"Best Of More Partner Income" highlights some of the best posts over the three years of its existence.  This article was originally posted on August 14, 2006 and is titled Strategic Planning Will Not Predict the Future, But It Will Prepare the Law Firm for It:

 

If you don’t believe in strategic planning, you must read Rob Millard’s post Creating Prepared Minds. His post includes an excerpt from an article by McKinsey & Co.’s Eric Beinhocker titled Creating Strategy in an Unknowable Universe.

Breinhocker gets it right. If you think strategic planning is about predicting the future, you are dead wrong. If that is why you are not doing it, you need to revisit the issue. Assumptions (predictions) are inaccurate. If you get one right, it is just the luck of the draw. The first rule of the planning process is that you must plan to change the plan. As the future gets closer, you continually change your expectations and reactions to it until you arrive on target.

Planning gets the entire law firm team playing from the same play book. It prepares the team for the future and capitalizes on its opportunities. Rob’s post is a must-read that may inspire you to read Beinhocker’s entire article.

Chance does favor the prepared mind. Top performing firms do it. If you want a good reason to start, consider this reason: more than an eight fold difference in per-partner income.  [The 2006 Law Firm Economic Survey] . . . discloses that the top performing 25 percent of firms earn more than eight times the per-partner income of the bottom 25 percent. That seems to be a good enough reason to start.

Three important rules for successful planning include:

• The planning plan must be to change the plan. Strategies are temporary targets based on inaccurate assumptions and estimated capabilities.
• The planning document should consist of words and phrases to facilitate frequent updating.
• The structure is a critical part of the process.

The structure for the strategic portion of the planning process that I have successfully used includes nine main areas to be addressed by the planning team in the order listed. The nine subject areas are:

1. Nature of the law firm (or activity, e.g., practice area or department)

2. Environment in which firm operates

3. Opportunities/Capabilities (SWOT)

4. Assumptions about the future

5. Objectives–Mission/Strategic Thrust

6. Policies/Procedures (changes or new ones needed)

7. Strategies–How we are gong to achieve objectives

8. Priorities and schedules for programs, new resources required, measurements

9. Organization and delegation

For more step-by-step suggestions, reread the earlier post The Structure to Structured Planning. I also suggest a reread of Consensus Building for a discussion of the role of the structured planning process in building a consensus, i.e., preparing the mind to deal with an uncertain future in pursuit of a common vision. 

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A recent article in the New York Lawyer entitled "Getting Fired" (requires free registration to view content) addresses a task that all managers would prefer not to have as part of their responsibilities: that of releasing employees.

The article is geared to the attorney as releasee, helping them not miss the subtle ways they are "shown the horizon".

If a conversation starts: “You seem to be distracted lately, and we are concerned that maybe this isn’t the right fit for you anymore.” - you might be getting fired.

If a conversation starts: “We think maybe you would be happier somewhere else. Let’s reassess where you are in six months. Hopefully, by then you will have found the right opportunity.” - you might be getting fired.

Suggestions when hearing words like the above? Start job hunting. In the second example, the firm is clearly giving the attorney a 6 month notice to find other employment. It isn't likely that the firm is going to reassess the attorney's performance in 6 months. More likely they will have had a replacement for 2 months and will be ready for the performance-challenged attorney to go.

Although geared to those near the door, it is also a reminder to managers of their responsibility to the firm. No one likes to fire someone, but without that part of the employment cycle, those who drag down the margin won't change. This helps neither the firm nor the employee. Not fitting into your firm culture doesn't mean the attorney is not a quality attorney. It means the attorney is not a good fit for your firm.

As the article noted, "[t]here is another . . .firm out there just waiting to snap you up! They love laterals!"

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services for increasing law firm performance and partner income contact Juris National Sales Center:

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Last week I wrote a post on planning for business continuity during unexpected interruptions in operations.  Ari Kaplan of Ari Kaplin Advisors wrote an article on Law.com that also addresses disaster recovery.  He tells of a miserable experience trying to recover data from a cracked hard drive when his child pulled his laptop to the ground when tugging on the power cord (an experience I have narrowly escaped many times with my children). 

 

He shares some tips he received from Jeffrey Brandt on protecting yourself from what he terms "data armageddon":

• Centralize Contacts - Keep all critical contacts on your person (ie, on a mobile device). 
• Remote Data Housing - Host your data remotely.  ** I personally don't think this is required so long as you have good, reliable backups that are kept offsite. However, for business continuity, having your data accessible from anywhere has its merits.  **
• Duplicate Or Near Duplicate Systems - create redundancy in your servers.  Replicate them so that if one goes down, another comes online.
• Secure Your Backups - keep backups offsite at a secure location.  Preferably in a fire-proof vault. 
• Map and identify your information - this is good advice to corporate clients as well - "in every subsequent litigation [it will have to explain] what happened and why it could not produce data for that specific date range". 
• Test Regularly - this is one that will bite if not followed.  Test your backups regularly to make sure your backup software is working properly.

There are several technologies that take advantage of "universal access" capabilities.  For example, LexisNexis has a product called NetDocuments® that hosts and manages email and documents offsite that allows access even from a mobile device.

Kaplan has an answer to those who balk at spending such time and money to protect their data:  "Although planning and preparing is not cheap, contact someone who has lived through disaster recovery and he or she will convince you that it is priceless."   

Morepartnerincome.com is sponsored by Juris®.  For information about Juris products and services for increasing law firm performance and partner income contact Juris National Sales Center:

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• Smaller Law Firms as an Alterative to US and UK Mega Firms
• Online Backup and Recovery Services for Law Firms
• Disaster Preparedness for Law Firms
• Three Out of 60 Tips for the Attorney
• Staying in Touch Is the Key to Rainmaking

Tom Collins hasn't exactly taken to the "retire" part of retirement.  Working on his second book, he took time to send a list of blogs he recommends for law firm managers:

 

Adam Smith, Esq.	http://www.bmacewen.com/blog
Adventure of Strategy	http://www.robmillard.com/
Amazing Firms, Amazing Practices	http://www.gerryriskin.com/
Creating Blue Oceans	http://blueoceanstrategy.typepad.com/creatingblueoceans/
Cotterman on Compensation	http://blog.altmanweil.com/
DennisKennedy.blog	http://www.denniskennedy.com/blog/
Jim Calloway's Law Practice Tips Blog	http://jimcalloway.typepad.com/lawpracticetips/
Larry Bodine Law Marketing Blog	http://www.bloglines.com/myblogs
Law Department Management	http://lawdepartmentmanagement.typepad.com/
Law Practice Management	http://www.pa-lawpracticemanagement.com/
Legal Ease Blog	http://legalease.blogs.com/
Legal Marketing Blog	http://www.legalmarketingblog.com/
MorePartnerIncome	http://www.morepartnerincome.net/
the legal thing… by Mike Dillon	http://blogs.sun.com/dillon/
The Marcus Perspective	http://themarcusperspective.typepad.com/
Thoughtful Legal Management	http://www.thoughtfullaw.com/
Passion, People and Principles	http://davidmaister.com/blog
Strategic Legal Technology	http://www.prismlegal.com/wordpress/
Stark County Law Library Blog	http://temp.starklawlibrary.org/blog/
What About Clients?	http://www.whataboutclients.com/

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Measurement improves performance.  If you measure the following 5 key performance indicators, your profits per equity partner will increase.  These drivers are:

• Leverage
• Rate
• Realization
• Productivity
• Margin

Leverage in the above model is based on head count leverage.  Head count leverage is the ratio of equity partners to non-equity fee earners. 

Rate in the above model is based on the effective billable rate for all fee earners.  You get this by adding all fee earner rates and dividing the sum by the number of fee earners.

Realization in the above model is based on the amount of fees billed against what was worked.  You get this from dividing the sum of all fee earner hours billed by the sum of all fee earner hours worked.

Productivity in the above model is the sum of all fee earner billable hours divided by the total number of fee earners.

Margin is net income divided by total fee revenue.

Here is the scenario.  Your firm has 29 fee earners.  Eleven equity partners, eleven associates/non-equity partners/of counsel, and seven paralegals.  You have a total of 50 employees including equity partners.  Your effective billing rate is $275, your average fee earner productivity is 1,690 per year, your firm writes down or discounts an average of 10% of work performed (90% realization) and your cost per head is $140,903.   

Based on the above, profits per equity partner would be $462,255.  

 

 Now, let's play with the numbers.  First, we'll look at rate.  If we increase rate by 6.5% (which was the average rate increase predicted by respondents of the 2007 Law Firm Economic Survey by LexisNexis), factor in cost inflation (currently around 4.25%), total PEPP increases to $486,314, an change of $24,059.

Factoring inflation, the increase in income is not substantial.  However, it underlies the importance of increasing rates annually to avoid devaluing your rate due to inflation.  The secret to beating inflation, though, isn't rate;  It is productivity.  High productivity creates the gap (margin) between cost (which includes inflation) and revenue.  The higher your margin, the less inflation hurts you.  The lower your margin, the more inflation works against you.

So let's consider productivity.  If you increase billable production by 100 hours per fee earner per year (a meager 24 minutes per day based on a 50 week year), PEPP increases to $527,505, a change of $65,250 per partner!

 

This is one way to make a substantial increase in income with very little change in your workload.  In fact, you can likely make up the 24 minutes per day by just entering your time as you are doing the work.  Tools such as MyJuris Mobility take advantage of mobile devices such as Blackberry devices to recover nearly an hour per day of productive time. 

Finally, we'll consider leverage.  If you add two non-equity fee earners (assuming you have the business to necessitate such growth), PEPP increases to $512,686; a change of $50,431 per partner. 

Best performing firms, however, do well in several indicators.  If you were to combine the above, the results would be striking.  If you increased rate 6.5%, added 24 minutes a day to each fee earner's billable goal, and added two associates, you would increase income from $462,255 to $609,677, a change of $147,422 per partner.  The effect of compounding factors works to increase the effect of each indicator on income more than you would by increasing any of the indicators alone.

Even if you only increased rate and productivity, you would increase PEPP by $90,733.  Click here to download a sample spreadsheet (you must be registered to this site to access the downloads page) and work the numbers yourself.  Use it to forecast your increases and measure your performance to reach your financial goals.  

Morepartnerincome.com is sponsored by Juris®.  For information about Juris products and services for increasing law firm performance and partner income contact Juris National Sales Center:

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Legislation has been introduced in Georgia to provide more cost accountability to state-funded defense of capital cases.   What has caused the uproar?

 

In March of 2005, Brian Nichols was awaiting trial for rape in Fulton County, Ga.  While changing clothes to prepare for his court appearance, Nichols overpowered a deputy, walked into Judge Rowland Barne's courtroom through the judge's chambers and shot both Judge Barnes and a court reporter.  During his escape, he injured several and killed two others.  The manhunt that ensured culminated in an unlikely ending:  Nichols in the apartment of a drug user who was soul-searching and through an 11 hour conversation softened Nichols enough to let her leave.  She called 911 and Nichols eventually surrendered without further violence.

 

Since then, Georgia has seen one of the longest murder trials in state history take place.   Since Nichols qualifies as an indigent under Georgia law, the taxpayers are footing the bill for his defense.  The Atlanta Journal Constitution reported that the cost of the trial has exceeded $2 million in defense costs alone.  That has outraged the Georgia Legislature enough to change the law regarding representation of indigents in capital cases.  According to the AJC:

 

The bill . . . could reduce the financial burden on the Georgia Public Defender Standards Council, which oversees the statewide indigent defense system. Under the bill, the council would pay for the first $150,000 paid to private lawyers defending an indigent capital case and 75 percent of the next $100,000, with the county paying the other 25 percent. Beyond $250,000, the state and the county would split defense costs.

 

Here's the kicker:  The measure recommends that the council set contracts with flat rates for attorneys' fees and expenses in death cases.  Sound like a good idea?

 

Perhaps if defending capital cases were akin to filing Chapter 7 Bankruptcy.  However, for private sector attorneys who represent indigents in capital cases, does it remove the incentive to take on these difficult matters?  Would a criminal defense attorney zealously defend a suspect for a flat rate for both fees and expenses when you have Judges saying things such as"[e]veryone in the world knows he did it" (as the New York Times reported Judge Fuller said before having to recuse himself from the case)?

 

Is Georgia trying to limit the representation of indigents in capital cases?  Or are they only limiting the financial incentive to defend them?  If it is the latter, then ostensibly an attorney may lose the zeal to defend a client once the money runs out - unless they believe that the defendant is innocent. And that might be the point of the legislation.  [poll=8]

   

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 One of the more common questions I hear asked by attorneys is how to set their rates.  Many attorneys raise their rates periodically but not as part of a strategy to maintain or increase margin.  Pricing management is addressed in detail in an article in Managing Partner Magazine titled Pricing Management.   Noting that most firms still use a "reactive" approach to pricing, the article suggests instituting a pricing management function within the firm closely tied to the finance and marketing functions.   A systematic approach is recommended that positions pricing with your strategic goals.

 

According to the article, firms should prioritize consideration of the price it will charge for its services and to ensure that the firm’s value and pricing propositions are constantly reviewed and improved upon, and communicated to clients at all levels of the firm.  Firms should manage the pricing function around three levels: industry, practice and engagement level.

• Industry Level:  invest in understanding how variables drive supply and demand for legal services in your particular industry of practice.
  • Systemic drivers:  focus on short and long term considerations in the industry affecting client demand.
  • Service delivery:  leverage your firm's technology and skills as value that sets your firm apart
  • Client patterns:  how often they are a source of new business, how well they pay, etc.
  • Talent supply:  look into alternatives in how services can be delivered to be more cost effective.
  • Pricing Czar:  A finance director or equity partner should be dedicated to reviewing these drivers and organizing a pricing strategy and structure that meets the financial needs of the firm.
• Practice Level:  understand the markets that your firm and its practices operate.
  • Testing client perceptions:  client interviews, surveys, etc to better understand client need and provide better value.
  • Discriminating among clients:  develop rates that fit the client and practice area, not one-size-fits-all.
  • Objectively reviewing fee schedule: periodically check market position as well as reputation of key partners by conducting blind study of key clients.
  • Central pricing function supporting practice-group leaders:  remove discretion in pricing except at practice group level - discounting should be first approved by pricing czar.
• Engagement Level:  getting the best price for each matter
  • Training:  partners need to understand the effect even minor discounts have on the bottom line; develop skill in communicating value.
  • Tools:  having proper tools to measure performance so as to maximize profitability based on comparison of historically similar matters.
  • Systems:  develop processes to review efficiency and improve on it to better price similar matters in the future.

Though some feel trapped in their pricing scheme, firms can and should plan how they price their services.  With a well-conceived and implemented pricing plan, firms can be proactive and systematic in developing a pricing structure aligned with their strategic plan.

Morepartnerincome.com is sponsored by Juris®.  For information about Juris products and services for increasing law firm performance and partner income contact Juris National Sales Center:

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There has been some discussion in legal blogs regarding the use of social networking tools such as Facebook as a marketing tool.  Kevin O'Keefe notes the potential of Facebook as a growing force for lawyers and businesspeople.  Larry Bodine writes [w]hy lawyers can't ignore Facebook for networking.

 

The Birmingham Post (UK) writes of a reason why there should be caution in using Facebook.  In an article titled Facebook May Blow Up In Your Face, several potential "minefields" are noted:

• Facebook is for personal use only:  In its terms and conditions, it states in the first sentence under User Conduct:

"You understand that except for advertising programs offered by us on the Site (e.g., Facebook Flyers, Facebook Marketplace), the Service and the Site are available for your personal, non-commercial use only."

• In the terms and conditions, every user agrees not to register for more than one user account, not to register a user account on behalf of another, or register a user account on behalf of any group or entity.  
• You can be banned from Facebook for a violation of terms, subject to "final and binding arbitration" under Delaware law, likely in California.
• Facebook has a license to do whatever it wants with content you provide.  In theory, you could upload a photograph and Facebook could sell it without you receiving a penny. If you write lengthy notes about business related issues, these could be turned into a book by Facebook for its gain, not yours. Relevant wording from terms and conditions:

"By posting User Content to any part of the Site, you automatically grant, and you represent and warrant that you have the right to grant, to the Company an irrevocable, perpetual, non-exclusive, transferable, fully paid, worldwide license (with the right to sublicense) to use, copy, publicly perform, publicly display, reformat, translate, excerpt (in whole or in part) and distribute such User Content for any purpose, commercial, advertising, or otherwise, on or in connection with the Site or the promotion thereof, to prepare derivative works of, or incorporate into other works, such User Content, and to grant and authorize sublicenses of the foregoing."

Bodine cites Joshua Fruchter, in a more recent post, citing methods of using Facebook as a marketing tool.   Particularly in regard to posting copyrighted content, this should be re-assessed.

Bodine and O'Keefe promote Facebook as a networking tool.  Facebook does have a section for businesses called Facebook Pages that serves this purpose.  However, there is no pre-screening process to ensure that the entity is in fact who it states it is (read:  Wikipedia-ish).  There is  an additional terms and conditions (which incorporates the original terms)  that doesn't negate any of the above concerns (apart from allowing commercial use).   If you plan to utilize this tool, make sure you follow the guidelines of Facebook's terms and conditions. [poll=7]

 

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It's not that I am against value billing.  I am just against the proposition that the hourly billing model is an inherent source of evil.  When reading Ed Poll's post on Professionalism versus Competence, a sentence caught my eye that appears to be another slam against the billable hour.

 

The post is about a recent USA Today poll asking whether co-worker's rude or unprofessional behavior should be tolerated if they otherwise do a good job.  Thankfully the answer was overwhelmingly no.  No one wants to work with rude people.

 

Poll notes the new firm Patrick Lamb co-founded this year that focuses on value billing.  There is much positive press when law firms move to this model so the marketing upside is a good thing.  But then came this:

 

As more lawyers succeed in this business model, perhaps others will follow. Then, perhaps, will civility in the profession be achieved.

 

Am I to conclude that without this business model (value billing), civility can't be achieved in the legal profession?  First, I don't want to mistake Poll's point:  that providing value to clients and a team mentality within the firm adds civility to the profession.  Agreed.  However, how is this at odds with hourly billing?  Is it because some (and unfortunately many) are sloppy in their billing process?  Or worse, unfairly padding their hours?

 

Assuming this is a widespread problem, does value billing fix it?  Maybe, but not by its presence alone.  If you sell services at a fixed fee, you had better know the price of your services or you won't be in business long.  Tom Kane explains in a recent post the importance of tracking time even if you bill at a fixed fee.

 

Understanding that in all but a few routine transactions there are variations in the time it takes to provide a service depending on the variables surrounding the case, you will need to account for differences in the price of particular tasks.  So while on the surface everyone may be paying the same for a service, some will be paying more for a task while others pay less.  It depends on how difficult the task is and how efficient the attorney. 

 

In fact, if anything, value billing helps budgeting for lawyers since you can set goals on how many tasks you sell clients.  Crafty firms can then weed out the difficult cases through case assessment to maximize profit.  Finally, marketing efforts can sway those who would buy into the "value" concept unaware of the higher price they are paying for a simple legal task. 

 

Am I saying this is how firms who "value bill" operate?  No.  Can they operate this way?  Yes.  Is that a better value to clients?  No.  And to answer the presumptive rebuttal, "with value-billing, if the client doesn't like the fee, we will adjust it for them" I would answer, "and how is this different from hourly billing?"  I've yet to meet a lawyer that is unfamiliar with post-bill adjustments.  Some attorneys have a chronic habit of reducing their fees prior to billing as well.   The biggest attraction to the value billing model isn't the savings to clients (marketing notwithstanding), it's the potential for higher revenues for well-managed law firms who price margin into the fee.  The value of value billing to the client is nothing more than trading actual cost for pre-performance cost certainty - that apparently can still be negotiated after the service is provided (at least when firms open the door for negotiating fees after performance).

 

Once again, it comes down to trust.  If there is a trusted relationship between attorney and client, then attorneys shouldn't overbill their clients and clients shouldn't question attorneys' fees (after-the-fact) - regardless of the method.  As Poll states in an earlier post, "there is a very small percentage of 'bad apples' in the legal profession."  The devil isn't in the billable hour.  It's in those bad apples.

 

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Planning is an oft-referenced theme on this blog.  Plan for increasing wealth, plan for economic down cycles, plan for disasters.  What about during interruptions such as the recent blackberry outage?

 

There are many things that can cause business interruptions.  Planning for them will mitigate the consequences those interruptions have on your firm's operations.  Not planning for them will cost you money.

 

What are some things you can do to prepare?  There are companies that make a living selling plans to businesses, but basic guidelines include:

• Business Impact Analysis:  Determine the effect an outage would have on the  firm's most crucial systems and processes. More or less identifying the important processes subject to interruption and how that interruption will affect business.  In a law firm, this includes (but is not limited to) telephone systems, computers, staff, software systems.  
• Plan what you will do if business interruption takes place:  This, of course, is the hard part.  Planning means taking the time to think of ways around the interruption - and gain approval for the procedure.  For example, if your office is unavailable, where are critical staff?  They need to have a place to meet to put in effect the plan.  Remote communication is easier now than it's ever been.  Cell phones help but what about email?  If your email servers go down, you will need a backup plan to send and receive communications.  There are services such as Mimecast Unified Email Messaging that can provide a seamless transition that clients won't notice - making it appear as if there were no interruption at all - so long as you have access to high speed internet or have a data-enabled mobile device.  In the case of an interruption of internet access, there needs to be a secondary plan to know where your people are.
• Always have good, redundant, and off-site backups available:  All the benefits of technology are in vain in a disaster situation if you have no backups.  It has been reported that 25% to 30% of backups don't save properly.  When was the last time your office checked to make sure the backups were working?   Services such as LexisNexis Data Backup and Protection Services provide continuous automatic off-site storage of your data.
• Run a drill or two to test the processes: It is paradoxical to interrupt the business day to test processes geared to mitigate interruptions in the business day.  But it has to be done.  Otherwise you may not find the flaws in the plan until you put the plan in action - not the time you want to find out that you left out an important facet.
• Review the plan annually:  Don't just dust off the Y2K disaster readiness plan and change the cover page.  Times change, technologies change, and needs change.  Make sure you are up to date on all your systems and their effect on your business.

A sample business continuity and disaster preparedness plan, courtesy of ready.gov, can be downloaded by clicking here.

 

Morepartnerincome.com is sponsored by Juris®.  For information about Juris products and services for increasing law firm performance and partner income contact Juris National Sales Center:

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