Monday, September 25, 2006

Don't Be A Wet Rag! Tips For Professionals Considering Fixed-Pricing

Pricing psychology is powerful thing. While fixed-pricing it far better for the customer and the legal professional alike, it is critical that it be done right in order for it to work in your firm. Many of the barriers to success in a fixed price model are psychological. Below are some tips that will help you to do a self-analysis and determine if fixed pricing will work for you.

Did you know that billing by the hour was an accident? Hourly billing did not become a widespread practice in the US until the 1950's, before which counting time was a costing method. Since then it has been the bane of a lawyer's existence and has spurred numerous debates among clients who hate the uncertainty of hourly billing. Do you know what is good about it for the lawyer? Well, lawyers avoid having to justify the value of their services when they bill by the hour since they just state their rate and start billing when they work. You see, attorneys have a lot of pride and hate feeling like they have to justify their value. A fixed-price model holds the professional accountable to providing and communicating the value of their services. The good news is that, if you are comfortable communicating the value of services you provide, you will find that there are many more value-adds that you can provide to a customer than a typical firm can (because an hourly firm can never make more than the profit margin that is built into the hourly rate. . . . therefore there is no incentive to add more value). Before you switch, consider whether you are confident and comfortable communicating the value you are adding to the customer in advance of doing legal work.

Don't be a WET RAG! Some lawyers are like wet rags. Since legal services are personal services, a lawyer's ability to keep "busy" is directly related to self-confidence. If a customer starts complaining about your hourly rate or fixed-price, you most likely start to lower your rate or prices (can you feel it? . . . . the customer is squeezing you, the wet rag, . . and you are DRIPPING). Think about the last time you held a wet rag. What did you do with it? (Yes, you rang it out). When did you stop ringing it? (Yes, unless you have OCD you stopped when the rag stopped DRIPPING. Are we getting the point now? In a billable hour world, it is no wonder that professionals lower their rates because there is no logical relationship between time and value to the customer, but in a fixed price world, your price should reflect the value of the services. So, you have to be confident in your value proposition. You have to know that it is more important to have clients who value your services than to take them all just to be "busy" and have a false sense of being valued. An airplane does not feel "sad" because all of its seats are not filled, and the airline executives are not scrambling to lower prices just to fill the seats. If you are considering fixed-pricing, ask yourself if you have the confidence in your value proposition to not be a wet rag. Know your value. Stand firm. Be prepared to walk away.

You get what you pay for. When people go to lawyers it is because there is something very important at stake. People are not looking for a bargain basement brain surgeon. A study of pricing psychology in the consulting market showed that the clients of higher priced consultants were actually more successful. Why? No, not because there was any proof that the more expensive consultants were any better than the less expensive ones. (Note that a Jaguar is built on a Ford frame). It is because people take their advice more seriously when they pay so dearly for it and they were substantially more likely to take action on a consultant's advice. When they took action they were more successful. It is a self-fulfilling prophecy. You get what you pay for. You are what you charge. Be valuable and act like it.

These are just a few considerations for professionals considering fixed pricing. Our industry has not scratched the surface in exploring how much more value can be added in professional services firms. The first and most important barriers to success are psychological. If you can break down the barriers of the mind, a whole world of opportunities will open up.

Sunday, September 17, 2006

Our Satisfaction Guarantee. Does Your Firm Care Enough To Stand Behind Its Service?

I recall being asked why Exemplar Law Partners stands behind its service with a Satisfaction Guarantee and responding "It's just good business." What I find most interesting about it is that we are one of only two firms in the nation who stand behind their service with this guarantee. The very idea of offering a guarantee is horrifying to most firms because they know that we are a service industry not known for good service and they are afraid of what would happen if they were held accountable for creating a positive customer experience. For whatever it is worth, Exemplar has never had a single customer take us up on the guarantee. That is the kind of statement that speaks for itself. As a service industry, I truly believe that customers should have the right to have a positive experience and hold their professionals accountable for devliering excellence in customer service. Below, let me explain what I believe firms need to do in order to be able to deliver on a guarantee:

1) Hire good communicators or else keep them away from clients: Communication is the tool that we use to build meaningful relationships. This is a relationships business. If you cannot communicate well (and I don't mean argue well) then you are not in the game. Many firms are filled with brain surgeon lawyers with no communication skills whatsoever. In order to satisfy clients, you need to have a team of attorneys who can "communicate" how much they care about the client (not just the law) because "people don't care how much you know until they know how much you care!"

2) Set and adjust expectations regularly: There are few businesses that have the luxury of having such close contact with its customers as the business of law. Professionals often complain about customer expectations being unreasonable. What they are really admitting is an absolute failure to manage their expectations. If they are not manageable then they should not be your clients! In order to have happy customers we have to work with them to understand what they expect of us and make sure that we are able to deliver on those expectations. We also have to adjust those expectations as a case moves along (with good communication). Customers deserve to be informed and deserve professionals who will be honest and candid, rather than macho and illusive. Customers are not interested in paying for your ego, they are interested in getting the results they expect. If firms are ever to have a satisfactions guarantee, they will certainly have to learn to manage customer expectations and adjust them regularly.

3) Be selective about your customers: Most firms just care about whether or not you can pay for their services and not at all about whether it is a good "fit" or whether they can even deliver on your expectations. How do you know? Just ask your firms if they have origination credit. This is a sales commission that pays lawyers for bringing in any client who is willing to pay the fees. It is plain to see that this strategy is all about getting your money to line their wallets and is not at all a customer-centric policy. At Exemplar, we always ask ourselves "can we provide the kind of value you are seeking?" "Do you value what we have to offer?" and, equally important "Are you the type of customer that we want to work with?" We would rather spend our time serving customers that value us and are fun to work with. If you force your professionals to work with customers who are just there to pay your salary, you will certainly not be able to provide excellence in client service.

4) Ask customer what they think and hold professionals accountable. Let me say this again: Ask customer what they think and hold professionals accountable. Yes, that's right, I said hold professionals accountable. Do you think that your law firm holds meetings with each attorney to explain how they can improve in delivering service to clients? So, let me ask you this: This is a service industry, right? If you are a lawyer, you chose to be in this service industry, right? So, it should not sound so unreasonable to expect attorneys to provide SERVICE, right? If professionals at the big firms were being held accountable then perhaps most in-house counsel would not be so disappointed with them. In order to provide the kind of service that you can back up with a satisfaction guarantee, you will certainly need a team of service-minded professionals who have the courage to care and agree to be accountable for results. I don't know about you, but I don't remember a darned thing about what happened at my last doctor's appointment, but I do remember that he didn't waste my time by making me sit in his waiting room for an hour, he returns my phone calls, and I feel that he actually cares about my health. Competent lawyers are a dime a dozen. Layers who care and can show it are one in a million. If your lawyers care as much as their marketing materials claim on their websites, ask them to offer you a satisfaction guarantee as see if they will put their money where their mouth is.

5) Get Feedback, "Learn and Leverage"
One of the most valuable things about the satisfaction guarantee is the opportunity to find out how you screwed up. Most professionals start sweating at the thought of asking their clients where they went wrong or how they can do better. It is as if they are not allowed to be human. Seriously, firms need to have a centralized process for the collection and leverage of customer satisfaction data. A non-lawyer professional should proactively follow up with key customers to find out what works and what doesn't. This leverage can be used to set firm-wide customer service policies that attorneys are accountable to following. To make it easy for them, call it "The Law". Tell them, "the law can change at any time" and tell them to check "the law" regularly for changes and that they can be fined for violating "the law." (They will understand this very well, trust me) When you get consistent feedback that can be leveraged, create or update firm "law" and publish it on your intranet for all to see. Send out a newsletter to your people with changes to "the law". Fine those violators!!! Use the new source of revenue to elevate and reward your good citizens and you are sure to have a compliant society of attorneys who please customers time and time again. After all, your stars should not be the ones with the biggest egos and attitudes, they should be the ones with the happiest customers . . . the ones who keep coming back time and time again.

Monday, September 04, 2006

Client Hoarding -- A Profession Ruined By Greed

Client hoarding is said by legal market experts to be one of the biggest problems plaguing our profession today. Most experts take aim at the elementary compensation systems that give lawyers what amounts to a "sales commission" for bringing in legal work. From the outside, you might now see your "biglaw" lawyer in a different light when you realize that he is being paid as a salesman rather than a servant. So, what is behind client hoarding anyways? Well, here are some of the things I hear from big firm partners:

1) I can't trust that if I hand my client off to my colleague that it will get done right!

Response: First, most large law firms have some of the smartest attorneys in the country working in their ivory towers. If you cannot trust them then perhaps the real problem is that you really cannot trust anyone. You have officially cast your "no confidence" vote in your firm and your colleagues. Congratulations, you have just sent the client to the competition for their other needs! Imagine if you went to McDonalds to order to McAnything and the clerk said to you "I really think you would be better off at Burger King." or how about heading to the Ritz Carlton and being greeted at the front desk by someone who tells you "This place is good, but you may enjoy the beds at the Four Seasons better." How much longer do you think they would be working there? What would Donald Trump say? ("Yer Fired!"). That's what we would say at Exemplar. Funny enough, this happens every day at the large law firms across this nation. A systemic failure of trust is one of many reasons why professionals
fail to cross sell services and lose their firms tens of millions of dollars.

2) I'm not going to give my colleague the origination credit. Cross selling is like giving my colleague my paycheck!

Response: You are right! Most firms talk the talk about cross selling yet the largest components of compensation as a partner in most firms is origination credit followed by billable hours. What you incentivize is what you get for behavior, so it should be no surprise that your partners don't want to hand their paychecks to someone else. Interestingly enough, it is unlikely to change because the lawyers who hold the power at most big firms are the ones who control the largest books of business and benefit most (financially) from the origination credit scheme. Which do you think will happen first? A) Hell with freeze over OR B) Big firm partners will become altruistic?

Compensation scheme aside, our industry is making a statement about what it values in people every day by what information is puts out in the marketplace. You need only look in the legal newspapers to see that all they care about is money. You will regularly see ads like "Be a Partner at BigLaw! Bring your book $1.25 Million." Yes, that's right, they want to buy you for your book. So, as long as the big firms are selling partnership positions for a book of business, do you really think that partners are going to "share" the business they get in the name of loyalty to a brand when their book is their golden ticket out of there when someone else offers them more? At the very highest levels we have become a profession ruined by greed, with professionals who shop their books in search of the "green carrot." So, where your attorney could be serving more of your needs, he instead is serving his own self-interest.

At Exemplar, we only hire professionals who trust the colleagues they work alongside, who believe in their firm, and who are more interested in serving all of our customers needs than hoarding a book (pretending they own you, the client) for a potential career move. Greed has no place in a service industry and certainly no place at Exemplar. It has already infected the power structures of many of the largest firms in this nation. Fortunately, Exemplar has created the next generation law firm with a chance to get it right! With an uncompromising commitment to our core values, we are well on our way!