Law Practice Management Asked and Answered Blog

Category: Strategy

Jun 20, 2017

Characteristics of a Successful Liability Defense Law Firm

Question: 

I’m a second generation attorney (about 5 years’ experience) at a small liability defense firm in Southern, California. My father is the managing partner and we have three total attorneys. My father and his partner probably have 5-7 years left practicing. We only do California workers’ compensation defense. I’m planning on taking over the practice but am concerned about trends in the industry that will affect profitability, such as more stringent billing guidelines/bill audits, cuts to travel time, etc. What are the characteristics of a successful liability defense firm that I should strive towards? (i.e., # of attorneys, leverage, overhead ratio, revenue per lawyer, etc.)

Response: 

I appreciate your concerns. Both workers’ compensation defense and civil insurance defense firms have a real challenge with the performance pressures placed on them by their clients, billing guidelines and audits, and low billing rates. I have civil insurance defense firm clients across the country billing at rates averaging from $175 to $225 per hour and workers’ compensation defense firm clients billing at rates averaging from $140 to $175 per hour. Some firms are being required to take on more work on a flat fee basis.

Here are a few thoughts concerning characteristics of successful liability defense firms that you should strive towards:

1. Number of attorneys will depend upon the amount of business that you can bring into the firm. If you are a sole owner you should have an additional four associates to achieve the level of leverage that you will need to be profitable. This assume that the work is there to keep them all busy.
2. You should strive for a leverage ratio of four associates to every owner. Resist the temptation to make everyone a partner.
3. Hold the line on expenses and remember that your largest expenses are salaries and office space. You do not need to hire lawyers from top tier law schools and pay the salaries that such lawyers are able to command. You also do not need to have your office in an A or B+ building. Look for B or C+ office space.
4. Revenue per working lawyer should be in the $300,000 range.
5. Profit margin (earnings available to owners) should be in the 35% to 45% range.
6. Annual billable hours should be 2000 or greater for each attorney.
7. Ensure that you tie lawyer compensation to performance. Pay your associates a salary but also have a variable performance bonus based upon billable hours collected or dollars collected. Keep the salary low enough that they are still hungry.
8. Diversify the practice. Actively market to more companies and organizations that you can represent directly rather than representing strictly insurance companies. Consider big box companies as target clients. Get on their panels and bid lists. Consider expanding into civil liability defense work rather than doing just workers’ compensation. Many law firms in the Midwest do both.
9. Some of our clients have found that a federal workers’ compensation practice is beneficial.

Here are links to two articles on defense firms that you might find interesting.

https://www.olmsteadassoc.com/resource-center/trapped-in-a-insurance-defense-practice/

https://www.olmsteadassoc.com/resource-center/insurance-defense-law-firms-strategies-and-best-practices/

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Apr 04, 2017

Law Firm Retreats – Including Key Staff Members

Question: 

I am a partner in a forty-five lawyer firm in Memphis and a member on the firm’s executive committee. We are planning on having a two-day planning retreat in June of this year. We have had these retreats every year for the past six years. Past retreats have only included attorneys. This year we are considering including staff members. We would appreciate your thoughts as to whether this is a good idea.

Response: 

A firm invites all key staff to a retreat when they can play a major role in identifying problems and developing solutions. A firm retreat is an excellent forum if the partners or management have determined that individuals at different levels within the firm are having communication problems – for example – where communication is inadequate between:

• Equity partners and non-equity partners
• Partners and associates
• Attorneys and staff

Having these individuals participate in solving their own communication problems at the retreat usually produces better results than those obtained when the partners hand down orders that may not deal with the real issues. Staff participation can help identify problems and can involve more firm members after the retreat in the implementation of solutions – improved buyin.

As a rule, it is very productive to include individuals from nonprofessional or non management levels at a retreat when they are eager to be involved in problem solving efforts on a day to day basis.

A retreat solely for partners at the senior level is conducted to review firm progress and to deal specifically with financial, compensation, conflict between partners, growth planning, business development, or unique problems with staff members.

Some firm hold separate meetings for each level of staff in addition to combined meetings with attorneys.

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

Mar 14, 2017

Sixteen Characteristics of a Successful Contingency Fee Law Firm – A Guide for New Managing Partners

Question:

I am a newly appointed managing partner for an eighteen attorney law firm in Dayton, Ohio. We are a employment law litigation firm that represents plaintiffs on a contingency fee basis. We have been in business for five years and we are facing severe cash flow and profitability challenges primarily due to lackluster contingency fee outcomes. Do you have any guidelines or suggestions as to what we should be aiming for?

Response:

In general I find that successful contingency fee law firms are:

1. Sustainable over the long term
2. Are disciplined, have order and common vision, and manage the firm like a business.
3. Have long-term talented people that are passionate and team players.
4. Organized and have structure.
5. Have the right people on the bus and in the right seats.
6. Meet on a structured basis.
7. Have a long-range plan.
8. Have a budget.
9. Have fee goals for each producer.
10. Have a marketing plan.
11. Are consistently profitable.
12. Have solid cash flow.
13. Use metrics to manage the firm.
14. Are financially stable.
15. Have a succession plan.
16. Are diversified – both practice areas and case portfolio.

I would use this as sort of an initial performance checklist. You may need to examine your case portfolio and your contingency fee case risk profile and look for ways to diversify your case mix.

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Dec 27, 2016

Law Practice Management – Goals for 2017

Happy New Year and Best Wishes for a Personal and Professional 2017

As 2016 comes to an end we begin with a clean slate for 2017. As with anything new – the uncertain future can be scary and exciting at the same time. Year-end provides an opportune time for reflection on the past year and setting goals for the next year – both personal and professional. Goal setting can improve your personal life and your practice.

Here are a few ideas for 2017:

1. Whether you are in a small firm or a large firm have a sit-down with your team and discuss the past year business results, (successes and failures), what went right and what went wrong, what can be done this year to improve over the past year, and aspirations for the upcoming year.
2. If billable hour/revenue goals are not set for attorneys and paralegals set expectations for each individual, measure accomplishment, and provide feedback monthly on how they are tracking toward expectations/goal.
3. Writing and speaking are excellent ways for attorneys to develop their referral networks and enhance the firm’s brand as well as their individual brands via their bios on the firm’s website. Published articles – on the firm’s website and elsewhere – lead to speaking opportunities as well as interviews by reporters and writers as sources for articles that they are writing for other publications. Multipurpose your articles in more than one publication and venue. Turn an article into a webinar, webcast, or live presentation. Commit to writing one article a quarter in 2017 (4 during the year). If you have been writing four articles a year consider writing a book in your field of expertise.
4. Consider adding a new skill set this year. It may a new legal skill set such as a LLM in tax, litigation, etc. or it may be a non-legal skill set such as in management, counseling, medication, etc.
5. For attorneys in their late fifties or early sixties give some though this year to your retirement/succession/transition goals.

Best of luck for a prosperous 2017!

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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.

Jul 06, 2016

Law Firm Strategy – Building a Firm Brand

Question:

I am the owner of a fourteen attorney firm in the western suburbs of Chicago. I am 45 years old and I started my practice as a solo ten years ago. The firm focuses on business litigation exclusively. Like many law firms the name of the firm is My Name, LLC. The firm has grown rapidly and we have been successful. However, I am concerned that I should be building more of a "firm brand" and the firm is too much about me. I would appreciate your thoughts?

Response:

This is a common issue for solos and sole owners. While it may be an ego booster for you in the early days of your practice it can be a negative in future years, especially when you approach retirement and want to exit the practice. In essence the firm is all about you and the goodwill is you. This can have negative consequences when you:

1. Try to merge with another firm.
2. Try to sell your practice.
3. Try to approach certain clients.

I suggest that you consider the following to develop more of a firm image or brand rather than just you.

1. Do all you can to insure that the firm is not uniquely you.
2. Consider a firm name that does not include just your name. You might consider more of a trade name or a name that includes other partners or members if associates are made partners or members in the future .
3. Encourage your associates to develop their individual reputations/brands and feature their accomplishments in their bios on your website. (Writing, Speaking, CLE Presentations, Certifications, etc.)
4. Help your associates grow.
5. Consider at non-equity partnership for deserving associates.
6. Feature other attorneys in the firm in your marketing efforts and events.

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.

Click here for our financial management topic blog

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

Dec 29, 2015

Law Practice Management – Goals for 2016

Happy New Year and Best Wishes for a Personal and Professional 2016

As 2015 comes to an end we begin with a clean slate for 2016. As with anything new – the uncertain future can be scary and exciting at the same time. Year-end provides an opportune time for reflection on the past year and setting goals for the next year – both personal and professional. Goal setting can improve your personal life and your practice.

Setting and achieving goals is one of the best ways to measure your life's and practice's progress and to create unusual clarity. The alternative is drifting along aimlessly with hope and a prayer.

I am a strong believer in the power of goals. This year I finished writing my book, The Lawyers Guide to Succession Planning published by the ABA which is scheduled to be released in January. I never would have even started, alone completed, such a project without very specific goals and timelines.

I strongly suggest that you established a few SMART goals for both your personal life and your practice for 2015 where each goal is: 

S  = Specific
M = Measurable
A = Attainable
R = Realistic
T = Timely (on a timeline with a deadline)

A goal without a number is just a slogan – so it is critical that you develop a system for measuring. For example, if you goal is to improve client satisfaction and loyalty you might administer an end of matter client satisfaction survey with a rating scale from 1-5 for key performance indicators, enter completed surveys into a spreadsheet, and then generate a quarterly report reflecting actual performance scores. If your goal is to meet with ten clients or referral sources during a month – develop a tracking system and generate a monthly report.

While goals can help focus you and your practice in 2016 – too many goals can have the opposite effect. Start with baby steps and identify three to five goals for 2016 and then focus intensively on these goals and their accomplishment. 

Focusing on a few targeted strategic goals could take your practice to the next level.

Dec 15, 2015

Law Firm Retreat – Suggestion for a Firm Having Their First Retreat

Question:

I am a senior partner in a fourteen attorney intellectual property firm in Memphis. We are planning on having a firm retreat in January 2016. We have never had a retreat before. Our plan is to have a one day retreat facilitated by a consultant with specific focus on competitive strategy and marketing. We have just decided this week that we would like to do this and are just beginning the planning process. I would like to hear your thoughts and suggestions.

Response:

Here are my thoughts:

1. First of all it is now December and January is just around the corner and I believe that you need to have at least 60 days to properly prepare and plan for the retreat. Most management consultants that facilitate retreats, including myself, will want to get to know the firm and will want to conduct attorney interviews, (face to face or via telephone depending upon whether they are local), review financial reports and other documents, and prepare the retreat program. Participants (your people) may need time to prepare as well. Off-site facilities will need to be booked as well.
2. Decide in advance the outcomes that you would like to achieve. Is it to entertain, inform, educate, or to develop specific solutions or action plans.
3. Keep the retreat's focus narrow and concentrate on just a couple of topics – it sounds like you are doing this.
4. Establish ground rules upfront – example – off agenda items, day to day operations issues, etc. are off limits.
5. Building follow-up action plans into the program and identify who will be responsible for following up after the retreat is over.

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:

• Services offered clients
• Fee pricing (amount and method)
• Methods of producing, staffing, and all other aspects of service delivery
• Promotional methods used and messages used
• Client service
• Managing client expectations

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

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

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