Power and Accountability: Take Two of These and Call Me In The Morning!

Is your firm suffering from a lack of innovation? Is your firm slow to change? Do you labor over the simplest decisions in your partnership meetings and sometimes feel you are dealing more with politics and personalities than important matters that drive your business forward? If so, then your firm clearly lacks a PA system! What the hell is a PA system? No, not a speaker system, a Power and Accountability System. Without BOTH of these in place at the same time, you will have problems innovating, enjoying what you do, and impacting positive change in your organization. Power . . . . Accountability. Take Two of these and call me in the morning. Here is why you need BOTH:

No Power, No Accountability:
This is a typical partnership: Nobody (not one person} has authority (and likewise, nobody really has ultimate accountability}
You operate by consensus, and when you make crappy decisions you can all throw your hands up in the air and say "hey, I just voted like everyone else. It wasn't my decision" Most of the time that you are in firm meetings you are dealing with challenging personalities, everyone thinks they are an expert on everything, you take the lowest common denominator of risk and innovation because the majority vote want to retire within 5 years and you cannot innovate at their expense. You are in a room full of mostly old white guys all of that talk like a have a dozen testicles and act like they have none! Why can't you innovate? Because NOBODY has the power to change and NOBODY is accountable to making the right decisions in your firm. Two words: Stale mate!

Power without Accountability:
This is a problem without a doubt and you have seen it before. This is the asshole that works down the hall from you. He treats everyone like shit, many people have left the firm because of the way they were treated by him, few would admit it, and the people who reported the problem to other Partners will tell you that everyone looked the other way because he is a large producer of business -- he can do whatever he wants, right? After all, what business do you have to tell him how to act when you can't originate $4Mil in business/year? What is more likely to be happening is that you are scared to death that if you tried to confront or change the "asshole" that his $4mil book, which you benefit from, will walk out the door with him when he leaves at night. There are people with power and no accountability at all. . . these people are a cancer to your organization, a disease. They will keep you down, ruin your culture, and prevent you from becoming the firm that your people wish it could be. You are cheating the next generation of lawyers by keeping these people.


Accountability without Power:
This is a curious situation to be in as well, and more common that you may think. Your non-lawyer executives, like your Chief Operating Officer or Chief Marketing Officer. Sometime it is even your Managing Partner. You are a growing firm and know you need structure and more help, but you all have huge egos and became Partner so you do not have to report to ANYONE! BUT, because you know you need help you Hire a COO, CMO or elect a Managing Partner and expect RESULTS! You brought them in to increase revenue growth or efficiency, or deal with problems, you are setting goals and expectations of them in their roles and their compensation may even be tied to them. What's worst, your firm does not give them the Power (authority} to be effective in their own roles! Your Managing Partner may be expected to change the culture, but is no empowered to fire the asshole partner or to manage other partners, right? Your COO is expected to increase productivity and efficiency, but he does not have the Power or Authority to tell your partners how to use their administrative staff in a less wasteful way! Your CMO has a great budget and can make great promises to the world about what you can do, but does not have the POWER to reprimand lawyers who do not live up to the brand promise! Anyone who is in this category, I feel sorry for you. Do yourself a favor and get the hell out of there! Apply to Exemplar where you can get both!

You see: The only way to innovate and change with the times is to get the right people on the bus, identify their strengths, empower the hell out of them, give them the tools to succeed, and THEN hold them accountable! It takes TRUST which is not in the vocabulary of most lawyers, yet is built into the very fabric of the Exemplar organization. With a good PA (Power and Accountability} System, you can go a long way, but they are travel buddies. So, if you do not have them in you firm, or one is missing, please take two of these and call me in the morning. Once you realize how successful you can be, you'll wonder why you didn't do this 1O years ago!

Ready. Fire. Aim! Ooops, I Missed. . . There Must Be Something Wrong with the Gun!!

Happy New Year everyone. In this New Year I am making a wish for you: I wish our profession would be more careful when handling weapons! When I thinking about professionals who have tried to "dabble" in fixed pricing I am reminded of the chant from the movie The Christmas Story "You'll shoot your eye out, You'll shoot your eye out" when I hear some of the stories from professionals who simply don't get it but try it anyways. It is almost humorous to watch because they are essentially taking a "Ready. Fire. Aim." approach, missing, and then literally claiming that there must be something wrong with the gun! I suppose it is good that the gun could not speak because it allows their psychologically protectionist approach to keep them from admitting that they don't have a clue what they are doing. One commenter put it well when he wrote: Fixed-Pricing is like teenage sex. There are more people talking about it than doing it, and those that are doing it don't know what the hell they are doing!"

Professionals who are considering adopting a fixed-priced approach need to understand that it is not a pricing strategy, it is a business model. In order to be profitable, you have to re-engineer your operations, IT, HR, Compensation structure, hiring practices, mentoring program, and resources, among many other things. Remember that under a value pricing model Project management and Scoping is key to successful implementation and many professionals who try to do a couple of projects on a fixed price do so without properly scoping out the work or examining resource utilization to determine how to maximize profitability on the project. So, while I am aware that fixed pricing can change your life, create a winning situation for your clients, and be more profitable for the professional all at once, I warn you that this gun called "value pricing" says conspicuously on its box: "WARNING: Please read instructions before using. failure to operate properly could result in a misfire and you may lose a limb." So, the next time you read something about a professional who took a "Ready. Fire. Aim." approach, blew a limb off, and without fail that the gun was the problem, THINK TWICE! There are very few professionals in this country who have truly become proficient in the business model and it should be "handled with care". That being said, the rewards for professionals with the courage to take a shot at it are both high and sustaining with patience and dedication. Law firms who refuse to change will find, over time, that they are still hunting foul with a bow and arrow while the rest of us are feasting on the benefits of using the tools of the modern economy!

The Numbers that Really Matter: Leading Versus Lagging Indicators

As someone who knows finance, I cannot tell you how widespread it is for businesses to look at the wrong data to determine how to make critical business decisions. For instance, if you look at the efficient market hypothesis you can see that past results are not indicative of future performance. After all, if that were true we would all be rich because we would bet on the future based on the past. I think we all understand this concept intuitively, but so few law firms actually put this into practice.

What professional service firms really need to understand is the difference between Leading and Lagging Indicators. So unless you want to drive your car by looking in the rear view mirror {I certainly won't be a passenger in your vehicle}, then I suggest you listen up!

Here is an example of Lagging Indicators: {Dumb Data}

Profit - This is lagging indicator of how you managed the cost of your revenues last year

Revenues -- This is a lagging indicator of what customers did last year and says nothing about the future.

Billable Hours -- This is a lagging indicator of what people did with their time last year. It is not predictive, and since you have to consider write-offs, learning curves, loss leadership, mentoring, etc, it is not even a useful tool to truly understand the past!

Write Offs -- This is a lagging indicator of customer dissatisfaction in the past year (Note: It is NOT a sign of satisfaction. . . by the time they are crossing out your line items, they are already pissed off!}

Attrition Rates - This is a lagging indicator of how happy/miserable your people were last year.

Here is an example of Leading Indicators: {Smart Data}

Employee Happiness Index: This is a leading indicator of this coming year's productivity, attrition rates, and customer satisfaction (because happy people make happy clients!}

Hand Written Card Index: This is the number of hand-written thank-you cards your firm got from clients this year. This is a leading indicator of revenue growth through referrals, increased wallet-share per client, and customer loyalty.

Accounts in Pursuit: This is the total sum value of clients that the firm considers to be leads or prospects. This is a leading indicator of gross revenues in 3O-9O days.

These are just some examples and there are hundreds of each. There will be only a handful of Key Predictive Indicators that will matter the most to your business. Now, there is a strong tendency to discount or fail to value Leading Indicators at all. There is an easy explanation for the phenomenon: Leading Indicators are far more challenging to quantify that lagging indicators. Most organizations fail to even try because they believe that if they wait and just let the future become history then they can reduce the acquisition cost of the data and make decisions based on the Lagging Indicator data. That practice is not only laze, but a highly costly mistake. The ability to know the future is a power that can be leveraged to far exceed the cost of acquiring the data, not to mention the fact that with a little creativity getting "golden data" does not have to cost much at all!

An Exemplary Example: At Exemplar we have studied the best business models in the world and their best practices to get a sense of how we can do better. Southwest Airlines, for instance, understands that the Employee Happiness factor is key in their business. The CEO said "I only hire happy people" and to date it has paid off. They know {as we do} that happy employees make happy customers and happy customers make higher revenue and thus higher profit due to the increased productivity. You see, this one factor has a ripple effect through both the inside and outside of the organization. How, you ask, do you figure out your Employee Happiness Index? Well, it can be different for every organization. We have adopted a practice that I learned about by reading Ron Baker's book "The Firm of the Future". We are instituting the "HSD Button" program, called the "High Satisfaction Day Button". We wanted to know, on average, how happy our people were on an ongoing basis. The cost of doing surveys is too high and hard to normalize and quantify, so we needed something fast, simple, and effective. So, we are putting a small button on the computer screen desktop called "HSD", and at the end of every day before people sign off they are asked to think about whether they had a satisfying day, and if so they would press the button. You can see that everyone would use their own subjective standard to evaluate this and that is OK. The absolute number and standard is less important than data trends, spikes, and changes over time. Now, we have our heads around a Key Predictive Indicator for the business that will help you avoid problems before they become a part of your "history" and helps us to make profitable decisions because we know where we are headed. At Exemplar, we lead by looking forward to the future. Don't drive your car by looking out the rear view mirror. If your people found out that you were running your organization that way, they might jump ship! I certainly would!

Happy New Years to all!

Our Profession Has Stopped Thinking: How Else Could We Have Departed from Sound Economic Principles?

Have you ever wondered how the legal profession, which is trained to ask questions and be skeptical, has not asked why they bill by the hour let alone why we continue to do so? Have you ever wondered how most senior attorneys could have practiced law a lifetime and not realize that the practice of billing by the hour was a recent accident and product of the 195O's and cost accounting methods. Have you ever wondered why old lawyers bicker and banter about how fixed-pricing would not work when in fact it not only works in the legal industry in most other countries, but it also has worked for centuries before the 195Os when WE were a fixed-price profession? Have you ever wondered why professional satisfaction is at historic lows, attrition rates and depression rates at all-time highs, and that this trend STARTED in the 196Os and the problems have become worse every year. Have you ever wondered why law firms used to be an honorable profession, or why lawyers in my grandfather's time were "Primary Care" attorneys who had strong relationships with their clients. . .and why we are now a profession of only Emergency Room Medicine? Have you ever wondered why law firms are run more like an assembly line, with highly and narrowly skilled people with no transferable skill sets, just doing more and more of the same thing every day for the rest of their life? Do you ever feel like the prize for the pie earing contest is. . . well. . . MORE PIE? Have you ever heard of Karl Marx's Labor Theory of Value? Have you ever wondered what economic theory hourly billing is based on? Have you ever wondered if your business model is based on a theory that was refuted one hundred years ago and has PROVEN to have caused the same problems our profession is facing today? Have you ever wondered that? Have you ever thought of it? Ever? Do you EVEN THINK? Who are you? Please be at your office at 4pm . . . I'm coming over to to collect you law degrees and return them to the University that let them sneak out one day when they left the doors open, because the one thing I do know about the profession of law is that we are supposed to be a THINKING profession. We are supposed to ask the TOUGH questions. Our laws are based on centuries of wisdom and theory and it takes THINKING people to make this profession one of honor and integrity and to keep alive its founding principles. He who does the right thing but knows not what he does is not a wise man, for any follower can do what he is told. This profession did not start with thoughless minds and it should not end with them. Law firms who operate under an economic theory that is proven to produce miserable people, high attrition, depression, unhappy clients, and a life destined to be counted in 6-minute increments stands for something that is far too lowly of a true professional. Did you ever wonder why you wake up ever day and carry that flag? Do you ever wonder why you stand for your wallet over your people? Can you possibly stand for honor and integrity and dishonor your workforce every day? Can you possibly continue to operate under this model, never ask why, and then turn around and try to convince clients you are smart? Can you wake up every day and look your children in the eye knowing that they could one day be the victim of a model YOU perpetuate? Could you really put on your website that you believe in diversity and quality of life when it is abundantly clear to the world that you run a sweat shop and have only token diversity? (because of your business model} Can a Nazi waive the Jewish flag and be genuine? Can you look in the mirror every day knowing what you do to people by adopting the billable hour model? IS THAT WHY YOU REALLY DON'T WANT TO KNOW? Malcolm X put it best when he wrote: "If you are not part of the Solution, then you are part of the problem" Where do you stand?

Productization versus Commoditization in the Legal Industry

Little has been said about the problem of the perceived commoditization of legal services. It is clear that professional service providers are suffering from a perception that what they do is a commodity. The problem is so pervasive that many professionals actually believe they are a commodity. Here are some of the contributing factors:

-- The ratio of lawers to non-lawyers has doubled since the 197Os [there are twice as many competing for half the business]

-- The adoption of a pricing model that commoditizes the product (Lawyers sell time. . . even though clients don't want to buy time, they are left in a position of attempting to compare professionals based on time and rate,

-- The behavior modification of the hourly billing model that creates a disincentive to invest time up-front in order to differentiate or educate the client on the "real" product, which is the solution that will be achieved through your expertise

-- The lacking business savvy and diversity of attorneys in general, perpetuating the perception that lawyers are all "the same"

-- The belief of attorneys themselves that they are indeed a commodity.

-- The focus on expertise/experience as the sole basis used to convince clients to hire them. Remember, clients are not in a position to know what level of expertise is required for their job. By leaving it to expertise alone as a criteria, you are causing the client to have to make a decision based on their law opinion, which can be dangerous.

Law firms and attorneys really need to address this problem to remain relevant in the future. The purpose of this post is to suggest that the productization of legal services can be an effective way to deal with this issue and help the clients to understand your "Unique Value Proposition" and make an informed decision. At first glance you may think that producization would contribute to the problem, but in fact it helps to reduce it. Clients are simply not in a position to compare products they do no understand. Attorneys do not, generally speaking, invest the time to educate the client and set out a road map of the case or strategy with them to get buy in on their process before proceeding. There is nothing more amorphous to a law client than a legal engagement. . . . most clients don't know exactly what is happening. . . . to them, their problem goes into a black box and sometimes comes out with a solution, but costs a hell of a lot anyhow.

By creating a product [bundling valued services] together you are turning a mystery into a known quantity. It is now something that is understandable to the client. What's more, you can use your diversity, unique skill, and creativity to craft an offering that simply cannot be acquired anywhere else. In this case, clients have peace of mind, are able to make decisions based on the benefits to them rather than attempting weigh comparative values of attorneys by time and rate against a lay person's own perception of how much expertise they really need to begin with. To date, very few corporate firms have attempted to differentiate on this basis. Few have put together fixed-price packages on the low end to entice clients to use the firm, which is a false promise and cold shower for clients when they realize their next engagement they will be buying more of that amorphous "time" again rather than something they can actually understand!

The Difference Between Value Pricing and Price Gouging: The Difference Between Apples and Oranges!

I find it rather interesting how many professionals confront the possibility of adopting a new pricing model. I find that many professionals make simple-minded mistakes when evaluating alternative models as if they are looking for reasons to rationalize why it won't work rather than actually using their BRAINS to think about how it DOES work. for instance, value pricing is based on the subjective theory of value, an economic theory which requires study and understanding. It is not one that is readily comparable to a cost-plus pricing model on a dollar for dollar basis. Many professionals have lost before they have begun when their limited thinking and binary analysis paralyzes intellectual curiosity at the expense of our great profession. Let me give you an example:

Most attorneys ask the following question: "Well. . . if value pricing is so great, tell me. . . does it end up costing the client more money or less money under that pricing model than it does under the billable hour?

The question itself demonstrates a dangerous level of ignorance about what Value Pricing really is about. The answer is BOTH. The problem with the question is that it does not seek understanding, but it is rather a trap door. You see, the professional is asking a question with only 2 acceptable answers already knowing how to rationalize the dismissal of the pricing theory NO MATTER THE RESPONSE. For instance:

LOWER: If I said it was lower the professional would dismiss the practice on the basis that they will make less money or be less profitable under the model so they will not do it. What they see is the risk of a new pricing model, the risk of error in estimating their time (which is incorrect because value pricing is NOT based on a time estimate], and a lack of financial motivation to change.

HIGHER: If I said the cost would be higher to the client, the professional would dismiss the model on the basis that they already know and feel like clients are getting SCREWED by the billable hour, and that it would be somehow unethical to charge MORE than they already do.

You see, professionals who ask the comparative question have already made up their mind. They are no seeking answers. They are seeking validation for a conclusion they have already made. For those professionals who do seek understanding of a better way and want to become educated on the model, I am hopeful and that you understand that the answer to the question is: BOTH. (Not higher nor lower, but BOTH] Here is why:

Cost-Plus pricing is pricing based on time. It ASSSUMES that all time is valued the same since it is priced the same. Such a silly model cuts directly against a universal principle of the LAWS of DIMINISHING RETURNS. Anyone with an iota of business sense understands this. So, what happens here is that there are times when a professional's pricing is grossly below what they are truly giving in value and also times when it is GROSSLY above the value. Look within yourself for a moment and you will discover the psychological proof of this:

1 - Sometimes you feel like to added much more value than you got paid for, don’t you? (This is because you know the value of the 25yrs of wisdom you just gave away in 15 minutes for only $15O was many thousands of dollars!]

2 - Sometimes as you are billing a million hours for a simple brief you also worry about whether the client really can afford or values all of the time you think is necessary to spend on a case. You wonder whether they will get pissed off or not pay . Somehow you know the client does not value you the way you price yourself!

You see, the cost-plus pricing practice of billing by the hour produces bad results for BOTH the client AND the professional because it is NOT based on VALUE. Sometimes you are getting ripped off and sometimes the client is getting ripped off. It is a value imbalance. And all imbalance produce undesirable results for one party or another.

Value Pricing is about pricing on the margin of perceived value and bringing into balance the transaction between the buyer and the seller. In that instance, you as a professional will feel valued because you are pricing correctly and the client will never go away feeling ripped off. This also aligns you with your client and provides an incentive to ADD VALUE to the client and actually care enough about them to discover what they value and creative ways to accomplish an outcome. You are more than a drone. You are not a commodity so stop pricing like one!

The moral of the story is that professionals need to truly understand the competing economic theories rather than use simple-minded tactics to compare and dismiss competing practices. Philosophers that shaped our world did so with thorough deliberation and thought, not with passing gestures of curiosity. I am shocked that I must challenge our professions to THINK . . . . but if we are serious about progress and positive change, we should try to get back to our roots of being a THINKING profession that considers timeless principals rather than droning on in 6-minute increments in a state of perpetual skepticism. It could change your life. It certainly has changed ours!

The Universal Principle of Value -- What's Missing in a Profession That's Missed The Point

I have been putting a lot of thought lately into what it is about the profession of law that has gone astray and left so many professionals either miserable or driving them out altogether. The perceived "roots" of these problems have long been the subject of scholarly articles and current discussion: Lack of work-life balance, unchallenging work, systemic under-delegation, no diversity (and no more than lip service to solving the problem], competitive individualistic work environments, eat-what you kill systems, and, of course, the dreaded billable our system with it's evil sister [quotas]. I have become passionate about Exemplar and the fixed-price model based on the subjective theory of value because executing on the business model Is DOMINO ONE to all of the other "symptoms" of a broken system. That's right -- the business model fixes and addresses each and every one of the factors that represent the deterioration of an honorable profession.

Many people have trouble understanding how to execute on a model that is based on the subjective theory of value so they depend on a far inferior model that is based on COST or TIME. The Time-based model has been long refuted by business experts and bear no relation to what the customer wants and values and yet the profession that is trained to ask the most questions asks none with regard to why we operate this way. Henry Ford put it quite well when he wrote:

" We do not bother about the costs. The price forces the costs down. The more usual way is to take the costs and then determine the price; and although that method may be scientific in the narrow sense, it is not scientific in the broad sense, because what earthly use is it to know the cost if it tells you that you cannot manufacture at a price at which the article can be sold?”

What has become even more clear than the impact of Exemplar's pricing model is that every once in awhile an industry or profession varies from the Universal Principle of Value and bad things begin to happen. The business model of billing by the hour started in the late 195O's and since then the way they manage, measure, and compensate knowledge workers has changed. What our industry has seen in the past 5O years is the wholesale deterioration in quality of life, work-life balance, challenge, meaningful client relationships, and loyalty to people in general, but particularly the next generation. Our industry has missed the point. . . . it has gone too far astray from the Universal Principle of Value. We are an industry that is NOTHING without its people and yet it is leaving its own behind where financial gain can be attained. It is no wonder at all that so many professionals choose to vote with their feet and simply walk away. It is also no wonder that professionals like myself have taken a stand for what they believe in. for bringing our profession back into alignment with clients and with the Universal Principle of Value. . . . Because Exemplar is about so much more than a pricing model. . . it is about changing people's lives. There is nothing more rewarding and humbling all the same than to lead our profession back to the center, the core, and one day reach the summit of Excellence at the crossroads of Great People and Profitability. Author James Davis Carter put it well when he wrote:

". . Discovery of the power to aim at ideal ends freely chosen by his own free will and intelligence is the supreme achievement of man, and in that, more than any other in any other single fact, lies hope of the future"