometimes overlooked at a conference like this is that we are service based businesses.
Ty Shepherd (00:06:27) - We are in a position where we really don't necessarily rely on debt. So because we grow through basic relationships and people and leveraging people, the concept of debt is something that's just not talked about a lot. And so instead people default to an idea of like consumer debt. But the debt for your business and the debt on your car are not the same thing. Business. That's just fine. It's not a doesn't say anything other than it is an opportunity. But that's the thing to take away as well, is to remember that debt. It's like gasoline. It can grow your business. Or if there are problems, it can implode it. But here is like a joke that like judges, you like a mediator. You used to say a lot is how do you get to build a small fortune in real estate by starting with a large one? Because every developer has been through things like this before. And I had a client named Max who very successful is actually a lawyer because a lawyer had built his firm up and they had a great cash flow and he eventually bought a yacht in the Caribbean chartered jet.
Ty Shepherd (00:07:23) - And they are part pleasure, but they were also used as rental charters. Well, again, a unforeseen circumstance happened and hurricane in the Caribbean destroyed the yacht. So it wasn't in service and we were stuck with the yacht being in arbitration in Bermuda. And the insurance carrier rightly said, we'll wait you out. And they were like, we're going to drag this out. It happens, too. And the charter jet suddenly isn't as useful as it had been. And he had about $3.5 million of debt to service, and the firm couldn't keep up with it. So eventually it imploded. The insurance company were right there and they prevailed. And, well, we'd all went to seven and collapsed. His business was fine, but really he was someone who took on too much debt and frankly, too much vanity debt for the lifestyle and couldn't really keep up with it.
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Ty Shepherd (00:09:16) - So again, think of that using a business context. I really think of it is it is rocket fuel. You can supercharge your business or it can really burn the whole thing down of an otherwise good, strong business. So now taking these three lessons together and sharing them with all of these people and something that has always been of interest to me is I think people are terrified by the idea of bankruptcy and the idea of failure.
Ty Shepherd (00:09:37) - However, each of these people, each of these lessons, they're all doing fine right now. They went through some tough times. We had to fight a war of attrition by developers still doing well with about a third of his properties. His lifestyle is just fine. The medical practice has grown again with a new management team in practice and my guys now just in a role that he won't piss everyone off and. Finally, the P.I. lawyer. She got funding and he's back at it. So the thing to take away and thing to remember is that we do not have the problems of capital intensive businesses like real estate developers. We have a monopoly granted to us by the state to practice law and to get monopolistic pricing relative to other industries. So the lesson that I take away and always want to interpret to put forward is like even if we blow up, even if things go bad, it's all right. We can get back on our feet. You can always get a job. So coming back to the Bismark quote, the key takeaway that I'd like to give all of you for coming out of this talk is that I see opportunities like this, conferences like this, as such an opportunity to meet people and to discuss and to share ideas.
Ty Shepherd (00:10:46) - But I would implore you focus not necessarily on the successes, but think about the mistakes. Think about your mistakes. You talk to people about their mistakes. I had to fire my mentor when I took over the law firm and I should have done it two years earlier because he was stealing from us. But I couldn't do it as a self-report to the bar. I would never have a partner again. And so that's a personal decision. But it's something that, at least for me, I had to learn the hard way how to deal with that. So coming out of this, I want to thank you all for coming and I hope you all will use this opportunity the remainder of the day today to meet, talk, discuss, share your mistakes, and hopefully learn and grow from each other. Thank you.
Speaker 4 (00:11:27) - Does anyone have any questions for Ty? We have a little more time left.
Speaker 2 (00:11:31) - If you want to.
Speaker 4 (00:11:32) - Share. What is one mistake that you made? We can learn from?
Ty Shepherd (00:11:37) - All right.
Ty Shepherd (00:11:37) - So what's one lesson that I've learned and I can share? So in addition to this, some other things that I'd say and maybe a little more practical, applicable, you know, we get pushed so hard in this practice sometimes to delegate and to get out of the finances. But something that I've seen that is endemic of business is theft. Whoever's doing your accounts payable and your accounts receivable should be separate people. If they are not, you have to assume they're stealing from you. I guarantee you there are people at this conference who've lost thousands of dollars and they won't talk about it. Maybe more. There are lawyers that get us barred every day, not for being bad lawyers, but being for sloppy with their trust accounts, for having favorite staff member dip in and the money disappears and then he or she's gone and they are left holding the bag. So first and foremost, trust your staff and delegate to your staff. But at the end of the day, it comes down to you and it is on you.
Ty Shepherd (00:12:27) - And when there's a problem, you will get burned and that person will be gone. On that nasty note, anything else?
Speaker 4 (00:12:34) - What lessons do you learn from being a bankruptcy lawyer that we can use to restructure our debt without going into bankruptcy? Bankruptcy? If we start to have a bonfire instead of our failure instead of reform?
Ty Shepherd (00:12:49) - Sure. So on both the consumer and business side, I think there's an assumption that if you miss a payment, it is the end of the world, especially with, say, your mortgage. They're going to want to take your house. And no mortgage company wants your house. Your mortgage note is securitized. It is wrapped up and it is sold to investors and large pension funds. All they want is money that the triggering event that we always see is the default payment. Lenders won't talk to us. We can't do anything until there's a default. But once there's a default, they come to the table. Depending on your leverage. Was the the it's like a JP Morgan or something like that, that it's like if you owe the bank $1 million, you have a problem.
Ty Shepherd (00:13:26) - If you owe the bank $1 billion, the bank has a problem. These are all negotiated relationships and they're all give and take. No creditor wants to own a law firm. The accounts receivable, they can't do it. They can't run it. So if there is a problem, you have leverage, you have power, but primarily power of your unsecured creditors in your secured as well. They'll take what they can, but there's always options inside and outside of bankruptcy. But we always start outside of bankruptcy and we file if we have to. And on the consumer side, there's less leverage with, say, your vehicles. Your house has some there's a lot of federal programs for modifications. But I would say that there is always options.
Speaker 4 (00:14:06) - What kind of good debt versus bad debt for business?
Ty Shepherd (00:14:10) - On the business side, the it depends. Law firms. It is hard. It is hard to finance a law firm. We're not doctors. Doctors can get loans basically on a broad basis because they don't really go through bankruptcy and a lot of them can make a lot of money.
Ty Shepherd (00:14:24) - However, in a law firm context right now, some of the best like ideally, you want your lending unsecured and you want it without a personal guarantee and no sophisticated investor ever going to give that to you. However, there are opportunities there, especially on the consumer side, with something like a HELOCs to pull money out invested in the business and you get, for instance, to the extent you take money out of your first $100,000 can be a deduction into the extent then put in business, you can get more business deductions on that. But the first place to start, almost everyone who has to bootstrap is with the personal lines of credit. And from there, with business growing, especially in services businesses, we have more little more options. You can get into hard money lending and other options that will at least make opportunities there. But knowing where you are and knowing your growth rate, we get back to this issue of what is good growth, what is bad growth, and also what can you service And like the pie lawyer who wanted to get into charter boats and such, it is hard to service 20% interest, for instance, on a hard money loan on a business that is not growing by 20%.
Ty Shepherd (00:15:33) - All right. Thanks a lot, y'all.
Speaker 2 (00:15:36) - Thanks for listening to the Maximum Lawyer podcast. Stay in contact with your hosts and to access more content, go to maximum lawyer.com. Have a great week and catch you next time.
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