January 18, 2008

RVs, Bananas and Recession-Proofing the Law Firm

12:00 am

It seems every year there are those who get in front of the press and claim that there is a looming recession that is about to envelop the country and if there is no action, the depths of it will surpass our worst fears.

 

This year is no exception. December retail sales were down 4%, unemployment is up to 5%, and, of course, RV sales are plummeting. Yes, according to several articles, the reduction of RV sales is an accurate forecaster of recession. I am sure Federal Reserver Chairman Ben Bernanke is keeping close tabs on this key indicator.
 
doesn't just think we are headed for economic recession - he claims that we are already there. His reasons do not include RV sales:
 
  • Housing starts are down 24% from a year ago. The median sales price of existing single-family homes has been falling all year, according to the National Association of Realtors. A person's home is the largest single asset and the source of a sense of prosperity for most Americans.
  • The value of the dollar is near an all-time low [ ]. The dollar is worth the same as the Canadian Loonie currency.
  • The price of oil spiked at $100 per barrel on January 2 and has settled at an exorbitant $92 per barrel.
  • The US trade deficit widened sharply by 9.3% in November to a larger-than-expected $63.1 billion. The trade deficit has widened to its highest level in more than a year.
  • The "credit crunch" means that investment capital is difficult to obtain. Banks and investors become wary of lending funds to corporations, thereby driving up the price of debt products for borrowers. Citigroup, the nation's biggest bank, announced a stunning $10 billion fourth-quarter loss. The Kuwait Investment Authority — a foreign country — is expected to bail out Merrill Lynch with a $4 billion investment.
  • The cost of the war in Iraq over the past five years is now approaching a cumulative $500 billion, or about $100 billion per year on average.
Bodine isn't the only one (not by a long shot) ringing in the new recession. has two posts in a row (The Upcoming Banana? and A Contrarian Bounce?) dedicated to the apparently imminent recession.
 
In The Upcoming Banana?, MacEwen has his own figures to back up the sure "banana" that is happening:
  • Morgan Stanley, Goldman Sachs and Merrill Lynch have issued "recession warnings."
  • The Economist's somewhat impish "R-word index," which counts how many times in a quarter the word appears in The New York Times and The Washington Post, and which accurately forecast the 1980, 1991, and 2001 recessions, is nearing a new peak.
  • Sullivan & Cromwell Chairman H. Rodgin Cohen said "It is hard to be an optimist," [of the outlook for M&A activity in 2008]. "With the markets where they are, it is going to be a tough year. The markets hate uncertainty, and we are in an uncertain time."
  • Gold and oil are both at or near all-time (inflation-adjusted) highs.
  • The front page of just one day's Wall Street Journal lists the following facts:
  • American Express drops 10% in one day after announcing increased write offs and delinquencies; Capital One, Master Card, and Discover also drop;
  • Retailers ranging from McDonald's to Tiffany report disappointing same-store sales;
  • The stock market has started 2008 with its worst year-opening slide in over 30 years; and
  • A Barron's roundtable questions whether the 25-year bull market is running out of gas.
  • The American Lawyer's most recent survey of law firm leaders (last month) was appropriately headined "Fog Advisory"—the outlook is unclear.
  • And, of course, Cadwalader laid off 35 finance .

    With the 300 points the Dow Jones Industrial Average lost Thursday, we may be doing more than just talking ourselves into a recession. Tensions are certainly high. Jim Blasingame from the Memphis Commercial Appeal, however, has a remedy: Don't participate in the recession. Some of his ideas include eliminating operational inefficiencies, cutting costs, converting non-performing assets to cash, and pay more attention to receivables.

    MacEwen, in A Contrarian Bounce? has one idea contrary to the above: Don't cut costs - invest:
    Rather than tightening their belts, the aggressive firms apparently sensed opportunity and chose to invest in [SG&A, R&D and advertising] in hopes of a longer-run payoff, whereas during flush times they focused on operational efficiencies. In other words—although they always invested more than their peers in R&D—their strategy was to sacrifice short-term profits in bad times for the sake of longer-term advantage: And to more than make up the sacrifice when good times returned.
    Investing rather than cutting costs is consistent with what the LexisNexis Economic Survey shows. For firms who retain , recessions become opportunities to exploit the weak economy to its own advantage. The market starves for investors during economic troughs and those who can afford to invest will find great opportunities to expand. Those who choose to devour all profits in good times will be the ones struggling to keep the doors open in bad times.
     
    It is like the politically corrected story of a brother and sister who decided to open different restaurants on the same city block. Both sold roughly the same type of food and catered to the lunch crowd. The brother was very outgoing. He always remembered his customers, greeted them happily when they entered the restaurant, came to their table to mingle with his customers, and was so liked that the place was packed all the time. The sister, on the other hand, was a quiet woman who merely went about running the restaurant and most customers never saw her. The restaurant often was practically empty and you sometimes wondered how the place was still open.
     
    The brother's business soon failed. Though great at bringing in customers, he was a poor manager. His employees stole from him, he gave away food, and he rarely ever looked at the books. On the other hand, the sister's business grew because she kept a ledger, measured what items sold and which didn't, changed the menu to highlight items that sold better, guarded her and saved her .
     
    There is a lesson in this for . I have seen many firms who have neglected their finances because the volume of business kept constant cash flow and hid structural deficiencies in their model. Does your firm give away food? Do you have well liked by their clients but under producing from a financial standpoint? Do you want to be the brother or the sister?
     
    Firms that plan and measure performance are in a much better position to aggressively attack recessions and benefit from them. Investing in the expansion of your business is a sign of a strong company. Cutting costs is a sign of a failing one.
     
    Don't misunderstand: you don't want to spend away your . Make sure there is a link between your spending and increased revenue. But don't necessarily look to cost cutting when the economy is on the downturn. As MacEwen notes, "[i]s it "risky" to increase operating expenses during a downturn? So it would seem. But the real risk may be in following the herd."

     

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

    877/377-3740, e-mail info@juris.com or go to www.Juris.com.

     

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    Filed under Expense Control, Management, Policies/ Procedures by Brian J. Ritchey

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    April 10, 2007

    Law Firm Profitability-Culture vs. Compensation

    10:06 am

    Both Larry Bodine and David Maister have written about the firm of Levenfeld Perlstein PC and its creative chairman Bryan Schwartz.  I haven’t met Mr. Schwartz, but if you are looking for someone who has modified their compensation approach away from an emphasis on individual production to one designed to promote team work, I would give Bryan Schwartz a call.

     

    While morepartnerincome stresses the importance of balanced , we have also emphasized the importance of law firm culture. I define that as a common set of beliefs. It comes from the partners getting together and agreeing on the things they believe in. Then they must communicate those beliefs to the entire team and they must do it repeatedly and often.  It goes without saying that the partners have to walk the walk as well as talk the talk.

     

    Let me use Bryan Schwartz’s own words. “…and most importantly, firm leaders must create a culture that energizes the and gives them a reason to stay with the firm. It makes a big difference in profitability. An inspired group of people can make a lot more than people who are trying to bill a lot of hours." ….. "Our are the most competitive people, but it’s a culture where everybody helps the other person, they don't compete against each other."

     

    Back to the compensation issue:  reported on a communication he had from Schwartz describing some of the discussions at the firm’s recent retreat.  Maister had apparently spoken earlier at the same event.  Schwartz wrote, “We talked about compensation and our subjective plan. You set that up beautifully. We spent 10 minutes on that - a miracle for a law firm. I believe people are realizing that in the absence of subjectivity, which we currently employ, we become a mercenary firm, which we do not desire to emulate.”

     

    I could not say it better and it is worth repeating:” …in the absence of subjectivity…. we become a mercenary firm”.

     

    I encourage you to read or reread my earlier post How to Fix Your Compensation Plan.

     

    Morepartnerincome.com is sponsored by , Inc.  For information about ® products and services for increasing law and partner income, go to www.Juris.com.

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    Filed under Firm Culture by Tom Collins

    March 15, 2007

    Client Attrition Risk Scorecard for Law Firms

    11:11 am

    A recent study by Redwood Analytics as reported by Larry Bodine identified the distinguishing characteristics of clients retained by .  The absence of those characteristics and the presence of others can identify clients most likely to go elsewhere.  The study is a that can use their to create a scorecard according to attrition risk and having done so can target those clients for remedial steps.  The scoring part is the easy part; developing a culture willing to take action to improve retention is the harder part.  As for actually producing the attrition risk scores, your should track the necessary indicators.  To produce a scorecard you will need a custom reporting procedure.  with in-house capabilities should be able to do that internally using reporting tools but, in any case, your software provider should offer custom reporting services for a reasonable fee.  If not, you have the wrong software or wrong software provider. 

     

    What are the attributes you want to measure?

               

    On the plus side Redwood found that long-term clients had the following attributes:

     

    1. Provides the firm a large amount of legal work

    2. Has a mature, established relationship with the firm

    3. Uses the law firm for matters involving two or more

    4. Two or more partners are significantly involved with the client’s work

     

    Redwood also found the following:

    • First year clients have an attrition rate of 50% compared to 20% for clients with a four year history. 

    • Clients with only one partner involved have the greatest attrition rate.

    • Too much or too little partner time on matters creates an attrition risk. Morepartnerincome believes that the danger zone is anything less than 10% or more than 60%. 

    • Clients most at risk have an overall of less than 80%, i.e., discounts don’t retain clients.

     

    You will have to play around with this but start out trying the following:

      

    • Give 10 points to a firm whose prior year fee revenue met the 1% test.  (To keep it simple, divide your annual fee revenue by 100.  Use the amount in your report to identify clients meeting the “large amount of legal work” test.)
    • Deduct 5 points if the fee revenue for the prior three months x four is less that the 1% test, i.e., fee revenue is declining. 
    • Add10 points if the client has been with the firm for three or more years.
    • Add 5 points if the client has matters in at least two .
    • Add 10 points if the client has multiple billing (supervising) on active matters with billed amounts during the prior three months. 
    • Add 5 points if partner hours on the prior three months’ bills were greater than 10% but did not exceed fifty percent.
    • Deduct 5 points if unbilled fees exceed the prior two months’ fees.
    • Deduct 10 points if billed but uncollected fees exceed the prior three months’ fees. 
    • Deduct 5 points if prior year collections where less than 80% of the prior year value of billable hours at standard rates.  
    • Deduct 5 points if the percent of partner hours on the prior three months bills were less than 10% or greater than 60%.

    There is nothing magic about the above weights for the items listed.  You can and should vary the weights to fit your firm’s experience.  There is no perfect score.  Those with the highest points are the least likely to abandon the firm within the next three years.  Those with the lowest score are the most likely to leave. 

     

    Morepartnerincome.com is sponsored by , Inc.  For information about ® products and services for increasing law and partner income, go to www.Juris.com.

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    Filed under Risk managment by Tom Collins

    December 8, 2006

    Who Your Clients Are Can Sell Others on Your Law Firm

    11:58 am

    Rosemary Frenza’s article on The Law Marketing Portal reports on ’s internet seminar “How In-House Counsel Evaluate Law Firm Web Sites”. Participating in the seminar with Bodine were two notables in the corporate law department world.

    • Jeffrey Carr, the Vice President, General Counsel and Secretary of FMC Technologies.
    • Tom Aldrich, The former Chief Litigation Counsel at Baxter International, Inc.

    Frenza's article makes for some enlightening reading and provides a useful guide for designing a law firm’s web site.

    I was struck by the fact that both Jeff Carr and Tom Aldrich indicated that they do not value client testimonials because no potentially negative information is revealed. On the other hand, both found a list of clients extremely useful. Tom Aldrich explained that client lists “tell me what kind of clients and what particular clients [a firm] represents, which says something about the nature of their practice as well as their expertise.”

    A law firm that understands the power of their client list is the Nashville firm of Bass, Berry & Sim. The firm publishes Momentum, a magazine that features their clients. The publication is not a beauty piece about the firm. In fact, it isn’t focused inward on the law firm at all. It is all about the law firm’s clients and their stories. It is about visions, objectives, issues, challenges, strategies, people and accomplishments. It demonstrates Bass, Berry & Sims’ understanding of the industries in which those clients compete. By showcasing their clients, Momemtum tells a lot about the law firm.

    Consider the following closing paragraph of the signed letter from Keith B Simmons, managing partner of Bass, Berry & Sims, that appears on the inside cover of the just-issued 2007 edition of Momentum.

    “It is said that we are all known by the company we keep. We here at Bass, Berry & Sims PLC are blessed to keep company with an abundance of outstanding clients and friends who have made us successful over the years. Hopefully, we have contributed measurably to their successes as well. Momentum focuses on our clients and their stories. In putting the magazine together, we have found no shortage of interesting tales to tell. We are honored to witness our clients’ successes and celebrate their accomplishments with you. Enjoy the read.”

    Morepartnerincome.com is sponsored by , Inc. For information about ® products and services for increasing law and partner income, go to www.Juris.com.
     

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    Filed under Marketing by Tom Collins

    October 23, 2006

    Not Polite Conversation but Law Firms Should Follow Apple's Strategy

    10:27 am

    One of the first things we learned at our mother’s knee is that one should never discuss politics or religion in a social setting. It was not considered polite conversation.

    Things have gotten much more serious. In the past, bringing up politics or religion with casual acquaintances might have resulted in fewer invitations. Today, the wrong comment can get you killed or start a riot. The list of things to avoid is also growing. For example, unless you want to derail a conversation, never refer to work/life balance as a gender issue. Use gender and work/life balance in the same paragraph, or even worse, in the same sentence, and you can expect an avalanche of emotional rebuttals. Now, we have learned that discussing Apple® computers must be added to the list of taboo topics. By now I’m sure that everyone in the blogging community is aware of the perils of after penning an article in Law Technology News relating his not-so-happy experience with an Apple.

    Apples are great for Apple-minded people. Creative team members at are Apple folks. They live happily, surrounded by a sea of PCs, all the time producing ads, product sheets, direct mail pieces, and delivering on our advertising and marketing needs with talent and speed. My first encounter with a personal computer was with an early Apple. My wife learned to tolerate the age of technology with an Apple. She has never completely adapted to her later PC replacements.

    It is like left-brain and right-brain differences in people or the “Women are from Venus and Men are from Mars” issue. Your brain just gets wired differently depending on which world you operate in—Apple or PC. I know there will be people who say they use both with no problem. There are professional baseball players that bat left-handed and right-handed—but I never could. Most other people can’t.

    Frustrated by the “Mac Attack” from Mac fans furious over his LTN article, Larry wrote “…Mac users are just realizing that they have bought orphan technology."

    Actually, Apple's strategy has proven to be sound when examined with hindsight. It is a strategy that ambitious midsized would be wise to consider.

    As the PC industry developed, Apple chose to be different rather than adopt the "me too" strategy of Compaq and other IBM wannabees. In a "me too" world, only the low cost producer can survive in the long run. IBM's strategy of a “universal” machine with mix and match components cost IBM its market leader role when others were able to operate at lower cost points.

    Apple has been able to survive and profit without relying on price or distribution channels for its competitive advantage. The low cost producer is always at risk that someone else will build a device that meets the needs of 80 percent of its market but at a significantly lower cost point. Niche players are less attractive competitive targets and it is much more difficult to one-up their value proposition.

    While Apple only holds a 4.8 percent share of the U.S. market, they have 100 percent share of the Mac fan market, and they hold that more securely than Dell holds its market. Besides, 4.8 percent of the U.S market isn’t all that bad.

    Morepartnerincome.com is sponsored by , Inc. For information about ® products and services for increasing law and partner income, go to www.Juris.com.

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    Filed under Planning by Tom Collins

    September 12, 2006

    Top 25% of Law Firms Earn Margins Above 40%

    11:31 am

    ’s Professional Services Marketing is well worth checking daily. In a recent post, he asks, "Is Your Firm’s Profit Margin 40%?” Then he points out that if it isn’t, it could be, based on his experience working with .

    Larry was one the folks who teamed up with , Inc. to encourage midsized to participate in the Law Firm conducted earlier this year. The results are in and and participants should receive copies of the 55-page and analysis within the next two weeks. The report will be available to others after September 30 for $375.

    Firms in the top 25 percent measured by per-partner income had an average margin greater than 40 percent. They didn’t get there by cutting costs or by having a higher than average . In fact, their cost per head is higher than the remaining 75 percent of firms. How can they spend more and still outpace other firms in terms of margin? They do it by concentrating on revenues rather than expenses. They generate more fee dollars per head through higher effective rates and better utilization of their legal team.

    The Law Firm of midsized U.S. for 2005 identifies 10 important factors that influence law firm and partner . For more information about the survey or to purchase the 55-page click on the image below.

    Morepartnerincome.com is sponsored by , Inc. For information about ® products and services for increasing law and partner income, go to www.Juris.com.
     

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    Filed under Blog by Tom Collins

    February 13, 2006

    Law Firm Recruiting: Test Before You Hire

    11:50 am

    I love it when someone puts their finger on the overlooked obvious.

    In commenting on Sullivan & Cromwell’s recent action increasing base salary of first-year associates to $145,000, ’s Professional Marketing advises to “Know what you're getting…”

    Bodine writes “Here's my radical suggestion: Why not hire associates based on their potential to bring in ? Give them a personality test to see if they have what it takes to become a rainmaker. Have the marketing director or marketing partner interview them to probe their inclination to develop business relationships and open new files.”

    Most first-year associates going after the big bucks aren’t planning to stay put. They have plans other than sticking around to make partner. The majority of those with initial partner intentions wash out within five years. "Keepers" in mid-sized must be able to bring business into the firm. They have to make rain to make partner. So why not first test to find out if they have a rainmaker’s personality? Tests are not foolproof, but they improve your odds.

    writes more extensively about the personality required to be a rainmaker in the Law Maketing Portal’s post Personality:Why 25% of Lawyers Can’t Sell.

    Morepartnerincome.com is sponsored by , Inc. For information about ® products and services for increasing law and partner income, go to www.Juris.com. © 2006 , Inc.

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    Filed under HR by Tom Collins

    January 23, 2006

    Blogs That Improve Law Firm Performance

    11:47 am

    If MorePartnerIncome.com is helpful to you in your role as a law firm partner involved in management, you deserve to know that it is just the tip of the iceberg. I am in awe of bloggers all around me. I regularly read 35 blogs daily, blogs written by some of the smartest people I know in the legal management arena. I often feel in their shadow after reading their skillfully written posts. Some are unbelievably prolific. I post daily and can’t hold a candle to bloggers who can post half a dozen or more items in a single day.

     
    Take advantage of the favorites list on morepartnerincome.com for a cornucopia of creative ideas that can kick your law firm’s performance up another notch! Every on the favorites list is worth your attention, but there are a few that stand out as absolute must-reads.  
     
    In my opionion, ’s Adam Smith, Esq., is the number one site. Bruce is a great essayist with rock-solid knowledge of his subject, the economics of the law firm.  He consistently achieves his original objective to address the issue of law firm economics with a polished, adult tone of voice, an approach driven by critical thinking.
     
    When it comes to marketing, ’s Professional Marketing blog is the top dog. This is where you can go for practical input on best practices involving business and practice development, public relations, branding, Web sites, e-marketing, brochures, newsletters, direct mail, announcements, press releases, relationship building, cross-selling, networking, conferences, referrals, visiting clients on site and reverse seminars.
     
    Rees Morrison’s Law Department Management speaks to your clients. Rees, a senior director of Hildebrand International, has his finger on the pulse of the general counsel community. I consider this the best for intelligence on the market place for law firm services. If you want to know what the consumers of your services are thinking, doing and planning, Rees’ site is the place to go.
     
    As great as the above sites are, there are many more from which you can draw for ideas to improve the performance of your law firm. These are places to shop for useful ideas when you face specific challenges and unfolding opportunities. 
     
    Here are a few of the many other blogs that should be on your short list. What About Clients? reminds us what this business is all about. The [non] billable hour challenges us to find more profitable and client-appealing billings answers to the billable hour. Jim Calloways’ Law Practice Tips, Law Practice Management, LawBizBlog, and Legal Marketing Blog all deserve your attention.  Leadership for Lawyers, The Legal Compass, Legal Sanity, Ben Cowgill’s Legal Ethics Blog, and Insearch of Perfect Client Service each are a valuable source of shared best practices.  Amazing Firms, Amazing Practices highlights real life examples of firms and practices that illustrate great thngs that can be accomplish by those who step out of the pack. The site occasionally shines the spot light on bad behavior as well. Between Lawyers, DennisKennedy.com, The Greatest American Lawyer each provides a constant flow of bright and creative new ideas and profitable tips.
     
    It is impossible to recognize all of those who are marking a remarkable contribution to the community of as they metamorphose into effectively managed professional service companies. You might wonder why these sites share there knowledge and advice free of charge? For the answer I will take you back to the ideas of . I doubt I can express them as effectively as might. ’s capitalists are motivated by the pursuit for individual wealth tempered by a long term perspective—one that includes the concept that others must do well for the system to work. There is an underlying desire to do good! Bloggers are self-motivated, driven by the notion that doing good pays. The world turns on trust and reputation. Bloggers build that trust and reputation by providing you with value—by “doing good”.
     
     Hook your star to these winners and you and your fellow partners will increase partner income and wealth while doing good.

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    Filed under Management, Marketing by Tom Collins

    November 10, 2005

    New Blog Mentors Law Firm Associates

    11:10 am

    Back on October 3, 2005, I posted “Teaching Law Firm Associates to Make Rain”. That post was prompted by the frustration of partners over the lack of rainmaking skills among associates.

     

    and Michael Cummings have teamed up to host a new blog to mentor those associates—helping them become rainmakers and partners. is a strategic marketing consultant. His , Professional Marketing Blog, is one of the most respected, frequently visited blawgs. Cummings is a principal with SAGE Professional/SAGE Law Marketing and coauthor of the book Best Practices in Building Your Personal Network for (2004). Here is a list of recent posts:

     

    Overcoming 8 Marketing Pitfalls

     

    Best Practices for Associates

     

    Rainmakers Reveal What Clients Really Want

     

    Associate Marketing Checklist

     

    This deserves watching. You may well want to make it a “must read” daily assignment for your associates.

     

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    Filed under Marketing by Tom Collins

    September 21, 2005

    Law Firms Struggle with Marketing Issues

    10:20 am

    Stephen Collins, , Inc. President, and Beth Keno, the head of the Professional Services group, participated at the Midwest Managing hosted by The Remsen Group last week.

    Marketing was one of the hot buttons discussed by attending partners. Marketing is still an issue are struggling with. There were a number of questions about what works and what does not, as well as how much spending on advertising is enough.

    One of the best discourses on the subject comes from ’s , http://pm.typepad.com. In the March 2005 issue of Law Practice, published by the ABA Section, Larry was asked by the magazine (page 35) "How much should I spend?"

    Larry’s answer is "whatever you’re spending, it isn’t enough." As he notes in an April 7, 2005, posting to his , corporations spend from 10 to 15 percent of revenues on marketing while spend less than 2 percent. The bulk of that spending is wasted dollars—tables at charity events, holiday cards, etc. Larry also noted that BTI Consulting Group’s research found that a marketing budget of $14,000 to $17,000 per lawyer yields optimal benefits measured in terms of revenue and profits per lawyer. For more of BTI findings, go to

    http://www.lawmarketing.com/pages/articles.asp?Action=Article&ArticleID=329.

    In future postings we will address some of the more effective marketing investments a firm can make and the relative weight that should be given to acquiring new clients and developing relationship with existing clients.

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    Filed under Marketing by Tom Collins

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