Law Practice Management Asked and Answered Blog

Category: Laterals

May 16, 2017


Setting up a Branch Office in Another State – Ask Your Clients

Question: 

I am the managing partner of a sixteen attorney insurance defense firm in Kansas City. Several of our insurance company clients have advised us that they are willing to send us cases in Texas. We have decided that we would like to establish an office in Texas. Our plan is to hire three lateral attorneys with seven to twelve years experience with Texas based insurance defense firms. We are not certain as to the best city to establish this office. We are thinking it should be a central location. We would appreciate your thoughts.

Response: 

Unlike many states that have one or two major cities Texas has several including Austin, Dallas, San Antonio, Houston, Ft. Worth, El Paso, Corpus Christi, and others. Austin, Dallas, San Antonio, and Houston are all desirable locations for branch offices. Austin is more centrally located if your goal is to service the entire state.

I think it would be risky to simply try to guess as to the appropriate location. Your clients may have law firms they are using in certain areas of the state and may be looking for you to serve a need in a particular area of the state. They may not be willing to pay your travel expense if you are on the other side of the state. If this is the case this is the area that you need to be. I suggest that you have a discussion with each of these clients and ask them where their cases are concentrated and where they would like to see you have an office. This should dictate the office location. Hopefully, each of these clients are on the same page. If each of these client’s cases are concentrated in different geographical areas ask your clients whether they are willing to pay for travel related expenses from a central location. This should guide your location decision.

I would also make sure that these commitments are solid from each of these clients. I would get commitments from each client as to the types and number of cases they envision sending to you so you can properly assess the profitability of establishing a branch office. Do some research on the availability of experienced lawyer talent in the area. I would also give some thought as how you plan to integrate these Texans into your firm and culture. See my prior blog on branch offices.

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

 

Aug 31, 2016


Law Firm Lateral Growth Strategy – One Plus One Equals Three

Question:

Our firm is a sixteen lawyer firm – eight partners and eight associates located in Memphis. We handle business transactional work and litigation for small to mid-size companies. However, for the past forty years our mainstay has been small community banks. With recent bank mergers and new banking regulations our banking business has dropped off significantly. We have reached a desperate stage and we must replace this business quickly or consider possible dissolution. We have talked with a possible lateral partner that has a $300,000 book of debtor bankruptcy business. Is adding a lateral partner a good strategy for us?

Response:

Lateral partner acquisition is a growth strategy being used by many firms today. However, many lateral hires are not successful as a growth strategy. In a recent survey conducted by Lexis-Nexis and ALM Legal Intelligence only 28 percent of the respondent law firms found lateral partner acquisition a "very effective" strategy for growth.

I suggest you start with the following two questions:

  1. Does the lateral candidate's book of business fit within your strategic plan? If you do not have a strategic plan develop one. A strategic plan can be a useful guide in keeping the firm focused on the right opportunities. It can help the firm clarify the type of work that it does not do.
  2. Does One Plus One Equal Three. This question should be asked when considering any lateral or merger candidate. In other words is there is business case? How will the addition of the lateral result in more business than either the firm or the lateral currently has separately? Does the lateral have enough business to keep himself or herself busy plus a couple of associates?

I would question whether debtor bankruptcy fits within the firm's overall business strategy. I also don't believe a $300,000 book of business satisfied the one plus one equals three rule.

A lateral strategy may be a good strategy for the firm. However, I believe you need to expand your search and it may be difficult to attract candidates given your present financial situation.

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Click here for our archive blog on strategies
John W. Olmstead, MBA, Ph.D, CMC

Apr 05, 2016


Law Firm Debt – Impact of Debt and Other Liabilities Upon Future Growth Options

Question:

I am a member of a three member management committee of a 16 lawyer firm located in Akron, Ohio. We have 10 partners and 6 associates. Several of our partners are in their 50s and 60s. Recently, we have had discussions with a couple of potential merger partners and laterals and in all cases they have backed out advising us that they were uncomfortable with our balance sheet. What can we do to better position ourselves. We desperately need to bring in new talent with books of business?

Response:

First there are the obvious balance sheet items – bank debt, large tapped out credit lines, equipment leases and other liabilities. Then there are the items that are not recorded on the balance sheet – namely unfunded partner retirement buyouts and long term real estate leases. These are often major deal breakers in mergers and scare away laterals. If you have bank and other debt on the balance sheet work at cleaning it up. More importantly if you have unfunded partner buyouts begin either rethinking the desirability of these programs or begin funding this liability now with a goal of the liability being totally funded over the next five to seven years. Then shift to a retirement program that is totally funded. Unfunded partner retirement programs are becoming a thing of the past.

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

 

Sep 09, 2014


Law Firm Staffing and Growth Models – Lateral Partners & Of Counsel

Two 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.

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 4 and 5 – Lateral Partners (Equity or Non-Equity) and Of Counsel.

Lateral Partners (Equity or Non-Equity

PROS

  1. Maybe a quicker way to increase profitability and cash flow.
  2. Allows the firm to acquire talent that it may not have time to grow or develop.
  3. Allows the firm to expand into new areas if the candidate has said experience and brings a book of business with him or her.

CONS

  1. Desired compensation may not fit within the firm's existing compensation structure.
  2. Clients may not come or materialize.
  3. May be issues with cultural fit.
  4. Costs may not be justified.

Of Counsel – Various Approaches and Purposes

  1. Allows the firm to acquire partner level talent, business, etc. without offering partnership.
  2. Provides the firm with a way to acquire a practice of someone wanting to retire.
  3. Provides the firm with a way to pilot test new lateral partner candidates and evaluate in a first-phase approach.
  4. Provides the firm with a way to partner with other firms.
  5. Provides a way for the firm to enter more new market areas.

Other models to be discussed in upcoming posts.

Click here for our article on hiring associate attorneys

Click here for our law firm management articles

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

 

    

Sep 02, 2014


Law Firm Staffing and Growth Models – Lateral Associate Staffing & Contract Associate Staffing

Last week 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.

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 2 and 3 – Lateral Associate Staffing and Contract – Staff Associate Staffing

Lateral Associate Staffing

PROS

  1. Less training and mentoring time
  2. Will become profitable more quickly – maybe a year sooner
  3. They will be more acceptable to clients than new untrained associates
  4. May be able to charge higher billing rates
  5. Tradeoff of higher salary vs. quicker profitability and cash flow – sooner profitability may pay for itself in the short term depending upon the salary differential.
  6. May generate new ideas and skill sets/approaches/insights that can benefit the firm.

CONS

  1. May have to de-train them. They may bring practices and approaches that are undesirable to the firm
  2. Higher salary initially and expectations for more
  3. Sooner expectations for non-equity and or equity partnership
  4. Clients may not allow you to charge any more for these associates than new young associates
  5. May not result in higher profitability and cash flow any sooner than new associates (probably will – but if not costs will be higher)

Contract – Staff Associate Staffing

PROS

  1.  Allows the firm to staff up when needed using a project/matter staffing approach
  2. Allows the firm to better manage fixed costs and manage contract staffing as a variable cost and match costs to staffing needs
  3. Allows the firm to evaluate candidates before committing to full-time positions
  4. Can be experienced and seasoned or not

CONS

  1. Cost per hour will probably be higher
  2. Turnover due to uncertainty as to their future

Other models to be discussed in upcoming posts.

Click here for our article on hiring associate attorneys

Click here for our law firm management articles

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

 

    

Aug 26, 2014


Law Firm Attorney Staffing/Growth Models – Overview

Question:

I am the managing partner of a 16 attorney insurance defense firm in Chicago Southwest Suburbs. We have 4 partners and the balance of our attorneys are associates – many of which have been with us for several years. We are on a growth spree and needing to hire more associates to handle client assignments. Associate hiring, mentoring, and training has always been a challenge for us and our clients are restricting us in the way we use associates on their files. I would appreciate your thoughts.

Response:

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

I will address the pros and cons of each model/approach in upcoming postings. I will begin by addressing the first one.

The traditional staffing model for insurance defense firms has been Grow Your Own Associate Staffing.

PROS

  1. Large available supply of new lawyers.
  2. Lower salary than experienced lawyers.
  3. Better odds of integrating them into the firm's existing culture.

CONS

  1. Takes time training, mentoring, getting them ramped up.
  2. May take 2-3 years before they are profitable.
  3. Once they become profitable you may lose them to another firm.
  4. No business comes with them so you must have enough work to keep they busy.
  5. Clients may be unwilling to allow you to use them or dictate how you use them.
  6. Clients may be unwilling to allow them to train on their dime.
  7. Will have to bill them out at lower billing rates than lateral associates or lateral partners.

Click here for our article on hiring associate attorneys

Click here for our law firm management articles

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

Feb 18, 2014


Law Firm Merger – Should We Merge

Question:

Our firm is a 16 attorney insurance defense firm in Central Illinois. We have 8 partners and 8 associates. We are in second generation, have inherited our existing clients from the original founders, and currently have no rainmakers. We need to bring some rainmakers into our partner ranks and have been discussing the possibility of merger. I would appreciate your thoughts.

Response:

While mergers can be a valid option making them work is often another matter. Research indicates that one third to one half of all mergers fail to meet expectations due to cultural misalignment and personnel problems. Don't try to use a merger or acquisition as a life raft, for the wrong reasons and as your sole strategy. Successful mergers are based upon a sound integrated business strategy that creates synergy and a combined firm that produces greater client value than either firm can produced alone.

There can be a whole list of reasons for failure including poor financial performance, attorney defections, loss of key clients, and leadership and management issues. However, it has been our experience that most failures have been the result of poor cultural fit. The merging firms – after they have moved past conflict checks and excitement about new client potential – jump immediately to an examination of practice economics and the financials. They fail to perform proper due diligence on the people. It is critical that firms insure that cultural due diligence is a key component of the merger assessment process. Philosophies, personalities, and life styles should be generally compatible. The partners should like each other and the deal should make sense.

The question is not the what (merge) but the who (people).

I would suggest that you consider a lateral strategy as well as a merger strategy and let the WHO and right fit direct your thought process. Also insure that you have fully explored whether you have really developed the business development potential of the partners you have now.

Click here for our blog on mergers

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

 

Mar 19, 2013


Law Firm Lateral Partner: Size of Book of Business

Question:

I am a partner in a mid-size firm in Memphis. We have 250 attorneys in the firm and I am considering making a move to a smaller firm. While I have a client base I am not sure how much business would go with me. I am currently making $600k in compensation. With my experience – 25 years plus – how important is a book of business initially? How big of a book will firms be looking for?

Response:

A portable book of business is critical – especially if you are looking to earn what you have been earning. A rule of thumb for many of the lateral moves that we have seen for compensation is 1/3 of book. You will need a book of $1.5 to $2.0 million to generate interest from major players.

Click here for our blog on laterals and mergers

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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?

Click here for our blog on laterals and mergers

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

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