Law Practice Management Asked and Answered Blog

Category: Competitive Business Models

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Jul 18, 2017


Law Firm Owners as Businesspersons that Don’t Service Clients

Question: 

I am the owner of a six attorney elder law firm in Dallas. I manage the firm and practice law. I am finding it more and more difficult to do both. I would like to shift my time totally to managing the practice. I would appreciate your thoughts.

Response: 

You are not alone. This is a common problem in law and other professional service firms. I have similar problems in my own firm – it is very difficult to serve two masters – serving your clients and managing your firm. Eventually you have to pick one – client service (doing legal work) or managing and running your business – as the area that receives your primary focus. This is not to say that you should not do both – but you select the primary area that you are going to focus on and get help with the other area.

A question that I typically ask my new law firm clients – what do you want to be or do – be a business person or a lawyer. The answer to the question often provides a hint to how you should structure your firm. If you want to be more of a business person – hire legal talent to help with serving clients and performing legal work and spend more time working on your firm rather than in it. If you want to be more of a lawyer and do legal work and serve clients hire a legal administrator or business manager (this is more than an office manager) to manage and run your firm.

I have more and more owners of small law firms that are managing their law businesses and not practicing law. I believe the appropriate direction is what makes you happy and what type of work you enjoy doing. You practice should support and fulfill your personal goals, what you want out of life and what makes you happy. If that is managing – then manage. If that is doing legal work – do legal work.

Two great books on this subject are – The E-Myth Revisited and The E-Myth Attorney – available on Amazon. The theme of both of these books is:

Small business owners often spend too much time being the technician (i.e. lawyering) and not enough time managing and innovating.

Think about where you want place the priority of your focus – working on firm (business) or in it.

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

 

Nov 17, 2015


Law Firm Fee Increases – Should We Increase Our Fees?

Question:

I am the partner in charge of finance at our 12 attorney litigation boutique firm located in downtown Chicago. For the past two years our profits have been down and we are considering raising our rates but we are concerned that we may lose some of our corporate clients. We welcome your thoughts.

Response:

Raising fees is one approach you might consider. Clients are starting to push back more and more concerning legal fees. If you are at the high end of the rate scale I suggest that before charging off and raising rates you step back and conduct a process review by using an approach similar to the following:

  1. Pull a random representative list (by timekeeper and type of matter) of matters that have been concluded during the past six months. Say 10-20 matters.
  2. Calculate the effective hourly rates for each matter overall as well as by timekeeper class. (partner, associate, paralegal)
  3. Compare the calculated effective rate to your internal standard time billing rates as well as to external benchmarks. (Other firms from published survey data) How do they compare? What did it cost to staff the matter?
  4. Review the time detail for each of these matters and ask questions. You might want to flow chart and document the work flow. Is the firm working smart? Is time being dumped on these flat rate matters so that a timekeeper's hours look good on the production reports?  Is the firm using the right mix of paralegals and attorneys to staff the work? Is there wasted or duplicative effort? Is technology being used? Can work steps be eliminated or reduced? Should the firm consider a "limited representation" unbundled option?
  5. Pilot test a few new approaches and measure the impact upon profitability.

Keep in mind that raising fees is one way of improving profitability. There are other ways as well. In today's competitive environment. Working smarter, efficiently, and more effective is another.

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

Oct 20, 2015


Law Firm Competitive Strategy – Daring to Be Different

Question:

I am the managing partner of a 16 attorney business transactional firm in Chicago. Over the last five years we have lost several core clients due to client consolidation of their outside law firms and mergers of the clients themselves. Competition is getting fierce in our market, our services are being viewed as commodities, and it is getting harder to stand out. What can we do to differentiate ourselves from everyone else? We welcome your thoughts.

Response: 

Creating a competitive advantage that is sustainable over time is difficult at best. It is so easy for your competitors to copycat your recent innovations. Clients of law firms advise us that they hire the lawyer – not the firm. However, this only partly true. The firm – its image – its brand – provides a backdrop for the individual attorneys marketing efforts as well – makes marketing easier – and provides backup and bench strength that many clients require before retaining a lawyer.

In general the law firm is faced with the dual challenge of developing a reputation (brand) at both the firm and the individual lawyer level. In general – client delivery practices and behaviors that are part of the firm's core values and have been burned into the firm's cultural fabric are the hardest to copycat.

Areas in which you can consider differentiation strategies:

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

 

Jun 23, 2015


Law Firm Management -New Firm Administrator – Implementation of Ideas

Question:

I am a new and a first law firm administrator for a 16 attorney firm in Chicago. This is my firm law firm and after attending a few partner meetings I am concerned about how and where to start getting some ideas and projects implemented. I have lots of ideas. I would appreciate your suggestions.

Response:

Lack of focus and accountability is one of the major problems facing law firms. Many times, the problem is having too many ideas, alternatives and options. The result, often, is no decision or action at all. Ideas, recommendations, suggestions, etc., are of no value unless implemented.

Look for ways to insure that your, and your partners, time spent on management is spent wisely. At first identify a few (maybe three) management initiatives that you can move forward fairly quickly and get implemented. Then build upon these successes.

Don’t hide behind strategy, planning, and endless debate. Attorneys love to postpone implementation. Find ways to focus the firm and foster accountability from all.

Don't attempt to initially, in the short term, take on management projects that the firm is unwilling or unable to implement.

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

Feb 24, 2015


Law Firm Succession Planning & Mid-Career Partner Roles

Question:

I am a partner and a member of the Executive Committee of a 250 attorney firm in the mid-west. We have had a succession plan in place for several years for our senior partners. Several have completed their phasedowns successfully and others are struggling. One of our challenges is many of our mid-career partners are simply not ready. I would appreciate your thoughts.

Response:

This is a common problem that many larger firms face as their senior partners phasedown to retirement and try to transition client relationships and firm managerial and leadership roles to the next generation. Often the focus of non-founders is on billable hours and working attorney fee collections as opposed to non-billable longer-term investment activities such as client development,  firm leadership, and management.

Unlike smaller law firms most large law firms do invest time and effort in developing mid-career partners in these areas. However, often more can be done. Here are a few thoughts:

  1. Profile and Personal Brand Building. While developing new clients and new sources of business is always a goal – another questions is – is the mid-level partner, who is planned as the future responsible partner, bio/brand strong enough to entice the client to stay with the firm after the senior partner retires? Often it is not. All mid-level partners should have active personal development plans that requires profile enhancement and personal brand development. These plans should include steps to be taken and tasks to be completed as well as a timeline including milestones and deadlines.
  2. Go Deep with Client Relationship Development. Clients hire lawyers – not just law firms. In fact, the law firm brand is what gets the firm on the client's short list – the lawyer and his or her personal brand is what lands the client – the lawyer's relationship with the client is what keeps the client. Clients work with lawyers they like and trust – transitioning this to another lawyer in the firm will take time and nurturing – more than one or two meetings.
  3. Encourage Mid-Level Partners to Invest the Time to Understand Their Client Business as Well as Their Industries. Clients of law firms are always telling us that their law firms do not understand their business.
  4. Encourage Mid-Level Partners to Raise Their Hands, Volunteer, and Take Baby Steps Toward Leadership and Management Roles in the Firm. Such steps will cause senior partners in the firm to take notice and eventually lead to appointments to various committees and possibly eventually to an appointment on the Executive Committee.
  5. Work at Producing Excellent Work Product. In addition to the above excellent work product and hard legal skills, client service, and personality are all critical as well.  

I would encourage mid-level partners to try to budget 70% of their worked time for billable client production and 30% for non-billable investment activities.      

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

       

 

 

Feb 17, 2015


Transitioning to a More Business-Like Law Firm

Question:

I am a partner in a 12 attorney general business firm located in St. Louis, Missouri. I was elected as managing partner earlier this year. I have been a lawyer and with this firm for eight years. I also have a MBA degree and managed a small business before becoming a lawyer. Frankly, I have been amazed at how law firms conduct business and I would like to change our thinking and our culture. Do you have any thoughts?

Response:

Here are five tips that you might find useful.

TIP #1: Work with the attorneys in the firm and help them develop more of a business mindset. Try to get them to become more entrepreneur and learn how to think like businesspersons. Encourage them to look at the world from their client’s perspective and consider their clients their business partners. 

TIP #2: Encourage all attorneys to select their clients carefully. Establish client acceptance criteria. Learn how to say no. Dump undesirable clients.

TIP #3: Encourage all attorneys to brand themselves. Ask them to look for was ways to differentiate themselves from their competitors and to become perceived as the only attorney that can do what they do. Ask them to make a decision – what do they want to be known and remembered for? Unique services, unique client groups, different service delivery strategy, personal style. Have the firm and each attorney create a five-year plan for goal accomplishment.

TIP #4: Encourage each attorney to become “solutions orientated” and become consultants – trusted advisors to their clients as opposed to simply their task and process attorneys. Solutions may involve activities and services other than legal services. Ask each attorney to think out-of-the-box and outside of typical frameworks in which they are comfortable.

TIP #5: Conduct a firm-wide management and leadership assessment and identify strengths and weaknesses. Enhance management and leadership skills through skill development training and personnel acquisitions.

Good luck!

https://www.olmsteadassoc.com/blog/category/strategy/

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

 

Oct 21, 2014


Law Firm Insurance Defense Work – Opportunity or Commodity?

Question:

I am the managing partner of a 5 attorney general practice firm in Kansas City, Missouri. My book of business is down and I have been considering taking on insurance defense work. During the past year  I had the opportunity of working as co-counsel on a couple of insurance defense matters and enjoyed the experience and the work. It seems to me that representing insurance companies would represent a steady flow of work. I would appreciate your thoughts.

Response:

Insurance defense work can be a blessing and a curse. Working for insurance companies often does result in a steady flow of work but at the following costs:

  1. Low billing rates – often in the range of $145 – $175 for partners and even lower for associates – auto mechanics and plumbers often fare better
  2. Unrealistic controls.
  3. Mandated billing guidelines regarding what can, what cannot, and how much time can be billed
  4. Strict litigation guidelines that dictate how the case is handled and managed.
  5. Case budget requirements
  6. Audits of your legal bills
  7. Limited loyalty and inability to develop close relationships with the client due to centralized claims offices and restrictions on social activities

So, in exchange for a flow of cases you may be selling your freedom, independence, and your soul. It is hard to be successful if you dabble in insurance defense. You either need to be in or out and if you are in you would have to leverage the practice in order to be profitable at the lower billable rates. Be careful about relying on a large volume of work from one just one company. Consider diversifying your case portfolio to include a mix of higher stakes cases, if you are able, such as professional liability, products liability, medical malpractice, commercial litigation, and major construction defects.

Realize going in that insurance defense work is commodity work and insurance companies are shopping for the best deal and the best price – so is your competitive strategy to be a low cost provider?

https://www.olmsteadassoc.com/blog/category/strategy/

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

Sep 16, 2014


Law Firm Staffing & Growth Models – Mergers (Small Firm Acquisitions) & Branching

Three weeks ago I was asked by the managing partner of a 16 attorney insurance defense firm about staffing and growth models for an insurance defense firm and I listed the following models and discussed the first model – grow your own associate staffing. Over the past two weeks in other posts I have discussed models 2-5.

Attorney staffing/growth models include:

  1. Grow Your Own Associate Staffing
  2. Lateral Associate Staffing
  3. Contract – Staff Associate Staffing
  4. Lateral Partners (Equity or Non-Equity)
  5. Of Counsel (Various Approaches and Purposes)
  6. Mergers (Or Small Firm Acquisitions)
  7. Branching

This week I will outline the pros and cons for number 6 and 7 – Mergers and Branching.

Mergers (or small firm acquisitions)

PROS

  1. Quicker access to talent, expertise in a new practice area, and client book of business.
  2. Access to infrastructure and resources.
  3. May enable the firm to fill in weak spots quickly.

CONS

  1. Risks of a wrong business marriage. (The larger the target firm the greater the risks)
  2. Issues involving integrating the firms.
  3. Control issues.
  4. Conflict of interest issues.
  5. Compensation – money, approaches, etc.
  6. Cultural incomptability
  7. Management time to evaluate the feasibility of the merger.

Branching

  1. Using approaches listed above.

The appropriate strategy is often a mix or combination of the above approaches. Need to drill down into the financials and review past experience concerning breakeven point for profitability of your attorneys, costs/overhead, fee collections, time, and profit margin.

Often the WHO dictates the WHAT (specific strategy)

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

Feb 11, 2014


Law Firm Business Models – Alternatives to Consider

Question:

Our firm located in Grand Rapids, Michigan consists of 12 attorneys – 8 partners and four associates. We are a litigation firm and a relatively young firm. We started the firm six years ago as a result of several of us leaving larger law firms and wanting to start something new and different. We have been discussing our current approach to law practice and want to consider alternative business models. We would appreciate your thoughts?

Response:

The current economic climate has caused law firms to question many of the fundamental business models that have served at the core of law firm practice management for many years. Many law firms are exploring revolutionary business models while other firms are actively discussing whether changes to their traditional approaches are needed. 

Suggest that you start by conducting a review of the following areas and develop strategies for each area:

The key is to look for ways that you can differentiate yourself, make your firm distinctive, establish a lasting competitive advantage, and determine your competitive strategy.

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

 

Jan 01, 2013


Law Firm Lawyer Laterals: Best Practices for Evaluating Lateral Hires

Question:

I am the chair of our firm's executive committee. Our firm – located in downtown Columbus, Ohio – has 20 attorneys. In an effort to expand our practice and talent base as well as our geographic reach we are currently considering a seasoned lateral. We have a person in mind that currently works for a very large law firm. What suggestions do you have concerning starting the discussion and process?

Response:

Initially consider and decide upon the actual goals and objectives that you hope to achieve by bringing in the lateral and your particular requirements and specifications for the candidate. Start by focusing on the person – then move to the other areas that must be considered. It is critical that you get the right person on the bus.

Here are a few ideas to help you get started:

  1. Do some research on the law firm that the candidate is with now in order to understand the culture and environment in which he/she has been working, potential conflicts, referral issues, etc.
  2. What are the reasons that he/she is considering leaving the firm?
  3. Candidates experience and professional history.
  4. What practice area does he/she work? Clients served?
  5. Can the candidate bring clients?
  6. In the candidate's practice compatible with your practice and needs?
  7. Assemble a candidate financial profile – billings and collections past five years – working, originating, and billing attorney figures, realization, write-offs, etc. (If you can't get financials get what you can – at least get tax returns of candidate to determine what he/she has been making.
  8. Access financial health of client portfolio, if clients will be coming along with the candidate.
  9. Determine if a level of synergism will result as a result of the arrangement.
  10. Does a deal make business sense?

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

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