Strategic planning is key to success
Adam Smith echoes my philosophy -- and discusses the importance of the intake procedure. Collecting Your Fee from Intake to Invoice further echoes the importance of the intake process. I maintain that you can tell at the beginning, from the intake interview, whether you will get paid at the end!
Law Firm Fees & Compensation
Michael Brychel, Senior Legal Auditor at Stuart Maue, headquartered in
He says, "For those who accept the premise that “law firms ARE businesses – get over it” this book will be an effective jump start to incorporating that perspective into useful practice."
Legal Fees: Could you afford you?
Last week-end, I was attending a Vintage Airstream rally in Albuquerque, New Mexico, as mentioned in a previous post.
Because our “new” vintage Airstream is still being built and our “old” vintage Airstream was totaled from our December accident, we could not stay at the rally, but had sleeping quarters about 10 miles away, a short car ride. To get there, we had a short stint on Highway 550, a heavily trafficked thoroughfare in the area, so I’m told. As we got close to our destination, I noticed the highway was streaming with police. It looked like a major car accident; as I got closer, it looked like a disaster. I could tell the roadway had been narrowed by cones and police cars into one lane. And as I approached the head of the line, a policeman approached me. Suddenly, I realized that I was in the middle of a road block!
The officer spoke. He asked if I had had any alcohol that evening. Those of you who know me, know that I am always the “designated driver.” I have nothing against alcohol or those who enjoy it. I’ve never developed a taste for good wine or other spirits. Thus, drinking good wine is “lost” on me.
This evening, however, a friend at the rally had bought a bottle of red wine, a favorite of theirs and my wife. To be part of the group, I accepted a “short” glass and had a few sips — well, o.k., I had one glass of wine. Several hours later, our evening ended and we drove ... until we were stopped at the road block. I told the officer the truth. He pulled me out of line, told me to shut off the engine and turn off the lights. Not having driven this car before, I fumbled with the lights. As a former prosecutor of DUI/DWI defendants, I knew this was not looking good. A drunk will usually fumble with the lights. I laughed it off, attempting to be casual with the officer.
He gave me the eye test. I got a bit nervous, contemplating the balance of the field sobriety test..Have you ever taken that test ... while sober? It’s not the easiest thing to do, especially when filled with anxiety “in the field.” Though nervous, he could tell I was sober ... or at least not under the “influence.” And we drove on ...
As I was thinking about this, on the scene, I had visions of needing to call an attorney in the area to come bail me out ... or at least defend my good reputation to keep me “clean” with the Bar, that is to make sure I didn’t have a spot on my record that would impact my license to practice law and my license to drive a car. Could I afford to hire a lawyer in today’s economy. Of course, we might say that is the wrong question. Could I afford NOT to hire a lawyer is the better question.
For those in need of a lawyer, it is clear they have a need. And, from my perspective, it’s clear that lawyers provide substantial value to their clients. From the client’s perspective ... and this is the only perspective that is important ... they too often are confronted with a large bill they did not expect ... and an inability to reconcile the value of what was done for them and the fee they now have to pay. That is the fault of the lawyer. It’s up to the lawyer, the professional, to educate the client about both the value of the service to be performed and the anticipated cost of delivering that value. When that is done, the client will be satisfied no matter what the dollar amount may be.
What do successful law firms have in common with successful basketball teams?
The season is over for 2 elite basketball programs. But, for neither, was this a losing season. Both won more than 30 games this year, against some very good teams ... and all of the Final Four teams, for the first time in NCAA history, were ranked #1 in their respective regions.
Are there any lessons to be learned from this excitement for lawyers and law firms?
For UCLA, this was another great year, though the team did not win the ultimate prize, the national championship ... and did not become the 101st title in the school’s storied history. Coach Ben Howland, one of the premier coaches in the country today and his team made the Final Four with 3 different teams in 3 straight years! A remarkable feat! This team won more games in a season than any other team in UCLA’s basketball history, even under Coach Wooden. They forget that Coach Wooden won his first national championship more than 15 years after he started. Coach Howland is only in his 5th year ... and has already knocked on the door 3 times, and the final game once. His players are good students, good athletes and good citizens of the campus. One cannot utter higher praise.
Are there parallels for lawyers from this “game” of basketball that millions of folks watched the other night.
After watching Memphis outperform UCLA (my alma mater), I am reminded of legendary Coach Wooden’s observations in an era where videotapes of one’s opponents were seldom reviewed. He said: “Play your own game and you will win your fair share." Obviously, he won more than his “fair share” of games. But, then, he had the likes of Lou Alcindor, Bill Walton, Gail Goodrich, Walt Hazzard and a host of other outstanding athletes. As good as today's players are, they are not Alcindor, Walton, et al.
In Saturday’s game, Memphis played about as well as they could ... and UCLA didn’t. Basketball, as is a law firm, is a team effort. If a cylinder of a car is not firing well, the entire engine falters. And when competing against another fine vehicle, all cylinders are needed to win.
UCLA had a great inside game. But, its perimeter folks were missing shots. This put too much pressure on the inside ... If the guards and forwards had made a few more of their open shots, if their players had made the inside shots that were uncontested, the inside players would have had a bit more breathing room ... and everyone would have seen a different game. Memphis, on the other hand, was firing on all cylinders; everyone was doing what they were supposed to be doing. Memphis played “their game.”
In a law firm, you cannot profit and you cannot grow unless you have skilled visionaries and lawyers who are rainmakers. You cannot grow and continue to increase profits unless you work as a team, share client information, legal expertise, and legal knowledge with all the other lawyers in the firm.
Firms that grow, even to a 100 or 200 lawyers, where rainmaking is limited to a few stars generally are law firms facing collapse when those few rainmakers retire or “die in their boots.” Without a succession plan that includes the willingness of the “stars” to share their knowledge and transition their client relationships to others in the firm (the next generation), the entire firm disintegrates when they (the stars) leave the firm.
As in basketball, successful law firms are team efforts ... with all cylinders working well, together!
Selling a law practice in Ohio is now legal
The Ohio Bar adopted a new rule of professional conduct, Rule 1.17, that allows the sale of a law practice as of February 1, 2007.
There are a number of differences between the new Ohio rule and the modified ABA rule. Simply stated, the ABA rule allows the "... purchase (of) a law practice, or an area of law practice, including good will ..."
Ohio deals with issues that the ABA rule subsumes or believes is not important.
For example, Ohio is concerned that a lawyer may buy a practice in order to resell it. The rule prohibits this. I'm not sure what Ohio was concerned about; I've never seen one lawyer buy a practice with the intent to "flip" it. A law practice is not a piece of real estate that one can hold for a short time and have economic appreciation increase the value sufficient to justify the added expense of another transaction. In order to increase the value of a law practice, a lawyer must add to the revenue and the profitability of the law practice. There is no time factor set in the Ohio rule, so I'm not sure what the factors are that they will consider in evaluating whether a future sale violates this provision.
The ABA rule allows certain disclosures in the sale negotiation without violating confidentiality. The Ohio rule appears to be more stringent until and unless a confidentiality agreement is signed by the purchasing attorney.
The ABA rule does not make reference to covenants not to compete; this is left to State laws. The Ohio rule states that a purchase agreement may include a reasonable covenant not to compete.
Whatever the differences are between the Ohio rule and the ABA rule, at least Ohio now has a rule. I believe "simple is better" in this circumstance. But, a rule permitting the sale is better than either no rule or a rule prohibiting the sale!
Law firm profitability - Lessons from basketball
Yesterday, I attended the West Regional NCAA basketball game between UCLA and Texas A & M. I also watched the Stanford / Marquette game that preceded the West Regional UCLA game. Both games were about as rough and close as basketball games can be. Both games featured some of the best college athletes playing today. One lesson to be learned from these young athletes is that the game is not over until over ... UCLA, for example, had mental toughness to stay in the game despite playing one of their worst games of the year. As a biased UCLA fan, I do not believe their performance was influenced that much by their opposition, notwithstanding that their opposition was excellent.
For me, this is reminiscent of the discussion I had recently with a client who asked me to do a profitability analysis of her firm She and her partner believed that the expenses of their small firm were too high My review of the data indicated that there were areas where reductions or revised characterization would be relevant. For example, several capital expenditures could be removed from the expense side of the profit and loss statement and recast as assets; a management fee could be removed or recast as a draw by one of the partners because such a fee is inappropriate for a small firm. However, the real focus for this firm should be on increasing its revenue. That would have the most dramatic impact on the performance of the firm. Recasting the expenses would not change the cash flow of the firm, but would help generate the mental toughness confidence that they are not in terrible shape, that they could succeed, and provide the mental toughness to continue seeking the appropriate client base to generate increased revenue.
Looking at the relevant data helps remove the fear of failure, engender confidence that small changes in one's own behavior can have large impact on one's success, and bring the realization that success is just around the corner.
Marketing fee stability
On a listserv recently, a lawyer requested comments about his proposed letter to his clients. He wants to "shout from the highest roof" (from an old Doris Day film) to his clients that he plans to maintain his current fee structure, that he will NOT raise his fee rates. I responded as follows:
If you’re representing larger businesses, my experience suggests that they don’t buy legal services based solely or even primarily on hourly rates. They, like most others, buy based on perceived value, expectations that you can provide solutions to their challenges and personal rapport.
Have you thought of calling your clients … and merely thanking them for their loyalty and continued business …. (with, if you feel so inclined, an “oh by the way, my rates will remain the same in 2008)? When the time arrives to raise rates, I would offer that you read my article on the subject of when and how to raise your rates.
Law Firm Fees & Compensation
Our new book will go to press in two weeks: Law Firm Fees & Compensation: Value & Growth Dynamics --- A LawBiz Special Report
Stay tuned for the official press release.
Will you work for free?
If you are salaried staff and not paid by the hour, and if the 29th day of February falls on a weekday, are you working that day for free?
Once every four years, we receive the opportunity to make a gift to our employers. Do you think they appreciate it? <g>
The Red Zone of Your Career
Karen Mathis, immediate past chair of the American Bar Association, focused her year on developing a new awareness for the legal profession. She said recently that 400,000 lawyers will retire in the next 10 years. That’s the entire current membership of the
What will these lawyers do? Will they close their doors and start new careers? Will they sell their practices? Will they become sole or small firm practitioners because their current firm has a mandatory retirement age, some as young as 62 years of age? Will they be “warehoused,” and merely wait to die?
Karen was perceptive to suggest that the “Second Season” is an important issue that needs to be addressed both by our profession as well as our society in general. We’re currently experiencing a multi-generational workforce, something not seen before.
As with many concepts, it’s important that the individual take responsibility for his/her own future welfare. Looking out at least 5 years to prepare for what you will be doing when it is time for you to slow down or even leave the practice of law is essential for your very well-being. These 5 years may be the “Red Zone” of your career. What will you be doing to prepare yourself so that you can score a touchdown, so you can spend the final years of your life enjoying the fruits of your labor as you choose?
Challenges facing sole practitioners
In a recent poll, the following areas were said to be the greatest concern for sole and small firm practitioners:
- Income fluctuations
- Managing the practice
- Lack of help in the practice
- Isolation from other attorneys
- Inability to discuss ideas with colleagues
This list is not unexpected.
It's very difficult to make plans when your income fluctuates; this becomes more challenging for a younger attorney who is also growing a new family. We oftentimes are not taught the need or skill set to save money and to live within our means. And it becomes too tempting to live according to the higher end of our income stream, hoping that that sum will not decrease. But, the vagaries of the marketplace, the highs and lows of cash flow, are there and need to be handled. It is a challenge.
Managing the practice like a business, again, was never taught to us in school, unless you include the School of Hard Knocks. And, most of us want to do that which we love, practicing law, not managing the practice of law. But, if you focus on the business side of the practice, then you just might be able to do both, practice and run the business. When you manage the practice, you will know when it is economically wise to engage help. This brings us into the realm of delegation and "outsourcing," both important principles of running a business.
The first 4 items on this list are economic and can, with the help of a coach, be addressed successfully. However, isolation and lack of camaraderie with other attorneys is more psychological than economic and can, perhaps, be the largest single challenge facing sole practitioners. Networking is an essential ingredient to preserve one's sanity. While there are many jokes about this subject, it should be taken seriously. Isolation can be debilitating. There are many advantages to being solo ... this clearly is not one of them. By nature, we are a gregarious species and need to be well-connected with others. Again, coaching is one approach to dealing with this issue because a coach can and should be your ally, your colleague. This is the one person that should be there whenever you are feeling challenged. The investment in the coaching process is a small price to pay for the connectivity you will achieve.
Crisis management, and then some!
According to one source, crisis management statistics include causes that are outside of those traditionally thought about by law firms. But, in addition to Katrina, broken pipes, etc. think about the following:
About 53% of marketing executives responding to a recent survey by BtoB and Eric Mower and Associates, said they have experienced a business crisis that resulted in negative news coverage, declining sales or reduced profitability. About the same number (57%) reported that their company does not have a crisis response plan currently in place.
Of the 43% of companies that have developed a plan, 10% worry about their ability to carry it out, and only one-half have trained spokespersons ready.
Some 23% of respondents who went through a crisis said it took three months to a year for their brand to fully recover, while 13.3% said recovery took more than two years and 17.7% said they have not yet recovered after two years.
Causes for these companies' crises vary. A majority of survey respondents (55.7%) said layoffs, shutdowns or business foreclosures created the crisis. Some 45.2% blamed operational or services failures, 33% cited legal or ethical problems and 32.2% pointed to a competitive attack, such as negative word-of-mouth or messaging by others who have a vested interest in damaging the company.
Your Price is Too High
Many folks are complaining about the high price demanded by lawyers. It was reflected in an article in the Wall Street Journal a few months ago and, more recently, by a few corporate counsel in suggesting that they will “fire” their outside counsel because of their hourly rates.
In its December 6th edition, the Los Angeles and San Francisco Daily Journal highlighted California’s “Top Neutrals.” I read the supplement with great interest ... and was struck by the very high prices demanded/commanded by these triers of fact. From a low of $400 per hour to the upper reaches of $12,000 per day, I don’t hear the complaints against these rates!
Years ago, our system of independent neutrals developed because of changes in the judiciary’s retirement system causing economic pain to judges who remained on the bench, I lamented the separation of the rich and poor ... The poor folks had their matters heard by the judiciary, paid by taxpayers. The rich had their matters heard more quickly by independent neutrals, paid by the parties. Independent neutrals who work full-time earn far more than judges.
Our system of justice suffers when economics plays such a dominant role in the determination of disputes, when the poor receive different treatment than the rich. It’s bad enough when the rich can afford to gather a “dream team” for the assertion of their claims; but, it’s outrageous when economics can determine who will be the trier of the facts.
Self interest abounds in State Bar action
The President said that “the State Bar shouldn't base policies upon what will or won't be popular ... Ultimately, our responsibility is to do the right thing." With this remark, the President of the State Bar of California justifies requiring 30,000 mostly small firm and sole practitioners to disclose to clients when they do not have malpractice insurance.
I find this remark of particular interest because it is usually said by one who wants to justify an act that is opposed by the vast majority of his very own organization. It is also offensive because it fails to address the very issue at hand. This statement is like Mom's or Dad's "...just because ..." response to a kid's inquiry as to why he should or shouldn't do something.
In this case, the statement is used to justify an action that will prejudice an isolated group of lawyers who practice in the small firm environment. They need assistance from the Bar ... and they don’t get it. Instead, they get slapped in the face. We might just as well place yellow arm bands around these folks and say they are "bad" people. There is no empirical evidence that this group of lawyers is subject to more malpractice claims than others. There is no empirical evidence yet set forth that suggests any reason to isolate this group of lawyers and identify or punish them in this fashion.
Yet, this very same organization has not, to date, honored its earlier (2005 Board of Governors Retreat) stated commitment to its members to provide them with help in their businesses (The Business of Law®) because it might antagonize a few legislators or other special interest groups or cost a few dollars or place additional demands on the staff. Where is the Board when they're needed?
This attitude explains why members of the legal community, generally, have lost confidence in its governing body. Why the Board of Governors would anticipate that lawyers in this State would support it in any future disagreement with the State Legislature or with the Governor is beyond understanding. One can “turn one’s cheek” only so many times before the resentment rises to the point of action.
The perception amongst small firm attorneys that the State Bar is the enemy and not the friend clearly gains traction with actions such as taken now by this Board. John Dutton of the Board of Governors perhaps said it best. “Dutton argued that some county bar associations, a few State Bar committees and most of the members of the Conference of Delegates of California Bar Associations have joined critics in opposing disclosure. ‘And here we are,’ he said, ‘saying, 'We're going to jam it down your throat. We don't care what you think.’”
Of course, the very Governors voting on this issue also fail to disclose any personal financial interest they may have in this issue, and several do. They also fail to address more important issues for disclosure if we were truly interested in client protection. And, most importantly, they fail to create an affordable insurance program that would allow economically marginal (but very good) lawyers to buy the very product the Board is promoting! (Dare we remember that the State Bar obtains several million dollars each year from the insurance program it promotes?)
Do you want to grow? Then "outsource!"
Q: Ed, can Outsourcing really make a firm more productive and profitable?
A: Outsourcing is just another way to delegate work; appropriate delegation is another aspect of leverage; and leverage is what makes law firms more profitable. If you want to grow a practice, serve more people, or increase your personal wealth, you will need to understand and use the principles of delegation and leverage. In truth, almost every lawyer does this now—having a secretary to type, file, and do other office tasks is an elementary form of this concept.
However, managing the legal process and overseeing the quality of the work product of others is the reality of the legal profession. And this is outsourcing. In such circumstances, whether the “outsource” is someone in your office or someone in India or someone located in between, YOU, the lawyer, are still responsible for setting the strategy of the matter, the quality of the resulting work product, and the management of the entire process.
Outsourcing is a heavy burden, and one no outsourcing lawyer should take lightly. When it comes to ensuring that client work is done correctly, the buck stops with you, the lawyer -- no matter who has actually done the work.
Selling your law practice with a covenant not to compete
Where courts have refused to uphold a covenant not to compete given by one lawyer to another in the sale of a law practice, one of the primary arguments against validating the covenant is that clients have a right to counsel of their own choosing. And, the argument continues, saying that a lawyer cannot practice law in a given area for a reasonable period of time restricts that right.
Yet, the court just upheld the Vioxx settlement with Merck & Co., one provision of which states that a lawyer who has a client accept the settlement must withdraw from the case and cannot represent any other client in the case, even if he/she already represents other clients in the class action litigation. Effectively, this provision restricts the right of clients to select counsel of their own choosing. What makes this situation even worse is that the second client (and others also represented by the lawyer whose one client accepted the settlement) is unlikely to get another lawyer with the skill, time and money to invest in learning a new matter in the middle of the case. The choice for these plaintiffs is simple: Settle with Merck or lose your lawyer!
While it's nice to settle a large and complex class action, what happened to the famous and apparently not so inalienable right to counsel - competent (in Vioxx litigation) counsel?
Disaster plans impacted by technology
Gary Chen, Senior Analyst for Yankee Group Enterprise made the following important points in the recent Application Continuity 2007 conference about technology:
- 83% of medium businesses (more than 100 people) have remote or mobile workers
- That means that only 17% of such businesses have no mobile workers at all
- Lifestyles today blend work and personal activities with fluid boundaries between the two
- 15% of our workforce are telecommuters
- 23% of our workforce travel long distance
- 27% of our workforce travel locally
- "Anywhere solutions" can boost productivity and enhance the probability of recovery in the event of disasters
- New technology for unified communications, not yet a driving force, is generally reviewed, if at all, at the time of replacement or updates rather than as an independent purchase now
- One of the greatest challenges facing today's business is that information is lost or stranded within the head of one individual
That means that technology becomes even more important in the management of a law firm. Technology affects current law firm profitability and becomes essential for survival and continuity in times of disaster. In current terminology, "knowledge management" will be the backbone of the success and survival of a law firm. And knowledge management needs enhanced technology to be effective and readily available. As I've said before, I believe law firms of the future will grow or die based on their effective implementation of knowledge management.
Is Business Professional?
Q: As a lawyer who runs her own practice, it seems like everything I do revolves around trying to make more money. Is it professional to always be concerned about turning a profit? Or should I focus more on other things?
A: All lawyers today need to be fully sensitive to the financial needs and operation of their firm.
The issue is one of business competency. The lawyer who has it understands the operation of the firm as a business (budget, collections, profit, loss), the firm’s billing structure, how each attorney determines firm profitability, and the importance of clients and their own businesses. Years ago I registered the phrase, “The Business of Law®,” because it is such an important truth that summarizes my consulting work—and because so many lawyers seemed to lack an understanding of the concept.
Running a law firm in a businesslike way improves the professionalism of the practice of law. The purpose is not simply to get more money for the lawyer; it also benefits the client. A profitable law practice is much more likely to avoid such ethical problems as dipping into client trust accounts, either as direct fraud or as a stopgap “loan.” Moreover, a law firm run as a business will also approach client service more efficiently—returning phone calls promptly, creating and adhering to a budget, providing sufficient details on clients’ invoices, etc. You can’t truly be a professional service business until you understand The Business of Law®.
Outsourcing - Handle With Care
In his column, Fire Wire, John Tredennick, writes the most extensive and articulate article on the subject of outsourcing I've read.
He says, among other things, that ".... All these (outsourced) services can be a boon to a firm of any size looking to perform more efficiently. But just because you can outsource a task doesn’t necessarily mean you should. The decision whether to outsource calls both strategy and ethics into play."
Outsourcing is just another way to delegate work, and appropriate delegation is another aspect of leverage. And leverage is what makes law firms more profitable.
If you want to be a lawyer who does nothing but legal work, then work for a law firm that will permit you to stay on the assembly line - in the library or the courthouse - but have little or nothing to do with other aspects of running a successful law practice. If, however, you want to grow a practice, serve more people, or increase your personal wealth, you will need to understand and use the principles of delegation and leverage. In truth, almost every lawyer does this now -- having a secretary to type and to file and to do other office tasks is an elementary form of this concept.
Managing the legal process and overseeing the quality of the work product of others is the reality of the legal profession. And this is outsourcing. What John is talking about in his article, in my opinion, is merely a matter of degree ... how much should be outsourced to others. In all such circumstances, whether the "outsource" is someone in your office or someone in India or someone located in between, YOU, the lawyer, are still responsible for setting the strategy of the matter, the quality of the resulting work product, and the management of the entire process, . As Harry Truman said, "The buck stops here."
