Intelligent Questions Deserve Intelligent Answers

Finally, a professional who commented on my last post asked some intelligent questions worthy of attention and discussion. For the purposes of this post, I will include his questions and comments in quotes and then answer them. Although there are far too many good questions here to answer them all in detail, I will choose a couple and we can move onto the rest in a future post. The professional asked:

"Do you use timesheets internally?I am having trouble letting go of timesheets for internal firm management and am not sure if I should even be trying to. Externally we fixed-price our services, but if I really think about it we arrive at our pricing by asking ourselves 1) what is a client willing to pay and 2)will it be profitable enough for it to make sense for us to service it. It is that second part that requires the measurement of time. Although the time we spend on a project does not dictate the value we create, it does dictate how profitable the firm can be."

Great question! The answer is NO WAY! Time sheets are like toilet paper in a normal business. Forget about professional service firms for a moment and think about the companies that are far more profitable and own billions of dollars in assets. Ask yourself this: Does their profitability depend on the COST of making and delivering their product? Hell yes it does!! News flash: Not a single one of those companies use timesheets and they make so much money it is silly. They all know who their top performers are, their best project managers, and their worse ones. What do you really think you are counting in 6-minute increments? It is like you are counting my pores to prove I have skin!

Here is what I am getting at: Your 2 step process is correct, so I want to give you credit for that, but the conclusions you are drawing from part 2 that are way off and counter to how the real world operates. Question 1 is properly 1) How much is this worth (and how can we design the services to be worth the most) to the client, and 2) What is the RESERVE price. You are correct that in a fixed-price world profits depend on lowest cost delivery. Where you made an error was taking the leap from understanding costing impacts profits to "we have to measure time in advance in order to understand how profitable we can be." Time is only one small part of costing and as our services begin to involve far more than just time, such as service costs, etc, to please the client, or a car service to pick up clients who do not want to drive into the city, you can see that the fascination with counting time is misleading at best.

First, pricing based on value requires that #2 have no impact on price. What you are trying to get at with understanding costing (NOT JUST TIME) to get to an ACCEPT/REJECT Price. This means you will go back to you intellectual "engineers" and see how efficiently they can use firm resources to accomplished the outcome outlined in the SCOPE section of your fixed-price agreement. Only good project managers will know how to do this well. The point is not to maximize profit with this exercise or even to estimate how long you "think" it will take, the point is to identify the lowest-cost-delivery" that would result in an acceptable profit. By doing this, you will know the lowest price that you will accept to do the work. If the value is 3x that price, you have a winner, if it is below the reserve price, you should REJECT the client.

On a side note, here is another problem with time: Most professionals don't understand their business well enough to use time estimates to understand cost. They are used to multiplying by Billable rates, not actual cost per day for the use of a resource. They also do not understand project management enough to realize how to use low-cost resources (NOTE: this is different from low-billable resources) to accomplish an end. Costing as an exercise should be fully-loaded and include more than time in order to be accurate.

"There is a reason that the Big 4 (very scalable, profitable and successful businesses) still use timesheets even when using value pricing. "
First, lawyers who say this do so to rationalize continuing a billing practice that started as an accident and everyone hates. The Big 4 is not value pricing for one, and yes there is a reason (which is neither good nor compelling as a reason for you): That is the way they have always done it!!
As the firm grows my personal involvement and knowledge of project profitability becomes further removed. Without timesheets how do you determine:1) Which jobs are least profitable and need to be re-priced or eliminated?2) Which resources are the most efficient and therefore should received bigger raises?3) How many engagements (and therefore how much revenue) an efficiently functioning delivery team can service at full capacity?"

GREAT QUESTIONS!!!! I could write a book about these! I will try not to, but here you go:

Let me first begin by challenging you here. You preface questions 1-3 with the statement "without timesheets how do you". My problem with that is this: You are assuming there is a relationship between timesheets and the answers to your questions. Prove it, you ask? Again, look at every single profitable company in this economy. . . they have fixed price products and services, no timesheets, and yet they know their price points, costs, which resources are most efficient, who performs best and they understand capacity limitations, etc. I really should write a separate blog about each of these topics, but put simply, the entire world economy works like this and proves that it works. Now, let's explore this in a professional services firm context: However, I will not, in answering your question, acknowledge that there is a relationship between ditching the timesheet as you know it and the questions you ask.

1) Part 1: Profitable JOBS is not you goal as a business. Profitable Clients is your goal: Distinguish between profitable jobs and profitable client. Timesheets distort reality and make for bad decisions. So what if a job is not profitable? What if you have a very profitable client and you decide to do it as a loss-leader? A look at the data might tell you that you need to raise your price, but simple business logic tells you that you did the right thing to "throw em a bone". So, don't lost the forest in the trees: Most lawyers are so afraid to be less profitable in 6-minute increments that they win the battle and lose the war: Higher profitability on a project, but less on average per client

Part 2: There is no such thing as re-pricing a job. It is either within the SCOPE or outside the SCOPE and requires a change order!
Here is the symptom that prompts the question and my diagnosis:
SYMPTOM-- Job 1 is taking too much time and we are losing money on this one
Problem 1
DIAGNOSIS 1
a) Poorly Defined Scope -- Whose fault is this? YOURS! If you Scoped the job properly, you would not have this problem. You should certainly not blame the client and raise the price. You should not fire them either. Remember, you are VALUE pricing. Just because you added $50k in value for $20k in price, remember that they still feel the value you add. WOW them at a loss and capture that value on the next job. Use it as an opportunity to show them what you can do.

b) Clear Scope, work is creeping outside of scope (Scope Creep)
Sometimes the people delivering the service are so far removed from the partners who sold the work and scoped it out that companies experience Scope Creep. Good communication and teamwork goes a long way here. Make sure the team understands boundaries and communicates to the relationship partner that they need to have another conversation with the client about a Change Order.

c) Clear Scope, Project Manager sucks
Again, some project managers will just suck. It is not the client's fault, right? It may cause you to think you underpriced a job but remember: If you actually price on value you simply CANNOT underprice a job. . . you may have taken in when you should not have, but sometimes people will project manage the job so terribly that you lose your shirt. Make sure you get them off the deal. . . . fast! Do not increase the price to the client, LOWER THEIR SALARY INSTEAD!!! Value price your people. You will get to pay your best more in the end!

d) Clear Scope, Error in Accept/Reject Process
Sometimes you scope the job right and every once in awhile realize that you should have rejected the client. If you want to make a lot of money you cannot be afraid to eat one every once in awhile! There is such a thing as a Risk/Reward Relationship in business!!!

e) Client is high maintenance and consuming more resources than expected:
2 choices. . . . 1) What would Donald Trump say ("yer fired!") OR 2) double the price
on the next job. Those clients know they are a pain in the butt and will pay for
someone to put up with them.

Your second Question:
2) Which resources are the most efficient and therefore should received bigger raises?
This has nothing to do with timesheets at all. I know who our most efficient workers and least efficient workers are. Most managers know this without any time accounting at all. How: You give them a bunch of work and see how much they put out and at what rate and quality. I never needed a timesheets Here is what we do: We bonus our project managers for managing profitably. It is their job to delegate internally to get the job done at lowest-cost delivery. Watch this: If someone is not pulling their weight what do you think will happen? Our project managers will not use them for a project because it will impact their bonus. OK . . . so how do you know your weakest players are who are not productive? They are the ones sitting around because none of our project managers want to give them work? What about our best ones? They are busy as hell and in high demand. NO TIMESHEETS REQUIRED! It is a beautiful thing! The best and worse ones self-identify through this system.

TIP: Identify a healthy profit and split the difference that your project managers can achieve above that amount. (remember: do this at a client level, not per-job. There are very compelling business motivations for doing a job or two at a loss. Walgreens happily sells potato chips and batteries at a loss knowing that you will come in and spend $10 more on other things.

Your last question I will leave to a future blog so I don't end up writing a book here.
The point here is this: Timesheets are toilet paper to a normal business. Time-accounting is NOT costing. It is a component of cost, and is becoming less and less as technology, benefits, and other value-added services enter the equation. Accounting for one's time to understand cost, at best, need not be done by minute or hour but instead at a very high level. You might ask your people what percentage of their time went to each of the top 5 accounts they worked on this month and you would get the information you need in order to add time in the rest of your costing calculation.

Top 10 Reasons Why Professionals Don't "Get it" When it Comes to Pricing and Service!

Many professionals just can't seem to get it right. They are so caught up in thinking about how smart they are that they are completely blind to the fact that they are driving clients nuts. They are simply so out of touch with what clients want and yet so convinced that they know what they want all at once that I had to write a blog about it. Although I thank them all for sending business our way by completely missing the boat, it is a part of our mission to "give back" to the community and help professionals to serve clients the way THEY WANT to be served. Here are the Top 10 Reasons Professionals don't get fixed-pricing or the meaning of service!

1) Not Responsive
Yes - You have heard this a million times. The most common cause on non-meritorious malpractice claims in the nation is the failure to return phone calls. What is your problem???? It is not that you are too lazy, your problem is likely to be one of these two things:
1) You are smart as hell and socially inept, so you are a genius who dreads client contact and will never service clients well until you "get it!" OR
2) Your screening process sucks. You serve clients you don't enjoy working with so you subconsciously put off communicating with them and they get pissed off.
You see, this point is NOT about returning phone calls, it is about taking a look at yourself, your process, and you psychology and asking yourself what is going on.

2) No Respect
Yes - it's true. . . most clients do no feel like you respect them. You, their trusted advisor, who they are counting on, do not "explain" things to them, involve them in decision making, or empower them to decide on the strategic direction of their case. You even talk down to them sometimes. You probably don't even realize you do it. Next time you talk to a client, ask yourself if you are "treating them like a partner?" Maybe when you look in the mirror tomorrow you will see yourself differently. Treat clients with respect and they will certainly see you differently.

3) failure to understand scope?
Attorneys just don't get scope altogether. They think that lawyering is just some amorphous process that keeps going until they say it is done and so they lawyer the hell out of it. They bill people to death, and justify their action on the grounds that it would be malpractice not to bill you into bankruptcy because they have a "duty to advocate." Think: They bill by the hour!!! They get rich practicing cover-your-ass law at your expense because you give them a financial incentive to drag things out and lawyers do not hold themselves (or let you hold them) accountable to a SCOPE! Why? They cannot bill to educate and empower their clients and help them to understand what is going on so they don't. If your dog had a 1,000 foot leash what would he do with it? See spot run!!!!!!

4) Can't Comprehend Value
This is funny. . . lawyers just don't know how to look at anything other than their time to understand value. We teach fixed pricing techniques and time and time again lawyers go back to asking "well. . . how do you know how long . . . blah blah blah blah" as if the client gives two hoots how long it takes. Remember, they want it done faster!! Why do lawyers care how long it takes? Because they just don't get that their effective hourly rate has NOTHING to do with profitability, but since they have been clueless about how profitability is achieved in a "normal" business for so many decades, they have lost all ability to comprehend value except in terms of time. It is a darned shame, but let's talk about how to solve this problem.

5) Cost-Plus fixed Pricing WILL NOT WORK!!!!
Lawyers seem to think that a fixed-pricing strategy is about menu pricing. They have it all wrong. If they did their homework, they would understand that there are many ways to accomplish fixed-pricing and menu pricing will NOT WORK. We price on value to the client. A firm will not be highly profitable if it attempts to menu price because it is essentially a cost-plus pricing model where they shifted the risk of error (in time) to the service firm without compensation for the risk.

6) It's all about the quality .. . . NOT!!!!!!!!!!
If you did not get the memo, GET THIS ONE: All research studies show that clients do not hire you for your "quality" so put your pride back in it's big box and listen: Clients expect quality from any professional! Clients want a quality professional who CARES about them. So, while you are on your bathroom break after 12 straight hours in your sweat shop, ask yourself how you think your clients would respond if I called them up and asked them if they felt you really cared about them! If you are honest with yourself, you might be surprised what you find. Don't make me pick up the phone and try.

7) Lack Business Sense
Most business attorneys simply lack business sense altogether. They operate to "reduce risk at all cost" because somehow they feel like they were put on this planet to do this job. . . . It is like they actually believe brownie points come from the identification of problems rather than SOLVING THEM!!!!! Why do you think Law is one of 2 professions of 104 professions where pessimists perform the best? Pessimists have a knack for identifying all the problems with everything . . . they don't solve a damn one of them, and they drive everyone around them nuts . . . . they simply cannot help themselves! It has almost become an extra-curricular activity watching these bozos blow up a business deal and pound their chests like gorillas thinking they did something "valuable!"

8) Old White Men! :-)
Unlike "normal" businesses, our industry is run by a bunch of old risk-adverse white guys. So, while the rest of the world is innovating (mostly lead by young people who can live to benefit from the revolutions they are creating), the old whities at the top of the legal pyramid scheme are too busy lining their retirement plans at the expense of young associates who sold their lives for the "dream" of parnership they don't understand, let alone have a chance at making. WAKE UP! If the "Partners" did not tell you what the succession plan is at their firm yet, it's because they don't have one. It's OK, we are accepting resumes! Don't think they will start to care anytime soon! Why do clients care about this? Who wants to play with a dinosaur?

9) Phone Call and Photo Copies!
If you bill for either you are either dangerously stupid or simply don't care about your clients!!!! I deal with CEOs of companies and they don't bill me to talk to me! If you fall into the category of dangerously stupid, read on:
-- Let me enlighten you: CLIENTS HATE IT! STOP BILLING TO TALK TO PEOPLE! Every shred of information in the market shows that clients are absolutely enraged by this process. Now, you are on notice, so if you continue this practice you have effectively graduated from "dangerously stupid" to "I simply don't give a damn about what my clients want" Seriously, I have no idea how you rationalize it except that you are so "entitled" as to require people pay to have a conversation with you that you simply cannot let go of it OR God forbid you could not bill a client for your next toner cartridge!!!! for God's sake, clients understand that you have to operate a profitable business, but could you please do it in a way that does not drive them absolutely nuts????

10) Managing Resources
Lawyers simply don't get how to manage resources to do a fixed-price job profitably. Project management is not an art that lawyers tend to understand. We find that we need to teach attorneys the principles of project management. for instance, law firms suffer from systemic under-delegation. Part of this is ego, because lawyers tend to believe that they can do things better than someone else. It is also about control and profitability. Since they bill by the hour, they actually make more money by doing things that really can and should be done by someone else! Client's are more savvy than ever, and lawyers will not get away with this practice for very long!

OK. Please find attached bottle of e-lotion for your wounded back-end. The problems in our industry are real and need to be addressed by bringing them out in the open and discussing them to solve problems that change lives and the customer experience. It is within our power to make change, but first attorneys have to face the music. Exemplar is leading the movement. Will you rise to the challenge and be a part of the discussion?

Outside-In Pricing -- Because Good Clients Don't Want To Insult You

One of the best parts of pricing on value is the ability to use difference pricing strategies with different clients. One of the most interesting to us and yet the one that scares the heck out of professionals is outside-in pricing. What is that? Outside in pricing is about looking outside of the four walls of your office building to determine what your work is worth to the client. Did you ever think to ask your client what it is worth? Why not? (Because you are scared to death what they might say . . . that they might tell you they think you are worth half of what your firm needs you to charge to make everyone rich.) Well, that is what we do sometimes. . . . and it works great most of the time.

Think about it this way: There is psychology on your end -- the fear that they may not value you as much as your ego desires. Just the same, there is psychology on their end -- The fear of looking cheap or insulting you with a low price. Actually, it is a great way to see if 1) You have done a good job communicating the value proposition, and 2) whether or not they really value you anyhow. Wouldn't you rather know BEFORE you took them on as a client?

Here is another benefit: Just think of how much easier your life would be if you never needed to fill out a time sheet again. . . . you and your client just agree to a price and off you go! No counting, no billing, no collections, No Hourly Bull! Why did you choose to be a professional? When you graduated law school was your stated goal to have the highest effective hourly rate in the profession? Was it your goal to bill more hours than your colleagues? For most people I know, it was to be happy, balanced and make good money. What is good money? I guarantee that you do not think of "good money" in hourly rate terms. You think about what you take home and you look in the mirror and think about whether you enjoyed work this month, whether you saw your wife and children enough. . . and you balance it all and ask yourself "was it worth it all?" At the end of the day, no matter how you bill, you are asking yourself these questions and not "how much do I charge per hour and how much did I bill?" If you did, you either need a life or a brain transplant.

Outside-In Pricing teaches you to communicate value, understand how customers value what you do, and free you from counting your life in 6-minute increments .Repeat after me: "Increments are Excrement! Increments are Excrement" . . . . . yeah. . . you're getting the hang of it now!

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

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 testicle" (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 portfolio theory. An investor has a portfolio 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 portfolio as a "big picture," eliminating non-performers and increasing the investment in the winners (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 portfolio and stop driving your people crazy. They will love you for it and your clients will notice the difference. Ours certainly have!"

Embracing The Values: The Balance Between Growth and Excellence

In this post I would like to share some of my personal thoughts and challenges that weigh on my mind as I am building Exemplar. This is an act of crossing one of my hands in yours by sharing the balacing act that we face as leaders trying to build an organization of Excellence in the legal and business community. It is about values.

I have always believed that the "right people" are key to building an organization that cannot be beat. My belief was confirmed last year when I met Jack Welch and heard him say that the HR function was most important function in the organization next to the Chief financial Officer. Jack Welch went on to explain how he only hired the right people 50 percent of the time at the start of his career and it took him 30 years to get to an 80 percent accuracy rate. What he was really telling us was that 5 out of every 5 people were the WRONG people and what all of us business people know so well at a gut level that it is just as important to know how to dispose of the WRONG people as it is to bring in the RIGHT people! "Hire slow, fire fast" is the common wisdom . . . which runs against every instinct I have as a young leader because I believe in people so very much that look for reasons that they can succeed with more support. Yet, the leaders and mentors that I look up to all reinforce how important it is to have the right people on the bus, and, more importantly, get the wrong ones off. . . . fast!

I have grown more as a professional in the past 2 years of the life of Exemplar than ever in my professional life. I have learned about what people stand for, the stands they make or are too cowardly to take. . . the things that move them and the things that they won't move on at all. And for all of these lessons I have never felt more passionate about anything than building an organization around core values and principles that I cannot, must not, compromise on. . . at first for myself, and now for the people who have joined our team depending on me to make sure that we stay true to the values that attracted them to join the quest for Excellence from the beginning. I have learned that we are not hiring for skill, but instead for character. We are not hiring for the things that school can teach you but the gifts your parents should have given you as a child. Skill may get them a phone call, but character and values get you in the door. Over the past couple of years I have been faced with the opportunity to triple or quadruple revenues at the expense of our core principles, to obtain near-immediate success for only the soul of the firm, or grow our attorney base by leaps and bounds were it not for our values. As a young and impatient leader, I want so much to grow at the speed that clients demand it or with the pace that attorneys are knocking at the door to join. Were it not for everything that we stand for as an organization, only "Excellence," we could double tomorrow.

In my short life I have seen the power of positive people empower and inspire our people to greatness and I have seen the tyranny of distrust and negativity tear down the walls the people put their hearts on the line to build, and at some point I decided that the cost of the wrong people is TOO HIGH. The kind of change we want to inspire in our profession is the kind that necessitates only the strongest leadership, un-tempted by greed or by false possibility and with an unending conviction to succeed. Leadership starts at the top and as a leader I must accept that the Exemplar standards which I wake up every day and strive to live up to fall first on my shoulders above anyone else. . . they help me to be a better person and to be a living example to our people. And so in the infinite wisdom of Jack Welch I have learned to hire slow in spite of the wealth of interest in our model and to hire for character. . . the things that great leaders are made of. I can teach skill, but I cannot teach integrity. I can train a corporate lawyer but I cannot teach trust. I can show you how to build a company but cannot teach you to respect the janitor. These are things your parents should have taught you long ago. And so I continue down the road with my monogram on one sleeve and my heart on the other. . . values intact and the vision alive and well. I am rich in my heart knowing that we are taking the right steps to build a great organization.

I had drinks with a gentleman who was of high rank in the US Military who recently told me "you've got to bleed to lead," which I cross referenced with a quote that leaders "bleed willingly and joyfully" to endure the lessons that are too difficult for the rest, and pass on the bits of wisdom that make this life worthwhile and make a real difference in the lives of others. To what end, you ask? When I started Exemplar someone asked me why I would take on such an enormous challenge as a young professional. . . why endeavor to inspire transformational change? Almost out of instinct I responded: "Because I can, I must."

Pricing Misconception #2: The Difference Between Cost-Based Pricing and Price-Lead Costing

In this post I would like to talk about another big misconception that many attorneys have about using a fixed-priced model. The largest one has to do with understanding how, exactly, we arrive at a price. Many attorneys think that the trick to setting a price has to do with estimating how long it will take to do a job. That is entirely incorrect. There are numerous reasons why this practice will not work:

1) It assumes you know
2) In a multi-person organization it does no consider the differences in costs associated with using different human and other resources
3) It assumes that you cannot get it done faster or achieve the outcome more creatively
4) It is inherently task oriented because you are attempting to estimate the time to complete tasks -- this is backwards because the client is not coming to you to buy "tasks," the client is buying an outcome. You cannot estimate the time of an outcome. . . so STOP TRYING!!
5) Once you estimate time in order to price, you are less likely to be resourceful and think about how you can accomplish the outcome in less time
6) All of this brain twisting is inward-facing. . . it is all about you. . . if you don't charge by the hour then you have to retrain-your-brain to understand that clients really don't care what you do with every hour of your day. They want results.

I could go on forever, but to put it simply these are examples of Cost-Based Pricing. It is a LOSING proposition to price based on cost. The client does NOT CARE how much it costs you to do work. They care how much they VALUE the work you do. I know your ego is already big, so stop thinking about yourself and start thinking about VALUE TO THE CLIENT!

Studies of the most profitable companies in America show that they price based on the value of the good or service to the client, NOT based on cost plus a margin. Anyone who thinks it cannot be done has simply no done their homework. . . . most attorneys do not know how to comprehend value because they spend their entire careers looking inward at how much "time" they take and what "tasks" they do to justify their rates. Value pricing looks only at the client. unlike the most profitable companies who operate on a Value Pricing model (this does not mean cheap, it is the name of the pricing theory), attorneys have the luxury of meeting one-on-one with each customer and ask questions to determine how much it is worth to each of them. With this, attorneys (and accountants) can do a much better job of determining a price based on value than other businesses.

How are we profitable by pricing based on value?

1) We work with the client to define the SCOPE of the work, defined in outcomes NOT in tasks
2) We use project management skills to have the appropriate human resources doing work at the right level

So, If you lose money on a Value-Price model, you are most likely doing so because:
1) You defined the scope too broadly, or your proposal is task-heavy
2) You did not manage the SCOPE and are now doing work that the client did not originally want without getting paid for it!
3) Poor Project Management Skills: This is a huge problem. Now, instead of thinking of yourself as the person who does all of the work, you need to think about how to get it does cost-effectively. Profitability is improved in our model through balancing cost-efficiency with winning results every time.

There are several books written only on the topic of project management so I will not attempt to summarize them in a blog. The point is that there is a lot more to being profitable in a fixed price model than meets the eye. If you are curious how to pull it off, you really need to do your homework. Understand Project Management, delegation, Scoping for outcome, managing scope, and understanding and communicating value. If you understand these you will be well on your way to success in a value-priced model. Give it a try: It will change your life and your clients will thank you!

Questions: Post a comment and we'll discuss!

Money Falls From the Sky, Right? At Least That is What Associates Think!

This may be the first time in the history of this blog that I am preaching to the big-firm choir! Why would I do such a thing? While I am sure that the partners at BigLaw agree with the problem, I believe that the solution (communication and education) will actually work in our favor, of course. No pressure there!

Problem: Young attorneys entering the Corporate Law profession actually seem to think that money falls from the sky! They have no idea about the economics of law firms, how profitability is achieved, etc. Law firms are doing a horrible job explaining the economics to their young. What is the consequence of this behavior? Explore below:

Big Law firms are facing significant problems providing a lifestyle to their Associate attorneys. To the Partners, they find it distasteful that they are competing on price for the top associates from top law schools only to have them complain that they want a better "lifestyle." Apparently, they never heard the saying that price competition is a "fools game" so they continue to engage in the bidding war ever believing that the highest salaries are what their associates are really looking for, even when they have been screaming loudly for years that what they really want is to enjoy their work and see their children and loved ones every once in awhile. Are they mutually exclusive? YES!! The winning bidder in this auction is definitely the lifestyle LOSER because it is pure economics.

Partners need to wake up!!! They really should know better than to think that new lawyers are trained or even remotely aware of law firm economics. When I started Exemplar I recall the front page article in Lawyers Weekly, "6 years after big firm Partners promise better work-life sensitivity, it seems nothing has changed!" Why? What they are really missing is that they are engaging in a pricing practice (bidding war) that prevents them from being responsive to their people later on. Once Associates have been hired, it is far too late! Work-life balance is a problem of firm economics first and foremost. Partners know that an Associate must work 2-years before they are profitable to the firm. At the same time, firms have known for over a decade (see the ABA's Commission on the Billable Hour Report) that Associates would take a "large" pay reduction in exchange for a better work-life sensitivity. In order to retain their best talent firms will actually need to PAY LESS for them!!! Why? Money does no fall from the sky. . . it is one thing if Associates don't get it, but for Partners there is NO EXCUSE. Work-life balance means leverage/retention balance for Partners and they will need to first take a stand to adjust starting salaries to account for the needs of today's work­-force. Today's Associates are not law firm economic experts and having interviewed over 350 young attorneys I can tell you that they are counting on you to know (and act on) what is good for THEM (NOT JUST YOU)! They think money falls from the sky and have little appreciation for how law firms as a "business" are run. To be a Partner means, to me, that you owe a duty of care to Associates, like a parent, to look out for their well-being and professional development. New attorneys enter this profession and are counting on having training and guidance that can sustain them and the firm in the future. Partners at BigLaw need to STEP-UP or STEP-DOWN! It is time to act on your DUTY to CARE for the Associates will act on their right to vote with their feet.

Associates need to understand that money does not fall from the sky. . . that higher salaries in a billable hour firm will mean longer hours. It is simple economics when you operate on a cost-plus model like the billable hour. Don't be afraid to ask questions, demand answers, and don't count on Partners to look out for you or your careers. They have yet to do so in our profession and show little signs of changing. By the looks of it, they will die with their books of business before leaving them to you. We are the future and have the power to change it. Exemplar has taken a stand for positive change in the industry and I am right here behind each and every one of you who want to make it better. It all starts with believing that the power to change is within you and nobody else. . . You've got to stand for something or you'll fall for anything. Stand with me and let's create a better vision for the future of the professions!!

How Much "Time" Does It Take To Set A Price? Who the Heck Cares!!

I apologize for the dealy in writing as there has been a family emergency that required my attention.

Heather, who commented on my last post, wanted some ideas to bring back to a disgruntled lawyer who read my blog. The lawyer rationalized his dismissal of the value pricing approach by complaining that it fails to consider how much "time" it takes to arrive at a price. Silly man. I shall explain why in a moment. Here is part of her comment and my response will follow:

"One lawyer came back to me angered about your post. The example, he said, didn't take into any consideration the amount of time it would take to figure out a flat fee for the various and varied work our corporate lawyers do. With that in mind, he was very dismissive of the value-billing approach. How would you suggest I respond to this lawyer in furthering the argument for value-billing?"

Tell him to do his homework on value pricing theory. Clearly, time rules his world and that is all he can think about. You know. . . it actually reminds me of myself in a very limited circumstance. Every once in awhile I go to bed so late that I would only have 5 1/2hrs of sleep . . . Then, I would stay up all night worrying about how little "time" I have to sleep. What a waste of time, right? Clearly, the dog is chasing his tail in this instance. OK -- I have heckled the poor guy enough, now I will expose the point here:

He is clearly making the mistake of confusing Cost-Based Pricing from Value Pricing, which is Price-Lead Costing. Let me explain the difference and how it has shaped his perceptions.

Cost-Based Pricing models are models where there is a fixed margin from the start and the price depends on the cost. The LEAST Profitable companies in the world use this model for their pricing. The billable hour is a form of cost-based pricing. Clearly, they know how much each hour of time costs and they add the desired margin on top and "viola!" you have a price per hour. It is possible, albeit a deadly error, to attempt to execute on a fixed price model with this theory. . . . . which must be what the attorney in your office is thinking. . . . clearly, he thinks we are sitting around "guessing" how much "Time" it will take to do a job when we price. In fact we do not. It is not relevant to value. We value price, and such a model is based on price-lead costing as I will explain below. Your attorney is correct that if a fixed-price model were a cost-based pricing model then it would take a hell of a lot of time to price a job.

Price-Lead Costing is when you let the price determine the cost. This model is used by the MOST Profitable companies in the world. Value Pricing operates on this model. Any lawyer needs to do an intake, so you are inevitably going to have to spend a certain amount of time developing the relationship and understanding the need. Since we price legal work based on the perceived value of the work to the client, we know how to ask the right questions that get to the value proposition during the intake so that we do no spend any more "Time" arriving at a price at all. Once we discuss the pricing internally we determine together, knowing our efficiency and using our creativity, whether we can achieve the desired "outcome" for the client profitably. The margin need not be the same on every project, and we often discover ways to get the desired outcome in less "time" in the middle of the job. If the price is such that we will be able to achieve a "win" for the client at the same time as meeting a desired profit for the firm, then Houston . . . We Have A Winner! :-) We go back to the client and present a proposal (often giving options of many different ways to achieve the outcome and we are off to the races!

So, it does not take us any more time to arrive at a price. That being said, imagine this for a moment. Since we don't use time-based billing, we do not waste our "time" calculating every 6-minute increment of our life. (Imagine the value of all of that productive time that we have and you don't! Even better, print my picture from our website, tape it to your computer, and think of me every time you are marking up your time-sheet. I am smirking at you like Mona Lisa. Yes, that is me thinking you are silly for wasting all that time. NOW, Imagine how much money it costs you and your firm in uncollectables, accounts receivable, administrative staff who collect, account for your time, and send the bills out.. . . . not to mention their benefits and that they take up a lot of expensive space in your fancy office. Are you getting my drift? (Stinks, doesn't it?) We don't have those costs. NOW: Print my picture again and stick it to THEIR computer too. Prozac sales will double almost immediately (I just bought options on the stock!. . Yahoo).

You see, we can actually be less expensive than our billable hour counterparts AND more profitable all at once!!!! We actually have a life too. Who knew! :-) So, please tell him to stop counting in 6-minute increments. Increments are excrement! Cut the crap and start using a model that makes economic sense!

Sticker Shock: Dealing with YOUR Psychological Barriers and The Clients'

This blog continues a great discussion with an anonymous commentator regarding Sticker Shock and fixed pricing. (See comment to previous blog). In this post, I will explian some of the psychology behind "Sticker Shock" and the psychological barriers that you will have to overcome as a professional in order to deal with it.

I first want to address "anonymous" who asked about how to deal with the fact that competitors who bill by the hour will quote "lowball" prices to get the business (and then screw people later). The answer here is clear.

(1) General counsel and experienced consumers of legal services know that lawyers who bill by the hour and try to "quote" prices have lost their "estimating" credibility, because experienced consumers know that the project goes overbudget 80 percent of the time (unless they spend 20hrs a week managing outside counsel, and most people have better things to do with their time.

(2) Newer, less experienced consumers of legal services are the best, because they will either hire you right away because they recognize the "added" value you deliver and understand and value that higher than your competitor, OR they will hire you right after they went price shopping for their brain surgeon and realized that they got screwed. I love our customers who never had a lawyer before because they find what we do so intuitive. . . and after experiencing us they would never go to a firm that billed by the hour, but I also LOVE the customers who went to another lawyer who "estimated" some cheap price and then screwed them with all kinds of extra fees. . . because they will never trust a law firm that bills by the hour again. . . and I don't blame them. That business model is screwing clients by the thousands every single day.

Here, I want to draw a distinction between competing against a fixed price quote from a competitor and a fixed price estimate from a firm that bills by the hour. The result is both different and important from the viewpoint and psychology of the client. Assume the client chooses the lowest-cost provider in the market here:

1) Lowest Price (fixed price quote): Client who chooses this will do so because they are Wal-Mart shoppers. They know you get what you pay for and simply don't value or comprehend difference in the value of services between firms. So, if you lose this client it is either because you did a crappy job communicating the value you offer, you missed the value proposition, or because they simply want to go to Wal-Mart for their services. Exemplar NEVER competes on price. Price competition is a fools game. Our clients know they get what they pay for. Lowest-cost providers in a fixed-price model suffer from a problem called "Winners Curse." The bidding way drives prices farther and farther down. . . all the while making it impossible for the "winning bidder" to do the work profitably. Put differently, what did the winner really win? Higher Gross Revenue and LOWER Net Profits? Who the hell wants that? They can have it! :-) Ron Baker put it well in his book when he wrote: "It is possible to make pizza so cheap that noone wants to eat it!" -- AGREED! So, you get what you pay for. Exemplar is a Ritz Carlton. We send the Wal-Mart shoppers to the sweat shops where lawyers do mundane work 90 hrs a week for low profitabiliy!

2) Lowest Price-Estimate from a Billable Hour firm: Clients who choose this firm are NOT doing so on the belief that they are getting a cheaper product. Because the client is not the subject matter expert, the client would tend to think that the lowest bidder has some magical way to be more "efficient" and that is why the estimate is lower. You see, in this case there is an inherent trust in the integrity of the service provider. Once it is broken it can never be recovered. Let me give you an example of "winners curse" in this situation, but let's add this fact: It costs 5 times more to acquire a new client than it does to retain a current client. In light of this fact, which would you rather be?

A) The winner in a bidding war as a fixed-price provider against a billable hour firm that "underestimated" the bill. Result: Low to No Profit, a "cheap" brand perception by your client of your firm causing the client to forever be price sensitive? (It is easy to lower prices later, but very difficult to raise them). Congratulations! You just won a client that cost you plenty to obtain, you chopped your prices to hell to get them, he does not value you highly and will pay you so little for your expertise that you will barely be Profitable.

OR

B) The losing bidder to a billable hour firm that "underestimated". (I tell these clients "I want you to know that I am here for you when things don't work out") Then, they subsequently get screwed by my competition. I promptly write them a "thank you" letter but never send it. The client comes back to Exemplar pissed off about their predecessor counsel (now, I am on the receiving end of every gripe that clients have about their lawyers . . . valuable competitive intelligence for free). They no longer trust the billable hour model. They now value the fixed-price because of the integrity of the model, even if the price is higher, and become loyal clients!!!! Cost of acquisition? Significantly less because we are not dancing around in a bidding war with other firms . . . we are confident in our value proposition. furthermore, we are able to serve them a hell of a lot better because we have not had our margins decimated by a price war. Better service --> Happier Clients --> Happy Attorneys --> Better Outcome for Clients --> Higher Profitability

I don't know about you, but I would take Option B any day!! Price competition is a fools game. Beware of Winner's Curse. Know your value proposition, over-communicate it to clients, and stick to it!! Never conceded without taking value off the table. Sticker Shock is NOT a price objection, it is a value objection. The proper way to deal with Sticker shock is to communicate and build the client's perceived value, NOT to lower your price.

Sticker Shock or By The Clock: Myths About The Model Dispelled

This blog was inspired the a person who commented on my last post. He wrote:

"Making some sense, but still have the issue of client sticker shock. Other attorneys will talk $ per hour and that it ought to take X hours in getting a client, while as an experienced attorney I know it will take 4X hours, and that other attorney will charge 4x eventually. Client still has a hard time seeing the Value coming out of a full exploration of the legal matter."

I find this to be a wonderful and interesting topic. Here is my response:

1) Everyone knows that you get what you pay for. Sticker shock may be natural, but your concern is rooted in the acceptance that what you are selling is a commodity. . . . that your competitor selling X is selling the same product as you. . . who is at 4x. You should know better than that, right? Think about it this way, someone who is looking for a Mercedes Benz does not go to the dealer and get sticker shock! They know what they want, that they want a high-quality car, and they know it is expensive. When WILL they get sticker shock? When they go to one Mercedes Benz dealer and see price X and then go to another and see price 4X! What is my point? My point is that you are not selling cars or commodities. . . you are not selling what the "other guy" is selling, you are selling a unique service, your decades of unique experience, insights, background, etc. So, don't be afraid to be expensive. The best things in life are expensive.

After all, what would a Mercedes Benz dealer if a bus pulled up full of Wal-Mart shoppers who were stunned at the high car prices and were trying to negotiate? They would tell them if they wanted Wal-Mart quality and prices, they should go to Wal-Mart, and send them back to the store they came from! Sticker shock is natural, but your job is to educate the client on your unique value (the "can't get that anywhere else" effect) and if they are still in shock you need to put them on a bus headed toward the nearest Wal-Mart!!!! That's what we do!

2) Right concern, wrong application of value pricing theory. One of the problems with the billable hour is that one arrives at a price completely backwards from profitable businesses. . . . Lawyers let the cost determine the price. That is backwards! The most profitable businesses go ask their customers what features they want in a product and how much they are willing to pay for it, then they find the most cost effective way to deliver that to the customer in order to increase profits. OK -- Now you want to know what I am saying in English: I am saying this: for once, stop thinking about your time . . . your client don't give a crap about your time. . .
A) they want to buy an outcome.
B) You know you can achieve that outcome for them.
C) You KNOW that they are willing to pay something to achieve the outcome (and that there is also a threshold that they cannot and will not exceed).

Given this information, if you really want that business do you want to:

A) Do you what you do and just multiple your rate by the number of hours you expect to work and tell them a price? OR

B) Discover how much they value the outcome, give them a price you know that is in their acceptable range, and be resourceful, creative, and efficient in the utilization of resources to achieve the outcome for the client?

Sorry folks, but to me, a business person, this is a no brainer. B is the ONLY way to go. So, I anticipate the questions: What if my effective hourly rate is lower? I go back to this: Who gives a hoot what your effective rate is? Did it NOT EVER OCCUR TO YOU that you can be MORE profitable and actually have a lower effective hourly rate at the SAME TIME? (Clearly not. . . remember, I only ask questions I already know the answers to). How can it be? Well, first let me be clear that I think value pricing allows you to actually have a higher effective rate, but I will answer the question of profitability anyhow. Let me answer by example:

BILLABLE HOUR EXAMPLE
Hourly Rate: $400
Effective Rate: $400 (since you bill for all of your time)
Hours Billed: 1000
Billings: $400,000
Cost of Administration (to bill, collect, etc): 80.000 (salaries, equipment)
Lost Billable Time due to keeping timesheets: 20 x $400 = $8000
Uncollectable Bills due to post-billing sticker shock: $30,000 (Remember, you would rather have them get sticker shock before you deliver the service, not after when you have no collection leverage)

RESULTS: $298,000 Left in the Pot

VALUE PRICING EXAMPLE
Effective Rate: $335 (since you bill for all of your time)
Hours Worked: 1000
Billings: $335,000
Cost of Administration (to bill, collect, etc): 20.000 (salaries, equipment)
Lost Billable Time due to keeping timesheets: $0
Uncollectable Bills due to post-billing sticker shock: $0 (Remember, you get your money front in this model)

RESULTS: $315,000 Left in the Pot

Do you get it now? ? ? ? Your Goal, Your reason to exist in this world as a business is NOT to increase your effective hourly rate!!!! Your goal is to increase the profitability of your business. If you are even counting your effective rate you are using the wrong metric to measure the success of your business. You need to examine your overall profitability. So, stop counting time. Stop wondering whether something is "worth" your time, and start asking yourself if you can do work profitably!! Clients want outcomes, not time. They will happily pay for VALUE, not hours. Take your stop-watch-hand-cuffs off and you will realize that you can deliver value to clients and be more profitable at the same time!

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!

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! :-)

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.

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.

The Tail Is Wagging The Dog!

The Tail Is Wagging The Dog!

Backwards. That is how many people describe the way law firms operate and the billable hour. The tail is indeed wagging the dog. What I find very interesting is the direct link between low professional satisfaction (not just in hours worked, but in terms of the "type" of work that legal professionals do and the billable hour model.)

All of the best management books tell you that the best companies and managers legislate the ends, not the means for their people. This is how they get the very best out of them. I completely agree with this. After all, which boss would you rather work for a boss who tells you what to do? Or one who tells you what goal you have to achieve? What management experts say quite clearly is that you can NEVER get the best out of your people by legislating the means. . . it is just poor management. Consequently, an organization that does so is destined for mediocrity. What does this all have to do with the billable hour, you ask? EVERYTHING. The tail is wagging the dog, and the billable hour is to blame. Allow me to lay the foundation and you will see!

Everything is about cause and effect, right? When you do something, make changes to policy, choose to promote someone, it all has an effect on the organization. Well, implementing the billable hour model certainly did. In the 1960's the legal industry was full of general practitioners. Even those who had specialized expertise had a broad enough knowledge to be useful in a few areas. Prior to the institution of the billable hour in the late 50's and early 60's clients were buying outcomes . . . RESULTS. Then, those whom we served were legislating the ends and letting the attorneys use their talents to achieve the best result for the client. Then came billable hours . . . we started to sell units of time. Clients don't want time, they want results, but if all we are selling is time then what do you think is going to happen? All of a sudden, you are making it your clients business what you do with every bit of your time, and by the way, they will want everything done faster (I don't blame them! I don't want to buy time either). Cause: Billable Hour, Effect: Pressure to get it done faster, which is the cause of the super-specialization of attorneys who then go back to clients and claim that through their infinite wisdom they can get it done faster (though a 3x the rate). CAUSE: Super-specialization EFFECT: The dumbing down of the legal profession by way of over specialization. Like in manufacturing, in order to claim to be faster you get people who do the same task over and over again, suffering from intellectual atrophy and doing work well below their competence level just to tell the client they can go FASTER. They have commoditized themselves and made talent and skill irrelevant and Tail is Wagging the Dog! We have created a model where clients, who really want results, are forced to legislate the MEANS and not the ends because attorneys insist on billing time. They scour over your bills and start picking at what you do with every minute of your time . . . because you want to bill time . . your clients are running your business . . . . your clients are managing your people . . . and the Tail is Wagging the Dog!

What, then, becomes of the unique talents and skills that attorney might normally use to effect a winning result for a client? NOTHING! Why? Because you have to justify "value" to the client who is not present with you in 6 minute increments on a timesheet that is presented often months later. It is not only nonsense, it is simply ridiculous. As a firm that does not bill by the hour and gets results every time, I can tell you that the most value added activities we can do for clients are not ones that a traditional firm would consider "billable." Most attorneys do not want to do one thing and only one thing for the rest of their lives. Attorneys are people too, who find meaning in diversity of work, challenge of work, and the freedom to set free their talents to achieve "you can't get this anywhere" kinds of results. They are people who do not want to be slaves to a model that dictates what they do with every minute of their time, wondering if that 6-minute increment they are on right now will end up with a red line through it on the clients bill! That is no way to live. . . it is no way to manage and develop your people and it is certainly no way to run a business. Our well-rounded attorneys use every bit of their unique skills everyday and combine them in ways that get results for clients that cannot be found anywhere else. Clients do not want to buy our time. They want results. They do not care if we have a team meeting to strategize their case (they don't care if there are 5 attorneys in the meeting because we are not billing them for 5 attorneys x $400/hr). They care when the business deal is done, when their dreams come true, when the battle is won. And our people? They care that they are building an organization that cares about result, not tasks. One that let's its people leverage every unique bit of who they are to achieve a positive end for the client, and one who does not artificially force them to over-specialize for the sake of doing the same repetitive task again and again and again. It is time for the Tail to Stop Wagging The Dog! At Exemplar, this happy dogs wags its tail to the end of the billable hour tune! Wanna play?

Managing People: Taking a Close Look at Yourself!

As our firm is growing fast, there is a critical need to make sure that measures are in place to ensure that we are being good managers, not just that our new team members are performing. Why is it so important? (Other than the obvious). Well, if you think of it . . . it is the same reason that the logic for starting a firm like Exemplar is so compelling. How do you know there is a compelling problem that needs to be solved? Look around at what everyone in the marketplace is complaining about and writing about. As for Exemplar, you need only Google the words "billable hour" and see pages upon pages of clients and lawyers alike complaining about how it is the bane of their existence. Problem? Clearly! Solution? Exemplar. So by this time you are asking yourself what all of this has to do with managing people, right? It has EVERYTHING to do with managing people. The next time you go to the book store take a stroll down the business section and take a look at how many books are out there on managing people. Book after book (and, not surprising, person after person that I know) complains about how bad managers tend to be at managing people. Problem? Clearly! Solution? Well, here is what I propose:

1) We need to have an open and candid environment among our managers to talk about our strengths and weaknesses in our own management process and "look in the mirror" every once in awhile so that we can improve our management process.

2) We need to not only make sure that direct reports are empowered and performing, but also that our managers are not just managers because they stuck around long enough, but because they are GOOD MANAGERS. To me, this means trusting them and treating them like partners from the START rather than being skeptical and treating them like they are on trial. . . you have to be in idiot to think that your people can't feel the difference. The rules of psychology apply!Make success a self-fulfilling prophecy for your people. This is not a chicken or egg theory problem. Believe in your people FIRST and you get performance. If you don't, then at least you will know for sure that you got a dud! :-)

3) We need to sit down with each new person and set goals together with them. Then, we need to do everything we can do empower them, position them to stretch and leverage talents, and get the heck out of the way. At the end of the day, we want our people to have every reason to perform (and the only way to do that is to ask ourselves the tough questions . . NOT to look at them and wonder why they are not performing. . . I guarantee you, much of the time the answers become clear by taking a critical look at the management process) It is only when we do everything that we can that we can then look to our direct reports for accountability!

4) We need to pay close attention to each new person in order to identify the difference between each member's strengths, non-talents, and weaknesses. Do you know the difference?
-- Strengths: You are great at these. It may not be as obvious as it sounds, because someone who is not performing may be non-performing because they are not positioned by their employer to leverage their strengths. Are you? After all, I think it is our job as employers to make sure we position our people to leverage their strength before we can hold them accountable for performance. You can't expect better performance out of someone who sucks at something. With talents, it is our job as employers to look at each person and find out just how much we can get them to focus on these strengths, create stretch goals that are dependent on leveraging them, and doing what we can to support them

-- Non-talents: Often confused with weaknesses, these are areas where there is no natural talent or significant skill development, but where performance is average at best. If the skills need to be developed, this is where we set goals with them to work on the skills that they need to perform in a well-rounded job.

-- Weaknesses: You suck at these. The worse companies with the worse managers in the country have managers that always focus on people's weaknesses. They get you on these stupid "weakness improvement programs" which the employees absolutely dead. After all, most people NEVER want to be good at a weakness! This is a symptom of 1) POOR MANAGEMENT, and 2) an organization that is destined for mediocrity, because winning organizations focus on people with leveraged strength, not strong weaknesses. What kind of company do you work for?

5) We need to do everything we can to educate our organization that being a manager is a job unto itself, and that it comes with responsibilities, accountability, and tremendous power to influence the future of the organization. The largest Gallup study of profit centers ever showed that people do not leave companies, they leave managers!!! Does this surprise you? It shouldn't'! In big law firms, every time an associate walks out the door it costs them more than $250,000! On the other hand, the best companies in the world use good management as a tool to develop the future of the company in a way that makes them millions of dollars each year.

6) Finally, at the end of each day, we need to take a close look at ourselves, ask ourselves "did we do the best we can to position our people? How can we communicate better with our people? What can we do better to inspire each other to greatness? As managers, we have more power than we understand. Most have no clue what to do with it.

Those are the human capital goals to which I aspire. Ambitious? Certainly! Nonetheless, you never go higher than you aim. As Excellence is a core value that must never ring hollow in the halls of Exemplar, I will certainly do my part and expect our great people to to aspire to the same level of Excellence in management . . . a standard that, if set, will define the future of law practice as we know it.

Fixed-Pie Thinkers Need Not Apply

Some people go through life thinking it is a zero sum game! They have a fixed-pie mentality. It is like they are born this way . . . with fixed-pie-disease! Sometimes life throws these people little crumbs of bread . . . and they all stomp on each other like pidgeons to get a bigger piece of the crumb. Sometimes when I walk down the street I throw pennies and watch people with fixed-pie-disease rush to pick them up for fear that someone else might get them. Half of them are lawyers, I'm sure. These people don't know a thing about value creation. The one's I like are the ones who pick up my pennies while whistling to a tune, feeling like it was their lucky day. They understand value creation. You see, my penny wielding experience is proof that value creation exists and that the economy is chugging along in a healthy fashion. For me, the reason I throw the pennies is because it is worth more than a penny to me to either 1) watch people infected with fixed-pie-disease frantically chase my pennies as they bounce happily down the street on their ends, OR 2) enjoy that warming feeling of watching someone who appreciates value pick up my penny and feel lucky, if only for that moment! For them, it was clearly worth more than a penny to bend over and pick it up. . . it was almost the principle of it! Value creation is such a beautiful thing.

Every day infected lawyers go to work and fight over origination credits, pad their time sheets or try to out-bill their colleagues in order to get one of the "fixed" number of partnership positions at the firm. Firms get into bidding wars over the "fixed" number of graduates in the top 2% of their class (as if such a designation were the ONLY redeeming quality of significance to a firm). What are you working for? There are only 24 hours in the day . . . the game is "fixed" folks! You don't win in a competition where the prize for the pie eating contest is . . . well . . MORE PIE! That is, unless you are infected with fixed-pie disease. Somehow they just never learn. . . and so I will continue to watch them chase down my pennies much to my amusement (fortunately for them . . I mean my pennies . . . they will never be out of a job!) Life will continue to throw these poor souls crumbs of bread and the rest of us will watch them posture for their crumb slices as those of us who truly understand value create loaves of bread from air!

Changing Lives . . One By One . . Until We're All Done!

Several months ago I ended my blog post with a statement that people who think Exemplar is just about fixed pricing have missed the point. I went on to say that Exemplar is about changing lives, one by one, until we're all done. While many posts have been about the economic theory behind our pricing model, psychological barriers, and mechanics of fixed-pricing, I wanted to take a moment to talk about what we are really about. . . changing lives. This journey called Exemplar has changed my life . . . it has given me meaning in what I do as a professional. I am personally connected to the outcomes that we help our customers to achieve every day. I have not in two years counted my time, my "effective" hourly rate, and I actually have no clue how many hours a work a week. I know only one thing: I am truly happy and I would not trade a moment of this experience for anything. What does all of this mean? For me, this model is about giving professionals meaning in their work, valuing people, leveraging talents, inspiring our young, giving back, loving life, and doing well by doing good. At first, it may not be clear how connected the billable hour really is to the problems of our profession, but a closer look reveals that they are hopelessly intertwined. For instance, I see the following:

I see attorneys who's practice is all about going from crisis to crisis. They live their lives this way. It desensitizes them and it takes a crisis to get their attention. They let their personal lives reach a point of crisis before they pay attention to it . . . many of them getting divorced or falling apart altogether. These professionals either face enormous pressure to "Bill time" to meet quotas or they feel tremendous pressure to "fill time" by "billing time" when work is light because of the beauty contest that our industry has created by comparing the "spreadsheet" of numbers of each attorney against one another as means of determining their value to the firm.

I see attorneys who are so entrenched in counting their entire lives in 6-minute increments that they go home to their loved ones and think of time with their family as an "opportunity cost." These people know exactly how many billing units they are giving up by attempting to have a work life balance, and the very attempt to balance life is offset by a cloud of guilt and worry, knowing that they simply cannot beat the clock.

I see minority attorneys at large firms who readily state that they feel like "tokens" and are ONLY invited to client meetings when the client is of the same race. Since all attorneys are treated as fungible billing units, their unique value is not considered or leveraged. At the same time, the white-male partnership is ignorant of the fact that their own people feel this way and have yet to make meaningful headway in valuing diversity in their firms.

I see the most wonderful and talented female attorneys leaving the practice of law because of an inflexible business model that values "putting in more time" rather than "being effective for the client." At least these women are smart enough to vote with their feet and stand up for what they believe in when they realize that work-life balance is not and never will be a priority of their firms when profits, by definition, are increased by "billing day and night." This has been happening for YEARS and only reinforces that fact that firms are not addressing the real issue! They just keep hiring new young female attorneys to keep their "statistics" up so that they look good in the beauty contest!

I see young lawyers suffering from low professional satisfaction due to under-delegation, low client contact, competitive-individualistic work environments, little to no mentoring, and a partnership that is NOT grooming the next generation to be leaders of their firms tomorrow. The signal they are sending to their young is loud and clear . . . they would rather take their clients to the grave with them than pass on relationships to maintain viability of the firm in the future.

I see a traditional partnership model full of ego-driven, bottom-line oriented (to the exclusion of all else), untrusting professionals who have all but abandoned the next generation when it comes to professional development and addressing the needs of today's workforce. . . clinging on to a dying billing model that is based on a long-refuted economic theory. If you did not know the definition of "Lip Service" when you read this blog, look at a partnership. Nationwide, the partnerships have made promises to embrace diversity, be sensitive to work-life balance, address client-hoarding, mentor their people, and give their people a clear sense of what it takes to make partner, when they will be evaluated, and help them to achieve that goal. What has come of the their promises? Their lips are moving but nothing is coming out!

These are only a few of the things I see in our profession. What I see I do not like. I read a quote in the book The Firm of the Future that read "the people who get on in this life, if they do not find the circumstances they are looking for, they create it." and it really resonates with me. This is an appropriate month to quote Malcolm X, who said "If you are not a part of the solution, you are part of the problem." It is revolutionaries like these who make change by first believing it is possible, and then taking a stand with an uncompromising conviction to succeed in creating the new vision. Exemplar is about a new vision, founded on a faith in what we can be and do together, and grounded by our conviction, our values, our character, and our unending desire to do well by doing good. We are changing lives indeed . . . one by one . . until we're all done!