Law Practice Management Asked and Answered Blog

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Dec 17, 2013

Law Firm Management – Managing in a Time of Shrinking Demand and Excess Capacity

Question:

Our Chicago law firm of 17 attorneys – 12 partners – 5 associates – is entering its second decade. While we were extremely successful during our early years, the last few years have been a challenge. Since 2008 we have been holding our own and doing okay. We have not laid off any attorneys but the partners are making less money than they made three or four years ago. Billable hours and production seems to be down? Do we have a work ethic or motivation problem? What can we do to get the attorneys producing more billable hours? I would appreciate your thoughts and any suggestions that you may have.

Response:

This is an issue that many firms are experiencing. Here is what I am seeing in firm after firm:

  1. Lower billable hours – in some firms hours are 100 to 200 hours less per attorney than they were a few years ago.
  2. Lower or stagnant collected fee revenues.
  3. Increased expenses
  4. Lower or stagnant profits and profit margins resulting in depressed partner earnings.
  5. Lower associate turnover (due to economy and employment situation for lawyers – many associates are staying put – getting raises – resulting in higher production cost structure)
  6. Declining realization rates. (Firms that had realization rates in the 90% range have seen their realization rates decline into the mid 80% range.)

Several of our clients recently found that they were barking up the wrong tree. They assumed that the lower billable hours and productivity was a result of associates and partners not working hard enough and were searching for compensation approaches to motivate the attorneys to work harder. Further analysis however revealed that the real problem was reduced client demand and excess lawyer capacity. As a result approaches were taken to:

  1. Find ways to use the excess capacity rather than lay off lawyers completely. (This was considered a last resort)
  2. Rather than working less – non-billable hours were specifically targeted in individual attorney personal business plans with specific goals in marketing and other firm related activities to develop firm infrastructure, systems, and marketing intended to increase demand for the firm's services. 
  3. Fiefdoms were broken down and attorneys and staff were cross-trained in other practice areas so that more key personnel could achieve full utilization of 1650-1750 billable hours.
  4. Work hours were reduced for newer attorneys and staff that could not achieve full utilization.
  5. The firm expanded into additional geography areas with cost effective remote intake offices and new service offerings. 

Examine your financials and talk with you people so that you can discover the real problem – work ethic, motivation, compensation, or client demand and lawyer capacity. Once you discover the real cause of the problem you will be able to think you way to the solution.

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John W. Olmstead, MBA, Ph.D, CMC

 

 

Dec 10, 2013

Law Firm Marketing – Getting Partners and Associates To Market and Develop Business

Question:

Our firm is a 16 attorney insurance defense firm in Nashville, Tennessee. We have 3 equity partners, 4 non-equity partners and 9 associates. The three equity partners (who bring in all the business) are nearing retirement and the remainder of the attorneys have completely failed to develop rainmaking skills and develop business. We hired lawyers to "bill hours" and failed to consider the long range implications of hiring lawyers without business-getting skills. Do you have any suggestions?

Response:

Start by creating the culture and environment.  Marketing and client service needs to be incorporated into the culture of the firm. All attorneys should have a role in marketing. All partners must walk the talk and consistently build and reinforce the marketing goals of the firm. Marketing goals and action plans should be formulated for all attorneys and they should be held accountable.

A few ideas:

  1. Begin setting marketing goals for each individual attorney in the firm and incorporate a review of goal accomplishment in performance reviews.
  2. Incorporate into the compensation system – measure more than billable hours.
  3. Provide marketing training.
  4. Provide adequate tools to support marketing efforts – budget, database, goal attainment dashboard reports, etc.
  5. Tie equity partnership to the ability to develop a substantial book of business.

Changing the culture of the firm will take time – however over time a marketing mindset will emerge.

Click here for our blog on marketing 

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John W. Olmstead, MBA, Ph.D, CMC

Dec 03, 2013

Starting a Law Firm – Going Out On My Own – The Most Important First Step

Question:

I am a non-equity partner in a small law firm in Washington D.C. I have been with the firm for 15 years and there is no opportunity to become an equity partner. I am thinking about going out on my own. If there were one first step that I should take what would it be?

Response:

Create a business plan – even if only a few pages – for the firm. Your plan will serve as a roadmap for your practice. Your mission should address what services you are selling, where you are selling them, and to whom. Your plan should address your competitive strategy – how you will be different than your competitors. It should also identify your core values. A vision for 5 years out into the future as to where you would like to see the firm and specific goals and objectives should be formulated.

Your plan will give you a good indication as to whether you should start a practice or not.

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John W. Olmstead, MBA, Ph.D, CMC

 

 

 

Nov 26, 2013

Law Firm Non-Equity Partners – Compensation and Perks

Question:

Our law firm is a New Orleans 14 attorney firm that focuses its practice on business representation in both litigation and transactional matters. We have four equity partners. The other ten attorneys are associates. We have been discussing implementing a non-equity partnership tier and how we should handle compensation and other perks. We would appreciate your thoughts and suggestions.

Response:

I believe that the non-equity partnership tier should be meaningful and distinctive – both internally and externally. Consider the following:

  1. List non-equity partners as partners on the firm's website and other firm marketing collateral material. If you feel you must make a distinction list the equity members as managing partners.
  2. Allow non-equity partners to attend some partner meetings and have input as non-voting partners into management decisions.
  3. Allow one non-equity partner to be elected to the Executive Committee as a non-voting partner.
  4. Allow non-equity partners to serve on firm committees.
  5. Pay dues to a Country or other similar club for the non-equity partner.
  6. Tie a portion of the non-equity partner's compensation to a bonus based upon firm performance.

While you want to create incentives – status and economic – for the non-equity partnership tier be careful that you don't diminish the desire for future equity partnership.

Click here for our partnership blog

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John W. Olmstead, MBA, Ph.D, CMC

Nov 19, 2013

Law Firm Geographic Expansion – Additional Offices

Question:

Our firm is an estate planning firm in the northwest suburbs of Chicago. We are a three attorney firm. We are a very "marketing orientated" practice and invest a lot of money and time into marketing and advertising. Still we are not getting the volume of work we need to reach our financial goals and targets. Most of our work is coming from our local city and a surrounding city or two. We are beginning to think that – for the most part – we now have all the work we can get from these communities and we need to expand and establish a presence (offices) in other target cities. Your thoughts would be appreciated.

Response:

For your type of practice this could very well be true. Spending more marketing time and money targeted in the same area won't help if there is no more work to be had. Here are a few thoughts:

  1. Do a little "do-it-yourself" market research on other surrounding communities. Go to the U.S. Census website or to local websites for the communities of interest. Review the demographics and growth trends and projections for the communities. Then review websites of law firms that serve these communities. Try to get a feel if there is room for you in these markets.
  2. Select a target centralized community where you want to establish a presence.
  3. See what is available for office space for new client intakes. Consider an Executive Suite arrangement (i.e. Regus). Another option might be an office sharing arrangement with a law firm that has excess space. Look for an arrangement that does not tie you into a long term lease.
  4. Resist the temptation to setup a "real office" – a production office if you will. Use your home office as the production and client communications center.
  5. Use the remote office for client intakes only and do not staff with support staff in the initial phase.
  6. If you have a VOIP phone system – have the calls from clients go to the main office and transfer any calls that may come in for an attorney working at the remote office.
  7. Use GoToMeeting and other electronic tools to communicate with clients after the relationship has been established.
  8. Use face to face meetings only when they are really necessary.

The cheaper you can launch and maintain remote (branch) offices the more markets you can expand in to.

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John W. Olmstead, MBA, Ph.D, CMC

 

Nov 12, 2013

Law Firm Succession – Motivating Senior Partners to Embrace Retirement

Question:

i am the managing partner of a 12 lawyer firm in Rochester, Minnesota. I am in my early 50s. Two of my partners are in their 60s and two are in their 70s. None of them want to discuss retirement – in fact they jokingly state that they would like to work forever. Do you have any thoughts regarding encouraging/motivating senior partners to embrace retirement?

Response:

I am working with more partners and firm owners in their 50s that have clearer ideas about their retirement timeline (often at age 65) than partners in their 60s and 70s. These partners are often the firm founders that built their firms and have a different attitude toward work and life than their partners that are in their 40s and 50s. Work/life balance is often a foreign concept to this older generation of lawyers.

Often "the firm" has been the primary – or only interest – for some of these partners at the exclusion of family and other outside interests. In other cases, the partner's spouse may have passed away and the firm is the partner's LIFE. In such situations bringing up the subject is often difficult.

While this is a difficult subject – not discussing the non-discussible because the topic is uncomfortable – is not the answer. Here are a few ideas:

  1. If the firm does not have a partnership or operating agreement or has one that does not adequately address retirement of the partners – use this to approach the subject of retirement. Approach the topic from the vantage point of "all partners" and not to single out solely the older partners.
  2. Consider a mandatory retirement at say age 70 provision but also incorporate an "Of Counsel" option that allows senior partners to continue to contribute to the firm in possibly a different role after retirement.
  3. For those partners that want and need to be able to continue to come to the office and contribute to the firm – make it clear, that if approved by the partnership, retirement does not mean that they have to leave. They can still have a place within the firm.
  4. Rome was not built in a day – take baby steps by having periodic partner open and frank discussions about retirements and succession.
  5. Provide retirement planning assistance to those senior partners that desire it. Such assistance might also include helping partners develop other outside interests and hobbies.
  6. Provide incentives in the retirement-buy-out plan to encourage earlier retirement and management and client transition.

Click here for our blog on succession

Click here for out articles on various management topics

John W. Olmstead, MBA, Ph.D, CMC

 

 

Nov 05, 2013

Law Firm Personal Injury Firm – Key Metrics and Dashboards

Question:

I am the managing partner of a 6 attorney personal injury plaintiff firm in San DIego. We are a high volume/small case firm that depends heavily on advertising. We have 1200 open files and are currently are spending 17% of our revenue on advertising. While our case management system provides us with numerous reports – what are key reports that we should be using?

Response:

Many of the billing and case management systems do a poor job of providing key metrics and dashboards that can be used to manage and control actual operations going forward. In a firm such as yours it is critical that you actively manage your inventory of cases, your pipeline, manage workflow, and insure that you are obtaining adequate return on your marketing investment. Here are a few thoughts:

  1. Think about what you need to know to manage your operations.
  2. What summary metrics (10 or less) should be on your dashboard and will serve as indicators as to whether you are on course?
  3. Use a spreadsheet to develop a dashboard report of these key metrics that are extracted from your accounting and case management systems. Include charts and graphs.
  4. Assign someone the responsibility for preparing the report on at least a monthly basis on the same day of the month.
  5. Use the report as control tool, investigate problem areas, and take corrective action in real time.

Click here for sample dashboard

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John W. Olmstead, MBA, Ph.D, CMC

 

Oct 29, 2013

Insurance Defense Law Firms – Risks and Strategies

Question:

I am the managing partner of a 22 attorney firm in Des Moines, Iowa. Our practice is 100% insurance defense representing insurance companies and their insured's. We are aware of some firms such as ours that have had to close their doors during the last few years. What should we be thinking about? You ideas would be appreciated.

Response:

Insurance defense law firms that have been approved as panel counsel for multiple insurance companies can inadvertently find that their revenue base is increasingly dependent on a shrinking number of insurance companies over time.

RISKS

  1. Small number of companies representing the lion's share of the firm's revenues
  2. Changing Rules for Insurance Panels – General Industry Consolidation
  3. Regionalization
  4. Insurance Companies putting work "out for bid"
  5. Trapped by a "Paradigm of Pass Success" and failure to institutionalize business development processes and practices
  6. Promoting an "entitlement generation" of partners with no business development skill
  7. Failure to stay abreast of changes within the client's organization. (Needs, players, policy changes, etc.)
  8. Aging/retirement of founding partners
  9. In house assignments
  10. Departing partners
  11. Lack of time and focus to allocate to new business development

STRATEGIES

  1. Use a structured client feedback process to obtain hard data from your clients on firm performance, client satisfaction, projected case assignments in the future, your firm's share of the client wallet, changing management (people) and policies, unmet needs, and future opportunities.
  2. If you don't have one develop a strategic plan and a marketing plan (including a specific budget) for the firm.
  3. Diversify the client base. Target new clients. Aggressively pursue new panel applications, track submissions, and monitor. Once approved – look for opportunities to build relationships. Consider educational forums and venues.
  4. Determine if regionalization is an appropriate strategy for your firm. (Ask your clients)
  5. Look for ways to obtain additional business from existing clients. (Ask your clients)
  6. Write and publish more articles – externally and internally (website).
  7. Beef up the blog on the website.
  8. Get more attorneys in the firm involved in business development.
  9. Develop a succession plan for the founders.

Click here for our blog on law firm strategy

Click here for my article on strategies for Insurance Defense Firms

John W. Olmstead, MBA, Ph.D, CMC

Oct 22, 2013

Law Firm Partnership – The Importance of Compatibility and Good Fit

Question:

I am the sole owner of a estate planning firm in Evansville, Indiana. I have three associates that work for me and four staff members. I am 64 and wanting to get started on a succession program – either by forming a partnership with one or more of the associates or with another attorney or attorneys that I might bring into the firm via merger. I have always been on my own so I am a little cautious. I do want to work another eight years or so. What pitfalls should I be looking out for?

Response:

Creating and maintaining a successful partnership takes a lot of work. Partnerships fail for numerous reasons but the number one reason for failure is "poor fit." Poor fit can destroy a partnership before it even gets started. Fit isn't as much about "the money" (financial goals) as it is about personal and professional goals.

As you consider future partners give some thought to the following:

  1. Compatible work ethic – Determine whether each of you envision working long, hard hours to accomplish firm goals. Are each of you willing to do whatever it takes to get the job done?
  2. Shared vision – Do each of you see a similar outcome? If everything were working perfectly what would that look like?
  3. Alignment of values – Do you share consistent and similar values? Each of you list your top five and compare.
  4. Integrity – Do each of you have the same views and principles?
  5. Dealing with conflict – How do each of you deal with and manage conflict?
  6. Trust – Do you trust each other?
  7. Sense of humor – Can each of you laugh, be lighthearted and have fun?

Before you decide to partner with someone it is critical that you determine where you agree and where you disagree on key issues.

Invest the time in getting to know your future partners at a deep interpersonal level and make sure that your personal and professional goals mesh.

If you do a good job insuring that you have a good fit you will go a long way toward insuring a successful partnership.

Click here for our partnership blog

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John W. Olmstead, MBA, Ph.D, CMC

 

 

Oct 15, 2013

Law Firm Client Satisfaction Interviews

Question:

I am the chair of the marketing committee of our 22 attorney insurance defense firm located in the Chicago suburbs. We are considering conducting structured interviews with our top 10 insurance company clients. This would be the first time that we have done this so I would appreciate your thoughts.

Response:

There is nothing worse than asking clients for feedback and then doing nothing and not following up. The benefits of gathering feedback can be negated if you do not follow through on the results. Once your firm has taken the initiative to actively invite feedback, you must take actions to correct at least some, if not all, of the problem areas identified. Doing so is vital. You must also act on business opportunities identified as well. Going to the effort of gathering the information and then not doing anything about the problems identified is not only a waste of time and money but can also increase the likelihood that future service improvement efforts will be viewed with skepticism. For this reason, you must close the loop on the surveys you have conducted by getting back to the people who provided you with the feedback. Doing so benefits your relationship with your clients because you not only confirm what they said but that you are making changes accordingly.

Click here for our blog on marketing

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John W. Olmstead, MBA, Ph.D, CMC

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