Last night I was clearing out old emails that came in while I was on vacation.  I was surprised by one legal newsletter which announced that Heller Ehrman had filed for Chapter 11 bankruptcy and that Thatcher Proffitt & Wood, LLP was closing its doors after 160 years in business.

These are major collapses in the legal community.  Heller Ehrman  had 700 lawyers and firm revenues in 2006 were over $500 Million.  Per partner profit exceeded a $1 Million and the firm was involved in many high profile cases.  Unfortunately, the firm saw revenue drop in 2007.  14 partners decided to leave in the fall of 2008, triggering Heller Ehrman's bank to reign in its credit.  

Likewise, Thatcher Proffitt & Wood was a well established New York firm with over 250 attorneys (more twice the size of the largest firm in Utah).  The firm, however, was overexposed in the structured finance field, making this a bad time to be them.

Several years ago I was involved with a venture catalyst group that helped launch a few companies and helped fund some others.  The head of the group, Kyle Bateman (distant relation) was a master at cutting down the amount of money requested. His view was that over funding a company or creating a lot of debt just lead to waste that would ultimately damage the company. 

Kyle's strategy worked well. When businesses did not succeed, the loses to investors were minimal.  The flaws in the business plan quickly became apparent and the tap was quickly turned off.  In one case, the total loss was less than $1000 when the original approach was for over $25,000 in start-up money.

One of the companies that was funded was Digis, a local wireless internet service provider.  Paul Lambert had started a company that had great potential for success.  Rather than giving a lot of money, the group gave much smaller amounts than was original requested and Paul Lambert showed that he was up to the task of making the most of what he got.

When it came time to look at expansion by buying competitors, it was found that many similar sized companies had spent many times as much to get a comparable customer base.  (One competitor of a similar size had spent 10 times as much).  Those that had received large amounts of venture capital had rented fancy offices and their executives took home large paychecks.  Digis later bought many of these companies for a fraction of the venture funding they had received.  Digis had learned the lesson early on to run lean and use its investor's money to grow.

Over the coming months, we will see many companies attempt to control spending.  Some will be able to do it in time and survive.  Others will not.  However, most companies that had to bootstrap their way to success will do just fine because hey have had fiscal discipline the whole time.