Law Practice Management Asked and Answered Blog

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Mar 15, 2012

Improving Relationship With Insurance Company Clients

Question:

Our firm, a 17 attorney firm in St. Louis, Missouri, is have a major problem with client defections. We practice in the area of insurance defense exclusively. We have lost several insurance company clients and for those that we are working with – our case assignments are dwindling. Any thoughts or suggestions?

Response:

Our firm recently completed client satisfaction interviews for several of our insurance defense law firm clients. Here are a few quotes and a summary of what these insurance company law firm clients told us:

1. We want to work with proactive attorneys that aren’t afraid to try cases.
2. Limit the number of people working on a file. I like consistent assignments.
3. I expect attorneys to get back to me by the next business day.
4. I like one partner and one associate per file.
5. Most of our billing issues with law firms is due to excessive use of associates time.
6. I get upset with attorneys that want to settle right before trial.
7. The primary reason that we terminate our relationship with our outside attorneys is not reporting to us in a timely fashion and poor communications.
8. I find that many lawyers are poor at managing their files and have poor basic communication skills. I work with lawyers that can do both of these things well.
9. I think that it is important that law firms provide value added services such as newsletters, legislative updates, e-alerts, seminars, etc on a “no charge” basis. These services are provided by most law firms these days. Such services help us do our jobs better, improves communications and the overall relationship between our organization and the law firm, keeps us up to date on changes in the law, and helps the law firm stay abreast of emerging needs in our business.
10. I will pay higher fees to lawyers that aren’t afraid to try cases.

I suggest that you start by talking to your clients. Much can be learned by talking to your clients. Structured telephone interviews conducted by a neutral third party can provide many surprises as well as answers. Client satisfaction interviews can be the best marketing investment that you can make.

Good Luck!

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

 

Mar 07, 2012

Growing a Law Firm: Issues to Think About

Question:

Our practice is located in Memphis. We have three attorneys, 3 paralegals, and two staff members. We will generate $1,500,000 in legal fees this year. We plan on growing the firm and hope break the $2.5 million barrier in three years. We have a very proactive marketing plan and program. What else do we need to think about?

Response:

Growth will involve more the marketing and getting more clients. Particularly a firm your size. To generate this revenue you will have to add several revenue producers which could almost double your size. Your will become a different firm. Instead of three attorneys – you may have six or seven unless your growth will occur by adding mostly paralegals. Even so, there will be more people. This will impact your physical facilities and physical plant, your systems, your IT infrastructure, approach to talent management, and how the firm is managed. Growth requires investment and puts strain on cash flow. So this needs to be planned for. If you don't have a strategic plan (see our blog under strategy section) I suggest that your consider developing one. A strategic plan will require you to think beyond the marketing plan and getting clients – and address all of the other issues that will impact the firm as you grow.

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

Feb 28, 2012

Law Firm Marketing: Obtaining More Business From Existing Business Clients

Question:

Our firm is based in Little Rock. We currently have 12 attorneys. We were larger several years ago. We have lost 8 attorneys in the last five years as well as several business clients. Profitability has suffered? What marketing initiatives should we be exploring to improve profitability and increase the size of the pie?

Response:

On average it costs five times as much (dollars/time investment) to get new clients than it does to get more business from existing clients. It just makes good business sense to leverage existing relationships.

I suggest that your first priority is to circle your wagons around your existing clients and insure that the quality of your services and the quality of your relationship with the client is beyond reproach. Then look for unmet needs and additional work from existing clients. Once this has been accomplished begin targeting new business clients and cultivating relationships one by one.

Many of our clients that represent business clients have found the following (listed in order of value to the firm) to be a few of the more successful marketing tools at the firm and individual attorney level:

Firm Level:

Firm website
Solicit and respond to client feedback (Client Surveys)
Newsletters and solid marketing collateral materials
Up to date marketing database of clients, past clients, referral and media sources

Individual Attorney Level

Personal networking and relationship building by individuals
Client site visits
Seminars
Marketing through client trade associations
Speeches and by-lined articles

The national marketing investment average for law firms representing business clients is 2.5% of revenue. While marketing costs money – often the larger investment is lawyer time as much of the effort to maintain relationships with new clients and to create relationships with new potential clients occurs at the individual lawyer level.

Two sets of marketing plans need to be put in place – firm level plans for firm marketing and individual lawyer plans for marketing initiatives by each and every attorney in the firm.

Often partners in law firm that represent business clients think that they can just put in place firm level plans, invest marketing money, put the plan on auto pilot, and sit back and wait for new work to come in. Unfortunately, it is usually not that easy. It also takes client relationship building work at the individual lawyer level as well. When this is not done the results are usually disappointing.

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

 

Feb 21, 2012

Law Firm Strategic Plans: Are They Practical For Small Law Firms?

Question:

I am the managing partner of a 12 attorney firm in Chicago. We have been considering whether we should develop a strategic plan for the firm. We have problems even having partner meetings on a consistent basis and those often yield questionable results. What are firms doing? Does a strategic plan make sense for a firm like ours?

Response:

According to recent surveys, 70+% of the responding law firms (ranging in size from the largest to 45 attorney firms) have formal written strategic plans. Smaller firms have a much lower experience. In our experiences with smaller law firms we are finding that fewer than 15% have formal written strategic plans. I consider success to be achievement of measurable results as evidenced by achievement of the goals and objectives outlined in the plan and actual implementation of action items. Lawyers and law firms seem to do better at planning than they do at implementation. Larger firms usually are more successful in implementation due to availability of management resources, leadership and functional governance. Smaller firms tend to have problems with implementation. In fact, we frequently recommend that a firm address other management issues prior to engaging in strategic planning. If a firm is having problems implementing day-to-day operational decisions the firm will not be effective in implementing strategic planning initiatives.

You might want to get your operational house in order first and resolve day-to-day operational management issues first and then move on to the future.

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

 

Feb 14, 2012

Law Firm Coaching: When Does A Lawyer Need A Coach

Question:

Our firm of 16 attorneys is trying to make major strides this year in helping our firm design and implement personal business and client development plans. Should we consider hiring coaches? When should a firm consider coaching for attorneys?

Response:

The day-to-day stress of practicing law and serving clients leaves little time for focusing and investing in the future of the firm. When attorneys exhibit the following it may be time for a coach:

Training and skill development is not easy. Studies reveal that 90 percent of the people who attend seminars and training sessions see no improvement because they don't take the time to implement what they learn. Practice create habits and habits determine your future. Up to 90 percent of our normal behavior is based on habits. The key to skill learning is to get the new skill to become a habit. Once the new habit is well developed it becomes your new normal behavior. This requires practice. Unfortunately, attorneys do not have time to practice and experiment.

The coach's role is that of steward, facilitative leader and teacher. Law firms retain coaches to work with attorneys and staff, mostly on a personal level, to address problems involving lack of commitment, inertia, implementation, self-accountability and follow-up. Firms are using coaching in the following areas:

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

Feb 07, 2012

Law Firm Compensation Committee

Question:

For years our14 attorney firm has operated under a formula based eat-what-you kill system. We are moving toward a more subjective-based system. We have been advised that we will need a compensation committee. What are your thoughts regarding compensation committees?

Response:

The components of your compensation plan and partner buy-in will be important to the success of your program. However, how you setup and constitute your compensation committee will be crucial. In a subjective system trust is paramount. How the members are selected, who serves on the committee, how the committee operates, and other matters must be spelled out and communicated to all partners. Here are a few ideas:

  1. Consider a three member compensation committee.
  2. Elect members to staggered three year terms. On the initial election elect the individual with the most votes to a three year term, the individual with the second most votes to a two year term, and the individual with the least votes to a one year term.
  3. Hold elections annually to fill vacancies for the upcoming year.
  4. Consider adopting a policy of requiring a partner whose term has expired to remain off the committee for one year before being able to run for another term.
  5. Incorporate procedures for removal of members by majority vote of the partners. Specify the voting requirements.
  6. Outline the general flow of the compensation review process, how it will work, specifically what performance factors will be considered, etc.
  7. Outline the approval procedure of the partnership. Suggested that the partnership only be able to disapprove the recommendation in total – not pick apart and change. If the proposal is disapproved by a majority vote – the compensation committee starts all over.
  8. Specify appeal rights and procedures.

The key ingredient of a successful subjective compensation system is that partners perceive the system as fair and have faith and trust in the compensation committee. The process is as important as the outcome.

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

Jan 31, 2012

Law Firm Profit Improvement Strategy

Question:

Our firm has been struggling for the past couple years. We have lost three key institutional clients, had partner defections to other law firm, and have suffered financially. We were a 40 attorney firm- six years later we are ten. We simply must improve profitability. What areas of our overhead should we attack first?

Response:

Many law firms waste considerable time trying to find ways to cut a pie that is too small up differently by implementation of new compensation systems or increasing the size of the pie by decreasing costs. While unnecessary expenses should be reduced – once they are reduced a repeated effort to slash costs proves fruitless as a strategy to increase the firm pie. The vast majority of law firm expenses are fixed or production-related. The percentage of costs that are discretionary is low, typically in the 20-30 percent range, and the number of dollars available for savings is small. The available dollars available for reduction disappear after a year or two of cost-cutting, leaving the firm with dealing with the effects of further cuts on production capacity. For example:

§ Should a firm eliminate staff positions if the result is additional administrative burden on lawyers and paralegals thereby reducing the revenue capacity of the firm.

§ Should the firm cut lawyers continuing legal education if improving an attorney's level of expertise is important to increasing revenue production.

§ Should a firm cut the marketing budget?

Once a firm has eliminated wasteful spending and made appropriate adjustments to the budget, further cost reductions often results in the firm reducing the possibility of turning the firm around, improving financial performance, and increasing the pie.

Increasing revenue, while maintaining the same expense structure, is the most powerful approach to improving firm profitability. Additional revenue goes directly to the bottom line and makes a significant impact on partner profits. If the firm is able to increase revenue by10% while maintaining the same cost structure, 100 percent of the additional revenue dollars will go to the partners.

So think revenue – not costs!

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

Jan 24, 2012

Starting a Law Practice: Challenges and Tips – Partnership – Phase III

Over the last two weeks I responded to a question concerning starting a new law practice and I outlined the first to phases of start-up. Eventually, you must address and face Phase III.

Phase III – Partnership – Internal/Other Firm

Eventually the question of partnership arises – weather sooner based upon the need or desire to transition an associate into a partnership or to add a practice area by acquiring a lateral partner with his/her book of business. Maybe you are thinking about merging with another firm. Or maybe you have been solo or a sole owner for your entire career and are now contemplating retirement and are looking for a succession/exit strategy and now must either bring in a partner, merge with another firm, or sell your practice. Partnership with another attorney creates another set of interpersonal dynamics and another set of skills that will need to be developed at this stage of your practice.

Phase III Survival Tips

1. Partnership is like a marriage. You must marry the right person. Most partnerships that fail do so as a result of partnering up with the wrong partners. Compatibility is critical. Consider:

a. Long term goals of both parties

b. Work ethic computability

c. Common interests

d. Money and compensation

2. Thinking of merging? Research indicates that 1/3 to 1/2 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. Right reasons for merging might include:

a. Improve the firm's competitive position. .Increase specialization – obtain additional expertise.

b. Expand into other geographic regions.

c. Add new practice areas.

d. Increase or decrease client base.

e. Improve and/or solidify client relationships.

3. I would start by thinking about your reasons for wanting to merge and your objectives. Ask yourself the following questions?

a. Do you want to practice in a large firm? If not, what is the largest firm that you would want to practice in?

b. What is driving the desire to merge?

c. If the desire to merge is being driven by a desire to retreat from internal problems – what have you done to address these issues internally?

d. Is your name being part of the firm name important to you?

e. What are your expectations and objectives for a merger?

f. What are you looking from a merger partner?

g. Make sure that you look for a complimentary fit. If you are weak in firm leadership, management and administration – look for a partner that is strong in these areas. Strong leadership, management, and administration may be hard to find in a firm under 25 attorneys.

Are you ready for the challenge?

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

Jan 17, 2012

Starting a Law Practice: Challenges and Tips – Phase II

Last week I responded to a question concerning starting a new law practice and I outlined the first phase of start-up. Eventually, you must address and face Phase II.
If you are successful in Phase I you will eventually need help whether it be administrative, paralegal, or another attorney. Now you must manage others as well as yourself. More office space will be required – especially if you are currently in a home or virtual office. A new set of skill sets (people skills) is now required.
Some Lawyers Never Develop the Skills Needed or Desire to Go to This Level and Firm Growth is Restricted as a Result.
I refer to this phase as Sole Owner Phase. I have client law firms in this phase than consist of an attorney owner, a handful of employed associates, paralegals, and staff. These firms may have 3 to 4 people or ten or more. I have sole owner law firms with over 100 employed attorneys and staff.

Phase II – Taking the Practice to the Next Level – New Challenges – New Skills Required
1. Additional People
a. Know what to look for
b. Know how to compensate attorneys and staff
c. Decide whether you are looking for long term vs. short term hires and relationships
2. Develop Skill Sets in the Following Areas – Managing Others – Finding, Managing, Motivating, Training and Retaining Talent
a. Hiring and Firing
b. HR Function
c. Devote time to managing others
d. Delegation of work
e. Supervision of work
3. Use the Following HR Tools and Processes
a. Job Descriptions
b. Performance Reviews and Evaluations
c. Office Policies and Procedures
d. Office Meetings (Meeting Management)
e. Personnel Records
f. Payroll and Reporting
g. Salary Administration
Key Challenge in Phase II – Knowing When You Have the Business and You Are Ready for This Phase

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

Jan 10, 2012

Starting a Law Practice: Challenges and Tips – Phase I

Question:

I am an associate in a 6 attorney firm in Cleveland, Ohio. I have been a practicing attorney for four years and have been with my present firm since law school. I am considering starting my own firm. What is your advice for someone like me starting up a practice on a shoestring?

Response:

I receive at least ten calls a week from attorneys that are in solo practice or are the sole owner of a small law firm with similar concerns and frustrations. However, there tends to be different needs and challenges depending which phase of development the firm is in. Here are a few survival tips for the first phase:
Phase I – Solo Startup

In this phase it is all about you. More than likely initially you will not have office staff. If you are a new attorney right out of law school you must learn your trade and develop competencies in lawyering and client service. Your first priority will be to supplement your law school education with nuts and bolts practice skills – and you will have to do it quickly. Since you won’t have a senior partner in your firm to mentor and train you – you will have to reach out to resources outside of your firm. You will not have an accountability partner in your firm. Your second priority will be getting clients. You will have to actively marketing and promote yourself and your practice. Funds may be limited so your largest marketing investment will be your non-billable time devoted to marketing and client development activities. Finally, your third priority will be getting paid by your clients. Self discipline and exceptional time management and time keeping skills are critical success factors.
Phase I Survival Tips
1. Create a business plan (strategic plan)

Create a plan before even starting the practice even if it is a one page plan. This will serve as a roadmap for your practice. See Helen Gunnarsson’s article in November 2011 Illinois Bar Journal.

2. Setup your practice and office
This includes everything from the selecting a suitable name and legal form for your practice; setting up your office whether it be a home or virtual office, a space share arrangement, or lease office space; acquisition of office systems, etc. (I have a start-up checklist available. E-mail me if you would like a copy.)
3. Develop competencies in law and business
a. Find an experience attorney to serve as a mentor. The ISBA Mentor Center has mentor program available for members.
b. Consider a business coach
c. Take all the CLE you can
4. Getting Clients
Time must be developed to business development. To be successful in private practice attorneys must be finders (originate new business), minders (manage client matters and relationships) and grinders (worker bees that work on client matters, provide services, and generate fees). You must manage and balance your time in a way that you cover all three of these bases.
5. Client Development/Marketing
a. Actively network with the general public, other attorneys, and other potential referral sources
b. Ask for referrals
c. Implement a first class website that demonstrates expertise
d. Implement a contact database
e. Develop a personal marketing plan (contact plan)
6. Getting Paid
a. Use engagement letters and fee agreements
b. Ask for retainers and replenish
c. Accept credit cards
d. Establish client selection criteria
7. Financial Management – Work the Books
Learn key metrics and “red flags” for your practice area, set goals, and measure your performance against these goals. Take corrective course actions as needed. Actively manage your cash flow. Remember – profit as reflected on the income statement and cash flow are not the same.
8. Manage Your Self – Self Discipline and Accountability
9. Partner with Other Solos

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

 

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