The primary dimension to running your firm like a business is simply having a strategy. Michael Porter observed that “strategy is a choice;” our preferred way of saying the same thing is, “strategy means saying no.” Once you’ve established that, here are other critical components of approaching your clients and your engagements in a businesslike fashion:
- Make sure high-level, very well-qualified (and appropriately compensated) business professionals have not just a seat but a voice at the table.
- Operate through intellectually and cognitively diverse client-facing teams: Lawyers, sure, but also professionals from operations, finance, data analytics and IT, competitive intelligence, journalists/story-tellers, and more.
- Replace or upgrade your financial systems so they can provide you with near-real-time revenue and profitability statistics, resource allocation, alerts and “escalators,” and make sure that your metrics have consequences (positive and negative) for those responsible for managing them.
- Put in place a thoughtful, comprehensive strategic client account management program. Stick to it.
- Invest in obtaining serious, reliable business intelligence, and use it as your basis for decision-making. No more decision-making by anecdote or pursuant to what the loudest voice in the room said last.
- Did we mention holding people accountable? For goals, deadlines, performance hurdles?
- And finally, spending a small but non-trivial amount of your annual revenue on R&D; your clients all do.
In a Gray, lawyers are a part of the team, but only a part; they are not first among equals. This means they are not permitted to second-guess or micromanage business professionals—no more than the business people would presume or care to oversee the lawyers’ trial or deal negotiating strategy. Let each group do what it does best and stay out of the other’s way.
If you’ve followed what we advise here about being a Gray, one over-riding thought might be in your mind: This doesn’t sound much like running a law firm in days of old. No, and that is very much the point: One we will return to at the conclusion.
[1] The dataset we saw, as of May 2019, can be summarized as follows:
| Matter type | Law firm: cost and duration | NewLaw: cost and duration | ||
| Small litigation (M&A reps & warranties insurance claim) | $111K | 8 weeks | $29K (-74%) | 3 weeks (-63%) |
| Mid-size international arbitration (3 continents, 2 law firms) | $2.0M | 23 weeks | $0.3M (-83%) | 6 weeks (-73%) |
| Large regulatory investigation (SEC, NYAG, CFTC) | $18M | 80 weeks | $4M (-78%) | 30 weeks (-63%) |
| Client comments re quality: | “[NewLaw]’s work product is more substantive [than] the law firm’s.” “Exquisitely helpful…such a good job [that] we now have time to think up new thoughts.” “99.97% accurate; they serve as co-counsel, not just a vendor.” | |||
[2] We don’t want to pick on partners. Associates exhibit belief in the same delusion when they rationalize their entitlement to high starting salaries by reference to what they “need” to be paid to handle the high student loan burden they have incurred.
[3] “Crash Course: How a small group of firms pivoted and profited after the recession,” April 23, 2019, available at https://www.law.com/americanlawyer/2019/04/23/crash-course-how-a-small-group-of-firms-pivoted-and-profited-after-the-recession/
Intuitively, the 3 or 4 multiple feels about right to me (“half the rates * half the time”) but this field is so full of people with axes to grind that it would be interesting to know more about the dataset cited – how many matters were in the three categories, how the researcher ensured comparison of like with like, how many clients were interviewed, how an unbiased sample of clients was identified, etc. Are you able to add anything on these topics?
Actually, Graeme, the data we display in the fn. IS all the data; it was three separate engagements which we summarized descriptively. But this particular NewLaw corp. has been in business for well over a decade and their experience over that entire span of time has been comparable. 2X would be very low and 5X would be very high but 3-4X covers the bulge in the bell curve.
Your model makes sense to me. What impact does lawyer megalomania, er, self-delusion have on understanding where they fit on the spectrum? If maroons and grays should proceed on radically different paths to succeed, a key component seems to be the ability of firm management to identify which camp they’re in so they can take the right actions. Do you think lawyers have the self-awareness to do that?
Consider, e.g., a firm in the Vault 50-100 range. They’re likely a mid-tier NYC firm or mediocre but large national firm. They almost certainly fall into your gray category. If you talk to them, would they perceive themselves as grays? Or would they say (as I’ve heard repeatedly), “We’re a bet-the-company firm when it comes to [super narrow niche] in [super narrow market] in [super specific industry].” The lawyerly ability to distinguish a fact set plus a healthy amount of hubris likely–in my mind–ends up with many, many more firms identifying themselves as maroons than is likely to be the case. What impact does that have? The firms that have a proper view of their place in the pecking order, that know they’re grays and are okay with it, have a competitive advantage going forward?
We’re going to get to that!
One of the most popular lawyerly parries is “Yes, but that doesn’t apply to [me/my practice/my office/my clients/my firm].” This immediately after they’ve asked you “but what are all the other firms doing?” Sometimes I’m tempted to respond, “You don’t really want to know because if you don’t like what I tell you you’ll dismiss it.” But I have restrained myself and will endeavor to continue to do so.
Bruce –
Many law firms operate under old overhead models that are not based on modern cost accounting principles. Sometimes it’s even driven by a desire to hide how much overhead a practice really takes to run, and that it’s entirely unprofitable. Is there anything to do about it other than run away?