Monday, July 31, 2006

Fixed Pricing is Obvious. . . So Why Doesn't Everyone Do It?

One of the most amazing things about Exemplar's fixed-price model is that everyone finds it to be so intuitive. It is so obvious that customers prefer it (even lawyers -- just google the words "billable hour" and see what you get. . . everyone hates it. If you find a positive comment on it let me know!) that everyone asks me why everyone is not already doing it. I have had the pleasure of speaking with many attorneys in practice under the "old" model and I consistently hear them say "well, I just don't know how long it will take." Curiously, I ask them how much time they spend at the very beginning thinking about how long it might take so they can give their clients some guidance and most say "well, none really, because then I would not have the time to get the work done and plus, I can't bill them for my effort!" I don't know about you, but that sounds pretty lazy to me (not to mention a feeling of entitlement to get paid for every single minute of time spent on an activity). What kind of statements does that make about our industry? What does this say about how service minded we are if we operate under that model? Do you think I would ask you questions I did not know the answer to already?

The next most frequent response I get is "what if it gets out of hand or the project goes in a different direction. . . I can't price something if I don't know where it might go." This is where I take the axe to the linear thinking log and remind them that customers do not expect their attorneys to have a crystal ball and tell them the future. They are not asking us to put a price on all of the uncertainties. They DO expect a price on the things that are certain and even likely to happen. They would not be hiring you unless there was at least a certain amount of legal work that is certain or likely to happen. Therefore, there is no excuse for being lazy and billing by the hour when you know that a certain amount of work will occur, and you need only care enough about your clients to actually take a moment to tell them how much that will cost (it is the least you can do, really!). Then, there are no surprises. If the work goes outside the scope of what is known, your customers will understand that more action needs to be taken at an additional charge. With good communication and clarity as to the work being performed, you can give your customers what they deserve (clarity) and free yourself from counting every 6 minutes of your life. Exemplar Law Partners has not had a single customer ask us to bill them by the hour (that is telling) and our people certainly enjoy focusing on building relationships rather then building a timesheet.

Monday, July 24, 2006

Herding Cats Part 2: Building a Brand Requires People Who Care More About Team

I met with an in-house attorney who refers about $2 million in legal work to large firms who told me "I don't have a favorite law firm, I just have some attorneys that I like." One thing became clear when I heard that and connected it with much of the market research our there: The problem with branding a law firm is that most attorneys want to do things "their way" and have their own ideas about what serving the client means. From the customer's perspective, this means a completely inconsistent customer experience from lawyer to lawyer within a firm. What is so amazing about the Starbucks brand is that my 15-syllable latte tastes the same at the Starbucks in Vienna Austria (really, it does!) as it does right here in Boston. While it is easy to train a barrista to make a latte in a consistent way, it is very difficult to get lawyers to provide a consistent experience because they don't like to be told what to do. It begs the question then: Can firms truly claim they care about serving the customer when they allow each of their attorneys to do whatever they want and not what equates to good service in the mind of the customer? Exemplar Law Partners brings attorneys together who understand that service is in the eye of the customer, and that providing a consistent and reliable experience for our customers is what makes them confident in our ability to deliver of good product time after time. It is building the brand of Exemplar through the selection of service-minded attorneys that allows us to stand behind it with a satisfaction guarantee. . . a move which few firms in this nation have made and one which signals to each of our customers how much we care about them. I don't know many business that I purchase products from who do not stand behind their products either. . . it is simply a statement of belief in what you do and who you are. Ironically, I rarely return any products becuase most companies I purchase from care enough about their product to make it well (which is why they guarantee the product in the first place). Our industry seems to have a long way to go, but the professionals at Exemplar are happy to be leading it in the right direction!

Sunday, July 16, 2006

Exemplar and the 80/20 Rule: What Other Firms are Missing!!

I speak to lawyers all of the time who live in constant fear of not being busy. They think it is a reflection on their self-worth if they don't have a stock of clients in the "waiting room" to fill their schedules. This represents a very backwards type of thinking compared to how most businesses are run. Let me explain. Let's say that we sat a bunch of airline executives around a conference table and showed them a diagram of a 747 and said "Ok folks, here is a plane with hundreds of seats and we want to make money. What is our goal?" If you asked attorneys this question they would say it is to FILL THE PLANE! The airline executives would say "To get the right customers on the plane." You see, partners at most large firms have the incentive system of salesman since partners get a commission called "business origination credit." They are not doing an analysis of whether or not you are the type of customer that would value what they have to offer more than any other firm within a 10 mile radius. So long as you say you can pay their hourly rate, they want you as a customer.

In business, this violates the well-known and well-respected rule called the 80/20 rule. This rule states that 20% of your customers produce 80% of your business. Put another way, the bottom 20% of customer produce 80% of your complaints, headaches, and chargeoffs. The only way to avoid violating this rule as a law firm is to actually care about whether your customers value your services and not simply how deep their wallet is. Assuming it is reasonable to expect lawyers to "care", then let's talk about why most clients of law firms don't feel like their firm "cares" about them. If law firms really wanted to send the right message to both their attorneys and their customers, why would the single most important factor in a partner's compensation be a sales commission? With legal services in particular where each customer has so much on the line you'd think that it would be important to consider whether each and every customer is likely to walk away happy having had a positive experience with their firm. The actually surveys of in-house counsel show overwhelmingly that the opposite is true. Exemplar, on the other hand, will refer customers to other firms if we do not feel that we can achieve excellence for them. We do not have a "commission" nor do we attribute each dollar to a single-individual's efforts. Our team gets paid for having happy customers.

It is time for firms to put their money where their mouth is and compensate the right behaviors. You see, the power to care must come from the top, a message that continues to ring hallow in the board rooms of firms across this nation, and one which is loud and clear at Exemplar.

Monday, July 10, 2006

Managing Lawyers is Like Herding Cats - Here's Why You Care!

David Maister, a well-known author of books for the professional services industry, wrote in his book on managing a professional services firm that "managing lawyers is like herding cats." He was describing how attorneys are often difficult to deal with, impossible to manage, and are terrible at working together for a common goal. We recently interviewed the former Executive Director of two large firms in Boston who told stories about attorneys whom all had their own forms, processes, and quirky ways of utilizing their support staffs. From an executive's perspective, he expressed great frustration with the inability to manage the efficiency of the organization when all of the attorneys were doing things "their way." This leads me to the obvious question from a customer's perspective, which is "Why do I care?" Well, in a normal business you wouldn't care because once you pay the price you are done! Your law firm, on the other hand, charges you for their time (unless you are our customer), which means you are paying for every bit of inefficiency in the system. Do you think they have an incentive to be efficient? Think for yourself: If they have processes that allow them to do your legal work better and faster what happens to their revenues? (yes, they go down because they bill less time). What about profits? Well, they make a fixed margin on every hour that they bill, so of course they make less money when they are efficient. You can probably also understand that lawyers don't like to be told what to do even if it is in the customer's best interest, right? Now imagine a meeting of the partners of a large firm with the Operations Director that goes something like this:

PARTNERS: Mr. Ops, what do you think we can do to make our customers less frustrated with our bills and service?

OPS Director: Well, if you adopt efficient processes as a partnership and all behave consistently to provide a positive customer experience then I'm sure we can make great things happen at this firm

PARTNERS: Wow, that sounds great. What do we need to do?

OPS Director: Well, each of you are doing things "your way" and you need to start utilizing resources consistently so we can make sure you are not overcharging the customers by billing them for your quirky work habits.

PARTNERS: Why would we do that? Customers don't know the difference anyways and they still pay the bills, and plus: How much more money can we make if we were 20% more efficient anyways?

OPS Director: I hate to say this, but if you all worked 20% more efficiently you would bill 20% less time, reducing your profits per partner by $200,000 per year. You will have to lay off 30 associates and 25 support staff leaving one floor of the building empty with no revenue generating associates to help pay the rent in this place, which will probably cost each partner another $50,000 per year Your customers will be ecstatic though, and will appreciate your integrity and be loyal to you for at least another couple of years.


Since Exemplar was built from the ground up with our customers in mind, we don't have to correct 100 years of operational inefficiency because of attorneys who insist on doing things "their way" at your expense. With a fixed price, we do not make our customers the victims of inefficiency. Our incentive is to provide a great product in an efficient manner.
So the next time you get a bill (and the simultaneous heart attack) from a law firm that is billing you by the hour you might just be hearing the echo of the Partners singing Sinatra's tune "I did it my way!" while toasting with a glass of Dom Perignon in the ivory tower of autonomy.

Sunday, July 02, 2006

Note To The CFO: Lighten Up A Bit, Will You?

As someone who has served as a CFO and holds two degrees in finance you would think that I am a person that lives by the numbers. What I have come to realize in my professional experience as a Chief Financial Officer is the true limitations of numbers in providing guidance for running a company. We have all heard that numbers can tell you whatever you want to see in them. I remember reading in Ron Baker's Book "The Firm of the Future" that "according to numbers, everyone in this country has one testical" (half of us are women). With technology and data capacity so great, it seems like we collect data just because we can and not because someone sat down and did the math and determined that the cost of keeping such vast amounts of data and creating hundreds of jobs to interpret it actually produces a positive return on investment. Take law firms, for instance. They measure their entire operation in 6-minute resolution, forcing their entire workforce to adhere to a regime that by all accounts "changes the way you live your life." The partners who operate the firm actually believe they need to count this way to be profitable in spite of the fact that the most profitable companies and industries in the world operate just fine without knowing where every minute went. In the meantime, countless hours are spent just counting time instead of actually doing something productive with your life.

The biggest question that skeptical and fearful attorneys ask me is "how do you know you are profitable if you do not count every 6-minutes." After a moment of internal giggling (because I have worked the real world and understand quite well that no other business runs this way) I answer "Lighten Up A Bit, Will You? You don't need to know whether every single project you did made you a profit. What you need to know is that your business is operating profitably." The savvy questioner understands what I just said while the not-so-savvy one just sits there with a blank look on his face as if to say "Huh?". For those of you finance people out there, it is called portolfio theory. An investor has a portolio of stocks (just like a law firm does clients) and the job of the portfolio manager is not to make sure every stock goes up, it is her job to make sure that the portfolio is profitable as a whole. This entails managing the portolfio as a "big picture," eliminating non-performers and increasing the investment in the winniners (in law firms, this is called forced churn) Clearly, every organization has metrics that help guide you in making informed decisions for the organization, but Exemplar recognizes that myopia will not make the firm more profitable; that making thousands of highly educated people count their lives in 6-minute increments and sending them home to their loved ones trained to think of personal time as an "opportunity cost" is not just cruel but inhumane. At Exemplar, we are happy to come to work every day because of the opportunity to use every bit of our intellectual capital on activities that help our clients achieve success in the marketplace. We recognize that there is a high correlation between happy people and customer satisfaction (See Southwest Airlines), and thus profitability. My message to those who live by the clock is to "Lighten up a bit. Let your hair down. Manage your portolfio and stop driving your people crazy. They will love you for it and your clients will notice the difference. Ours certainly have!"