By: Christina Le Beau

September 13, 2004, Crain's Chicago Business

Some entrepreneurs think they can make a good living by capitalizing on areas where lawsuits are rampant. But those who have done it say they can't get too comfortable. While any industry can be cyclical, companies that rely heavily on litigation-driven business are susceptible to everything from regulatory changes to politics to the prevailing consumer mood.

In 2001, damage-restoration expert Kent Rawhouser realized that mold-related litigation was hitting its stride, so he thought it might pay to get to know a few lawyers in the field. Since then, his company, 20-year-old A&J Specialty Services Inc., has doubled its revenues.

Yet Mr. Rawhouser is hardly sitting still and watching the money roll in. Along with the growth in mold cases, insurance companies have started capping or excluding coverage for remediation, putting a damper on businesses like A&J. So now Mr. Rawhouser is more aggressively trying to win contracts for drying services, to stem excess moisture before it becomes a mold problem.

''I think there always will be some litigation, but to rely on just the legal industry, well, we're trying to do that less all the time,'' says Mr. Rawhouser, whose company, based in DeForest, Wis., employs 13 and is about to open a Schaumburg office.

Litigation has always spawned new business ventures, says Lloyd Shefsky, clinical professor of entrepreneurship at Northwestern University's Kellogg School of Management, whether entrepreneurs are trying to solve problems or just chasing money. For the most part, these businesses are short-lived. Think anti-product-tampering consultants ( la Tylenol), or mobile echocardiography services, like those that popped up during the fen-phen diet drug debacle.

Diversification works

The companies that succeed branch out beyond their core businesses.

''There's a growth phase, then a leveling-off phase, then things get standardized and clarified. There are certain things people aren't willing to fight about anymore because it's now in the law,'' says Nicholas Peneff, president of Public Health and Safety Inc., an environmental services firm in Rockford that got its start in 1991 by training asbestos workers.

The training led to field work-performing inspections and writing reports on everything from workplace hazards to residential lead paint violations. Though it wasn't a segment he actively solicited, lawyers became a big part of his business.

As the rules governing asbestos and lead paint became clear-cut, Mr. Peneff's company, which employs 10, adapted. It pumped up training and industrial hygiene work, but also became adept at identifying ambiguities in the law.

For instance, while lead paint codes have been standardized, there's less agreement about the lead in soil and dust. ''You look for areas where litigation is starting to move, where not everyone understands where the boundaries are,'' says Mr. Peneff.

Changing with the times

For Theresa Zagnoli, a drop in jury trials could have been a death knell. After all, her company, Zagnoli McEvoy Foley LLC in Chicago, earns its keep with trial consulting, helping lawyers with courtroom strategies, witness preparation and jury selection. But as mediation and arbitration have increased, Ms. Zagnoli and her partners have tailored their skills to serve parties involved in alternative dispute resolution.

Even for cases that do involve jury trials, the company has changed with the times. When the firm began in 1994, trial graphics were a small part of the business. ''Now that's probably more than 30% of our business,'' says Ms. Zagnoli, who employs 45 people.

Sometimes it's the nature of the litigation that changes. Craig Greene has been a forensic accountant for about 20 years, both solo and working for other firms. These days, he's a partner with Chicago-based McGovern & Greene LLP, which he and James McGovern started in January 2003.

Over the years, he's worked on everything from embezzlement trials and accounting fraud to divorce cases and partnership breakups.

''Unfortunately we're a very litigious society. When things don't go well, we file litigation,'' says Mr. Greene, whose firm employs 13 people. ''Maybe the trends will change, but there's always something else on the horizon.''