law firm business development

AI’s impact on legal work – for now – is all good news!

The most recent Wells Fargo report on the state of the US market has just been published. While obviously US centric, I’m sure many of the trends are being reflected elsewhere, so worth a look.

𝗦𝘁𝗿𝗼𝗻𝗴 𝗶𝗻𝗱𝘂𝘀𝘁𝗿𝘆 𝗽𝗲𝗿𝗳𝗼𝗿𝗺𝗮𝗻𝗰𝗲 𝗱𝗲𝘀𝗽𝗶𝘁𝗲 𝘂𝗻𝗰𝗲𝗿𝘁𝗮𝗶𝗻𝘁𝘆

Global economic and geopolitical volatility has not slowed Big Law growth (so far)
Firms remain resilient with broad-based demand

𝗥𝗲𝘃𝗲𝗻𝘂𝗲 𝗮𝗻𝗱 𝗱𝗲𝗺𝗮𝗻𝗱 𝗴𝗿𝗼𝘄𝘁𝗵

Industry-wide revenue is up 𝟭𝟯.𝟭% 𝗶𝗻 𝗤𝟭 [Jan-Mar]
Demand increased 𝟰.𝟱%
Top-tier firms (AmLaw 50/100) outperforming mid-tier firms

𝗕𝗶𝗹𝗹𝗶𝗻𝗴 𝗿𝗮𝘁𝗲𝘀 𝗱𝗿𝗶𝘃𝗶𝗻𝗴 𝗴𝗿𝗼𝘄𝘁𝗵

Rates increased ~𝟭𝟭–𝟭𝟮%, the primary contributor to revenue growth
So far, minimal client pushback despite sustained increases

𝗖𝗼𝗹𝗹𝗲𝗰𝘁𝗶𝗼𝗻𝘀 𝗮𝗻𝗱 𝗰𝗮𝘀𝗵 𝗳𝗹𝗼𝘄 𝗲𝗺𝗲𝗿𝗴𝗶𝗻𝗴 𝗮𝘀 𝗮 𝗿𝗶𝘀𝗸

Collection cycle have slowed (~6.5 days longer)
Inventory (unbilled/uncleared work) is rising faster than revenue
End-of-year performance will depend on converting work to cash

𝗢𝗽𝗲𝗿𝗮𝘁𝗶𝗼𝗻𝗮𝗹 𝘁𝗿𝗲𝗻𝗱𝘀

Productivity is up modestly (+1.2%)
Headcount growth is steady (~3.3%)
Expenses are rising (especially in senior staff and technology)

𝗠𝘆 𝘁𝗵𝗿𝗲𝗲 𝘁𝗮𝗸𝗲𝗮𝘄𝗮𝘆𝘀

𝟭. The impact AI is having on demand is still minimal (actually, it is increasing work on the demand side!). On the productivity side, this may change, but increase demand is, so far, taking up any excess capacity. This (as well as the other indicators in the report) most likely means the Billable Hour will still be with us for some time to come.

𝟮. Realisation rates and increased collections times should be a real concern. No point charging $1,000 an hour if you never get paid!

𝟯. Amen to this!! – many firms have figured that rates are part of their branding, “and it’s very short-term thinking to try and manipulate rates downward to offset a decrease in demand.”

Get in touch if you need a Business Development or Pricing audit

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SURVEY REPORT: Half your clients are changing which lawyers they will give work to

An article by Neil Rose on Legal Futures website today (15.5.2023) has a statistics that should have every law firm business development expert shaking in their boots.

To quote:

45% of clients changing which practices they allocate work to in the past year
Nearly half of companies swapped external lawyers in last year

Taken from the latest ‘State of the UK Legal Market 2023‘ by Thomson Reuters, Rose’s report contains even more damning news for those marketers and business developers who thought law firms outranked lawyers in client choice selection:

Reputation has also dropped “dramatically” in importance for keeping a firm top-of-mind

On the positive front,

In the UK, more than in many other regions of the world, clients are focusing on the quality of the whole relationship with their advisers.

But, backing up the reputation comment above, the big takeaway for me has to be,

In a major shift over the past 10 years, the historical reputation of a law firm is no longer enough to keep it top-of-mind in the market. The message is clear: firms need to re-consider how they present and deliver value to clients…

I have deliberately bolded that part of the quote because if this is something that is likely to be concerning you, or if you feel this provides your law firm with a great opportunity, then feel free to reach out to me and let’s have a chat about how you can to work on this!

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10 takeouts from BigHand’s Legal Pricing & Budgeting Report

I’m a cynic, so usually read industry reports published by industry providers with a huge pinch of salt, but every now and then you get an exception to the rule. So is the case with BigHand’s recently published ‘The Legal Pricing & Budgeting Report’, which is full of really insightful information (so read it!).

Here are my 10 take-outs (NA = North America and UK = UK):-

From

The damning:

To the surprising:

To some obvious:

And some knowns:

With a few, “What the?” (as in, only…)

With a great conclusion:

10.

As I said, as a rule I don’t recommended reading these types of reports as they typically are a waste of time; but this is one I have no problem saying “go read it!” – and if you have any thoughts/comments, post them in the comments section below!

Have a great week all.

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What 5 pieces of advice would you give your younger self?

My son was born 10 June 2021. Since then, I have been in lockdown for 10 weeks (just starting week 11), homeschooled all of term 3 (currently 8 weeks, start of week 9), have three children under the age of 7 at home 24/7 (including the newborn), and with two working parents to schedule this madhouse around!

All of which is to say, I have been remiss in not blogging for a while, but hopefully you get the picture.

Anyhow, during this time of madness I came across an interesting article by Bhavisha Mistry on the Legal Cheek blog – ‘5 pieces of advice I’d give to my younger self’. Bhavisha is a College of Legal Practice programme committee member trying to help out aspiring lawyers.

Bhavisha’s article got me thinking, ‘What 5 pieces of advice would I give my younger self?’. So, here goes my attempt at an answer:

Expect the unexpected: Having been through the Asian Financial Crisis (1997/1998), the dot.com bubble bust (2001), SARS (2002), the Global Financial Crisis (2008) and now COVID (2019), one thing I can tell you is that the ‘unexpected’ happens on a pretty regular basis. Plan for it and always have a ‘Plan B’, because there are likely going to be more uncertain days than certain.
Back yourself: If you’re starting out in this profession, you’re just about to go through some of the most boring and mundane [very long] days of your life. Having been a massive over-achiever up to this part of your life, you will now go through an apprenticeship that will make you question why you bothered. You’ll hear a lot of comments about “paying attention to detail”. All I can say is:- back yourself and stick with it. There will be challenges. There will be dark days when you question your sanity. But back yourself, because you are here for a reason – and never, ever, be willing to compromise on your personal values to please your peers.
Always be willing to learn new things: While the profession of law probably hasn’t changed all that much since the days of Charles Dickens, the business of law is changing all the time. Always be willing to learn new skills that help you improve how you conduct the business of law – whether that be Legal Project Management (LPM), Design Thinking, AI or whatever fad is still to come our way. Read. Listen to podcasts. Attend webinars/seminars/conferences. And be willing to pay for this if you need to.
Business Development and Marketing are important skills: Following on from 3, know how to market yourself in a P2P (person-to-person) industry is important. Look at your customer buying journey/cycle. See where you need to be and when – and that may be on LinkedIn, but equally it may be having your hair-cut on Saturday when the barber/hairdresser is busy with friendly chat. It could be talking to other lawyers (for referrals), but equally it could mean staying well from them. But having an understanding of this is critical, because it will help you with one of the most important skills you need to succeed in this business: the ability to build relationships with people – both internally [in your firm] and externally.
Budgets are a joke: I’ll leave the best for last, when you start out at a firm you’ll be assigned a budget. That budget is likely going to be 4+ times what you are being paid. It is going to look like a lot of money. You a probably going to think: “If I had that much money I could buy an apartment”. Here’s the thing, these budgets are meaningless. Why do I say they are meaningless? Because at this stage of your career, you’ll have no control over whether you can achieve budget. You’ll have no control over whether you can achieve utilisation. So, if anyone from Finance or Management says you are not making budget, refer them to your supervising partner – because that’s where the buck stops!

As always, the above represent my own thoughts only and would love to hear yours in the comments below.

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Some thoughts on COVID-19, being #FutureReady and 2021

In the early days of what we now call COVID-19, I saw the meme below. It made me laugh out loud. It was so accurate!

The only problem is, as with most memes, it turned out not be as true, accurate, and funny as I had first thought.

In 2020 I ended up working from home 174 days. Others that I know, especially those in Melbourne, ended up working from home a lot more (if that’s possible).

But here’s the thing,

How were we able to work from home for all that time, so quickly?

From where I sit, the answer to this question is that most law firms (of any size at least):

Were already #FutureReady.

We should be thanking the CTO, CIO, and Head of KM. They did an amazing job in 2020. I hope they get amazing bonuses.

In the meantime, let’s go out there, and enjoy what challenges the year ahead brings us (without trying to predict a thing!).

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Why most law firms don’t need to hire a Head of Pricing

Following a conversation I had recently with John Chisholm, I had reason to revisit Patrick Johansen’s website patrickonpricing.com and re-read both his Continuum of Fee Arrangements™ and his Roll Call of pricing professionals.

Let’s get controversial. Re-reading Patrick’s stuff it occurred to me that there are an awful lot of law firms have hired pricing experts (Patrick has over 300, but it wouldn’t surprise me if that number were closer to 500) on -most likely- really good money who, get this: don’t really need them.

Why do I say that?

Looking again at Patrick’s Continuum of Fee Arrangements, Patrick has sixteen different pricing options available for law firms to offer clients:

Hourly – the ‘go to’ pricing option for law firms. But are hourly rates pricing or billing?
Volume – nope, not a pricing mechanism. It’s a discount. Not even an alternative fee arrangement (AFA).
Blended – isn’t that an hourly rate?
Retainer (Periodic) – okay, now we are talking. Law firms may need some help from a pricing expert on this one. But wait up, how much of a law firm’s revenue is done on a retainer mechanism? Less than 5% would be my guess. Justify the cost of pricing expert on the books (as opposed to freelancing), unlikely.
Capped – OMG don’t get me started on capped fees. Known as the “heads I lose, tails I lose” pricing mechanism for law firms. I understand why clients love capped fees, they cannot lose. But any pricing expert on a law firm’s books who recommends capped fees as an option deserves to be sacked immediately.
Task – okay, but isn’t this really just a fixed fee?
Flat (Transaction) – okay, but again: isn’t this really just a fixed fee?
Phase – sounds like a fancy name for task to me!
Fixed – Nirvana. Now we need a pricing expert.
Contingency – implies it needs to be contingent on something.
Portfolio – my view is that this is one of the most misunderstood and under-used of the various pricing options. I’m not sure there are many pricing experts in commercial law firms who do this well.
Hybrid – yeah right. Are we talking cars now?
Holdback – this isn’t pricing. This is a reward mechanism. I could do all the pricing calculations in the world, but if the legal team provide a rubbish service then the client will withhold a part of the fee.
Risk Collar – is hourly billing with an up and downside calculation mechanism.
Success/Bonus – again, performance related.
Value – right, and how many law firms are really doing this? Few and far between. Hell, most law firms don’t even understand the ‘value’ they provide (see ‘discounts’ and google number one AFA offered by law firms). No, nice to say; but a very long way from getting it.

So looking at this list I ask myself: “How much science is involved in pricing legal services?”. And the answer I come up with is: “Not a lot”.

Taking all this on board, I get why law firms hire ‘pricing experts’ out of accounting teams. And maybe that’s where the real opportunity is being missed.

But trust me, for all but two or three of the above pricing options, you don’t need a pricing expert – you need an accountant. So don’t waste your money hiring one.

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What the year 2081 will mean for law firm discounts

Business Development image

Over the holiday’s I finally got time to read D. Casey Flaherty’s ‘Unless You Ask: A Guide For Law Departments To Get More From External Relationships‘ published by the Association of Corporate Counsel (ACC).

Casey’s publication is excellent and very insightful. Although written for in-house legal departments, it contains information that every private practice lawyer should be across. If for no other reason than it has an array of sample questions they may be asked.

But, it is a brief piece in the publication on asking for discounts on hourly rates/bills that I wanted to share with you all. Because Casey has managed to put into words, both succinctly and comprehensively, my own feelings on discounts.

So here it is (see pages 64 & 65):

Without some grounding in value, discounts just become a game.

First, you can only push the discount lever so many times. A recession hits or you run a convergence initiative. You get your firms to take a big haircut. What’s next? It will probably be a few years before you can return to that well in any meaningful way. Continuous improvement, on the other hand, should be a constant. There is always some process to refine, some assumption to question, or some technology to take better advantage of. Discounts can be part of a strategy. But a strategy that relies entirely on discounts is hollow.

Second, there is a huge volume of data that suggests that while most clients see themselves as negotiating progressively deeper discounts, what they are really doing is negotiating down the size of the rate increase. Last year, the client got a 10% discount off a $500 rate. This year, the client gets an 11% discount off a $520 rate. What really happened is that that firm increased the rate from $450 to $463. You can perform this trick—4% rate increase, additional 1% discount—for a quite long time before the rate flattens out. How long? 66 years. In 2081, the paid rate ($1,600/hr) would finally stop increasing as the discount (75% off a published rate of $6,399/hr) caught up to the rate increase.

Third, while almost every law department will proudly refer to the deep discounts they’ve negotiated, only about half even get one. That’s because a true discount is not calculated versus a lawyer’s published rate—of which there may be several—but is calculated by reference to something called a standard rate, an internal firm number used to determine realizations, profitability, etc. With a few exceptions, almost no one pays published rate and therefore everyone thinks they are getting a discount. But only about half of clients actually pay below standard rate. And even they are not getting as deep a discount as they think.

Fourth, if you count discounts as savings, please stop. If you’ve reduced rates below what you were paying previously, that’s one thing, especially if you also have a mechanism to monitor and hold the line on hours. But if you are just counting the delta between the published rate and your paid rate, it introduces some bizarre incentives. It encourages firms to jack up published rates so they can offer you the optical illusion of a bigger discount. It encourages you to select higher priced firm so you can report greater ‘savings’—i.e., you show double the savings by paying $700/hr to a lawyer with a published rate of $900/hr than you do paying $350/hr to a lawyer with a published rate of $450/hr. And your savings accumulate with every extra hour of work the firm bills. There is something inherently perverse about a savings metric that makes you look better the more you spend.

Fifth, finally, and most importantly, undue emphasis on discounts tends to confuse unit price with total cost. Rate differences are linear. Hours can differ by orders of magnitude. The $350/hr associate might look relatively cheap until it takes them ten hours to deliver work half as good as what the $800/hr partner delivered in one. Attention to the unit price ($350 v. $800) will obscure both quality and total cost ($3,500 v. $800). We intuitively understand the difference experience can make. Systems—the proper integration of process and technology to augment expertise in delivering legal services—are experience institutionalized. Systems merit attention in trying to understand the relationship among quality, unit price, and total cost. Discounts are only a small fraction of one piece of that puzzle.

There you have it: why discounts should not be anywhere near the front of your pricing arsenal.

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R.I.P. AFAs in 2017?

I thought I would start my calendar year of blogging off with a slightly controversial post:

Will 2017 be the year that we finally sees the demise of so-called Alternative Fee Arrangements (AFAs)?

For those unfamiliar with the various types of AFAs currently in use – and there cannot be many of you out there, then Patrick on Pricing’s Continuum of Fee Arrangements is a good starting point.

Okay, so a fair amount was made of a chart in a ‘ACC Report – Law Department Management: Establishing Value In An Evolving Business World’ published late last year which predicted a 50% increase in the use of Alternative Fees this year. Given the ACC is the leading voice for in-house counsel globally, including, now, Australia, pretty clear evidence of the future direction of AFAs you’d think.

But, to my knowledge, little has been made of the fact that the same chart foresaw a 30% decrease in the use of Alternative Fees this year by those same in-house counsel.

use-of-afas-image

And so I asked myself: Given their popularity, what could possibly be driving in-house to contemplate a reduction in their use of AFAs? This is especially so given that the ACC has very much been at the forefront of championing their use? And, potentially, in such large numbers?

The truth is, I don’t know the answer to this question. It could be as simple as the fact that in-house counsel expect to instruct out less work that fits the AFA model. But I also hazard a guess that with some in-house counsel it will have something to do with one or all of the following three possible reasons:

AFAs are not transparent – no one, apart from the person who sets them, knows how they got to tat price. As such, it’s really difficult to compare them.
AFAs don’t represent value. Despite a belief that they represent value over hourly billing, in the view of many in-house counsel they simply don’t. Therefore, much easier to use the foe you know (hourly billing with discounts).
AFAs are not alternatives. Simply put, the core to most AFAs proposed by law firms remains: Units of Labour (manpower) x Time x Rate = Price. QED, they are not “alterative”. Indeed, their very names even suggest it with “blended”, “phase”, “task”, “volume”, “flat”.

To be clear, I don’t want to see the demise of value pricing. Indeed, quite the opposite. Nor am I particularly an advocate of hourly billing. I am however, wholly against the use of the term “alternative” when they clearly aren’t. And so I’m not overly surprised that 30% of in-house counsel are saying they will see a decline in their use this year.

Given the glacial speed of change in the the industry, I’ll wait to see if there is any change here this year. My gut tells me though not to hold my breath and that we are likely to be in the same place next year as we are now.

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Exiting the ‘Valley of Despair’: Tips on rebuilding a book of business

source: Emily Carr:- ‘Practical Change Management for IT Projects‘

The ‘Valley of Despair‘ is a term used in IT process improvement projects to describe the period of time where productivity decreases immediately after the implementation of a new process. In essence it describes that period of time during which you shift away from what you know and are comfortable with to what is new and unknown (but which will ultimately, hopefully, results in better processes).

Although a term commonly associated with process improvement, to me this has also become a good way to best describe a growing trend in the modern lawyer’s life; namely that particularly difficult period during which a disruptive element impacts on their book of business. Examples would include:

economic: with the GFC most securitization lawyers lost their practices overnight.
panel: when your firm loses a panel appointment with your practice’s biggest client as a result of the client rationalizing the number of its panel firms.
relationship: the key contact at your biggest client moves to a company your firm has no relationship with; or, worse, is promoted to a role where they no longer have influence over who gets the legal instructions.

There are many others, but you get the gist: your performance hits a wall called ‘change‘.

In my experience, partners who face this scenario come face-to-face with Elizabeth Kuber-Ross’ “Five Stages of Grief“:-

Denial —> Anger —> Bargaining —> Depression —> Acceptance

To overcome the Valley of Despair you need a sixth element: a desire to move forward.

Step 1: Accept your fate

The first step in any recovery program is accepting you have an issue. Too often law firm partners stick their heads in the sand and refuse to accept that anything is wrong until the Managing Partner is knocking on their door asking them what their plans are for the future (wink, wink: it’s not with us!). By then, you are well and truly in to the ‘bargaining’ and ‘depression’ phases. If you want to rebuild your book of business you need to be much further ahead of the game than that.

Step 2: Do an audit

Here’s the thing: things in life are rarely as bad as they first seem. So, as soon as you become aware of a change agent – such as those above – get out your pen and a piece of paper and write down a list of who you know, when was the last time you contacted them, what type of work could you be doing for them, are you already doing that type of work, etc.

In short, take stock of what you have and who you could be doing it for.

Step 3: Make a plan

Alan Lakein is reported to have said: “Failing to plan is planning to fail“. I’m not sure if he actually did, but it’s pretty accurate and if you want to rejuvenate your book of business then you will need a plan of how to go about this.

This plan should include the obvious, like:

what type of work do I want to be doing?
who do I want to do this work for?
what do I know [commercially] about these businesses [tip: if the answer is “not a lot”, get a research assistant on to it ASAP]?
who are the decision makers at these companies?
how likely are they to give you / your firm the work [tip: rank the likelihood from 1 – 5 (very – unlikely)]?

Your plan also needs to include things you may not think of, such as:

will my partners give me relief while I try and rebuild my book of business? If so, how long?
what level of fees do I need to generate (cost +, times 3, times 5)?
what rates will I need to charge to generate that level of fees? will the target client accept these rates? if I need to discount, will my partners accept me discounting to win work when their clients are paying full freight?
who is currently doing the work for the target and what am I bringing to the table that would make the target move the work to me?
how will my competition react to me invading their turf?

Step 4: Execute on the plan

I’ve heard it said that: “a plan without an action is a wish“. In the world of professional services, we see a lot of wishing!

So, as soon as you have your plan in place you need to get out from behind your desk and start to execute on it. Look at what

inbound and outbound related activities you need to do;
networking events are taking place and when;

then set yourself a 30-60-90 day action plan to work towards.

Most importantly, always be responsive and never, ever quit. Building a book of business takes patience and repetition, you cannot adopt a “lottery mentality” as one shot actions nearly always lead to failure.

So if at first you don’t succeed, try again. That way, you’ll give yourself the very best chance of rebuilding your book of business and moving forward.

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Growth is not a strategy

I read with interest yesterday‘s news item in the UK’s The Lawyer that Jones Day intends to double in size in Australia – with a particular focus on its Corporate practice following the recent lateral hire of ex-Herbert Smith Freehills (HSF) deputy senior partner Mark Crean.

I am increasingly coming to the opinion that headlines like the one in yesterday’s The Lawyer represent as close as we will get to ‘clickbate’ in the legal industry.

Why do I think this? – because it is now well established that “growth isn’t a strategy, it’s a result“.

So, aside from being potentially good media exposure for the firm – in which case I do wonder why none of the Australian legal press picked up on this story – all this article does is highlight the misnomer that “growth is always good”, when all research around lateral hiring and aggressive purchasing of market share points to the opposite (think Dewey & LeBoeuf).

Going a step further, in a recent (23 November 2015) article in the Am Law Daily, Felix Oberholzer-Gee, professor of business development in the strategy unit at Harvard Business School, argues:

“If you start by saying that we want to grow our market share, or we want to be a particular size, as a strategic goal that is a terrible choice for a number of reasons”…

… “First, and most important, is that market share is not that correlated with profitability. The second is that the most natural way to gain market share is by charging lower fees, which is what we see throughout the industry in this misguided effort to gain size and market share.”

Have to say that I agree with Professor Oberholzer-Gee: – market share [ie, size] doesn’t matter, what matters is if your firm is profitable.

And therein lies the problem: I have yet to be convinced that any firm on an aggressive growth trajectory in Australia – and there are a few out there who are taking the same approach as Jones Day – are any more profitable for it. Conversely, I think that while being larger in partner numbers and office outlets many are probably less profitable with a lot more administrative headaches to boot.

So, while I feel for law firm partners who are continuously being told post-GFC that mergers and market growth are safe haven ways to continue their existence post-2020, I would caution this approach and recommend, at an absolute minimum, that the firm:

take an audit of their client base to see who they do profitable work for;
ask your most profitable client if your firm’s growth plans will have any impact on them giving you greater levels of profitable work and, if so, who you need to bring on board to do that work;
analysis what your increased cost-base (and there will very likely be an increased cost-base) is going to mean in the medium and long term;

and to share this information as widely as you feel comfortable doing with your top clients so there is transparency around your strategic growth plans.

Otherwise you could always remember the idiom:

“Marry in haste, repent at leisure…”