Archive for June, 2011
Reflections on the emerging Global 25: Part 2
Legal is a profession, not an industry. Law firms are different; They don’t sell widgets.
These are the theorems I was first introduced to when I started covering law practice management for the ABA Journal after graduating from law school in 1998.
I challenged the first when I saw lawyers taking stock in lieu of fees during the dot com era. Clearly the “double comma” revenue lawyers that sprouted up after a successful IPO proved being a profession and an industry are not mutually exclusive. Lawyers are in the business of making money. Revenues from legal services are estimated at $210 billion in the United States alone.
With the gap widening between the Global 25 and the rest of the law firms, it’s time to challenge the second theorem. These elite firms will get the most profitable work and will be able to cherry pick the best talent from the other firms.
The rest are going to have to compete for the remainder of the work – much of which is being commoditized. Instead of fighting the inevitable, firms have an opportunity to provide more value to their clients by finding ways to productize what they do. Law firms outside of the Global 25 will need to fundamentally rethink the way they deliver legal services. They need to start selling widgets.
By selling widgets, I’m suggesting lawyers look to productize their services in a way that better demonstrates value and is priced accordingly. Whether you call it value-based billing or an alternative fee arrangement, its about packaging legal services in a way in which clients understand what they are getting for what price.
What’s more, it may actually mean that lawyers get paid for doing less work than they would if billing by the hour. Let’s face it, the things lawyers provide that add the most value — making a vilified defendant look sympathetic or opening doors a client might not even know exist — cannot be billed in six minute increments. So instead, there is pressure to make the “stuff” of lawyering — the documents, the briefs, the filings — to be created in an inefficient way in order to create enough billable hours to make the work profitable. In the end, whether it takes 10 hours or 100 hours, the “stuff” that is produced — so long as it is right — is worth the same. Why penalize those who produce the work more efficiently?
By billing at a flat rate or on a project basis, lawyers and their firms will be incentivized to work more efficiently on the paper work and to focus their efforts on the areas that truly make lawyers valuable — their role as a strategic partner.
Why not sell the widgets and differentiate yourself on the distinct strategic services you provide?
Reflections on the impact of the emerging Global 25: Part 1
The American Lawyer’s “Second 200″ issue provides more evidence of the widening gap between the country’s largest firms and everyone else: A $1.1 million gap to be exact. That is the difference in average profits per partner for the top 23 firms compared to those of the next 27 firms.
As discussed in my previous post, Time to decide what you are NOT good at, law firms outside the AmLaw 50 are losing both their top talent and their share of the most profitable work to what is emerging as the Global 25.
So where does that leave the firms outside the new elite?
According to The American Lawyer Editor-in-Chief Aric Press, there is one consequence of the growing chasm between the law firm haves and have nots that few firms have embraced: rethinking core work processes to improve profitability and better serve clients .
This is the opportunity firms of all sizes can and must seize upon. For those outside the Global 25, it is an opportunity to control one’s destiny.
Fundamentally, this means that lawyers will need to stop equating working the hardest and the longest with productivity and profitability. They need to acknowledge that the aspects of their practices that make them feel the safest can no longer define them.
I’m talking about the “stuff” of lawyering – drafting deal documents, filling out forms, writing motions, filing court papers. In reality, this “stuff” is usually done inefficiently. It encourages lawyers to start from scratch instead of cutting and pasting, to draft a motion when an email can accomplish the same result, or to take 20 depositions when two will do.
These things take time and result in billable hours. But at the end of the day, it’s just “stuff.” The real value lawyers provide is what comes with that stuff. Opening doors for clients. Making a vilified client look sympathetic before a jury. Creative deal terms that make both sides feel like they won. Strategic advice on how to use the law to solve a problem or leverage an opportunity.
These skills are far more valuable that filling out forms but impossible to price in six minute increments.
Yes this means rethinking fee arrangements. Yes it means embracing so-called “disruptive” technology. Yes this will require consideration of concepts like project management and outsourcing – terms many believe to be “anti-lawyer.” Yes it means changing the definition of partnership and how you utilize associates.
It won’t be easy. It won’t happen overnight. But the chasm is already exists. How wide do you want it to get?
I recently started attending a networking group comprised largely of professional services executives. In talking with one of the founders of the organization, he noted that they’ve had a hard time keeping attorneys as active members.
He personally invited about 25 different attorneys to participate. They attended a few events but slowly dropped even though the organization itself had grown tremendously.
He believes, and I agree, that most lawyers just don’t understand how to network effectively and would benefit by taking a lesson from their counterparts outside the legal profession.
The Strategy of Networking
Networking is as much science as it is art. Too many lawyers think about networking as a single act rather than a process with rules that must be followed.
Rule #1: Engage
Networking is about building relationships with people who need your services or can refer you business.
A networking event is merely the first stage of this process. It’s a place people go to make introductions. That’s it. You don’t have to sell. You don’t have to buy. All you have to do is engage.
If that is outside your comfort zone — and you aren’t alone if it is — try this formula: Smile. Say, “My name is…” and ask a question. Chat for a couple minutes an learn what the person does and whether they are someone who might be of value in developing your business. Exchange business cards. Move on to another person.
Rule #2. Follow-Up
An introduction alone is not a relationship. That takes place after the event is over, starting with the follow-up.
Don`t wait for people to reach out to you. Send a short email to the people you met. Tell them you enjoyed meeting them. Mention something specific that you discussed. Offer yourself up as a resource in their efforts to grow their business. If they are a strategic contact — and not everyone is — suggest coffee or lunch.
Rule #3: Connect
Coffee or lunch is where the real relationship begins. This is a connection, not a sale. Your goal is to find out if this person can help you. Do this by learning everything you can about them and identifying how you can help them. The more you do for them, the more likely they will want to help you. Again, you need to follow-up.
Rule #4: Reciprocate
Chances are, if you are networking properly, the person you met is going to try to help you with another introduction, a referral or a business development idea. This is where the most important rule of networking comes in to play.
You have to reciprocate.
Relationships are a valuable commodity and sharing them is an investment that comes with a certain amount of risk. The people you are networking with are there for the same reason you are. They deserve the same return on investment as you.
I launched Law Firm Transitions a year ago this week. My goal for starting a blog was to join and help drive the conversation about changes law firms need to make to better serve clients. From my perspective, the business model needs to change.
So it seems apropos that I chose this week to report on a presentation Peter Zeughauser gave last month at the ALM Law Firm Marketing and Business Development Leadership Forum. Arguably the best legal strategist in the business, he caused me pause with his rosy forecast for the legal services market.
“The law firm business model is not broken. The reset button has not been pushed. It’s been a tough two years but there is a lot to look forward to,” Zeughauser told a crowd of about a 100 CMOs gathered at the Harvard Business Club in New York City.
In the context of the broader economy, the legal profession survived the financial crisis unscathed. Yes, we lost a few firms, but there were no bailouts. In the end, the larger firms proved fairly nimble, he said.
Yet his positive outlook came with some fairly dire undertones. Law firm consolidation, shifting global economic centers, and the disproportionate role multinational companies are playing in the economy — the trends Zeughauser says will have the greatest impact on law firm strategy — will make it an uphill climb for all but a chosen few.
According to Zeughauser, the AmLaw 100 is vanishing, giving rise to the Global 25. In 2010, the AmLaw 25 held 47 percent of the market share of legal services. These top firms will be able to cherry pick the clients and the top talent from all the other firms. They will simply not be able to keep up.
Shifting Economic Centers
The IMF has predicted that China would take over the US as the largest economy in the world by 2015. Capital markets are losing their dominance as private money plays a larger role. New York and London were once the dominant financial centers. That’s changing. Lawyers are a “follow the money” business, so this will have a huge impact on strategy. Firms may not need a global footprint to take advantage of the shifting financial centers, but they will need a global brand, Zeughauser said.
The Role of Multinationals
Multinationals make up less than one percent of the companies in the world but they account for 31 percent of growth in the U.S. gross domestic product. Relative to their size, they play a disproportionate role in the economy.
According to Zeughauser, if one believes the world’s economy is going to continue to grow, the future is bright.
The question I have is, “What will be left after the AmLaw 20 or 25 take their cut?”
This is where most firms find themselves. Zeughauser’s advice? Figure out what your NOT going to be good at. Saying you “do it all” is no longer credible. Firms need to have a clear vision and identify what it is they are best at. That often requires choosing what you are NOT going to be the best at.
That’s not to say that making such a choice does not come with its challenges. Firms need to assess what clients are most profitable, how to take advantage of global economic trends, and how they define what makes a successful partner.
For the chosen few, I agree with Zeughauser that the law firm business model may not be broken. For the rest, however, there is more work to do. I look forward to another year of the discussion.