Law Practice Management Asked and Answered Blog

Apr 10, 2012

Using Competitive Intelligence to Support Law Firm Strategy

Apr 03, 2012

Using A Law Firm Key Account Survey to Access Client Satisfaction and Your Competitive Profile

Question:

I am the managing partner of a 16 attorney firm in Santa Monica, California. We represent large energy companies located on the west coast. We are contemplating developing our first strategic plan. We would like to obtain insight from our clients, receive their feedback, and use this information to access our level of client satisfaction and our competitive profile. However, we are not sure whether we should conduct a random survey involving selecting a percentage of our clients or a census involving surveying all clients rather than taking a sample. Please advise as to your thoughts.

Response:

Rather than doing a random survey of your client base, you may want a more targeted and focused survey of a particular client group. For example, if 80 to 90 percent of your business comes from ten clients, you may want to create a survey that is specifically targeted to them. The advantage of a targeted key client survey is that it is limited in scope and precisely focused. Before you commit time and resources to a client survey identify your purpose and establish specific goals and objectives.

Develop a survey plan. Insure that a follow-up strategy is incorporated into the plan.

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

Mar 27, 2012

Capital Accounts For New Law Firm Partners

Question:

Our firm was started 20 years ago by four partners. We how have the original four partners as well as six associate attorneys. Originally each of the four partners contributed $25,000 each to their capital accounts. We are considering extending partnership to a couple of the associates. We have talked with other law firms and some require buy-ins (capital contributions) and others do not. What are your thoughts?

Response:

My first question is whether you are planning on creating a non-equity partnership tier. If so, then the associates would initially be brought into that tier first.

Typically a buy-in or capital contribution is not required for non-equity partners nor do I recommend such. Typically non-equity partners are salaried and may participate in some form of an incentive bonus system tied to individual, team, or firm financial performance. They are also not required to assume any responsibility for any of the firm's financial liabilities or debts.

If you intend on bringing in the associates as equity partners that is another matter. I believe that all new partners should be expected to contribute capital and have some "skin in the game." Whenever a firm admits a new partner, the firm should require the new partner to contribute capital. Increasingly, a partner's capital requirement should bear a relationship to the partner's share of profits. You may want to allow new partners a reasonable period of time to fund their capital accounts – say five years or help them arrange favorable terms at your bank to finance their capital accounts.

Some firms have a buy-in tied to either the cash-based book value of the firm or the accrual-based book value (includes accounts receivable and work in process). This is not the typical practice although I do run into it. Usually capital accounts are tied to working capital needed to operate the firm and the percentage of ownership/income that each partner will have.

There are only three ways to increase a firm's working capital to cover cash flow requirements and fund growth:

1. Have partners put more money in
2. Have partners take less money out
3. Borrow

Many firms use bank credit lines instead of capital contributions to pay routine firm expenses and partner draws during periods when cash flow is tight. It has been my experience that firms that follow this practice have ongoing financial challenges and problems.

The reality is that many firms are under-capitalized – don't become one of them!

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

Mar 20, 2012

Law Firm Staff Investment – A Sound Marketing Strategy

Question:

Our Chicago firm of 14 attorneys has been discussing various marketing investments that we should be considering. We have a very proactive marketing program but want to insure that we are exploring all avenues. What are your thoughts?

Response:

Invest in your people – your staff – your intellectual capital.

I am amazed at the minimal investment that law firms make in their staff. Law firms are in the knowledge business and their product is their intellectual knowledge. While law firms do invest in their attorneys, such is not the case with the staff. Although staff members are often on the front lines in dealing with clients, very few law firms are providing them with skill training in areas such as communication, marketing, client service, conflict management, effective writing and speaking, time management, computer applications, client complaint management, etc. By the way, attorneys need training in these areas as well. Why do law firms hire the cheapest talent they can find to fill the receptionist position when it is the receptionist who often has the initial contact with a new client. I find it amazing that firms spend huge amounts of money on advertising and marketing and they fail to invest in the other tools needed for effective new client intake. Small firms should consider assigning their receptionist the role of marketing coordinator with responsibility for assisting in the management of client relationships and the firm’s marketing program.

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

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:

• Stuck and unable to move forward on new initiatives
• Indecision paralysis
• Lack of commitment, inertia, self-accountability or follow-up
• Poor implementation skills
• Lack of management, leadership, interpersonal, or other needed skills.

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:

• Business planning.
• Marketing. Improving performance.
• Organizational skills.
• Firm leadership.
• Achieving balance between work and personal life.
• Clarifying values and goals.

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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

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