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.

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