Two Key Components of Any Succession/Transition Plan
Law firm succession and transition is a big deal and will become even more so over the next decade. The pending retirement of the baby boomer generation and the unrelenting challenge of finding and keeping talented staff can have grave consequences for law firms that fail to develop a succession strategy. Steps that you take or do not take five years or earlier prior to your actual retirement will determine whether your practice, clients, employees, and your legacy transitions to another generation. For a small or solo practice, these steps may determine whether your practice has any terminal value at all.
Many are asking, “What do I do with this Practice?” “Is there value or goodwill? “Where and how should I start?
According to the 2013 Altman Weil Law Firms in Transition Survey respondents reported the following:
Early planning will pay dividends. Many firms are in “reactionary mode” and are not adequately prepared to transition firm leadership and client relationships. A firm’s very survival may very well depend upon the quality of its succession/exit plan.
How well senior attorneys transition clients and managerial roles will determine the ultimate success of any succession/exit plan. Transition of clients and managerial roles are the two critical components of any succession/exit plan.
Transitioning client relationships is difficult, it takes time, and it takes more than one simple introduction. It is a lot like cross selling that attorneys talk about but often fail to put into practice.
In a recent BTI Consulting Group report on Benchmarking Law Firm Marketing and Business Development Strategies, the section on cross-selling was titled, “Achilles Heel for Law Firms.” When BTI interviewed 120 Chief Marketing Officers and Directors of Business Development at leading law firms, they found that only 4 percent of law firms rated themselves as highly effective in cross-selling, and 77 percent thought they were ineffective.
My experience and our surveys of our clients and their clients have shown similar results. Cross-selling is talked about a lot and seldom implemented.
Cross-selling can be an effective strategy – but it is not easy and it requires trust, commitment, communication, hard work, dedication, and organizational alignment.
What is Cross-Selling?
Cross selling is selling additional services to an existing client whereby an attorney other than the primary relationship attorney may perform these services.
David Maister says it best in the book, The Trusted Advisor, that he co-authored with Charles Green and Robert Galford, in which he states that:
New relationships are at the very heart of cross-selling. In reality, we have two strangers trying to get to know each other, each carrying a heavy burden of real and presumed reputations and expectations. Cross-selling is as much about strangers as it is about relationships. Cross-selling is like meeting your prospective in-laws for the first time.
Challenges and Hurdles
Transitioning clients to another responsible attorney(s) within your law firm or to another attorney in another law firm involves numerous challenges that have to be overcome. Consider the following challenges and hurdles:
Research conducted over the years by numerous research organizations has shown that 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 and transition existing relationships.
Institutional clients are reducing the number of law firms that they use. According to BTI Consulting Group, corporations in the Fortune 1000 list are using 20% fewer core law firms than a year earlier. As a result, fewer firms will be getting work from these companies and they will likely be the firms that successfully transition client relationships.
Recommendation from a Fortune 500 Client
Recently I was doing a telephone interview with the general counsel of a Fortune 500 company, which was a client of our law firm client. I asked him if there was an opportunity for the law firm to get additional work in a practice area in which the company had no experience with the law firm previously and if an opportunity existed what the firm needed to do to earn the business. Here is his response.
Obviously, we currently have other law firms handling that work. However, we have been evaluating those relationships and may be making some changes. There is room for other law firms to earn our business in the practice areas that you have discussed with me.
I am aware that the law firm does other work other than what we have been using them for – but I am not sure exactly what those areas are.
In order to begin to forge a relationship into these other service areas:
We hire lawyers – not law firms.
Successful client transition – moving clients from one generation to the next – is a major challenge for all law firms. Shifting clients is not an individual responsibility but a firm responsibility. To effectively transition clients the individual lawyer, with clients, must work together with the firm to insure the clients receive quality legal services throughout the transition process. Both the individual lawyer and the firm must be committed to keeping clients in the firm when the senior attorneys retire. Potential obstacles include:
Transitioning client relationships effectively can and where possible should take a number of years – preferably five years – typically not less than three years.
The following client transition plan might be an approach you could take to transition clients over a three to five year period:
Effective client transition takes time so start early. Clients hire lawyers not law firms.
Successful management transition – moving management and leadership from one generation to the next – can also be a major challenge.
Consider undertaking the following, as well as other, management and leadership activities, which may assist you and the firm transition management and leadership roles over the next three to five years.
An effective succession and transition strategy involves coming to terms with aging and retirement, developing a timeline, and identifying transition candidates either internally or externally. An old saying at IBM – what gets planned and what get measured is what gets done. You have worked hard to build your practice. Your practice may or may not have value depending upon the steps you take and when you take them. Start early.
Good luck on your journey!
John W. Olmstead, MBA, Ph.D., CMC, is a Certified Management Consultant and the president of Olmstead & Associates, Legal Management Consultants, based in St. Louis, Missouri. The firm helps law and other professional service firms improve the operations and management of their practices and the lives of their practitioners. The firm, founded in 1984 serves clients across the Globe assisting them with implementing change and improving operational and financial performance, management, leadership, client development and marketing.
John’s assignments have covered the spectrum of management issues. However, in recent years most of his time has been focused on engagements helping firms in areas:
John is the author of a recently published book, The Lawyers Guide of Succession Planning: A Project Management Approach for Successful Transitions and Exits, http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=235511823&term=the%20lawyers%20guide%20to%20succession%20planning, Published by the American Bar Association, John is also the Editor-in-Chief of “The Lawyers Competitive Edge: The Journal of Law Office Economics and Management,” published by Thomson Reuters. He is currently serving as Past Chair, Illinois State Bar Association Standing Committee on Law Office Management and Economics and as a member of the Legal Marketing Association (LMA) Research Committee. John may be contacted via e-mail at
email@example.com. Additional articles and information is available at the firm’s web site:
www.olmsteadassoc.com and blog http://blog.olmsteadassoc.com
© Olmstead & Associates, 2016. All rights reserved.