January 2009

In today’s world, there is little doubt that, with very limited exception, the business of law is now a buyer’s market.   The number of layoffs at large firms, and the demise of several prominent firms seem to confirm this.  Certainly the anecdotes of revenue declines in 2009 do as well.  But not only are we a buyer’s market, we are in a service business.  Combine those two things and insights into the thinking of buyers becomes priceless.  (It was before, but at least now no one should want to argue the point.)

On Friday, I had the opportunity to listen to a panel of distinguished General Counsels who, among them, were responsible for many tens of millions of legal spend.  Maybe even nine figures worth of legal spend.  Certainly enough that one ought want to hear their views.

Let me quote from my notes (the quotes indicate I wrote down verbatim what the GC said):

"the cost pressures are unprecedented."

"we can spend only if we can show it adds to our competitive advantage"

"A substantial amount of my time is spend on finance issues.  We did up a bottom up budget and were told to reduce it by 25%."

"Firms must recognize we are living in a different world"

And so it went on.  One after the other made this point and then came back to it to emphasize it.  Several commented on their frustration with firms that sent the annual rate increase letters (don’t say I didn’t warn you) and the missed opportunity of trying to lower rates (again, you heard it here).

So, for those law firm leaders who have raised rates and laid off associates and others, might I suggest a sabbatical to go to business school.  You will not sustain a business by ignoring the needs of your customers–ever!  And certainly not in a buyer’s market.

Is anybody listening to the buyers?

 

Well, to be precise, it’s not about time.  That’s why it’s time to take the plunge. 

There are some lawyers out there—you know who you are—sitting in your large comfortable offices wondering what will happen to your firms as this economic cataclysm continues.  You know your firms are pursuing the wrong business model.  You know your clients need the flexibility afforded by fee arrangements your firms will not countenance.  Yet you continue to sit.

Inertia is a powerful force.  You know the old maxim from high school physics: an object in motion tends to remain in motion while an object at rest tends to remain at rest.  You sit there at rest.  But there is a gnawing doubt in your mind making you wonder whether this is the best approach to your future and for your clients.   It isn’t.  The profession is going through a revolution.  Those who see the future and take appropriate action will thrive.  Those who sit by and wait will die.

The assumption buried in the belief that you can wait until it is obvious that you must jump or die is that there will be an opportunity to jump at the point you convince yourself to stand up and move out.  That assumption is ill-founded.  The opportunity exists now, but it will only exist for a while.   When the market does its next somersault, the opportunities simply may not be there for you.  They will be for your clients, however, and your inaction will force your clients to decide between you and economic rationality.  Are you sure they’ll choose you?  The data suggest they’ll choose savings over relationships.

So, my advice to you?  Take the plunge.  The water’s better than fine.  And there’s still room to swim.

[ My apologies to my partner Nicole for shamelessly trading on the theme of her inaugural “glog” post, but it worked so well in this context that I couldn’t resist.]
 

Fred Bartlit tells a story in a Legal On Ramp post that bears publicizing:

Last night a young lawyer from a top school told me about one of his best friend’s experience in a large Chicago firm

(Now – this IS hearsay because it is second hand, but I know the source well and believe the story)

His friend has always had top reviews. Top.

This year he is told "you are in trouble. YOU DID NOT MAKE YOUR HOURS"

He replies that he finished every assignment efficiently and was always told how good his work was.

The reply? "you are too fast. Slow down. Study the cases more carefully"

And, "you are in trouble b/c if your hours are up this year, we will think you have faked them to keep your job"

I AM NOT KIDDING

Firm has made decision to get rid of the fast, smart, efficient lawyer in favor of slow working drones.

And some people wonder how strong a message large firms deliver to their associates that hours count more than anything else. 

You can’t make this stuff up, folks.  And no matter what BigLaw spokesmen or apologists say, this kind of institutional pressure is inherent.  It is part of BigLaw DNA.

Mark Slatin has a most interesting post on Trusted Advisor.  In Transparency and Selling, he writes:

Yet, we’re trained to go in come back with information that will close the sale. Hunt it, kill it and bring it back to eat.

• What if, instead of dancing around an answer we don’t know, we just admit we don’t know?
• What if, instead of promising something we probably can’t deliver, we admit that and then tell them what we can do?
• What if, instead of offering “teaser” pricing and then covertly getting it on the back end, we share our cost structure?

These examples are counter-intuitive–downright treasonous in some circles.

Without the pretension, void of false promises and out on a limb – we are, admittedly exposed, naked and vulnerable.

But wouldn’t you rather buy from a seller who is willing to show you his cards, even if–perhaps because–you both know it might cost him the sale? That visceral reaction works in reverse when transparency dominates relationships (think Madoff, Blagojevich).

There are some great insights here.  One thought that immediately pops up is the pressure to cross-sell.  I wrote about that issue in Can I introduce you to my partner (pssst–what’s your name?)?  But Mark’s piece provides much more insight into the notion that selling is all about building trust and having the client’s needs come first.

Let me tell you a short story.

A senior in-house lawyer is meeting with the CEO to talk about a problem the in-house lawyer had been asked to solve.  The in-house lawyer describes how his efforts at negotiation had failed, so he had taken steps to find a random person off the street so that person could resolve the problem for the in-house lawyer.  The CEO looked at the in-house lawyer like he was out of his mind.  The in-house lawyer, now worried by the CEO’s reaction, asked if the CEO would feel better if he instead chose 12 people randomly from off the street.  The CEO fired the in-house lawyer.

Does anybody think the CEO is crazy?  Me either.  But let’s rerun the story with three extra sentences.

A senior in-house lawyer is meeting with the CEO to talk about a problem the in-house lawyer had been asked to solve.  The in-house lawyer describes how his efforts at negotiation had failed, so he had taken steps to find a random person off the street so that person could resolve the problem for the in-house lawyer.  The random person assigned to the lawsuit was Judge Smith.  The Company’s outside counsel was trying to find  some background on Judge Smith. The CEO looked at the in-house lawyer like he was out of his mind.  The in-house lawyer, now worried by the CEO’s reaction, asked if the CEO would feel better if he instead chose 12 people randomly from off the street.  The in-house lawyer assured the CEO it wasn’t too late to submit a demand for a jury.

Do the three highlighted sentences change the way you feel about the story? 

Let me acknowledge up front that I am a litigator and there is nothing I love more about my job than trying cases.  With that caveat, however, there are way too many cases filed and litigated vigorously that should never be litigated.  And those cases always end up settling.  Why?  Because the issue involved is too important to let a random person or 12 random people decide the issue.  Neither a law degree and a black robe or swearing the oath of a juror are qualifications to decide disputes between businesses. 

Lawyers (both inside and outside, and frequently both sides of a  dispute) involved in litigation do not spend enough time figuring out which cases are wheat and which are chaff, which must be tried and which can be settled.  The result is a monumental amount of wasted money.  Of course, that money is wasted on outside lawyers, so they’re happy.  But at some level, isn’t the solution obvious?

Tomorrow, or someday soon, some thoughts on solutions.

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For quite a while now, Pat Lamb, my partner in Valorem Law Group, has encouraged me to write a “guest blog” entry (we affectionately call it a “glog”) on his blog.  Never one to shy away from either a platform or a new adventure, I told him I would definitely do so.  That was several months ago.  In the passing time I considered a number of topics and spent more time than I care to admit on some drafts.  And now, if for no other reason than to put myself (and Pat) out of misery, I’m taking the plunge.  So here is my inaugural glog post – directed to in-house counsel, primarily, but also borne out of my own glogging experience.

Much like diving into the blog world, in-house counsel need to take the plunge into the world of alternative billing arrangements.  And not the dip-your-toe-into-the-water-and-slide-in-slowly plunge.  I am talking about the type of cannon-ball plunge that is loud, draws attention and sends torrents of water over the edge of the pool.  Because while everyone is psychoanalyzing inertia, the safety of the status quo, and the phenomenon of human resistance to change, time is awastin’ (yes – pun intended).  The power is in YOUR hands to demand whatever you want from the industry – especially in this economy.  So why have so few taken advantage of this power to move away from the billable hour (and also to require the staffing and promotion of minorities and women  — different topic for a different glog, but I couldn’t resist)? Are you trying to be judicious with your influence? How is that working so far?

Please don’t tell me that the legal industry just can’t change that quickly.  It can if you drive it – if not with words, than with your business. It’s true that large firms so embody the billable hour model that radical change is simply not an option for them. To borrow a phrase from Pat, it would be like trying to turn an oil tanker around in a bathtub.  But are you willing to hitch your star and your company’s future to an outdated and ineffective model when everything about it is at odds with your company’s own profitability and survival? Even though large law firms can’t or won’t change, many other ones have already.  Valorem joins Bartlit Beck, Exemplar and the recently created Confluence Law Partners (and there are others) as law firms just waiting to not bill you by the hour.

The operative question isn’t whether the legal industry is ready, willing or able to change – it is whether you are.  We are constantly hearing from clients and prospects about how their budgets are shrinking, litigation costs are increasing, and their outside counsel costs are exploding.  And yet, rather than do what is needed to remedy the problem, they continue to funnel the vast majority of their work to their old firms and they continue to complain.  A few years ago I would have thought the country was resistant to change – but the best example of people’s tolerance (and desire) for change just got sworn into office last week…twice!

If you really abhor the billable hour model, the ever-rising hourly rates (how did you like those rate increase letters this year?) and the disincentives to being efficient, creative and results-oriented, then trade in the most hated 8 words in the English language (“because that’s how it’s always been done before”) for three more profound (okay, practical) ones – “Take The Plunge.”  Why wait for the tipping point, when it takes time and sends out only a ripple? Why not make the type of splash that makes people sit up and take notice (and while you’re at it, take some friendly GCs from other companies with you).  The ability to change is in your hands – now take them, wrap them tightly around your knees, and jump.

Phew, that’s it. I’ve done it. My first glog post. And believe me, when it comes to blogging, I’m no Pat Lamb – but it only took a moment to realize that now that I’ve taken the plunge, the water really is quite comfortable (even if my hands are pruny).

 

 

My partner, Nicole Auerbach, has finally agreed to be a regular guest blogger on In Search of Perfect Client Service.  If you like some of the material I post, I guarantee you will love Nicole’s offerings.  She is much smarter than I am, funnier and definitely a better writer.  She is one of a handful of people that I look to for insight and inspiration.

As I have written before, she is Valorem’s soul.  Look for her posts soon!

RainToday.com has published a new report, How Clients Buy: 2009 Benchmark Report on Professional Services Marketing & Selling from the Client Perspective.  The report, which runs 57 pages and provides data from more than 200 buyers of accounting, financial, legal consulting and other services, costs $345.  Among the many highlights and insights:

  • 52% of the buyers of legal services, even those who rate their lawyers 4 out of 5 on a satisfaction scale, are willing to switch providers.
  • 83% of buyers say the the service provider’s website holds "some influence" or "a great deal of influence" over their decision to engage a provider.
  • the most commonly experienced problems by buyers were that service providers did not listen to them (38%) and did not respond to requests in a timely manner (30%), did not understand their needs (30%).

The report includes RainToday.com’s analysis of the survey data, which I found insightful.  Those who need to remind their principals of the need to continue to invest in marketing and client satisfaction efforts during economic downturn will want to have this report as part of their arsenal.

Ed Poll of LawBizBlog and LawBiz Management has been advising lawyers for 25 years.  Ed is one of the people I look to regularly for ideas and inspiration.  His recent post, Corporate Counsel Want Value, frames an important question.   The post discusses comments by Susan Hackett of the Association of Corporate Counsel about ACC’s Value Challenge.  Ed writes:

The "Value Index" being developed by ACC is intended to measure, among other things, client satisfaction with the services provided by their outside counsel. The concept is that of a scorecard, not a ranking. Defining "value" will be a difficult task. Ultimately, the definition may have to be left to the respondent. ("Beauty is in the eye of the beholder.")

Yesterday, I was discussing Valorem’s approach to alternative fee arrangements with counsel from a large law firm.  One arrangement, indeed our preferred arrangement, is fixed fee with a holdback, where we leave the payment of the holdback to the client’s discretion based on their satisfaction with our work.  In this conversation, as well as others, I hear a sense of something ranging from amazement to incredulity to a belief that we are out of our minds. 

Let me respond to the doubters.  Value, like beauty is in the eye of the beholder.  We are in a service profession.  If cannot adapt what we do to satisfy each consumer of our service, we are missing the whole point of being service providers.  The key to quality service is the ability to detect that which each client wants and the ability and flexibility to adapt what you do and how you do it to deliver the customized service needed to satisfy and please.

 

What About Clients? periodically reviews its 12 Rules of Client Service.   Rule 10 is one of the most nuanced.  From today’s WAC?:

Rule 10: Be Accurate, Thorough and Timely–But Not Perfect.

Ah, devil perfectionism: it’s the curse of eldest children, professionals, many knowledge workers, most lawyers, all spouses, your Mom, and the geek classes, or Techwazee. The horror, the horror. Be excellent, not perfect. See Rule 10 in WAC?‘s annoying-but-accurate 12 Rules.

"Be excellent, not perfect."  Sounds like a line from an inaugural address.  But for the sake of completeness, I went back to the original discussion of Rule 10:

"But Not Perfect." Not talking about mistakes here. I refer to the paralysis of high standards. I know something about the second part of Rule 10–because I tended to violate it when I was younger. And I still want to. Perfectionism is the Great Destroyer of Great Young Associates. Don’t go there. Don’t be so stiff and scared you can’t even turn anything in because you want it "perfect" and you keep asking other lawyers and courts for extensions. It’s not school, and it’s no longer about you. Think instead about Rule 8: Think Like The Client–and Help Control Costs. Balance efficiency with "being perfect", and err on the side of holding down costs. If a client or senior lawyer in your firm wants your work to be "perfect", and for you to charge for it, believe me, they will let you know.

The failure to achieve anything close to this balance is certainly high up on clients’ "drives me up a tree" list.  I know the conversations we routinely have with our associates on this issue.  But it made me wonder, when you have hundreds or thousands of associates, how to train them to strike this balance in a way that is satisfying to clients?  Particularly when you are paying salaries and bonuses and advancing people to partner based on excellence and hours and not balance?