Wednesday, March 28, 2007

When Change Will Mean The Walls Come Tumbling Down: Why Big firms Will Never Change!

I just wanted to be clear that I am not saying big firms cannot implement VP because they are big, I am saying that an attempt to do so would likely cause them to dissolve.

At a macro level, please follow my logic and allow me to lay the foundation for my argument, first with questions, then with analysis:

Who get’s positional authority in a law firm? Usually the biggest rainmakers and billers in the office.

Who get’s promoted to Partner from Associate? Those who bill the most hours (a beauty contest of inefficiency) or come with a book of business

Therefore, who controls the organization? Partners (who got there by billing more TIME)

How do big firms attract top talent? Bidding wars, with winners curse.

What motivation in people does a bidding war attract? Those who are motivated by the money

How do firms attract lateral partners? By selling Partner positions for large books of business (Again, a highest-bidder problem . . .attracting money motivated attorneys)

How does a Billable Hour firm use work-flow to maximize revenue? Hoard work at the highest levels (systemic underdelegation) . . . have everyone in the organization bill for work that is well below their competence level because their rates are higher.
Implication of that practice? No delegation, Little challenge in work, therefore, little need to mentor, therefore, little workforce development and skill development in people AND no project management skills (or people management skills in attorneys on the team)

What are the IT systems designed to do? Minimize non-billable time, capture all billable-time well (NOTE: NOT minimize billable time, which would be to maximize efficiency)

Most Partners are? Old-white men, Close to retirement, risk adverse, financially comfortable and not in need of taking risks with capital to achieve greater returns. Particularly those in control of the firm hold the largest books and may be very close to retirement.

Note: Partners cannot maintain an equity interest in the firm after they leave, so there is no such thing as an “investment in the future of the firm” that extends beyond the term of their employment with the firm.

I could go on and on. Here is my point:

To be profitable in Value Pricing, you need to:

Have IT infrastructure that operates 180 degree opposite from the current infrastructure.
Implications? Significant up-front capital investment required before proof of concept. Since our industry is almost operating entirely under this model, great tools do not yet exist to MINIMIZE time investment for VALUE ADDED activities

Have a workforce that is willing to make less money while they work out the quirks in the system.
Do you really think they can do that? Consider this: If all of their talent chose the firm because of money, those will certainly NOT be the ones to approve a change to Value Pricing. None of us could argue that a change to this model from a billable hour model would be without an initial impact on profits and a significantly increased variability in cash flows (higher cash low risk- lower INITIAL returns)
Furthermore: the people who really are in a position to make that decision will not be around long enough to reap the rewards of the change in pricing model because they will be retiring within 5yrs. It would take a significant feat for the change in model to have a positive Net Present Value to Partners with such a short time-frame. PLEASE keep in mind that one rainmaker is supporting an entire department of these firms, and they occupy several floors of a high-rise for sure. . . . the departure of any one Partner can create an instability in a firm that is enough to destroy it. The Partners with the big books who are there because of the high-pay to begin with would likely move to a competitive firm that Is paying more (again, the same game that get’s em there, loses them in the end) while his old firm is “testing” the model and making less money for everyone. It won’t take to many of these to mark the end of a big firm as we know them today.

Have ATTORNEYS with Project Management Expertise:
Because delegation and use of lowest-cost-competent resources are critical, it will be essential that the leading attorneys have project management skills. This breed of attorneys simply does not exist today. I will bet you that most attorneys don’t even know that the hell project management really means in this context, let alone have an ability to manage costs in an organization.

Have attorneys who TRUST others:
Why do you think this is a core value at Exemplar? Most attorneys do things themselves because they really believe that nobody can do it better, or they want it done THEIR way! Problem? If you do not trust others to do the work competently, you certainly cannot project manage. This, unfortunately, is a character issue. You cannot change this in your people. They either have it or they don’t. Unfortunately, I believe that success in a Value Pricing model depends on this quality!

Have Pricing Competencies:
Decision-makers at BigLaw have been practicing under the billable hour model for decades and simply lack the ability to see what they do in the context of it’s value to the client. They are not wired to think this way and I have found it to be extremely difficult to try to change this mentality once it has solidified in an attorney. At best, attorney-pricers will go back to a cost-based pricing method and estimate time to arrive at a price because it is within their comfort zone to do so!!!! THIS IS A RECIPE fOR DISASTER – Why? Because fixing a price has shifted the risk to the service provider (higher beta), without increasing the potential return (because it is still based on time). The result is a guaranteed lower profit every time. As for pricing committees? Can you imagine getting a bunch of partners who are trained to only value time they can bill for to get together and talk about value in a meeting that is not billable?

Have Communication Skills
Sorry to say it, but success in the current model does not require one to be socially normal or have good communication skills. In Value Pricing, it is CRITICAL. If you add value without communicating the value you added, then you should not have quit your day job! Pricing profitably BEGINS with an ability not just to comprehend value, but to communicate value! Again, this is a core skills that people either have or they do not. Even so, they could not learn this skills quick enough to keep the firm from falling apart.

OK – There are about 50 more reasons, but I do have to sleep every once in awhile!

Tuesday, March 20, 2007

Interview with Chris Marston: Exemplar's Genesis

This week I thought I would post my response to an interview I did this week with a colleague in the legal industry:

In the forming of Exemplar Law how did you or other members of the group see things differently from other firms?

It started with me. I took a look at the business model under which corporate law firms operated and it was inconsistent with my common sense or “gut” about what good business means. For instance, I saw nearly EVERYTHING differently from most law firms because they all operate under the billable hour model, which affects management, power, structure, work-life balance, diversity, culture, and nearly everything else in a way that is inconsistent with by convictions, my education, and my experience about what it means to do business in this economy.

How did you re-frame your understanding of the market in a way that you saw your firm as viable and beneficial to clients?

You know the saying “treat people the way you want to be treated”? I believe the customers of law firms do that . . . they give us a fixed-price for their services and they don’t nickel and dime me by billing me for food, photo copies, and phone calls. I deal with CEOs all the time and have done so long before becoming a lawyer and nobody does business this way. I didn’t need to reframe my understanding of the market because my understanding of the market (non-legal) is the way I think it should be. If you google the words “Billable Hour” you will find that nearly everyone hates it!

Was it challenging to see things differently, or communicate or sell the idea to others that didn't see things the same way?

For me, it was intuitive to see things that way. Regarding whether it was difficult to communicate to people who did not agree I have this to say: I learned at a very young age about optimism and its power. My mother was a pessimist. Before I knew any better I thought she was doubting me and that really made me angry. In my rebellion years I channeled that anger into a passion to succeed and, even, to prove that I could do anything. It was after several straight successes in my endeavors that I saw the power I had within me to affect positive change with raw conviction to succeed and pure optimism. When I got older I learned what is really going on with pessimists and never took offense again to the doubt they project. You see, pessimists are not doubting that others can do something . . . that is just how their world view manifests itself . . they are projecting their own self-doubt onto others. Therefore, the view of a pessimist says more about them than it does about me. I have known this since I was a young adult, and ever since then I knew what I was looking at then I met a pessimist . . . someone who will never reach their potential.

Did you have a manifesto, philosophy, values statement or guiding vision? Was it in writing?

Absolutely: There are several philosophies and a set of eight core values that guide or vision. Myself and each new member of the team are guardians of these values and philosophies. They are our foundation and our constitution and cannot be compromised at any cost. They are in writing at the moment.

2. Appreciating the Positive

Lawyers tend to see the obstacles to a new idea, or the flaws in an argument or proposal, rather than focusing on what is working well, or appreciating the positive. What were/are some of the positives that you focus(ed) on that led you to launch and pursue an entrepreneurial model? Was it challenging to focus on the positive when lawyers are trained to find the vulnerabilities?

Law is actually 1 of 2 professions of 104 professions where pessimists perform the best! I am an optimist by nature. I know my strength is as a visionary and not someone who would be mired in the details of deal. I have interviewed more than 300 attorneys in person and over 500 by phone in 2 years. You ask if it was a challenge to focus on the positive when most of them are trained to focus on the negative. To me the answer is absolutely not. Why? Because I knew what I was looking at when I saw it. Lawyers to focused on weaknesses or barriers to success were doing me a favor a self-identifying as people that would never be a part of our team! Not only that, I am sending them back into the market to go work for the competition and create barriers to success over there! I knew with a marketplace full of pessimists at the country’s largest firms that a truly visionary and positive firm could rise to heights never seen (we have years, if not decades to go mind you). I take great wonder and amazement in the fact that many law firm partners think a fixed-price model will not work because they are too ignorant to understand that hourly billing only started in the late 1950’s and was an accident. Most of them had no idea that corporate law was fixed priced for hundreds of years!

Clearly, you started your firm because you saw an unfilled opportunity in the market. What was that opportunity, and why do you think you saw it and others have not?

I will answer the last question first. I was not the first to see the opportunity. Visionaries in the professions such as Ron Baker, author of “The Firm of the Future” saw the market opportunity long before I was thinking about it. In fact, the problems with the billable hour have been increasingly at the forefront of discussion in the legal profession over the last decade or so. The difference is that this world is in not in a shortage of revolutionary ideas. It is in a shortage of revolutionary leadership. Now, I saw that the opportunity was enormous because there are so many systemic problems that can be solved simply by changing the business model. . . one change, . . . and it impacts so many problems . . so many people . . . so many lives:

- Competitive, Individualistic work environments.
- Attrition rates at all time highs
- Work-life balance at all-time lows
- No Mentoring/Lacking Mentoring
- Bill Padding (Unethical practices quietly promoted by partners)
- Continued lacking in diversity and women in leadership
- Client Hoarding problems
- Power Struggles at partnership level
- Self-accommodation in the compensation committees
- Class System: Terrible treatment of Associates
- Inhumane Business Operation: New hires are used as leverage with NO visible up ladder, goal-setting, or leadership development
- It is clear that today’s Partners will DIE with their book of business. . . . they are sending
this signal loud and clear to Associates because they are not developing new leaders . . . they are simply allowing those who provide the most leverage to stay while the real leaders walk out the door. The future of such a business is bleak at best.

I can go on and on.

Some attorneys can re-frame a situation, appreciate the positive, and even recognize a market opportunity, but haven't a clue what to do about it. As you were planning your venture (and implementing it), did you clearly see the steps to take to launch the practice? Did you have a plan with specific, workable, time-specific steps? If not, how did you go about starting your entrepreneurial venture? Did you have a business plan? Did it work out the way you envisioned it?

Yes – I did 6 months of full-time research and wrote a business plan before I did anything. I was how all of the parts interrelated . . . which parts were critical, and had to understand all of the conditions precedent. I knew that I was embarking on a life-long adventure and it was even larger than I had imagined. As for your last question, it certainly did not go exactly as planned. It never does. But what entrepreneurship means is that you have to balance a solid plan with the ability to roll with the punches. Our weakness as people are that we tend to think people are like we are. I went into this marketplace with complete conviction and belief in what we are doing. . . . as a leader. I thought there were more people out there who would burn the ships for a vision of a better way. . . . . at first I was disappointed . . then I came to realize that the same cause of my disappointment was the reason for my being the first to undertake the challenge . . . this industry needs leadership, and when I saw what was out there it just reinforced why it had to be me. We are everyday seeking leaders at different levels to explore their talents, the market, and a vision within Exemplar’s vision and intend to remain an entrepreneurial organization for the life of our firm. Then again, the dearth of leadership in our industry only magnifies the market opportunities for those who have the guts to create the future. There is a saying “The people who get on in this life . . . if they do not find the circumstances they are looking for, they create it” That is the essence of Exemplar. We are creating the Firm of the Future. The way we envision it to be. It has been the most rewarding experience of my life. Never a dull moment!

More questions? Bring it on! :-)

Tuesday, March 13, 2007

Sometimes You Just Want To Fly Coach!!!!

What lawyers don't seem to understand is that sometimes clients just want to fly coach! I am always surprised to hear our clients complain about their lawyers who just can't help themselves . . . they lawyer everything to death! They keep beating the dead horse . . . and all you can do is watch . . . knowing that whole time that you hired them to save the horse and win a trophy, not beat it to death and then beat it some more!

Lawyers suffer from many afflictions and so many of them are at the expense of the client. Some try to justify the defensive practice of law under the guise of "excellence." They are not listening to the needs and wants of the client, but are rather acting on their own defensiveness in order to avoid "perceived" potential liability. The funny thing about this whole concept is that most lawyers I meet simply cannot wrap their brain around anything else. . . . they actually think their clients are incompetent to consent to flying coach or business class. Wake up lawyers! Sometimes clients just want to fly coach!!!

What does this mean in real terms, you ask? Well, here is the disconnect:

Attorney point of view: We are being thorough for the client. . . we believe in excellence and perfection and want to avoid every single pitfall possible because that is the best way to represent our client. They don't know any better so we have to know for them.

Client point of view: Son of a XXXX, would you take a look at this bill? The value of the entire deal is less than what I have to pay my lawyer. First, this guy was not listening to me when I told him that (although I have money) I have bigger battles to fight than to nit-pick details on this small deal and that I just wanted to make sure there were no "glaring" errors. Second, he spent $10,000 to save me $5,000 in "potential" liability. . . I mean seriously, even if it were a 5% chance of $50,000 in liability I might have taken my chances. . . he never asked me if I thought it was worth it before he just went filling in every pot hole in the road! Who does he think he is? The only thing I can do with this "perfect contract" if frame and hang it on my wall because at this point the deal is a loser . . . thanks a lot!

Who is right here? (Hint: I never ask questions I do not know the answer to) The client is ALWAYS right!! This is a service business folks, and you chose this profession. If you do not want to serve your clients, then get the hell out of this profession! The clients are absolutely reasonable in their perception that most lawyers have no concept of the risk/reward matrix that forms the basis for business decisions. Even Fortune 500 Companies have contracts and deals that are not worth lawyering to death. Usually, companies reserve these deals for in-house counsel, but in small to mid-sized companies who do not have in-house counsel, they need attorneys who are strategic and who are acutely aware of the risk/reward relationship at every turn and with each engagement. This really puts the client at ease and helps them to focus on what they do best and not on managing their lawyers "runaway train."

At Exemplar, this "strategic" approach to the practice of law has served our customers very well and has made them happier than I can imagine. Why? More than anything, because we are listening to them. Like an airline, we understand that sometimes our clients want to fly First-Class, and sometimes they want to fly Coach. (Let's not ignore Business-Class. . . we offer that too!). We empower our clients to understand their options and we immerse ourselves in the business to be the strategic partner that they really need and want. The defensive practice of law is not necessary when you are in a true partnership with your clients and have good communication with them. We find that they really appreciate being informed and able to participate in the legal strategy . . . flying Coach to some destinations with us, and First-Class to many more! Exemplar is listening to their customers while the rest of the industry tells them to pay up or "get off the plane!" When customers realize they have a choice, Big-Law Airlines will have to start understand what it means to serve clients (not themselves) if they plan to be in business a decade from now.

Tuesday, March 06, 2007

What? You Mean Customers Deserve to Have Options?

YES! Customers absolutely deserve to have options. In fact, if you don't, your competition certainly will. . . . or will they? Lawyers are notorious for telling their clients that what their singular strategy should be, stating their billable rate, and getting to it. Client after client that we encounter talks about how horrible they felt when their attorneys told them they only have one way to go "which made no economic/business sense" (a symptom that they are not really listening to what the client is trying to accomplish) or simply was not solution-0riented enough to find a path to success as defined by the client. Many attorneys I meet have pre-conceived notions of what success means based on the legal system we work within. This structured framework causes lawyers to think "inside the box" and fail to be responsive to client needs. For instance, what I find most important in client service at Exemplar is listening loudly for what the client perceives as success, and then thinking of all of the business, legal, political, social, and tactical ways that we can accomplish the goal for the client: To what end? To empower the customer with CHOICES. The fact is that if customers have come to you they are essentially shopping in your store. If you only have one product in your store then customers are going to look at the store next door to see what they have too. The fact is that you simply have to offer your customers options so that they find what they are looking for within your organization. They will appreciate the fact that you respect them enough to offer them choices and will not feel compelled to look elsewhere.