This past week, The Remsen Group held the Southeast Managing Partner Forum in Atlanta.  Fifty-eight participants attended representing thirty-nine firms in the Southeastern region.  According to 23% the participants, marketing and business development was the most effective way to improve long-term profitability.  This eclipsed raising rates, which was rated as the most effective way to improve long-term profitability by 21% of respondents.

According to the 2007 Law Firm Economic Survey from LexisNexis, marketing and business development was second only to rates as the most effective way to improve profitability.  Yet only 3% linked compensation to marketing and business development activity.  It is apparent that firms consider marketing and business development as important keys to improving profitability.

In our 2008 Survey (currently accepting submissions - please click here if you would like to participate), we dedicate 19 questions on business development.  We hope to be able to flesh out what works for firms and what isn't working to improve profitability.

In a year where the majority of economic news points to an economic downturn, how a firm invests now will determine what opportunities open for it after the economy recovers.  It's worth reviewing some past posts that help firm's manage down cycles and prepare for the eventual upswing:

• RVs, Bananas and Recession-Proofing the Law Firm;
• Planning Helps Law Firms Weather A Bad Economy;
• Information-Driven Business Development For Law Firms;
• Management ABCs: The Hawthorne Effect;
• Marketing Advice for Lawyers During Economic Down Cycles;
• Retained Earnings Prepare Law Firms For Unexpected.

Another interesting statistic that follows earlier surveys is that over 2/3rds of the attendees of the Managing Partner Forum in Atlanta did not follow a firm-wide strategic plan.  John Remsen, along with John Smock and Thomas Grella, Esq., have teamed up to provide a web seminar on Law Firm Strategic Planning.   John Remsen is the owner of The Remsen Group, a marketing consulting firm that is focused on the law firm market.  John Smock is a management consultant and partner with Smock Sterling strategic management consultants.  Mr .Grella is the Managing Partner of  McGuire Wood & Bissette, PA and co-authored the book The Lawyer's Guide to Strategic Planning published by the American Bar Association.  The webinar is scheduled for  June 10th at noon eastern.  To register, click here.

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Goals-based strategic planning takes a different tact than a "basic" strategic plan in that there is a singular focus by which the firm sets goals.  Focusing on financial goals is more manageable and attainable than the comprehensive strategic plan, but requires attention and accountability nonetheless.  Aspects of goals-based planning include:

1. Identifying key performance indicators that affect profitability
2. Developing goals for each indicator
3. Develop a budget based on the goals
4. Forecast earnings based on the budget
5. Measure and adjust

Identifying key performance indicators that affect profitability  - The key drivers to profit include leverage, rate, realization, productivity, margin and cash flow.  Firms may also want to include other indirect drivers such as client development (relationship building), "firm citizenship", etc. that may not have a direct impact on profitability, but are part of the core values that the firm holds.

Developing goals for each indicator - goals are particular to each fee earner but in total should reflect the financial targets for the equity partners.  Each goal should reflect the capabilities of the fee earner and the realities of the market.  For example, productivity targets may reasonably be set to 1,800 hours per year but setting the hourly billing rate at $350 may be unreasonable for a second year associate who works exclusively in insurance defense.  Set goals that are attainable.

Develop a budget based on the goals - Budgeting simply states your goals in a measurable way.  Fee earner budgets measure your productivity; client budgets measure your efficiency; expense budgets measure your spending.

Forecast earnings based on the budget - Forecasting models your budgets so that you can predict the results.  It isn't enough to just state goals. Forecasting allows you to see what the bottom line will be if you meet your goals.  If the bottom line isn't what you wanted, adjust the budgets until the forecast is agreeable.  Most businesses forecast annually with quarterly reviews.  During the quarterly review, the forecast can be adjusted based on the actuals.  If business is thriving, you can increase your forecast - if business is down, you can reduce the expectation set in your annual forecast.

Measure and adjust - like anything else you implement in the firm, you must measure performance and be willing to adjust if needed.

We have begun taking submissions for the 2008 Law Firm Economic Survey.  If your firm is interested in participating, please contact Brian by clicking here.

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On the plane coming back from Philadelphia  I was asked by a colleague of mine, Tiffany Poulton, what I thought was an obstacle to change.  After a brief pause, I mentioned that perceived difficulty would be an obstacle to change.  She responded, "what about fear?"

It brought to mind a book and a play I read in college.  The book, Henry James' Beast In The Jungle, is about a man who spends his entire life waiting for an awful event that is to happen to him.  The play, Eugene O'Neill's The Iceman Cometh, is about a group of drunks who waste their lives living in the tunnel of a pipe dream, refusing to change and face their own realities.

In both of these works of fiction, fear is the main driver inhibiting change.  John Marcher, James' protagonist, is so self absorbed in fear that he can't see that he has many opportunities to free himself from the chains he has attached to his life.  Only when realizing his lost opportunities does he see that the "beast" is his own lack of action that has cost him the only thing that brought him comfort in life.

In O'Neill's play, his protagonist, Hickey, has already overcome his obstacle to change, self realization (never mind that it was done by murder), and though he attempts to share that knowledge to his peers, their own fear to accept who they are prevent them from waking from the intoxicated blur of their lives.  As the antagonist Harry exclaims, "Stay passed out, that's the right dope. There aren't any cool willow trees–except you grow your own in a bottle."

What is the obstacle that prevents change in your office?  Is it comfort?   Perceived difficulty?  Or is it fear? 

Why do some attorneys refuse to enter their time as work is performed?  Is it that they are too busy?  Or afraid of the expectation of adding another chore to their workload?

Why do some firms not establish and maintain a strategic plan?  Is it that planning is too time consuming and difficult?  Or are attorneys afraid of being held accountable to the results?

Why do some partners refuse to share work with associates?  Is it a lack of trust?  Lack of motivated associates? Client demands? Or fear that they won't be able to replace the work and thus their compensation may be adversely affected?

It's been said that the only constant in life is change.  However, embracing change for the sake of it alone won't improve income.  Any movement to change processes or habits should be looked at through the effects it can have to your bottom line.  How would it affect productivity to require attorneys enter time as work is performed?  What would happen to the relative tranquility of the firm if you implemented a strategic plan and held everyone accountable for the results?  How would requiring partners to shift work to associates affect the quality of services provided your clients?  How would it affect compensation?

When addressing concerns, be mindful of fear.  Fear may be underlying every reason why the change is fought.  The pipe dream of the status quo may have your attorneys in a self-absorbed state of fear of change.  At all costs this must be defeated to enact meaningful processes that will increase value to the firm, its clients, and its members.

Otherwise, as is written to end O'Neill's play, "The days grow hot, O Babylon. Tis cool beneath the willow trees."

 Tom Collins has written many times on the subject of change in the law firm.  All of them are highly recommended.  Some are linked below:

• Law Firm Plan Is To Change The Plan
  
• The Right Way To Manage Change In the Law Firm
  
• Getting Agreement To Change From Law Firm Partners
  
• A Law Firm's Future Depends On How Well It Can Change
  

 We have begun taking submissions for the 2008 Law Firm Economic Survey.  If your firm is interested in participating, please contact Brian by clicking here.

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Sharon Berman with the marketing consulting firm Berbay Corp wrote about Strategic Marketing Momentum in the April issue of The Bottom Line, the official publication of the State Bar of California Law Practice Management and Technology Section. Her point is basic. You can major in minors when it comes to marketing, running in place and making very little progress, or you can decide to take an organized “planned” approach to marketing.

First you have to have a strategy. You have to know what you want to accomplish not only quantitatively by qualitatively. What kind of business do you want, who do you want it from and how much of it do you want over what time period. If you can answer those questions, you are off to a good start. Keep in mind that success is more about doing the right things than anything else. Deciding what kind of business you want is likely to be the most important decision you make when it comes to determining the success of your firm.

The next step is identifying the tactics you will use to pursue your goals and then laying out the activities, programs, and assignments for implementing your tactics. Berman lists the following tactics that should be a part of your plan:

• Public relations: Writing, speaking, being quoted in the media
• Advertising: Depending on what you want to accomplish, paid advertising may be an appropriate tactic
• Networking: Organizations, referral sources, existing clients, peers, etc.
• Marketing Materials: Printed media, newsletters, websites, blogs, podcasts, etc.
• Direct mail/e-mail: Consistent communication pays off

Here is the caveat. Success depends on planning, setting goals, measuring performance and holding people accountable. Remove any of those four components and results will, at best, be inconsistent, producing marginal results. Setting goals, measuring performance, and holding people accountable has to be taken down to the individual attorney level.

Morepartnerincome.com is sponsored by Juris, Inc. For information about Juris® products and services for increasing law firm performance and partner income contact Juris National Sales Center: Phone 877/377-374, e-mail info@juris.com or go to www.Juris.com.
 

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Partners in smaller law firms do not have to settle for lower income. The Juris Law Firm Economic Survey found that even the smaller midsized firms had some representation among the top performing 25 percent of law firms. Nevertheless, it was true that the smallest firms were the most likely to be in the bottom quartile of partner income.

What makes the difference?  It isn’t size alone. Certainly, firms with 10 or fewer attorneys live closer to the edge. The loss of a client or a key lawyer or a significant increase in a particular cost such as rent can have a very sudden and material adverse effect on partner income. So, too, can the admission of a new partner as leverage falls. It is also certainly true that firms with 10 or fewer attorneys often don’t have access to the support resources in the areas of information technology, finance, and administration that are enjoyed by firms with even just a little more size.

Considering the greater partner income sensitivity to adverse events and the challenges faced on the infrastructure and management side, it’s not surprising that the smallest law firms have a greater probability of performing poorly in terms of partner income. But with that being said, even the smallest of firms can achieve very significant levels of partner income—as good or better than the biggest of firms—if they manage their practice with a strategic plan and take proactive and disciplined action to ensure they perform well across the key profit drivers for law firms.

The number one reason many smaller firms underperformed involves pricing.  The Juris Survey indicates that smaller firms tend to under price their services relative to larger firms either out of pricing inexperience, a lack of competitive knowledge, or an inability to communicate their value proposition—the expressed or implied reason prospects should select them over a larger firm.

Rather than price, small firms should look for a competitive advantage elsewhere. That usually requires special knowledge of an area of law as it applies to particular kinds of prospective clients within a defined jurisdiction. A law firm that specializes in a given industry, for example, can develop an understanding of that industry in a way that will elude larger competitors lacking the same narrow focus. That focus has many advantages and those advantages can be parlayed into the most important competitive advantage of all—market leadership.

While pricing is important, other key drivers play an important role as well.  Top performance law firms, regardless of size, pay attention to all of the profits drivers. They understand the Law Firm Business Model. They pay attention to the numbers.  In addition to price, they use leverage to their advantage, pay close attention to utilization (individual attorney productivity) and keep realization high. Partners in the firms that do those things, regardless of firm size, earn two to seven times the income of those who don’t.  For more about the Law Firm Business Model, read the prior post Measurement Improves Law Firm Performance. 

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

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Guest author: John Remsen, Jr.

Many midsized firms seem to think that strategic planning is for larger firms. However, any firm with an eye toward the future can benefit from the process. Planning can help a firm develop a consensus on key big-picture issues, promote internal communication within the firm, inspire attorneys to get out and do things they wouldn’t otherwise do, and help the firm allocate its resources more effectively. With leadership, commitment, and a good strategic plan, any firm can develop a profitable practice working with clients it enjoys and in the areas of law it finds most appealing.

Establish a Sense of Urgency: A sufficient number of lawyers in the firm must believe that it is no longer “business as usual” and that strategic direction is necessary if the firm is to survive and prosper in the years ahead. They must instill and constantly reinforce a sense of urgency that change is necessary.

Commitment from Firm Leadership: Firm leadership (or at least a critical majority) must have a genuine commitment to develop and implement a strategic plan. Without strong leadership and passionate commitment, it is still “business as usual,” despite the rhetoric. Under these circumstances, the firm’s efforts are doomed to fail.

Involve all Partners in the Process: At the end of the day, the owners of the firm must buy into and support the plan. By involving each of them in the process through a series of one-on-one meetings and/or in a group brainstorming session, each partner will feel a part of the planning process. The likelihood of success jumps dramatically. Associates and staff must also buy into the future of the firm. Special programs that enlist their support will add to the plan’s successful implementation.

Keep the Plan Simple and Focused: If the firm is developing its first strategic plan, it should keep the plan simple and focused. Most firms try to take on too much too fast and wind up accomplishing little. With a realistic plan and by starting slowly, the firm is able to maintain its focus on the most important projects. The firm can always add to the plan later. A law firm is wise to start slow, publicize success, and grow from there.

Create a Plan that Lives and Breathes: Once a strategic plan is adopted, it does no good to set it aside, never to be looked at until the following year, if at all. The plan should be a flexible and dynamic instrument. Its principles should be incorporated into the firm’s day-to-day operations. Firm leadership should communicate the goals and objectives of the plan often and in a variety of ways throughout the firm. Make sure everybody has a copy. Review it at internal meetings. Update it often. All important decisions should be considered in the context of the plan. If the firm makes decisions contrary to what is contained in the plan, it needs a new plan.

Establish Accountability: Nothing happens without accountability. For most firms, this is best accomplished at monthly meetings of small groups (five to six individuals) of attorneys, often organized by practice group. There must be a strong group leader and meetings should have an agenda and meeting notes. Assignments must be made and progress must be monitored.

Measure and Reward Desired Behavior: Simply stated, the firm needs to measure and reward desired behavior. If the firm wants its partners to spend time training younger associates, the investment of non-billable time in the firm’s future must be measured and rewarded. If the firm determines that business development is important, it should reward it through recognition, origination credit, and/or by measuring and rewarding effort. Otherwise, behavior changes will not occur. Without incentives (or disincentives), it’s “business as usual” and there is little change.

Giving Everybody A Role to Play: There is no right or wrong answer here, but the firm must determine each attorney’s role when it comes to investing in the firm’s future. What about associates? Is it the same for everybody, or do we ask different attorneys to take on different responsibilities?

Making it Happen: The strategic plan is not an end, in and of itself. It is a process through which a law firm contemplates its future and determines how it will allocate resources to take it where it wants to go. Without implementation, a strategic plan is worthless. Planning should never replace and distract from the doing part of the equation. Implementation must be given the highest priority.

#####

About the author: John Remsen, Jr. is the principal of The Remsen Group, a marketing consulting firm that works exclusively with law firms. He is the past president of the Southeastern chapter of the Legal Marketing Association and served on its national Board of Directors. He is a member of the editorial board of The Managing Partner Advocate. He can be reached at 404.885.9100 or jremsen@theremsengroup.com.

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

This article is copyrighted separately and published in morepartnerincome.com with the permission of the copyright holder.
© 2006, The Remsen Group.

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It happens in every law firm. The tail has a tendency to wag the dog. It is called Sub-optimization and it cuts into partner income.

Sub-optimization is when the interest of certain departments or individuals drives actions and decisions rather than the goals and objectives of the organization as a whole. It is as if the organization chart has been turned upside down.

I hesitate to tell you how often I have spoken before groups of law firm accounting or administrative personnel and had someone in the audience remark, “We don’t want our lawyers to know they can do that.” That confession is sometimes followed by a chorus of support from a portion of the audience. Their interest in maintaining their work routine without disruption was in control of their actions. They would withhold information about tools and capabilities already available to you through your existing law office business systems because your use of those tools might disrupt their established routine.

Sub-optimization is a naturally occurring tendency in any organization. Sub-optimization is most intense when the organization fails to effectively communicate the goals and objectives of the entire organization. It is lowest when the organization has communicated each area’s role in pursuing those objectives. People need to know where the organization is going and how they are expected to contribute to that journey.

The law firm needs to be one team pursuing common goals with a common set of core beliefs.

Surveys indicate that less than 16% of all law firms have a written strategic plan. That does not mean that the partners do not have a consensus about the direction and goals of the firm. Partners meet frequently, and while some disagreements may exist, there is considerable unity among partners about where they want the firm to go, how they want the firm’s clients to feel about the law firm, and the efficiency and effectiveness of the law firm as a team.

If your firm doesn’t have a formal plan that can be communicated to the firm’s team, work with the other partners to fashion a statement of direction and expectations for how the law firm wants to be perceived by its clients and others. Document and communicate throughout the firm, how each area is expected to contribute to the accomplishment of that road map to the firm’s future. When you do so, you give your administrative team and your associates a good feeling about their job and how their performance contributes to the firm’s goals and mission.
 

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There are business reasons for lateral hires but it isn’t a piece of cake.

Lateral hiring of a partner is a mini-acquisition, fraught with many of the same problems. Phyllis Weiss Haserot, President of Practice Development Counsel reported that 40% of new partners have now come into their firm as a lateral hire. I find that amazing considering the difficulty of making a success of a lateral hire. But I have no reason to question her 40%. In fact, I would say that if you want to find out how to be successful with lateral hires, she and her Web site www.dpcounsel.com are one of the best sources around.

Acquisitions and lateral hires are not always winners. At the partner level, lateral hires are usually “book of business” deals. Law firm’s aren't just hiring talent; they are acquiring a new book of business. Like any acquisition, there should be some motivation other than just getting bigger. The deal should be a part of the law firm’s strategic plan or at a minimum consistent with it:

Movement into a key geographic market place

Expansion into a new or adjacent practice area

Acquisition of strategically important key clients

Continuity issues—addition of a future firm leader

Addition of cross-selling opportunities

For dominant market share

There are a lot of train wreck hires that sounded good but jumped the track early.

• The ability to move clients is usually over estimated.
• Acquired clients with cross-selling needs already have someone meeting those needs so cross selling is not as easy as might be expected and, at best, takes far longer to realize.
• You know what you know, and moving to a new practice area may only look like greener grass.
• In today’s environment, key clients have less loyalty to a particular firm or attorney.
• The new hire grew into partner material in a totally different environment and is likely to resist changing to become one of the team. Likewise, the team has worked hard to get where they are and are going to be skeptical and judgmental of the newcomer.
• You face the risk that you have added a “problem partner” or one with “bad habits” that will be disruptive or even divisive.
• The addition requires a significant investment on the part of existing partners:
• It takes time, usually six months, before the firm can expect collections to begin to fund the additional cost.
• Initially non-productive cross-marketing investments and efforts negatively impact exiting business and productivity.

The risk is great enough to be cautious. The firm without prior experience should approach lateral hiring slowly. Several laterals in a short time period can easily turn into a losing “bet the firm” move. Carry out due diligence. Check references, have an extensive background check performed, talk to ex-partners and employees of the lateral’s existing firm, talk to the lateral’s clients, etc. Even then, add laterals only under a two- or three-year probationary plan. Either party can walk away. Don’t underestimate the investment existing partners will have to make. There must be multiple partners who own the deal and are determined to make it work. Without mutual ownership, mutual destruction is more likely.

When adding someone new, I ask the following questions:

Can they do the job?

Will they do the job?

In this environment?

With these people?

I know from experience that the "in this environment" and "with these people" questions are the hardest answers to determine in advance and are critical to success. That holds true for lateral hires. If they come aboard to play by their rules, not your rules, and/or don’t fit the existing personality of the firm—that addition is going to be unpleasant and unprofitable for all.

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• 84% of surveyed firms do not have a written strategic plan
• 13% of managing partners focused on long-term strategic objectives
• 46% of managing partners focus on initiating change or day-to-day administrative matters as their #1 priority
• 64% of firms have a very or somewhat democratic governance structure
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