Law Practice Management Asked and Answered Blog

Category: Competitive Business Models

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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

Jul 17, 2012

Structuring and Running Your Law Firm Like a Business

Question:

Our firm is a 34 lawyer litigation boutique based in San Antonio, Texas. We have 20 partners and 14 associates. I serve as managing partner at the will of the partnership and spend 35% of my time on firm management matters and the remainder of my time practicing law. A legal administrator and accounting manager assist me with managing the firm. While I have the general support of the partnership, maybe because no one else wants the job, I serve more as a filter and still find that I have to run most of the firm's management decisions before the full partnership. Often I feel that my staff and I are second guessed, management decisions take too long to make and are diluted and watered down, and the firm has missed out on opportunities due to our structure or lack of structure. Other law firms that we have competed against for years have passed us by and have grown while we have stagnated. Do you have any suggestions concerning our approach to managing the firm?

Response:

You firms has reached a size where more structure is usually required. The democratic system of all partners being involved in virtually every management decision might have worked when you were five or six attorneys but has now outgrown this structure. Think about how some of your business clients are organized and structured. Ask around and talk with other law firms and accounting firms your size. I think that you will find that they have put in place more structure to support their business models.

I suggest that you:

  1. Put in place a structure consisting of the full partnership that weighs in on matters pertaining to firm policy/strategic direction, size of firm, partner admission/termination, merger, dissolution, etc.
  2. Appoint a three to five member executive committee that serves as a board of directors that is charged with planning the firm's future and submitting plans to the partnership, budget approval, general oversight of the CEO or managing partner.
  3. CEO or managing partner that implements firm plans, oversees the budget, oversees practice group chairs, and supervises the firm administrator. CEO or managing partner reports to the board of directors.
  4. Firm adminstrator and practice group chairs.
  5. Put in writing a management or governance plan. Start by adopting a list of decisions
    which require a vote of the partners. Charters and job descriptions should be established
    to clarify roles, authority and expectations for the partners, board of directors or executive committee, managing partner(s), the firm administrator, and practice groups heads. Mechanisms should be put in place to insure conformity and accountability.
  6. The partners should delegate full authority for decision making to the board of directors, except for those decisions specifically reserved to the partners, the board should delegate
    appropriate authority to the CEO/Managing Partner and he/she should delegate appropriate authority to the firm administrator.
  7. Partnership, board of director, staff, and practice group meetings should be chaired by the appropriate officials. Agendas should be prepared in advance and permanent minutes should be
    typed up and maintained. Unfinished business should be reviewed at each meeting. Follow-up and implementation mechanisms should be developed.

You should start with general partnership discussion on how the members would like to work together and the kind of firm they want going forward. Are the partners willing to be managed and willing to be accountable to each other and to what extent? Then go from there.

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

 

Oct 26, 2011

Competitive Strategy for a Personal Injury Plaintiff Law Firm in Today’s World

Question:

We are a five attorney personal injury plaintiff firm in the central Missouri. In the last few years we have gone through tort reform, increase competition from other law firms doing extensive advertising, and now trying to weather the recession. From a profitability standpoint – we are holding our own. However, we are concerned about the future. What are your thoughts for firm such as ours?

Response:

We are hearing this question quite often and have provided some thoughts in past blogs and articles.

The majority of our PI law firm clients are advising that they are having to work much harder at getting clients and investing more heavily in marketing – both time and money. PI firms were feeling the most of these challenges before the recession. However, the recession may accelerate the pace with which law firms reevaluate existing processes and consider new business models. PI firms may want to begin by:

1. Develop a firm strategic plan and individual attorney marketing plans which include aggressive network/contact plans for past clients, attorney referral sources (non PI attorneys), attorney referral sources (other PI attorneys), and other referral sources.

2. Evaluate the feasibility of adding an additional practice segment to reduce the level of risk in the case portfolio and reduce cash flow variability.

3. Reduce case portfolio risk and improve case profitability by implementing a case intake system whereby all new cases over a specified level of projected case value are reviewed and approved by the partnership (or a client intake committee) in order for the case to be accepted by the firm. In other words – don't let one attorney expose the entire firm to either excessive levels of case risk or case investment (time and client cost advances) without other partners having a say on the matter.

4. Analyze the profitability and return on each case and ascertain what can be done differently on future cases. Metrics might include effective rate, return on LOADSTAR, dollar case profit after allocation of all appropriate firm overhead, etc.

5. Review and measure present marketing investments (time and money) and determine what is working and what is not. Reallocate resources if appropriate.

6. Insure that you are using an appropriate mix of marketing tools in your program.

7. Consider increasing marketing investments (time and money). Suggest a marketing budget be developed in the range of 8-12 percent of fee revenue. Also suggest that non case production (non-billable) time be budgeted for business development and marketing activities as well.

8. Look into defensive advertising.

9. Insure that you have a first-class website that goes deep and demonstrates expertise.

10. Maintain a yellow page presence – but gradually reduce investment and shift into website and other online vehicles.

11. Find ways to enhance the client's experience and deliver exceptional client service.

12. Use exceptional client service and bedside manner as a primary means of differentiating you from your competitors. Under Promise – Over Deliver in everything you do for the client.

13. Make your office client friendly.

14. Use end-of-case satisfaction surveys to measure the client's experience with the firm and to improve future service.

Click here for our blog on law firm strategy https://www.olmsteadassoc.com/blog/category/strategy/

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

Aug 31, 2011

Improving Law Firm Profits By Improving Processes

Question:

We are a five attorney firm in Detroit. Our firm does exclusively elder law and estate planning and most of our fees are based upon flat fees. Business has been steady and solid in spite of the recession. In an effort to improve profitability we are considering raising our fees but are concerned about adverse effects that it may have upon our competitiveness. We are already at the high end of the fee scale. Do you have any thoughts?

Response:

Raising fees is one approach to improving profitability. 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

 

 

Jun 28, 2011

Model For Sustaining a Law Practice: Managing the S Curve

Question:

In a recent firm meeting the question was raised as to whether law firms hit a wall when they run up against new competitors, new technologies, new business models, or when their talent peaks. Is there a general model  of sustaining a law firm?

Response:

The mechanics of managing a law firm are too complex to address in this forum. It would be better to discuss what to tell you what to look for that tells you, well in advance of a fee revenue plateau, that your practice needs some work. Once you know where your practice is getting wobbly, then you will have a clearer idea of how to fix the mechanics.

We tell our clients that they are on an "S-Curve" in which slow and steady growth often occurs at the start of the law practice, followed by gaining momentum and rapid growth, then tapering off as practice areas get saturated or competitors enter the practice areas in which the firm is engaged. Watch these components for advance warning:

  1. Competition – any practice area attractive to you will also attract other law firms, so monitor new entrants starting to chip away at your clients.
  2. Capabilities – you created or bought some new technology, skills or other assets to start your firm/growth, but the distinctiveness of these eventually wears off and they are likely to be available to competitors once their value is clear.
  3. Talent – you had it when you started your firm, but attorneys and staff have become "free agents" and increasingly move between law firms more frequently and you may lose a key asset.

There may be other components unique to your practice and market. The point is that there is more than meets the eye in a simple growth curve. Figure out exactly what assets and activities are part of your particular growth and watch each one, as well as how each component affects the others (e.g., a departure of talent from your firm to a competing law firm, along with knowledge of specific major case or a key technology is a triple blow.)

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

May 11, 2011

Using Legal Project Management to Improve Law Firm Profitability

Question:

I am the managing partner of our firm of 17 attorneys. Our practice is concentrated in insurance defense litigation. In an effort to provide the best services possible and differentiate ourselves we have been discussing whether we should implement a project management system. I have been reading more lately about legal project management and hearing more about it. Do you have any thoughts along this line?

Response:

Legal project management has become the hot topic of late and we are seeing articles, workshops, and seminars on the topic. Over the years project management has evolved into its own discipline with its own jargon, tools,  methodologies, software, etc. Project management as a discipline can become quite technical and complex. Many of the techniques such as PERT and CPM came from the department of defense and were initially utilized to manage projects such as the Polaris Submarine and space projects. The construction industry makes extensive use of project management techniques.

Considering that a legal matter is a project, particularly a large litigation matter, with many moving parts there has been a push by clients and an effort by law firms to look for ways to improve the management of matters and related resources, costs, timelines, etc. and to improve and streamline the overall process. Legal Project Management is a customized approach to matter management borrowing and applying some of the principles of project management and incorporating into a simpler and leaner model. Numerous workshops, training seminars, and publications are being offered on the topic.

The Hildebrandt Instute if offering a workshop in Chicago on June 21-22, 2011. Here is a link to more information on the workshop.  Here is a link to more information on the workshop. Ark Group also has a new publication out called – Project Management for Lawyers as well. Another good book, which can be ordered from Amazon, is Legal Project Management: Control Costs, Meet Schedules, Manage Risks, and Maintain Sanity, by Steven Levy.

As more clients push for improved processes and outcomes in the area of matter management and force various forms of fixed-pricing – law firms will find they need to utilize more sophisticated tools to ascertain matter risks, price services, and manage matters.

So I suggest you at least begin to evaluate some of the tools and approaches being used and get educated on them. However, be careful of getting into overly complex approaches and methods that are simply trying to push generic project management for it's own sake.

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

May 03, 2011

Law Firm Strategy: Where to Start

Question:  I am the Executive Director of a 75 attorney firm in Miami. We are meeting in a few months to revise our strategic plan. Some of our partners have suggested that as a result of the current business and economic climate that we start with a clean sheet of paper. Where should we start? What do you see as the key questions that we should be addressing?

Response:

Strategic planning is essentially a five step process. The first step begins be asking questions. Start by asking the following questions:

  1. What substantive issues does the firm face today?
  2. What issues will the firm face tomorrow?
  3. How has technology impacted (or will impact) how the firm conducts business and delivers services to clients?
  4. What are we doing and doing well?
  5. What are we not doing well?
  6. What do we need to improve or enhance?
  7. What metrics will tell us how we are doing?
  8. What should be eliminated?
  9. What are we not doing that we should be doing?
  10. What kind of training will we need to plan for?
  11. What demands are clients likely to make?
  12. What opportunities are we missing?
  13. What mistakes have been made recently by other law firms? Failed firms? Dissolved firms?
  14. What resources are we wasting by defending the past?
  15. What wheels have already been invented?
  16. How would we define our existing culture?
  17. What might our culture become?
  18. What makes us unique?
  19. What potential profitable areas (practice areas) are we overlooking?
  20. What are we doing to encourage creativity?
  21. What kind of uniqueness will we need in the future?
  22. What can we do to shape future outcomes?
  23. What do we want to be known for?
  24. What will future clients want?
  25. What is our existing vision?
  26. What form will future competitors take?
  27. What market trends should be we be paying attention to?
  28. What is our competitive edge?
  29. How can we expand our markets?
  30. What are our priorities?
  31. What are our values?

So take your time – remember strategic planning is a process – not a one-time event. The process is as important as the final plan itself. Don't try to get it done in a day or over a weekend. Rome was not built in a day. 

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

Apr 27, 2011

Contingency Fee Profitability: Can You Make Money From Contingency Fee Work

Question:

Our firm is a 12 attorney general practice firm located in the Phoenix metropolitan area. In additional to general practice, we do a fair amount of insurance defense work as well. In an effort to improve firm profitability we have been considering alternative fee arrangements – particularlly contingency fees – with some of our existing clients as well as venturing into personal injury plaintiff work. Can we improve profitability by doing more contingency fee work?

Response:

The CEO of the Howrey LLP, when interviewed about the law firm's recent dissolution, advised that deferred profits from contingency fee work led to the firm's demise.  Howrey is a good illustration of what can happen when the risks of contingency fee work is not considered or managed. Contingency-fee work can pose major risks for law firms, as they earn no fees if they lose those cases and sometimes have profits deferred in protracted litigation. In addtion, cases can be lost with no fee whatsoever recevied. Whether your firm is considering "big deal" litigation or bread and butter run of the mill personal injury litigation you may want to consider the following:

  1. Don't dabble in contingency fee work. Take it seriously and insure that your case portfolio is adequately diversified.
  2. Reduce case portfolio risk and improve case profitability by implementing a sound case intake system to insure that you are selecting quality cases.
  3. Realize that you have to spend money to make money and that you simply may not have the financial resources to take on certain cases. Learn how to say no and when to refer these cases out to others.
  4. Insure that you have an adequate portfolio of cases (number of cases, size and type) to insure diversification and manage risk.
  5. Analyze the profitability and return on each case and ascertain what can be done differently on future cases. Typical metrics include effective rate and/or LODESTAR.

In essence the fundamentals of risk and return is at work and should be considered when accepting contingency fee work. You are betting that you can beat your hourly rate that you receive (or would receive) on hourly work. Contingency fee work often involves the risk of no fee at all, financing the case, long time periods before the case is concluded and fees are received, client advance investments, etc. For these risks the firm should be able to expect a premium. In other words – the effective rate on contingency fee cases should (on average) be greater than that for hourly work.

Many law firms are not receiving a "risk premium" at all and are often, on average, obtaining an effective rate close to their bill rate. So, do consider the risk involved and evaluate methods of mitigating the risk as much as possible. In general – don't dabble – but work to a portfolio of cases large enough to diverisfy your risks.

Herbert Kritzer has done extensive academic research over the years on contingency fees which can be found in his book – Risks, Reputations, and Rewards: Contingency Fee Legal Practice in the United States. The book can be ordered from Amazon.com. Link to Amazon

While I have outlined a cautious approach here I want to also clarify that I have many clients that are doing very well and making a lot of money doing contingency fee work. It is the firms that did not grow up doing contingency fee work that "dabble" where I see the problems.

So proceed with caution – but go for it if it makes strategic sense for your firm.

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

Feb 17, 2011

Starting a Virtual Online Practice

Question:

I am a partner with an 8 attorney firm in central Illinois. Last week I attended the Illinois State Bar Association web-cast that you and others presented on Building and Managing the Virtual Law Firm. I thought the program was excellent. I do have a couple of questions.

  1. I can see how such an approach might make sense for a solo – but why would a 8 attorney firm with a brick and mortar office that has been in practice for 20 years consider such a delivery model?
  2. How would we go about it?

Response:

If your firm has a sufficient volume of work, does not have a need or desire to capture more commodity type legal work that it is either not doing at all now or is losing to lower priced competitors (law firms or content providers), or does not have a need or desire to extend its reach geographically a virtual delivery model make not make sense. However, if your strategic (business plan) requires you to extend your geographic reach or be competitive in a commodity practice area supplementing your brick and mortar practice with a virtual delivery model might warrant consideration.  Also consider that the younger generation that is growing up using the internet to shop, bank, and pay taxes may appreciate and or expect such an option. As we mentioned during the session certain practice areas are more appropriate than others. I have some firms your size that are supplementing their brick and mortar practices with on-line delivery models just to service one practice area that they could not effectively deliver in the traditional manner. Keep in mind the value curve that we discussed during the session.

During the session I illustrated a continuum and we discussed the difference between virtual practices (doing virtual things) and a total on-line virtual practice. Even if you decide that the firm is not ready for a total on-line virtual practice, you may want to consider doing some of the virtual practices (virtual things) that we discussed to offer your clients more delivery options and more flexibility to your attorneys and staff.

Start with your strategic plan and if you don’t have one begin developing your long range plan. If you want to move in this direction you can use my handout as a resource guide.

Click here for our blog on law firm strategy

Click here for my article on creating strategic (business) plans.

 

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

Jan 18, 2011

Law Firm Profit Improvement

Question:

Our firm is in its second generation. While we are proud that we have been in business for over 60 years we also believe we need to re-examine our practice and embrace changes that may be needed for the firm to move forward and remain competitive. We are a 16 attorney firm located in Wisconsin. We have 12 partners and four associates.

Response:

More and more law firms are re-examining their business models and approaches and running the practice as a business. You may want to begin by conducting a management review or audit to determine where the firm is presently and where the firm needs to head in the future. 

Start by Asking the Following Questions:

  1. Are firm members frustrated with the amount of money they are making and taking home?
  2. Are firm members unsure whether the firm is competitive with other law firms?
  3. Is the firm taking advantage of some of the management “Best Practices” being used by successful law firms and possibly your competitors?
  4. Are firm members concerned about getting a handle on and controlling the financial aspects of the firm?
  5. Are firm members uncertain about the future and long-term direction of your firm?
  6. Are firm members frustrated with the lack of accountability of other attorneys and staff?
  7. Is everyone effectively managing their time?
  8. Are members concerned about the firm getting and keeping clients?
  9. Are members concerned about work-life balance?
  10. Are members concerned about the succession and exit of key partners?

I suggest that you conduct a practice management review that will provide you with a clear assessment of the firm’s practices and performance and outline a plan for implementing “Best Practices”. The assessment should focus on:

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

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