Timesheets. Are They Core To Your Business Model?
Yesterday on Twitter, a query was made as to whether there were any truly new law firm business models. A highly regarded legal consultant identified Valorem, Bartlit Beck, Traverse Legal and Shepherd Law Group as examples. There ensued a debate whether any of these firms other than Shepherd Law Group were different. According to the protagonist in this dialog, if a firm used time sheets, it was not "different."
At one point, I was laughing so hard that I started to cry. The idea that your business model is different and acceptable if you eschew timesheets but not different or acceptable if you use timesheets is lawyer-centric (or consultant-centric or accountant-centric) in the extreme. The debate on Twitter (perhaps owing to the 140 character limit) seemed to devolve into a "my way is better than your way" argument where there was precious little recognition of the business realities driving the choice of whether timesheets are used or not.
Let me begin by acknowledging that my preference is for a world without time sheets. If I am ever a buyer of legal services, I won't have my lawyers use them. But right now, I live in a world where I serve clients. Our clients are sophisticated buyers of legal services. If they tell me they want to see time records with a bill, even if the bill is not hourly based, I provide them. For many clients making the transition to non-hourly billing, the hourly records are important as they gauge value. It would be nice if they all believed as Ron Baker does, but that's not my world. I suppose I could refuse to take on such clients, but I have mouths at home that clamor for food. I can just hear the voices out there telling me I am a coward for not abandoning time sheets completely in the hope that clients will come as they have to others. With due respect to these voices, I do not see enough clients willing to go that road that I am willing to write-off the chance to represent 99% of corporate America. If I had a practice dealing with smaller matters or individuals or a more local clientele, maybe things might be different.
Beyond this point, both the expectation that courts have that any fee requiring court approval have time records to support it and the need to internally know who is available make time records important or useful. One person on Twitter wrote "since time records are an inherently inaccurate tool, how can they be used in court?" I have not debated the wisdom of this eons-old practice with any judges. But since I expect to be asking several to approve fees, I don't want to run the risk that I come across a judge who chooses to follow lines of authority basing approval of fees on time records. The visual of spitting into the wind comes to mind.
I've never told another lawyer that he or she should or should not use time records. I couldn't care less. I have spoken and written at length about aligning economic interests with clients. I know that this has to be done in a competitive marketplace and even those who don't use time sheets compete on price, at least to a degree. If they are more expensive than a comparable lawyer, the odds are many clients will chose the lower priced alternative. So if the lawyer factors into his or her pricing what a competitor is likely to charge, they have created a fee based, to some degree, on time.
If the debate is whether use of time sheets is relevant evidence of employing a different business model, I will pass on that debate as useless and a waste of, dare I say it, time. If the discussion is about how lawyers are aligning their economic interests with their clients, how workflow is different, how people are engaging in practices that deliver better results by eschewing use of baby lawyers, how lawyers are creating "wow" customer experiences and whether a model that is based on those things is different, I'll spend some time on that discussion because its about what the customer gets out of the relationship. But even these kinds of discussions are like talking about which team is going to win the Superbowl before the game is played. The conversation might be fun, but it really doesn't matter all that much, does it? The game still has to be played.
Instead of criticizing those who dare to change for not changing enough, it seems more prudent to be applauding anyone who tries something that's even a little bit different. A bunch of little changes will eventually beget big change. A larger scale change will benefit our clients, and that, to me, should be the focus of discussions.
Pat,
Once again, you are not taking into account the empirical evidence from firms that have ditched timesheets.
It changes everything. Ask any firm that has done it. It creates better customer relationships, better experiences, more loyalty, higher team member morale, etc. I know you are interested in achieving those things, so I hope you study this further.
These firms actually have found it quite easy to attract clients without timesheets. If clients demand them, why don't you emphasize your "value line" adjustment. After all, if they get an effective result, they won't care about time. You're pricing strategies are up to you, not your clients. Did the airlines ever ask you if they could transition to Yield Management? Do you get to see Porsche's internal cost accounting before buying a car? If firms did a better job at conveying and communicating value, clients would not give a hoot about time spent.
I understand the court challenges, but would beg your profession to change the courts' thinking on this, as many judges themselves have written about the deleterious effects of the billable hour (see Justice Breyer's Foreword to the ABA study). After all, Model Rule 1.5 says you should consider some 13 factors to determine a reasonable fee; only one is time. However, since it's the only one that be precisely measured, it's the one every one focuses on. The other 12 factors are far more important in determining value, but they are given little attention. Isn't it up to the legal profession to change the courts? If you're price is reasonable, agreed with the client up front, backed up with a service guarantee, will a court really challenge it? I think this is a red herring, and again I will ask you: If the court did change, and stopped looking at time, would you ditch your timesheets? Or would you then argue that the clients are demanding them?
I continue this debate with you because I do respect what you have done. I just wish you'd take it farther. You seem to believe that low price is the only thing that matters to "sophisticated buyers." This is nonsense, as every economic elasticity study proves, beyond doubt, that buyers are not price sensitive, they are value sensitive. I also disagree with your "penetration" pricing strategy. You shouldn't let your dumbest competitors set your price. If you truly offer better service and a better customer experience, and align the incentives, then you are worth a premium price, not a discounted price.
Another point: I'm on your side Pat. I spend my life helping sellers gain pricing power. I would not advocate these changes if I didn't have overwhelming evidence that they work. Every firm that has ditched timesheets has transformed, from team member morale to quality of life.
This is the business model change I am advocating. From "We sell time" to "We sell intellectual capital." Is it the only way. NO! I hope to see many different legal business models in the future. But I will tell you this: as long as the timesheet is the talisman of most firms (whatever the excuse) you will not truly evolve to a better business model, one that compensates you for results, not efforts.
Again, I may annoy you, and you may laugh at these debates, but I do enjoy them. You make me refine arguments, and I take your counter arguments very seriously. It's just that I have heard them all before, and I know you have the creativity to overcome the obstacles.
Sincerely,
Ron Baker, Founder
VeraSage Institute
www.verasage.com
Twitter @ronaldbaker
Hear Hear! Thank you, Pat, for keeping us focused on providing value to the customer. That is change in which we need to believe.
Patrick, I'm a big fan of yours. The website and blog have some of the best content around. Your blog is in my Google Reader and I definitely read all of the articles. In the spirit of Valorem, Shepherd and Verasage, I'd like to add my comments to this dialog.
My comment about the inherent inaccuracy of timesheets is intended to ask the question: Why would a judge (or a customer for that matter) want to you to prove that your fee is reasonable based on a tool that will always be inaccurate? I don't think there has ever been a timesheet that was filled out accurately.
Now if there is a law in Illinois or Cook County that says you must present one to a judge to be approved for a particular job then I guess you're stuck.
You say it is an eons-old practice by judges and I'm sure that is true. However, dysfunctional buying (a judge thinking that a time sheet actually tells him or her something) is a result of attorneys (and consultants and CPAs) practicing dysfunctional sales techniques (telling the judge or customer that a timesheet is valuable).
I'm not an attorney (and I didn't stay at a Holiday Inn Express last night). I'm a technology consultant who for the first 12 years of my business billed for my time. In my experience, and my company abandoned billable time and time sheets almost 3 years ago, a customer has never asked me how long something took nor have they asked to see a timesheet in those 3 years. Although it really would not make sense for them to ask for one since we have told all of them that we don't keep timesheets.
What value could a timesheet possibly have to a customer? They just want results and they really don't care at all how much time I spent.
Finally, I don't think Ron is trying to play a game of one up or "my way is better than yours". The point is: if you've done away with charging customers by the hour then why in the world would you continue to use timesheets? Isn't that a terrible inefficiency? Plus I think it is just plain degrading to a knowledge worker to have to track their time. It's not only inefficient and a waste of their time but it puts them in a position of having to tell lies.