Your take on malpractice insurance: not what I've heard. Maybe this is something that varies by market? I've talked to people who tried to open practices on their own, and the combination of malpractice insurance + legal research fees (even though these tend to be marginal for most solo pracs, because you're normally not dealing with the areas of law that require significant legal research) often makes it difficult for them to even break even on the firm itself - and this doesn't account for the other expenses of life.
Finally, I honestly believe you are overestimating the amount of solo work there is for the taking. I'm not talking about "making millions" as a solo prac - I'm talking about being able to make end's meat. I don't know what percent of people would rather take a *significant* cut in pay to be their own boss (talking biglaw vs. opening your own practice) but I would wager a lot of money that the majority of people would just use contract work to supplement their solo practices if that was an economically viable option.
First off, the malpractice insurance is not that expensive for a newbie: I paid $1400 a year for a 250 K policy back in 2007/08 when I was a part-time solo (this was with a $2500 deductible).
But a problem with NJ is the "bona fide office" rule. You must have a physical location, and "virtual offices" from Regus are not allowed either. A trend the past few years has been to make going solo more difficult, as competition is so fierce and those already "making it" want to keep as many people out as possible.
Many solos get around "legal research fees" by paying current law students to use their student Lexis/Westlaw accounts to do research for like $15 an hour. Unethical? Sure. But even the cheapest Lexis plans are very, very expensive, and using the law library sucks because all the pro se folks hog the terminals pretty much all day. Last time I went to the local bar there were 20 people waiting to use the terminal on the sign-up sheet. It also has very limited access- nothing like what you get w/ a student account. You also have to pay 25 cents a page for printouts, and usually the toner is kicked or there's no paper, etc. It simply sucks.
Also remember you're paying your own bar dues and CLE fees, which is another $1000 a year total if you're admitted to two states, as I am.
Most important of all, however, is the simple lack of work. As the quoted poster above said, many are "overestimating the amount of solo work there is for the taking." Truer words were never spoken.
For starters, most clients with money who are middle-class & college educated will already know a lawyer from their peer group. Or if they don't, they will likely seek a lawyer by ASKING someone in their peer group for a recommendation. And likely the lawyer recommended will be an older, established attorney.
Advertising, in my experience, is basically worthless w/out a VERY deep budget- like five figures minimum. Hell, a yellow pages ad the size of a business card costs $2500 a year for my local NJ directory. And Google Adwords costs even more if you want a sponsored ad or to be in the first page of results. Reality is that for most shitlaw areas (Ch 7 BK, divorce, personal injury, wills/estates, criminal defense), you won't be able to come close. The big "mills" spend enough to get those spots, and w/out a huge war chest you won't be able to compete with them, period.
Ads also attract a lot of insane "tire kickers" who only want 6 or 7 hours of your time to listen to how aliens from Alpha Centuri landed on their roof last night and stole the copper flashing from their chimney, or how they can beat their DWI because they were taking Ny-Quil and it "adversely interacted" with the 16 beers they washed it down with, etc. About 75% of my ad responses were of this variety. It's also very hard to answer calls while doing temp jobs, because you can't speak on the phone while in the doc review room. Hell, if you're in the SullCrom or Paul Weiss cellars you get no cellular reception anyway, so it's kind of a moot point.
Even if a client does have a good case, getting paid is another huge headache. Few people in this economy have the $$$ for even a $2500 retainer, and be prepared to have every second of billing challenged and haggled over. All of this takes time, and as a solo time is a precious resource, and one that ends up wasted by the truckload with all the nonsense and aggrevation of bickering with your own clients.
Worst case scenario is filing a letter of rep with a court, then having the retainer check bounce. I made that mistake on my first DWI case, and the judge refused to let me out. I had to make 2 court appearances, neither of which the client showed up at, and had to pay $17 to notify client by Registered Mail of each appearance. I finally was allowed out after the 2nd no show, but had to send another $17 letter to the client with the judges order relieving me as counsel, then bring the proof of mailing to the court and pay another $20 to file same with the Court. So that one case lost me $71 in postage/costs, 4+ hours of waiting in court, and the 4 hours of temping at SullCrom I missed while waiting around in said court. So overall I probably lost about $500 on that deal. These "rookie mistakes" can quickly swamp a solo and put one out of business pretty quickly.
Don't think getting "court appointed" work is easy, either. In NYC you have to have 3 years exeperience, get 3 letters of rec from opposing cousnel you've gone up against, plus 3 judges you've argued a substantive motion or trials in front of, then send the whole sh-bang into the Committe and wait months to get approved. Even then, you get $60 an hour and hours for most matters are strictly capped. It's basically a "good ole boys" club, with a few old-timers hogging most of the work. My friend got approved over a year ago and has raked in a whopping $1300 so far from these cases.
I'd love to see the "Failure Rates" for solo attorneys, but I bet it's as high or higher than restaurants. The horrid economy combined with internet sites like LegalZoom and an absurdly oversaturated attorney market essentially make "going solo" a pipedream. Sure, there are a few who will make it, just as there are a few who can hit .300 in MLB or win the Powerball lottery. But just because some people do it doesn't mean most will be able to duplicate their success.