Small Business Salon: David Feldman

By Marc Tracy

"...to me, as an entrepreneur, I wanted to know: 'Hey, the number could be infinity.' When you start your own business, the theoretical number is infinity, and it's totally in your control. So I felt that it was better giving it a shot on my own."

Today BizBox inaugurates a new interview feature, Small Business Salon. Our guest is David Feldman. His business is his boutique law firm: he is the founding and managing partner of Feldman Weinstein & Smith LLP. He's also the author of Reverse Mergers: Taking a Company Public Without an IPO, and a blogger at Reverse Merger & SPAC Blog.

If you are a small business owner interested in being interviewed for Small Business Salon, or know one who would be (or should be!), please email us at bizboxonslate@gmail.com.

BizBox: So, Mr. Feldman, tell us about your business.
David Feldman: We're a law firm, Feldman Weinstein & Smith. I also have a blog: ReverseMergerBlog.com. That's become an interesting separate little business. I was always a very entrepreneurial guy: I was the eight-year old with a lemonade stand. I went to business school at Wharton [at the University of Pennsylvania] as an undergrad, and went to law school basically because my parents made me: they said, "When you're done with your schooling, you should have a profession." So I went to law school, never intending to use it.

While I was in law school, also at Penn, I bought a radio station in Daytona, Florida with a friend. I believe you're not a true entrepreneur until you have one significant setback. But when we sold it for a loss, we were able to give our investors their money back, and I learned a lot about crisis management, so that was an interesting experience. When I was in college, I bought an interest in a local day camp using my bar mitzvah money. And that worked really well--got about five times my money back in four years. So I always thought I'd be one of those guys.

How did you start practicing law?
My uncle started the largest law firm on Long Island, and they had over 200 lawyers at the time. So even though I had an offer to go to a big firm in Manhattan, I spent a year at my "family" firm. They did mostly litigation, which I discovered very quickly I was not interested in.

It was the Roaring '80s, so I joined what's now known as Fulbright & Jaworski. Learned a tremendous amount, hated the lifestyle. I was a corporate and securities transactional lawyer.

What did you hate about the lifestyle?
I don't mind working hard, but it was an every-single-night-and-most-of-the-weekend kind of job. And the randomness of when you were required to do that was really frustrating--the deals took on a life of their own. We sell time for a living, lawyers. The more billable hours a lawyer has, the more they like them. But that disincentivizes efficiency. And so the way to reward efficiency is with more work.

I was also starting to bring in a few clients, to build some independence. So right from the beginning I was out hustling and networking. And the firm didn't compensate you for that. They'd rather you be chained to their desk working on their own clients.

So you struck out on your own?
In '92, with a mortgage, and a two-year-old, and a wife, I decided to bail on my safe six-figure salary and give a shot with my own firm. I joined a guy named Doug Ellenoff. And he and I were Feldman & Ellenoff, which we built up to an eight-lawyer shop.

The way things were developing led me to just give a try to being on my own. So in '96 I started a solo practice. Just me, a desk, a computer, a phone, and I guess a chair. I had a client who was trying to go public. And that's what's morphed into my 24-lawyer shop.

What has working for yourself taught you about the work-life balance?
I always tell my staff that there's working hard, and there's working smart. Life in the big firm was: you kinda schmoozed around a while, went from one office to another, talked about the ball games, gossiped, and then in the middle of the afternoon you got some work done. And that's why you were there til 10 at night. Here, everyone gets in, pus their heads down, takes a break for lunch, and then gets the heck out of there. We try to have as much of a respect for people's right to have a life.

Did anything else prompt you to strike out on your own?
At Pryor Cashman [Sherman & Flynn, another law firm], I believe I was on the track to make partner. And I started looking at it and the numbers weren't bad, but to me, as an entrepreneur, I wanted to know: "Hey, the number could be infinity." When you start your own business, the theoretical number is infinity, and it's totally in your control. So I felt that it was better giving it a shot on my own. The lifestyle was a big part, too: the control. What I also didn't have was enough time to do was to build my own business.

How did your business develop?
I developed this niche called reverse mergers. (In general, I would say try to be the king of something.) And I got lucky enough to move into a leading position in this particular industry. This is where a private company, rather than doing a traditional IPO, instead finds a public company that's something of a shell; then you buy it, and you're instantly public. It got a bad name in the '70s and the '80s, but there have been rule changes since then, and now it's legitimate and popular: now, many companies--about 200 a year--do it. I've written the only text on the industry--Reverse Mergers. And my blog gets 3,000 hits a month. That's been a source of tremendous business and speaking opportunities.

Tell us about how you secure financing for your firm.
Like everything else, it's all about relationshipos. You not only need to perform in your relationship with your bank, but also make sure you like each other. I'm lucky enough to have a great relationship with a banker currently at Signature Bank.

Every single year, my individual practice has grown, including this year: but just barely--it happened yesterday, actually! As I say year-to-year it grows, but quarter-to-quarter it can go up and down, and we'll sometimes need to access lines to tide us over, and then we'll pay it off.

Have things been especially difficult in terms of financing recently?
No question you worry in this environment whether it will all be there for you. I ended up having a good 40-minute conversation with the president of Signature, not only to talk about the bank's healthiness, but asking if they are cutting credit lines, and they said no. They're public, but they're quiet, and they don't do any advertising. They handle not only my firm but also my personal banking. When I was at a big bank, I won't say which one, it was really hard to be a little guy.

The advantages of smaller banks for small businesses is something we discuss a lot at BizBox. Why did you switch from a big bank to Signature?
My guy, who's now at Signature, had been courting me. Meanwhile, at the big bank, one time I had been looking to increase my old credit line. And I had switched from being a PC to an LLC--just for tax reasons. Now I had been with this bank for probably seven or eight years: always paid everything on time, business was growing, etcetera. But they said they couldn't increase my line because I'm a less than two-year old business. Because of the LLC switch! They said, "We agree with you that it doesn't make sense, but we have no choice." When I called my old banker at Signature, they said, "That's ridiculous, of course we'll honor the fact that you've been in business," and they gave me the credit line. I'm very, very happy with that relationship.

How has being a lawyer helped you as a businessperson?
I felt that law school was actually the completion of my business education. In business school, you get enough accounting to know if your accountant's messing up, but you really have no idea if your lawyer's messing up. That makes CEOs unnecessarily dependent on their lawyers. I think business school should have more mandatory law classes. In business, you learn about taking things to the sky. In law school, you learn about managing risk. In law school you're supposed to be the ultimate pessimist; your job is to tell your client every possible thing that could go wrong. But my nature is to be a positive optimist. As a lawyer, I've been well-trained. But I will never say, "No, you can't do that" to a client, unless something's, like, a crime. But I'll say, "You wanna breach that contract? Here's what'll happen."

I have not found too many lawyers, even who run law firms, who have strong business skills. They may be good lawyers, and they do the things they're supposed to do in terms of going out to get business. But I'll bet of the ten or twelve firms that I directly compete with, I'm probably the only one that actually has a five-page written-down marketing strategy for my firm--and everything we do flows from that strategy. I know the three things I want to get across to someone when I meet them in terms of what my firm's about. But I also know long-term how I want to broaden that.

Tell us a bit about your blog, and how it's helped your business.
My publisher kind of made me set up the blog we're talking about, because they hoped it would sell books. I considered it like the updated feature of my book. And then I got more into it, and I started promoting it a little--I added it to my email signature, for example. And the traffic started building. Now, they say we got about 3,000 people a month, which for such a narrow topic is ridiciulous.

And yes, it has led to business. There are people who call me. Prior to the book, everything was a referral or someone I met at a conference. Now, I get unsolicited calls, form someone who read my book, or read my blog, or saw me speak, or saw me quoted in the Financial Times. It's exciting. For each one of those I get, that I never would have had, it has made a huge difference. People say, I want the guy who wrote the book on the subject. Well, that's me.

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December 16, 2008 7:41 PM