Olmstead & Associates Law Practice Management Asked and Answered Blog

Starting a Law Practice: Challenges and Tips - Partnership - Phase III

Over the last two weeks I responded to a question concerning starting a new law practice and I outlined the first to phases of start-up. Eventually, you must address and face Phase III.

Phase III – Partnership – Internal/Other Firm

Eventually the question of partnership arises – weather sooner based upon the need or desire to transition an associate into a partnership or to add a practice area by acquiring a lateral partner with his/her book of business. Maybe you are thinking about merging with another firm. Or maybe you have been solo or a sole owner for your entire career and are now contemplating retirement and are looking for a succession/exit strategy and now must either bring in a partner, merge with another firm, or sell your practice. Partnership with another attorney creates another set of interpersonal dynamics and another set of skills that will need to be developed at this stage of your practice.

Phase III Survival Tips

1. Partnership is like a marriage. You must marry the right person. Most partnerships that fail do so as a result of partnering up with the wrong partners. Compatibility is critical. Consider:

a. Long term goals of both parties

b. Work ethic computability

c. Common interests

d. Money and compensation

2. Thinking of merging? Research indicates that 1/3 to 1/2 of all mergers fail to meet expectations due to cultural misalignment and personnel problems. Don't try to use a merger or acquisition as a life raft, for the wrong reasons and as your sole strategy. Successful mergers are based upon a sound integrated business strategy that creates synergy and a combined firm that produces greater client value than either firm can produced alone. Right reasons for merging might include:

a. Improve the firm's competitive position. .Increase specialization - obtain additional expertise.

b. Expand into other geographic regions.

c. Add new practice areas.

d. Increase or decrease client base.

e. Improve and/or solidify client relationships.

3. I would start by thinking about your reasons for wanting to merge and your objectives. Ask yourself the following questions?

a. Do you want to practice in a large firm? If not, what is the largest firm that you would want to practice in?

b. What is driving the desire to merge?

c. If the desire to merge is being driven by a desire to retreat from internal problems - what have you done to address these issues internally?

d. Is your name being part of the firm name important to you?

e. What are your expectations and objectives for a merger?

f. What are you looking from a merger partner?

g. Make sure that you look for a complimentary fit. If you are weak in firm leadership, management and administration - look for a partner that is strong in these areas. Strong leadership, management, and administration may be hard to find in a firm under 25 attorneys.

Are you ready for the challenge?

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John W. Olmstead, MBA, Ph.D, CMC

Starting a Law Practice: Challenges and Tips - Phase II

Last week I responded to a question concerning starting a new law practice and I outlined the first phase of start-up. Eventually, you must address and face Phase II.

If you are successful in Phase I you will eventually need help whether it be administrative, paralegal, or another attorney. Now you must manage others as well as yourself. More office space will be required – especially if you are currently in a home or virtual office. A new set of skill sets (people skills) is now required.

Some Lawyers Never Develop the Skills Needed or Desire to Go to This Level and Firm Growth is Restricted as a Result.

I refer to this phase as Sole Owner Phase. I have client law firms in this phase than consist of an attorney owner, a handful of employed associates, paralegals, and staff. These firms may have 3 to 4 people or ten or more. I have sole owner law firms with over 100 employed attorneys and staff.

Phase II – Taking the Practice to the Next Level – New Challenges – New Skills Required

1. Additional People

a. Know what to look for

b. Know how to compensate attorneys and staff

c. Decide whether you are looking for long term vs. short term hires and relationships

2. Develop Skill Sets in the Following Areas – Managing Others – Finding, Managing, Motivating, Training and Retaining Talent

a. Hiring and Firing
b. HR Function
c. Devote time to managing others
d. Delegation of work
e. Supervision of work

3. Use the Following HR Tools and Processes

a. Job Descriptions
b. Performance Reviews and Evaluations
c. Office Policies and Procedures
d. Office Meetings (Meeting Management)
e. Personnel Records
f. Payroll and Reporting
g. Salary Administration

Key Challenge in Phase II – Knowing When You Have the Business and You Are Ready for This Phase

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John W. Olmstead, MBA, Ph.D, CMC

Starting a Law Practice: Challenges and Tips - Phase I

Question:

I am an associate in a 6 attorney firm in Cleveland, Ohio. I have been a practicing attorney for four years and have been with my present firm since law school. I am considering starting my own firm. What is your advice for someone like me starting up a practice on a shoestring?

Response:

I receive at least ten calls a week from attorneys that are in solo practice or are the sole owner of a small law firm with similar concerns and frustrations. However, there tends to be different needs and challenges depending which phase of development the firm is in. Here are a few survival tips for the first phase:

Phase I – Solo Startup

In this phase it is all about you. More than likely initially you will not have office staff. If you are a new attorney right out of law school you must learn your trade and develop competencies in lawyering and client service. Your first priority will be to supplement your law school education with nuts and bolts practice skills – and you will have to do it quickly. Since you won’t have a senior partner in your firm to mentor and train you – you will have to reach out to resources outside of your firm. You will not have an accountability partner in your firm. Your second priority will be getting clients. You will have to actively marketing and promote yourself and your practice. Funds may be limited so your largest marketing investment will be your non-billable time devoted to marketing and client development activities. Finally, your third priority will be getting paid by your clients. Self discipline and exceptional time management and time keeping skills are critical success factors.

Phase I Survival Tips

1. Create a business plan (strategic plan)

Create a plan before even starting the practice even if it is a one page plan. This will serve as a roadmap for your practice. See Helen Gunnarsson’s article in November 2011 Illinois Bar Journal.

2. Setup your practice and office

This includes everything from the selecting a suitable name and legal form for your practice; setting up your office whether it be a home or virtual office, a space share arrangement, or lease office space; acquisition of office systems, etc. (I have a start-up checklist available. E-mail me if you would like a copy.)

3. Develop competencies in law and business

a. Find an experience attorney to serve as a mentor. The ISBA Mentor Center has mentor program available for members.

b. Consider a business coach

c. Take all the CLE you can

4. Getting Clients

Time must be developed to business development. To be successful in private practice attorneys must be finders (originate new business), minders (manage client matters and relationships) and grinders (worker bees that work on client matters, provide services, and generate fees). You must manage and balance your time in a way that you cover all three of these bases.

5. Client Development/Marketing

a. Actively network with the general public, other attorneys, and other potential referral sources

b. Ask for referrals

c. Implement a first class website that demonstrates expertise

d. Implement a contact database

e. Develop a personal marketing plan (contact plan)

6. Getting Paid

a. Use engagement letters and fee agreements

b. Ask for retainers and replenish

c. Accept credit cards

d. Establish client selection criteria

7. Financial Management – Work the Books

Learn key metrics and “red flags” for your practice area, set goals, and measure your performance against these goals. Take corrective course actions as needed. Actively manage your cash flow. Remember - profit as reflected on the income statement and cash flow are not the same.

8. Manage Your Self – Self Discipline and Accountability

9. Partner with Other Solos

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John W. Olmstead, MBA, Ph.D, CMC

 

Goals and Plans For Focusing the Law Firm in 2012 and Beyond

Question:

Our firm, a 12 attorney firm in Detroit, needs to find a way to improve fee revenues and financial performance in 2012. We do not have a business or strategic plan, have never had a retreat, and we don't even have a budget. We believe that we must do something for 2012 and yet we are out of time since 2012 begins next week. Any suggestions?

Response:

Generating adequate fee revenue is the primary challenge for most law firms and this is where I would start for 2012.

I am a strong believer in the power of focused goals and objectives when integrated with a system of accountability. I have clients that have improved fee revenue by 20% (over a two-three year period) with existing headcount simply by establishing production goals for each attorney and paralegal in the firm - reporting, measuring and reporting goal v.s. performance monthly using simple reports, and follow-up with individuals behind on their goal attainment. Solo practitioners can use the same system and use a staff member, spouse, or coach to serve as an accountability partner. You might want to consider the following:

1. Ask each attorney and paralegal to provide SMART (specific, measurable, attainable, realistic, and on a timeline - i.e 2012) goals for fee generation, fee origination, billable hours, etc.
2. Review and discuss these goals with each member and engineer an agreement (commitment). Insure that there is adequate stretch - but that the goals are attainable.
3. Setup a monthly report, spreadsheet if necessary, listing each individual and including their monthly goal number(s), actual performance, variance, year to date goal number(s), actual performance and variance.
4. Review and discuss monthly at firm meeting, management committee meeting, or whatever forum is appropriate for your firm.
5. Follow-up and meet with individuals that are falling behind. Devise strategies for improving performance or revise goals if unrealistic.
6. If the firm has insufficient client work use this as a tool to bring out into the open and create specific business development initiatives to deal with such issues.
7. Find ways to tie attainment of goals to compensation.

Try to get this in place by January 1, 2012 and see how this works for you and consider this your first baby step. Down the road you might want to consider a firm budget and eventually a strategic plan. See Helen Gunnarsson's article on strategic planning in the November issue of the Illinois Bar Journal.

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John W. Olmstead, MBA, Ph.D, CMC

Conducting Meaningful Heart to Heart Discussions With Law Firm Attorneys and Staff.

Question: 

I am the sole owner of a 12 attorney firm in downtown Chicago. With staff we have a total of 23 people in the firm. Managing people is my toughest challenge. I am having problems with people not following firm policy and doing what they should not be doing. It is driving me crazy. What should I do? I am interested in your thoughts?

Response:

Tell them to stop. Seriously. As owner of your firm you can't beat around the bush and be sheepish concerning your expectations concerning desired performance and behavior in the office. Confront the performance or behavioral problem immediately. Manage such problems in real time. Don't wait for the annual performance review and don't treat serious problem as a "self-improvement" effort. Tell them how you feel about the performance or behavioral issue, the consequences for failure to resolve the issue, your timeline for resolving the issue, and the follow-up schedule that you will be using to follow-up and monitor the issue. If they must resolve the performance or behavioral issue in order to keep their job tell them so. They may need this level of confrontation they need in order to give them the strength to be able to deal with their issues.

Being a wimp does not help you or them. Tell them like it is and conduct a heart-to-heart discussion. You will be glad you did.

P.S. It gets easier with practice!

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John W. Olmstead, MBA, Ph.D, CMC

Why Lawyers Have Problems With Client Development and Marketing

Question:

Our firm has in place a strategic plan as well as a firm client development plan and individual lawyer client development plans as well.  While we have great ideas and good intentions - we seem to be falling short of the mark and not accomplishing much. What are you thoughts regarding our dismal success with our client development efforts?

Response:

Obstacles to Marketing

Based upon our observations drawn from working with client law firms over the past eighteen years we have concluded that marketing is poorly understood and ineffectively implemented in many small law firms. In addition, the following obstacles are at play:

Time

There is no time for marketing or any firm developmental activities. Production is king and non-billable activities such as marketing are discouraged.

Uneasiness With Marketing

Attorneys are uncomfortable with marketing. This is primarily due to lack of understanding, training, and experience with the process.

Lack of Marketing Understanding

Many attorneys confuse marketing with advertising. Marketing is not advertising. Marketing activities can exist without any promotional components such as television advertisements, radio spots, tombstone magazine advertisements, or direct mail. Marketing is the broader process concerned with the development and delivery of legal services and is part of the firm's long range planning process. It provides answers to the questions what are we selling and to whom are we selling. It involves maintaining relationships with existing clients as well as creating new relationships with prospective clients. In fact, a major objective of many successful marketing plans is obtain additional business from existing clients.

Focus and Accountability Problems

Frequently law firms experiment with marketing and engage in isolated promotional activities not integrated with the firm's business plan with the expectation of immediate results after the one-shot activity. The firm engages in fits-and-start activities that are completely unfocused, unrelated to an overall plan, unmeasured, inconsistent and often inappropriate.

Cultural Issues

The typical culture of many law firms discourages investment in long-term developmental activities. The focus is on billable hours and production. Everything else is of secondary concern. The consensus governance model typical in law firms hinders change and timely decision-making at the firm level. In addition, effective marketing in law firms requires marketing at the firm, practice group, and individual attorney levels. This requires effective training, mentoring, follow-up, and accountability at each of these levels.

Reward and Compensation Systems

Most reward and compensation systems focus on short-term production and discourage participation in longer term (non-billable) firm investment activities or projects.

Tackle some of the above issues and you will be on your way to improving your client development and marketing efforts.

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John W. Olmstead, MBA, Ph.D, CMC

 

Client Origination Credit and Importance in Law Firm Partner Compensation Systems

Question:

Our firm is a 18 attorney insurance defense firm located in Chicago. We are in our second generation and none of the original founders are still working in the firm. The majority of our insurance company clients have been with the firm for decades and were inherited. Our current crop of partners are primarily "worker bees" and have not developed "rainmaking" skills. We have not added a new client to our client roster in years. In the past two years we have lost several clients due to mergers, consolidations, and partner defections. This concerns us. Currently partners are rewarded and compensated totally on "working attorney" fee collections. We are considering changing our compensation system to including a credit for origination of new business. What are your thoughts regarding client origination credit?

Response:

All law firms need a mix of finders, minders, and grinders. Finders (client originators) are needed to provide sufficient work to keep the workers busy. Minders (responsible matter attorneys) are needed to manage the portfolio of client work. Grinders (working attorneys) are needed to service and produce client services. While there are exceptions, in most firms partners must hit on all three of these cylinders. In other words, most of the partners must do well at finding, minding, and grinding. Partners may perform some of these roles better than others, however overall they should be competently performing each of the roles. Very few firms can afford the luxury of having several senior partners only bringing in business without being required to maintain personal production levels as well. Partner compensation research concludes that the most a law firm can afford to pay a rainmaker - over and above his or her own billable hours (fee collections) is the marginal profit derived from the associates the rainmaker can keep busy, regardless of how many partners he or she occupies. The most valuable partners are those who offer a balance of skills: worker, delegator, supervisor, and rainmaker.

Since origination of new clients is the lifeblood of any firm it is a key factor that should be recognized in any compensation system. The exact weight that it is given will depend upon the firm and how dependent it is upon constant client replacement, only a few institutional clients, turnover of clients, leverage ratio, etc. A firm that has a well diversified base of institutional long time clients will typically weigh client origination much lower than a firm that has to constantly replace individual clients.

Actual approaches to implementation will depend upon whether your system is a subjective or a objective (formula system). However, the pitfalls are the same. Actual assignments of origination credits to partners can be difficult to initially determine. When and how should origination credits be shared between partners? Who determines and monitors such determinations? How long should the credit be awarded?

Origination credit becomes counter productive when it encourages senior partners to become comforable on the income received from origination credits from clients they brought in 20 years ago to the extent that they no longer develop new sources of business nor generate working attorney fees.

For this reason we believe origination credit should have a sunset expiration provision and that a firm should set time limits on origination credits - say five years on a reducing schedule - and have partners share origination credit with other members of the firm who develop business by cross-selling the firm's services to clients whose accounts were originated by another partner. In addition, offer "maintenance credit" as long as the originating partner continues to perform tasks that reinforce the relationship between the client and the firm.

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John W. Olmstead, MBA, Ph.D, CMC

Reducing Bar Complaints and Improving Client Service

Question:

Our firm has 14 attorneys. Just this year three of our more senior attorneys have had bar complaints filed against them. One has been disciplined by the bar. How can we improve this situation?

Response:

Hopefully you have the right attorneys on the bus and they actually care and see the importance and value of client service. If not - an educational program for the entire firm combined with a coaching program for the offenders, if needed, might be a starting point.

Here are a few other suggestions:

1. Improve client selection. Learn to recognize problem clients and say no to some and do not represent them.

2. Use engagement letters as a tool to manage client expectations. Underpromise and overdeliver.

3. Ramp up your communications and communicate, communicate, communicate with clients as well as office team members. Communications problems with clients - both initially and later on in the engagement - is the root cause of most problems.

4. Insure that you have effective office systems for managing client work production, conflicts of interest, calendar and docket control, and overall case management.

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John W. Olmstead, MBA, Ph.D, CMC

 

Governance Plan for a Law Firm

Question:

Our firm has 25 attorneys. We are located in the greater Washington D.C. area. I am one of three members on the Executive Committee. While we try hard to effectively manage the firm too many people are trying to make decisions on behalf of the firm, therefore nothing is getting done. All of the partners continually second guess everything that our committee tries to do. I have been told that we need a governance plan. What is a governance plan?

Response:

Sounds like your practicing attorneys are spending too much time on administrivia and there is not a definitive outline of roles and responsibilities in the firm. Everyone is dabbling in the day-to-day maintenance and administration of the office, leading to decreased profitability and billable hours. Not only are each of you practicing law, you are also involved in the everyday management of the firm as it relates to finance, staff and systems. Clearly these are roles within the office that could be delegated to a trained and professional administrator. It just takes a little push of encouragement and trust on behalf of the partners to let go of the day to day details of running the firm.

You might want to develop a three tiered governance plan to help draw a line in the sand regarding responsibilities. In the law firm setting, it is appropriate to distinguish between administration, management, and leadership. Administration is concerned with the day-to-day business and practice support activities of the firm that should be the responsibility of a firm administrator, office manager or other assigned staff member. Specific functional areas of responsibility include supervision of staff personnel, accounting and billing, collections of accounts receivable, financial management and profitability analysis, budgeting, information systems, purchasing, and facilities management.

Management is concerned with the production and delivery of professional services to clients. Specific areas of responsibility include committee management, planning and oversight of information systems, development and enhancement of client relationships and communications and development and maintenance of practice support system. These functional areas are often the responsibility of the managing partner, executive committee or chairpersons of firm practice groups.

Leadership is concerned with the executive functions of the firm. These functions involve the long-term policy activities of the firm and are often performed by a board of directors, the partnership at large, or committee. Specific areas of responsibility include long-range strategic planning, practice development, marketing, lawyer recruiting and development, lawyer performance management, mergers and acquisitions, service quality management, and partner compensation.

In essence a governance plan are job descriptions specific to management, administration and leadership and spells out roles, responsbilities, and accountabilities for each. Once established these establish the boundaries and help prevent backsliding.

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John W. Olmstead, MBA, Ph.D, CMC

 

Getting Control of the Financial Side of Law Firm Practice

Question:

I am a partner in a 14 attorney firm. Our bookkeeper has been with us for 20 years. We have a time and billing system, a separate bookkeeping system, and a separate database for clients, and something else for trust accounting. The other partners and myself do not know the name of the software that we are using, don't know how to access the software, and we have to ask the bookkeeper for any financial information that we require. We feel like "hostages". She gets offended when we ask questions. When we do receive information we don't know how to read or interpret much of the information. How can we get control of our firm back?

Response:

It is imperative that owners and partners in a law firm have access to financial information on a timely basis, understand the information, and use the information in a proactive way to manage the practice. We suggest:

1. The owner, or an appointed partner(s) in larger firms, obtain a basic level of understanding in basic accounting/bookkeeping and law firm financial management.
2. The owner, or an appointed partner(s) in larger firms, obtain detailed training on the accounting software system(s) along-side the bookkeeper when the system is implemented. In addition to general operation of the software, special training should also be obtained on interpretation and use of the management reports.
3. In your current situation - this may be a good time to consider upgrading your system and at that time obtain training on the new system, review the roles of all parties, and current procedures.
4. Insure that you have accounting controls in place and appropriate segregation of accounting duties.
5. Outline your expectations and requirements of the bookkeeper, meet with her/him, and communicate appropriately.
   

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   John W. Olmstead, MBA, Ph.D, CMC