Surveying 700 in-house and private practice lawyers across the US and EU in January 2020, this is probably the most comprehensive survey post COVID (although most of us were not entirely sure what this meant in January so I look forward to a survey report that has been conducted post March this year).
The Top 5 reasons cited as to why a client might leave your firm are:
The client no longer trusts your firm can meet their needs,
Your firm doesn’t specialise in the area of law needed by the client,
Your firm failed to communicate its value proposition properly,
Your firm did not demonstrate efficiency and productivity, and
Your firm’s leverage was/is all wrong.
And three of these are essentially because you messed up on sourcing, communicating and delivering on your pricing promise.
Take-away top tip: want to make sure you keep clients and keep them happy – make sure you (and your team):
understand(s) your value proposition and are able to communicate this,
get your team’s leverage right [hint: don’t hoard work at the top end just so you can meet budget this year!], and
understand the scope of what you are being asked to do and project manage both the scope and the client expectations (especially if out of scope creep occurs).
Manage this well, and you’ll be three-fifths of the way to keeping your client happy!
As a bonus, think about how you demonstrate efficiency to your client.
Is this by saying you have the relevant expertise/experience so that you can do this faster than others,
Is this by saying you have the appropriate IT systems that allow you to get the job done faster, or
Does efficiency even really matter – should the conversation not be about being an effective lawyer?
As always, these just represent my thoughts and always interested to hear your views.
The goal isn’t to find people who have already decided that they urgently want to go where you are going. The goal is to find a community of people that desire to be in sync and who have a bias in favor of the action you want them to take.
In around 2009 I recall reading Seth Godin’s, then recently published, blockbuster ‘Tribes: We Need You to Lead Us‘ and thinking this would have a profound impact on the way clients engage law firms. To give this thought some context, it was around the same time as we had started talking about a new fad called ‘unbundled legal services‘ (which would later also become known as ‘limited scope representation‘ – see ‘The great unbundling of legal work‘ in the Australian Financial Review). It was also a time when ‘disaggregation‘ and the rise of Legal Process Outsourcing (LPOs) (predominately in India at that time but later this would extend to South East Asia and South Asia) would have many of us who worked on bids and tenders discussing issues around disruption of the legal services supply chain – if for no other reason than clients were asking us to provide answers to these questions in their requests for tenders.
A cold wind, amounting to real structural change, in the way clients purchased their legal services was coming (Pfizer Legal Alliance).
THE ‘NEW NORMAL 1.0’
Fast forward a decade and probably the only person who still talks to me about Seth’s Tribes is my good friend Julian Summerhayes, and it is never within the context of an RFT or legal services more broadly.
Nope, in short tribes, disaggregation and unbundling, while definitely remaining vogue, never really had the impact and penetration that I – and I would suggest many others – thought they would.
The ‘New Normal 1.0’ had, to all practical purposes, failed.
KRYPTONITE TO THE ‘NEW NORMAL’ – TEAMS
Probably the biggest obstacle to the growth of tribes post 2009 has been the role that teams have historically played within the legal profession.
Since the times of Dickens a junior apprentice lawyer has worked with, and been mentored by, their senior (supervising) partner. It has always been thus, and with it has come an almost umbilical cord tie between lawyers who have worked in the same team.
Many an in-house General Counsel has sat at the foot of the table of the private practice partner to whom they send instructions. A relationship that has been forged within the confines of a team structure.
TRIBES REBOOTED – TRIBES 2.0
It’s my opinion that one of the biggest likely outcomes COVID-19 will have on the profession is the re-emergence of tribes – tribes 2.0!
There are a number of reasons why I think this might be the case, but probably the biggest is that in-house counsel have, over the past three months, become used to working with remote teams.
It should not, then, be too far removed to say that in-house counsel will be happy working with subject matter experts across firms who can enable them to achieve their objectives rather than with an individual firm that might get them across the line.
In short, on the right deal, in-house counsel will be happy to work with a group of lawyers from various law firms rather than one firm – a tribe over a team.
Moving from teams to tribes is not a foregone conclusion, it faces challenges.
High among these will be:
How is risk allocated?
Who wears the professional indemnity risk?
My own view is that these can be overcome with:
properly scoped Engagement Letters
proper use of Legal Project Management
a good understanding of Workflow Process Methodology
But that still leaves the issue: How do we price the ‘New Normal 2.0’?
HOW TO PRICE THE ‘NEW NORMAL 2.0’?
The cynic in me says that many law firms will not have the first idea how to price the New Normal 2.0. This presents a significant problem because if they cannot price it, then they cannot sell it (pricing still remains the principal form of credentialisation despite, or rather because of, whatever experience you claim to have).
ONE ANSWER – THE ROLE OF SCOPE PRICING IN THE ‘NEW NORMAL 2.0’
Scope pricing will play a critical role in the pricing in the ‘New Normal 2.0’.
Unlike a fixed fee, capped or fee estimate pricing, scope pricing does it exactly what it says on the tin – it prices to the scope of work being undertaken by the relevant lawyer. This means that proper use of scope pricing should allow in-house to teams to unbundle the legal work within their project – either between the role the in-house plays and the role the private practice firm plays; or, in the case of this post, the role that multiple lawyers with subject matter expertise from various firms play in a project.
And, if done properly, the biggest upside to scope pricing over any other type of pricing of legal services is that, by definition, there really shouldn’t be any scope creep – what you see [in the tin] is what you get!
Annuity revenue – a predictable revenue stream from new or existing customers who buy products and services associated with new or previously purchased products.
As the Managing Partner of a law firm today, what would you say if I walked into your office and told you that I could:
provide you with a guaranteed monthly revenue income,
with a product that creates loyal customers, and
where those customers become – at no additional cost to you – brand champions and refer your services to their network, free of charge, via the Holy Grail of marketing – positive ‘word of mouth’ referrals.
Sounds great doesn’t it. Almost too good to be true.
Well all I can say is that if you were anything like one of the Managing Partners servicing customers who responded to the Pitcher Partners recent ‘Legal Survey 2020 Report‘, that’s exactly what you would be saying: “thanks, but no thanks we are happy with the billable hour”.
The fact that the billable hour remains the ‘go to’ method of billing (not the same as pricing) for Australian law firms and their customers does not, in and of itself, surprise me. I must admit, however, to being a little surprised with the 1% increase in this billing method (up from 58% to 59%) year-on-year.
Given the times (even pre Covid-19), I was also a little surprised to see that both ‘fixed fee’ and ‘value-based’ pricing remain relatively static (although it should be added that from what I could see the report lacks a definition of ‘value-based’, probably purposely so).
To me this represents a massive lack of foresight on the part of law firms and a significant lost opportunity.
In much the same way as software as a service (SaaS) companies have come to realise that one-off payments around shrink wrap contracts were not servicing the long-term financial interests of the company (unless it’s a legacy product that will no longer be supported), the time has come for law firms (and professional services firms more broadly) to realise that if we want to maximise revenue and, potentially, profit we need to rethink how we generate that revenue.
One alternative that the likes of Ron Baker and Mark Stiving have been banging the drum about for some time is ‘subscription based pricing’.
The benefits of adopting a subscription based pricing model
I have posted previously on this blog about the benefits of subscription based pricing (see here), but leaving all that aside for a second; as Amy Gallo wrote way back in October 2014 in the Harvard Business Review (see ‘The Value of Keeping the Right Customers‘) with the acquisition costs of acquiring new customers running being between 5 and 25 times more expensive than servicing existing customers, it makes economic and financial sense to find, and keep, the right customers.
How you price this is probably the most important step along that path.
The weakness of having billable hours as your default billing method is that you are pricing to the transaction. Whereas one of the greatest benefits of the subscription based pricing model – or even a retainer based pricing model if you must at the start- is that you start thinking about pricing the customer or even the portfolio.
In other words, you start to think about the customer and their needs first. And for an industry that always talks about the customer being at the centre of everything we do, doesn’t it makes sense that our pricing structure reflect this claim?
But it also makes sense internally, because it:
is smarter pricing
leads to smarter collaboration
moves you away from seasonal end of financial and calendar year pressures, and
helps remove any discussion around the ‘commodity’ tag.
Not to say, in these COVID-19 times, when you are talking working capital facilities with your bank, it provides you with a guaranteed annuity revenue stream.
Now who would not want that comfort right now?!
These just represent my thoughts though and always interested to hear your views.
But isn’t that why we, as business developers, are hired? To try and give some insights to our partners on how the industry might look?
With that in in mind, for what it is worth , here are my two cents on some of things we may look forward to over the next 18 months:
The industry will remain fundamentally the same – as it was pre COVID-19 pandemic days unless there are structural changes to the business model. And, as I understand it, the trust partnership business model that is currently used in most common law jurisdictions makes the talk of change easier than the reality of change (in that nobody today would likely start a new law firm under a partnership trust structure).
Technology and working from home will play role – it goes without saying that both technology and working from home will play a part in the future, but how big that role will be in an industry built on presentism still remains to be seen.
Consolidation will likely feature prominently – with The Law Society Gazette (England and Wales) reporting in the past week that ‘71% of high street firms face collapse‘ I would foresee a similar scenario playing out here in Australia. Only I doubt it will apply to high street firms, who should do well out of the expected growth in wills & estates and family law matters, as much as it will likely apply to the middle market where there still remain far too many firms representing far too few clients.
There will be an increase in lateral hiring – for the reasons above.
Cashflow/credit facilities will help – Warren Buffet is reported to have said that “Only when the tide goes out do you discover who’s been swimming naked.” Well, the tide has never been lower and we will see in the coming days who still has the ear of their banker. Arguably those with big trust accounts and/or on the panel of one or more Big4 bank panels will benefit.
How much office space do law firms really need? – it will be interesting to see if rent footprint decreases. Rental space – and whether to remove parts of the business to less expensive rental footprints (see Herbert Smith Freehills to Macquarie Park and McCabe Curwoods to Chatswood for example) – has been an issue for some time and one of the big take outs from this may well be a lot more Hot-desking!
The Big4 see opportunity – as EY reported this week, the Big4 are not going away. If anything, as this chart shows, they’ll be upscaling their charge
A need to be even more client and sector focusses – with the team at Adam Smith, Esq looking at the following areas of need:
Insolvency, restructuring and distressed assets
Private equity (I’m not 100% sold on PE in Oz)
Regulatory investigations and dispute resolution a/k/a litigation
Tech and all the ancillary practices it spawns, including IP
From an Australian law perspective I would add Insurance law (going to be more claims made) and all forms of Government (Government will be spending big on Infrastructure, Health, Education and others).
But all of the above are my views and so to finish this post I’m going to turn to one of the great take-outs of this week for me – a post by Trish Carroll who interviewed 12 final year law students to find out how they were feeling in the middle of Covid – ‘Is Covid-19 the mother of all disruptors for the legal profession?‘ – and this is about as close as we will get to how the future of law will look.
As always though, interested in your thoughts/views/feedback.
For the past couple of weeks, one of the most common themes I’ve been seeing about COVID-19, insofar as it relates to the legal profession, is how it has changed, and continues to change, the industry/profession. COVID-19, I’m being led to believe, is a “game changer”.
To this end, I have seen (and read) articles that I would not thought possible three to four months ago written about:
the changing nature of remote working in the profession, and
the importance of Zoom/Skype and Microsoft’s Teams,
to name but a few.
But I want us to stop here, take a step back, and ask: “Is this really likely to be the long-term outcome?”
When I ask this, keep in mind that this is a profession that has fought tooth and nail to keep to the same business operating model for over 30 years (if not 100) despite having already recently lived through one of the worst global economic downturns of all time (the GFC).
So I ask: “What can we really say is different this time?”
For sure we can say we have given our business continuity plans (BCPs) a tough workout. And, to be fair, I’d bet that even the most conservative of BCPs didn’t factor in a COVID-19 event.
And while we now know that most of our workforce can work remotely and, ironically enough, with the use of timesheets, we can also claim that they remain ‘productive’ whilst working from home – whatever that term may actually mean to a knowledge worker, does this truly foreshadow a change in the manner in which the industry is going to be managed?
My take is this:- while all of the above is true, it is taking place in circumstances that most of us had not predicted and many of us feel uncomfortable even being in (I’d bet there are very few people out there who are happy being locked up at home for four weeks – family or no family).
But this is a far cry from saying we will see the dawn of a ‘new normal’ whenever normality (whatever that may look like without a vaccine, which I am told is no sure thing) returns.
Because, while it’s critical that understanding our purpose is now more important than ever, and while we cannot hope to survive if we do not look to find the solutions our clients seek and need – which (as I mentioned last week) will be changing – in a post-COVID-19 world these will not necessarily bring about a change to the structure of how a law firm operates and is managed.
As any reader of this blog would know, it has been my long and strongly held view that to see real change to the business model of law, we need to start with the way in which we incentives and reward our partners and employees.
And to start this process we need to start to truly align our firm’s internal incentives/rewards to those of our customers so that we start to help create value for our customers. In short, our incentives/rewards must be aligned with our customers’ needs and incentives.
And yet nothing I have read in the thousands – possibly even tens of thousands – of words on how COVID-19 will change the legal profession has this even come close to being suggested or even discussed.
So my take from all of this is this:
If we want what we are currently going through to be truly more than a mere ‘stop-gap’ solution, if what we want from a post-COVID-19 world is true structural and ongoing change in the profession, then we need to start to have a conversation around the fact that the way in which we incentives and reward our staff is broken and worry a little less about where our staff are doing their job from.
And right now is the time to be having this conversation.
Failing which, all we really have is a stop-gap solution.
These are just my views, as always interested in your thoughts/views/feedback.
2019 was a mixed bag of business for US firms operating in the UK, with headcount growth hitting utilisation and billing rates requiring attention
As someone who is fascinated in the ‘pricing’ (not costing) of professional services, it was the “billing rates requiring attention” part that caught my attention.
The chart above, as titled, is billing realisation rates for US law firms in both the US and the UK.
So: why do two different offices of the same firm have such different realisation rates just because of the Atlantic Ocean?
After all, you would assume the clients are largely the same. You’d also assume the work types are largely the same. You’d probably be okay thinking the leveraging is largely the same. You may even reasonable expect the person reviewing the bill in Finance is the same. And, you may reasonably expect the hourly rate in London to be lower than that in New York for all said lawyers.
So why is it that realisation rates are roughly 5% higher in the US than in the UK? Especially when you’d think it would be the other way round.
And what does this mean more globally? Where would Asia, Africa, and South America fit on this scale?
More importantly, does this say that the perception of value is geographic?
I have my thoughts/views, but as always interested in yours.
Recently I was listening to an encore episode of Season 2 of Scott McKain’s Project Distinct podcast on how to analysis your current client situation. In the podcast Scott suggests applying what he calls his ‘cub reporter’ questions to any stress test you undertake on the strength of your current client relationship, by asking:
Applying Scott’s approach to law firm client relations has me asking some of the following foundation questions:
How did the client hear about you?
How well did you do when you first talk to the client about their problem?
How serious are you about investing in this relationship?
Why did your client need your services in the first place?
Why did the client chose you?
Why would they stay with you [over the competition]?
Who [at the client] decides to send work to you?
Who [from your firm] talks to that person?
Who, from your firm, should be talking to that person [and is not]?
What services [at your firm] are they using?
What other services [at your firm] should they be using?
What would cause the client to change firms?
When did you last talk to the client?
When did the client last use your services?
When is the client’s busy season (secondment opportunities?)?
Where does your clients use your services (Their office? Your office? The internet? All of the above?)?
Where can you improve the client experience?
Where else could your clients use your services?
Hopefully a useful starting list and if you have not previously listened to Scott’s Project Distinct – a daily podcast that runs for a relatively short 10 minutes, I would like to strongly suggest you do.
But I recently listened to a podcast about the role of AI and the future of “back office support” (a term I prefer to call Allied Professionals) [hint: we are all doomed to automation] in the legal industry that has promoted me to break my 7 year rule and make this bold prediction:
More allied professional jobs (Secretaries, HR, Marketing, Business Development, Finance etc) will be lost in the next 5 years to both on and off-shore outsourcing than will be lost to IA and innovation.
Now remember that my track-record is rubbish; so always interested to hear your thoughts/views/feedback.
I trust everyone had a relaxing and enjoyable holiday period. I certainly did, and took the opportunity to catch-up on some podcasts I had missed towards to the end of 2019. One of those was Episode 47 of Mark Stiving’s weekly Impact Pricing.
In this episode Mark has a free-ranging talk with Kevin Christian on all things pricing related under the appropriately named ‘Two Pricing Experts Talk Pricing‘ (published 9 December 2019) and, while the whole podcast is great, things get particularly interesting around the 19 minute mark when Kevin asks Mark:
“If a bear gets in a fight with an alligator, who wins?”
Now I can hear you saying: “What has this got to do with law firm business development and pricing issues?”, but – pun intended – ‘bear’ with me.
Because, as is music to the ears of every lawyer, Kevin explains,
‘it depends’ –
on where the fight is taking place.
If the fight is taking place on land then the bear is more likely to win; but if the fight is taking place in water then the alligator is more likely to win.
Here goes – bears and alligators are analogies to the ‘value’ discussion such that, as Kevin states, if you are:
Talking about the ‘Value of your Solution’: then you are in the seller/vendor territory and the seller/vendor is going to be leading and benefiting from the conversation;
If you are only talking about the ‘Price of your Solution‘, without talking about the value, then you are in the buyer’s territory.
Takeout – what does this mean?
In a world when we deal with procurement and other agents who are not looking at the value of the service we provide, but are constantly looking at the cost of that service; then, as law firms, it becomes imperative that we explain the value being provided and have ourselves a land battle with the alligators.