Understanding the Subtleties: Fixed Pricing That Works & Fixed Pricing That Wont!

This post is to respond to a fellow practitioner who spent the time to write me an email asking about the finer point of fixed pricing. Here, I will explain how to execute on a fixed price model that will result in profits and explain the common flaws in establishing a fixed price.

ABC's of Profitable Fixed Pricing
1) Price based on VALUE TO THE CLIENT (NOT Value of the Deal)
2) Clearly Define the SCOPE of the engagement
3) Constantly manage SCOPE, and issue a change order if deal is outside the SCOPE
4) Set client expectations up front, communicate regularly, manage expectations throughout

To put these in context, I will first respond to the questions from the practitioner (thanks for allowing me to post them, BTW): The Practitioner Wrote me:

I gather that you do not have pre-determined flat fees that are one-size-fits-all, even if the work being done does not differ for different clients. This might be where I have made some mistakes although I do often base my fees on what I perceive to be the "value of the deal".

Answer: Right! one size DOES NOT fit all. It is a big misconception that fixed-pricing is the same as MENU PRICING. While menu pricing is a form of fixed pricing (low end work is sometimes done on a menu basis). the pricing theory Exemplar uses is Value Pricing, which is a fixed price that is based on the value of the transaction to the CUSTOMER. (Yes - determining perceived value is an art, not a science, so learn to think value value value. Your clients will thank you for giving a hoot!)

Practitioner Continued:
How much time is going to be spent at the negotiation stage of doing one of these deals is very unpredictable. How do you deal with a contingency like that? I have tried setting fees in stages -- for example, $X for review of the agreement and consultation with the client. An additional $X for preparation of mark-up, "first round negotiations" and consultation with the client. And so on. I try to price these up front and then give the option of one all-in fee which is less than the client would ultimately pay if he/she ended up purchasing everything in the smorgasbord approach.

Answer: Great Question! Time is unpredictable. First, it is less unpredictable if you manage scope. Assuming you did and time is still unpredictable, SO WHAT??????? Are you running your business to make a lot of money or are you running your business to have a consistent effective hourly rate? The point is that we run our business to be profitable. We DO NOT COUNT TIME, let alone bill for it. Why? Because at the end of the day all that matters is that our business is increasingly profitable and that we continue to take steps to increase profitability. If we ran our business to make sure that every hour spent had the same profit margin (effective rate) then we would be LESS profitable. So, if it is between $10Mil in profit or $8Mil and perfectly consistent margins on every 6-minute increment, which would you choose? (Thanks for letting me pick on you. . . now to my next point)

STAGING: Great! Staging is a good thing. If you are just starting to implement a fixed pricing model, staging a deal is a good way to go. Your all-inclusive option at a discount is counter-intuitive!! You say that you offer a discount for the one-price option? Why? If I were a client and you asked me what I would value more, COMPLETE CERTAINTY, or fixed pricing in stages, I would say COMPLETE CERTAINTY without question. I would pay a premium for peace of mind, wouldn't you? (Don't get me wrong, I know why you do it.. . . . there are compelling psychological factors at play in fixed-pricing). Here, your interests are aligned. The client attributes more value to the all-inclusive fixed price and you undertake more risk include everything, so you ought to be charging more.

NOW: I would like to address some common mistakes professionals make when implementing a fixed-price model OR common (yet unfounded) fears!

1) Pricing based on the value of the deal
Yes, you read that correctly. Remember, Value pricing is all about and only about delivering value to the client. So, while the value of the deal may be a relevant factor in determining the value you can add, it does not mean that the client values your services in direct proportion. Depending on the client, their needs, risk profile, cash flows, and time sensitivity the client may value your services substantially more or less than you think. There is only one right way to approach value pricing: Price it based on perceived value to the client.

TIP: You are NOT a commodity! The whole point of Exemplar's innovative approach is to CREATE VALUE by leveraging our unique talents, skills, and diversity as a firm . . . ultimately offering a product/service to the customer that cannot be obtained at any cost somewhere else! So, always ask yourself "How can I create value?"

2) Menu Pricing
This will only work if you want to be a low-cost provider. If so, enjoy the lack of intellectual challenge, low margins, and the feeling of fungibility! While you are commoditizing yourself, you might as well welcome customers by saying "Welcome to McDonald's, can I help you?" After a year of hard work, maybe you'll get a McRaise!

3) There is no way to fixed-price a litigation!
Really? What do you think this profession did for the 1,950 years before we starting billing by the hour? (Hourly billing started in the 50s). Do you think we all threw our hands up in the air and decided to just settle everything? The funny thing about this is that everyone who says it cannot be done have never even tried. Most do not want to spend non-billable time even thinking about how it could work! Those who have lost their shirt have done so not because of a problem with the model, but because they had NO CONCEPT of what it means to manage SCOPE or price on the VALUE to the client. If you don't want to do it right, don't do it at all! If you don't want to learn it, don't try it! Go read Ron Baker's book on Value Pricing for Professionals. "Take one of these and call me in the morning" and then you will begin to scratch the surface of what value pricing really is. (FUN FACT: Ron's book is awesome. How much more in production cost do you think it cost his to make that soft-covered book compared to others on Amazon? How much more TIME do you think it took the printer to print the darned thing? YEAH! NOT MUCH! That son of a gun VALUE PRICED the book!!! It is $149. I still bought it because I valued it. It was great and I did not regret it for a minute Are you beginning to get it? I think Ron and I will set up a bunch of vending machines in the dessert selling bottled water at $50/bottle.

4) Pricing based on an estimate of time multiplied by your hourly rate. I must say, this is just about the worse form of fixed pricing out there and is really only done by professionals who are too clueless to figure out how to do it right. It is no wonder why most people that do this get burned. Here are the most obvious reasons:

-- Clients are not stupid. They never wanted to buy your time to begin with. Do you think that if you put it in a can with a bow on it (and overprice it to be safe) that clients will want to buy it? If your clients are that dumb then they are dangerous. If you are crazy enough to think that's what they want then you deserve to lose your shirt! (Shirt-loss seems to be a theme in this blog)
-- The whole point of fixed pricing is to be able to add value with non-time-dependent value adds, such as additional skills/services, creative thinking, strategy, stress balls, etc!. Basing your price on time deprives you of the opportunity to get paid for adding value.
-- Now you are shifting the risk to yourself (of the project taking more time) and not reaping any reward. You already cap your profit margins by charging by the hour and now you are putting that at risk by "estimating" wrong. What are you thinking? Rather: Are you thinking??

Oooops, I just got a call from my publisher who told me that if I write any more it will be as long as a book. This only scratches the surface, but should provide some good guideposts for fixed pricing. Remember to practice your ABCs until next time:

1) Price based on VALUE TO THE CLIENT
2) Clearly Define the SCOPE of the engagement
3) Constantly manage SCOPE, and issue a change order if deal is outside the SCOPE
4) Set client expectations up front, communicate regularly, manage expectations throughout

Time-Based Accounting is Behavior Modifying to the Deteriment of Profits

Time and time again Human Resource executives reinforce the concept that what you measure and reward is what you get for behavior. Nobody I know disputes that this is true. If you accept it as true, then you create a linear relationship where common behaviors can be explained by looking to a firm's measurement and reward system. It seems like companies today have become obsessed with collecting and analyzing data . . . . simply because they can. So much so that most companies would rather reward the wrong behaviors because they can easily measure them, rather than reward the right behaviors that are more difficult to quantify with numbers. As a result, time-based accounting creates a distorted sense of reality that changes the behavior of professionals to the detriment of profits. Let me explain:

Factual Foundation:
Billable hour requirements are at all-time highs in our profession
Attorneys are therefore working harder and harder just to meet these billable requirements
Billable Hours are the most important factor in one's compensation (Aside from origination, which is only relevant at the Partnership level)

If I were to ask you what the firm above values what would you say?
ANSWER: Billed Time

OK -- So how does this impact attorney behavior?
Attorneys therefore, in order to see their families every once in awhile, are trained to put in as many "billable" hours as possible and do not value "non-billable" time. Put another way, since it takes roughly 70hrs a week of work in order to meet the 2000 hour billing requirement for the firm, attorneys have no financial motivation to act in the best interest of the client or in the interest of the firm -- Let me explain:

The quest to meet billing requirements is inherently a short-sighted. For instance, there are severe pressures on attorneys to pad bills and over-lawyer legal matters with no regard for the risk-return relationship on which businesspeople make decisions. These concerns are not only ethical ones, but also foster a relationship of distrust between the client and the attorney. In addition, the efforts to raise short-term revenue are clearly at the expense of clients (who know they are being taken for a long walk) and end up leaving or simply never become loyal to the firm. So, say for example that an attorney (who really needs to put in some hours to make quota) gives into temptation and decides to put in 20% more hours on a case than is necessary. Do you think that the 20% extra revenue this year is greater than the Net Present Value of future cash flows NOT EARNED by virtue of one attorney's self-interested behavior? Of course not! The problems are these:

1) At a firm-wide level these practices are short-sighted and arguably driven by greed of the Partners. The problem is that the reward system creates individual pressures that may not be driven by greed alone, but simply a desire to get off the treadmill of time before 10pm so they can go kiss their wife and children goodnight once every few days. Either way, the result compromises the integrity of our profession, the service to our clients, and sends the wrong signal to our people about what is truly important in life.

2) If you agree that these pressures can have a severe impact on the client relationship and compromise the long-term cash flows of the firm (remember, getting a new client costs 5 times more than keeping a current client!), then do you realize what you are doing? You are giving each and every individual in the firm the power to compromise the long-term viability of your organization by creating financial incentives for over-billing and over-lawyering, temptations for billing fraud, padding, and absolutely NO INCENTIVE to provide excellence in client service. Your people, some responding to the reasonable pressures of family life and some responding to the desire to earn more by these compensation systems, are doing EXACTLY what you are telling them you value. BILLING TIME!!! Congratulations! You just treated your people like a stopwatch! No wonder attrition rates are at all-time highs. Firms have no concept of how to value people, and so what they end up with are cogs in a wheel.

What we have done at Exemplar is realize that time-based billing is not only a poor way to value people, it is inhumane. As a result, we work hard to identify that leading indicators of value in our organization and reward each individual on the basis of one's strengths and contribution. Value-Pricing is not just a better billing model, it is a better way to show your people that you truly care about who they are and what they have to offer. It makes all the difference in the world when you wake up every day looking forward to going to work. It makes all the difference in the world when I see our people leveraging their strengths at every turn knowing that we both know and value what each of them have to offer. More than anything, seeing people thrive is the most rewarding experience . . . it is why we persevere . . . and why I am so proud of what Exemplar stands for!

SCOPE: It's Not Just A Mouthwash! It's What You Do When You Used Fixed Pricing!

One of the most common misconceptions people have about using a fixed-price model is that setting a fixed-price is all that you need to do. It is no wonder attorneys worry about how it can be done. In order to be profitable on a fixed-price model, attorneys need to change the way they do business almost entirely. They need to:

1) Define a price
2) Clearly Define and Communicate the Scope of the work
3) Learn to be a project manager by
a) Managing the scope
b) Delegating as appropriate, which requires trust that someone
other than yourself can do some of the work competently
c) Mentoring; and
d) Communicating regularly with the client on progress and strategy;

This blog focuses on Scope because it seems to be the part that attorneys have the hardest time wrapping their brain around. Scoping a project is about working with the client to first understand what they value, how much certainty they want and how much work that certainty includes. Then you can define a scope that is consistent with the clients needs and desires. As a general proposition, professionals are all in a position to give the customer what they want at a fixed price and operate a profitable business. Let me propose one way to look at it that works for us. In scope we consider 3 different types of work:

1) Certainly - Work that will certainly need to be done
2) Likely - Work that may need to be done or is likely
3) Huh? - You don't have a crystal ball after all. Sometimes you simply have no idea if it will need to be done when you scope it out.

A key part of fixed pricing is understanding what kind of peace of mind the client wants. Exemplar sends proposals for work that includes all 3 of the categories above when necessary. We often price work that is certain to be done and clients appreciate the fixed price. We very often include work the is also likely required because clients value the peace of mind of knowing that it will be taken care of at a price certain. Sometimes, we even price projects that include work that falls into the category of "Huh?" This is for clients who want top notch, concierge service with no surprises at all. This selection begins to act like legal insurance at the outer edges. This blog is too short to explain the pricing methods used for the different types of projects and scopes, but I will certainly respond to the basic question of "How can you include 1,2 and 3 and be profitable if you do not know blah blah blah blah?" (Yes, I am making fun of you for asking. . . . unless you were born yesterday then you realize that you are surrounded by high rise buildings that are all owned by the most profitable companies in this country that do exactly that. . . . they sell insurance. . . . and yet you still feel compelled to wonder????) At a macro level, you only have to know liability ranges and probabilities. Keep in mind the following: You do not have to sell a Mercedes for the price of a Buick. How to price projects on a value pricing basis is also beyond the "SCOPE" of this post, but will be coming soon. Just keep in mind that statistical analysis is not necessary for most types of fixed pricing. If you are considering trying out a fixed-price model, start by setting a scope with the client that only includes work that is !) Certain, or 2) VERY likely to need to be done. This will reduce your "perceived" risk while giving the customer the peace of mind that they want and deserve. If you have questions about this please feel free to comment and I will respond.

NOW: Finally you are free from the billable hour on at least one project. Take this project as a golden opportunity to learn project management skills. This is what will improve your profitability or (as you probably think about it . . ) your "effective rate." What does that mean? It means asking yourself who needs to do what, how work can be done more efficiently and effectively. You may well find that good project management gives you the opportunity to get the work done more profitably (at the same end cost to the client), AND increase the perceived value of your services to the client at the VERY SAME TIME! We have certainly done so!

You Have to Know How A JibJab Works Before You Can Fix A Broken JibJab!

Happy New Year to everyone. I open the year with a blog that has you asking "What the hell is a JibJab?" A JibJab is a tool that I am using in this blog to illustrate my point. . . the point that you cannot fix a problem with a JibJab unless you know how a JibJab works. I am making this point in an effort to explain the dearth of intelligent conversation that most attorneys are able to have about the merits of fixed-pricing over the billable hour model. There is no question that every lawyer has an opinion on the topic, but no real headway can be made in a debate where one side is simply in the dark as to how their own business operates. You see, their JibJab is the billable hour model. The billable hour is the heart of their business but so many lawyers do not understand how it impacts their business. They do not keep metrics on customer satisfaction rates, uncollectables, new vs. current customers as a percentage of total revenue, etc, etc. Those larger firms that do keep this data put non-lawyer administrators in charge of managing it and reporting it, rather than using it as a tool to better understand their business.

Let's assume for the sake of this blog that I were taking questions on the merits of fixed-pricing from the brightest minds at the big firms and that they some were educated on how their JibJab worked. My proposition is that these partners would find it perfectly logical and irrefutable that fixed-pricing is a more sound economic model and ultimately more profitable in the long-run for law firms, not to mention that the pricing model solves many problems that firms have been struggling with for decades, such as diversity, work-life balance, and many more. In fact, my fellow Fellows at the VeraSage Institute have done just that . . . they have consulted to some of the largest firms in the world and, while firms are able to see multiple ways that it can improve their business, they are unable to take it from an intellectual exercise to execution. Where I am going with this? The point is this: Progress in our industry breaks not at the point of logic or even proof that fixed pricing is better, progress breaks at the point of execution. I therefore propose that we talk more about the tough issue of execution in order to make progress and perpetuate the change back (Billable Hours started in 1950s) to a fixed-price model. There is enough empirical evidence out there to show that billing by the hour is a dying practice. For those who embrace the future, let's work together in 2007 to create a better vision for the future of the profession.

Pricing Psychology Part 1: Why Many Attorneys Lose Money with Fixed Pricing

I am surprised at how many attorneys think it is difficult to be profitable on a fixed price model. There are several misconceptions that many of them have that I would like to address in this blog. Here are some of them and why they are incorrect:

1) Our pricing is menu prcing.
Response: No. It is certainly not. You cannot be a premium player in the market with menu-based pricing. If you are pricing on a menu basis, then you are engaging in a form of cost-plus pricing, which is no different than the billable hour model (only worse because you shifted the risk to the firm without the corresponding reward.) Menu priced players are almost certain to be working on the lower end of the value curve.

2) Our pricing is an estimate of hours times our billing rate.
Response: Certainly not! Why would we do such a thing? Again, that is yet another form of cost-plus pricing like billing by the hour. These pricing models are based on Karl Marx's long-refuted labor theory of value, which supposes that a good or services derives its value based on the labor (or time) input. I don't know about you, but I certainly don't tip the stewardess or captain $50 for every 1/2hr longer that it takes my flight to reach the destination. . . . . . yes, it certainly costs them a hell of a lot more money in gas, lost connections, unhappy customers, etc, but if anything the value to me goes down over time, but certainly NOT UP! (Yes, yes, people, of course you have to operate a profitable busines, but for God's sake you don't have to be 30% profitable on every 6 minutes. I would rather be 40% profitable as a business than guarantee that I am 30% profitable on every 6-minute increment . . . . . guaranteeing profitability at this resolution has a very high cost and no return to the investors.

3) It is hard to make money Value Pricing
Response: No. If it is hard for you to make money value pricing then it has nothing to do with your pricing model . . . . you just have no concept of your own value. Many professionals actually believe that what they do is provide a commodity service. If you believe this then you will never make money value pricing. This is because you believe that you cannot add more value than anyone else providing a smimilar service. A product only becomes a commodity when you believe it to be a commodity. Think of water, for instance. It is the most abundant resource on this earth . . . . while the rest of you bozos are thinking it is a commodity some genius was out there putting it in little bottles with a pretty label and making millions of dollars selling it for $1.50/bottle. Where are you now? Well, he's rich and you are now sitting at your desk drinking bottled water that costs you more per barrell than oil and still thinking that you are providing a commodity service. The problem is not your pricing model, it's YOUR HEAD!

Furthermore, even if you believe you can add value, most attorneys are TERRIBLE pricers. First of all, I have sat in a room with hundreds of attorneys in the past 2 years and watched them try to price a hypothetical case. They always go back to time and effort, or they discount their own value and try to argue why the client would never pay more than a certain amount. If that is what you think, you certainly will never command a premium for your services. Again, the profitability problem is not in the model, IT's IN YOUR HEAD! At Exemplar, we get together and talk about how many different ways we can add value to the client and make great things happen that noone else can! After that, we realize just how much better and unique our value added services are compared to everyone else. Then, we think of all of the reasons why the customer would be crazy to chooses anyone but us . . . because we are that confident in the value we deliver. We back it up with a guarantee, and then ask for a tip if we do a great job! (Keep in mind, we select our clients. . .and we are prepared to walk away from clients who are satisfied with "average" legal counsel. We let them know up front that Exemplar is not for clients who want to shop at Wal-Mart for legal counsel. This is the Ritz. It's not cheap, but people love it here!)

The real problem here with attorneys and fixed pricing is that most of them suck at it. You see, inventory in a store does not feel unappreciated if it sits on a shelf for a year. Attorneys, on the other hand, have fragile egos. There is nothing worse for those egos than to be sitting in your office with no clients who want you. The way that most of them deal with this problem is lower the price so that they can feel "wanted." Then, they very carefully raise prices as they get busy, but never very far. Why? Because lawyers hate being rejected. It is much easier to charge a price that noone will argue with than to have to explain yourslef and actually justify the value of their services to a customer. All other businesses have to make this value proposition to clients, but lawyers HATE explaining their value. They think they are too good for that, or that it is somehow beneath them to do so. Consequently, most attorneys who try fixed pricing are more interested in protecting their delicate psychology than actually being profitable. If you cannot GET OVER IT you certainly cannot be profitable on this model. A great family law attorney I know who uses fixed pricing put it right: Be confident and be expensive. The best things in life are expensive. Exemplar wants to be on of the best things in your life. We are not a cheap firm, but we are good, we can provide services that you cannot find anywhere else, and we can each customer attention and a true experience that cannot be acquired at any price at an "average" firm. Average prices are for average lawyers and average customers. There are plenty of those in this country and we don't need any more. Hopefully, some of my colleagues will find the courage and creativity to add more value, be different and better, and charge what they are worth. Then, you will unlock the secret to profitability in a fixed-price model. When you really want to try, send me an email and we'll talk.

Letting Down The Next Generation: Why Today's New Attorneys Don't Know How To Draft A Contract

Are today's firms letting down the next generation of attorneys? After all, lawyers are amongst the most highly educated professionals in the country, and thousands of the very best of them are hand selected by big firms to endure years of document review and thousands of billable hours mired in discovery hell. More interesting to me than the pure lack of intellectual challenge provided to these attorneys is the fact that mentoring is at all time lows. At the very same time firms are spending millions of dollars on knowledge management systems that allow the young attorneys to get contract templates of every variety from their databases believing they really are getting "smarter". So, with practically no mentoring and access only to templates, we are faced with a generation of attorneys who lack the skills to draft an agreement! Why? Have you ever heard the saying "give a man a fish and you feed him for a day, teach a man to fish and you feed him for the rest of his life?" Of course you have. Here, have another fish. . . and enjoy your last few bites because the senior attorneys today are more likely to die before they teach how to feed yourself. They are too busy filling their own buckets!

The senior attorneys attorneys at big firms today are NOT passing their knowledge down to the young attorneys. You see, contracts that were written by other attorneys do not constitute knowledge transfer just because they are in a database that is accessible to them. Contracts do not contain knowledge itself, they contain the product of one's knowledge. A young attorney does not simply look at a contract and innately understand why a clause is phrased a particular way and how case law has shaped the language over the years. The key to being a successful practitioner is having the knowledge itself, not simply the product of knowledge, to produce good legal work product. How can they fix the problem? Well if they cared enough they would get their senior attorneys to turn their tacit knowledge into explicit knowledge by documenting and communicating WHY they do what they do (in addition to doing it) or they would train and mentor like they did in the "olden" days. Of course, this would take significant time away from their billable hours and thus their profitability. If you are a young attorney at a big firm, do you really think that the partners are going to do that for you? (or are you just tired of eating fish?) I believe that the younger generation needs to knock on the partnership door and demand a fishing rod . . . . because you know they are not going to teach you to feed yourself unless you insist, and if you don't . . . you will soon realize that our generation got ripped off by the greedy partnerships that send "fish dinners" to your office every night while you bill your 15th hour of work . . . . . for the 6th day in a row. Don't wait until you have a free "billlable hour" to think about it . . . they will surely make sure you have none to waste.

Get Your Calculators and Spreadsheets Out. Ready . . . Set . . . Hurry Up and STOP!!!!

I was speaking with a journalist today about our partner compensation system and how it differs from a traditional system. During our conversation we were discussing how some of the most important things in an organization cannot be captured and analyzed in a spreadsheet by a compensation committe. Forget for a moment that spreadsheets exist. Better yet, forget that such a thing as math exists in the world. With those limitations, I want you to make a list of behaviors that you think are valuable to the organization and that ought to be rewarded. Here are just some of the items on my list and why:

Mentoring --> Better knowledge transfer = more challenged workforce = happier people = higher intellectual capital in the firm = lower attrition rates = savings

Internal Referrrals --> More service to clients = firm is more valuable to them = higher loyalty rates = lower "cost of sales" = savings

Leadership --> Good role models = positive influence of people = more productive workforce = profitability

"Good" Business Origination --> Acquiring high-quality clients = challenging work that attorneys enjoy working for = higher productivity = happier clients = higher loyalty = profitability

Service-Orientation --> Better service = happier clients = lower uncollectables and higher loyalty = profitability

Effectiveness --> Better ideas/solutions = better return on invested time = profitability

Trust --> Higher trust levels = higher internal referrals = more services per customer = profotability

Respect and Collegiality --> Mutual respect = better working environment = happier people = lower attrition and higher productivity = profitability.

I could literally go on an on. Do you disagree with any of these? Do you see the link between many of these behaviors and profitability? (If you don't, see an eye doctor immediately, you are likely blind or dangerously close). Take, for example, respect. You all know that it only takes one Grinch to ruin Christmas for a lot of people. . . one partner who is a jerk to make your life miserable. The biggest Gallup study of profit centers ever done shows that people do not leave companies, they leave managers. If your manager is a jerk, you are likely to leave. So, think of an org chart -- If you get one Grinch higher up you are LIKELY to lose top talent in the entire space below them on the org chart costing your firms millions of dollars per year.

Now, if you agree with some of the factors I listed above and you were creating a comp system, you would include them. That is just common sense. So, why is there such a divergence between what we all agree is so important to profitability and what is actually measured and counted in firms? OK -- so you cannot put it in a spreadsheet, so suck it up and realize that letters cannot be turned to numbers. Just because you cannot count it does discount it's significance to your bottom line. Yet, almost invariably the factors that are difficult or impossible to quantify (and at least as important) are not taken into account at all in firms or significantly discounted in weight. As a result, you get an industry full of people just chasing numbers like hamsters on a wheel. Hey Fido, Go Fetch! If they came to Exemplar, they might be asking "Who moved my cheese?"

At Exemplar, we believe that as intellectuals we do not need to dumb down reality "into a spreadsheet" in order to understand its significance to our business. We do not accept the assumption that the most significant performance factors in our business cannot be captured and rewarded. By investing the time to understand what truly matters, we are telling our people that we care about them. . . about recognizing everything they do to drive the business forward. Each person on our team brings to bear their owns strengths and talents and they manifest themselves in many different ways. I would much rather have a team of attorneys chasing their own strengths and talents knowing at every step that we understand their value rather than attorneys who are chasing billable hours and originations because their firm made a value statement that those are the only things they care about. If you were an attorney entering this profession, where would you want to work?

Satisfaction Guarantee Part 2: It Depends on What Your Definition of IS IS . . . RIGHT?

Ready for a lawyer joke? How about a practical joke on a lawyer. Tell your firm that you want them to back up their service with a satisfaction guarantee and see how terrified they will be. No need to say BOO! Demanding Satisfaction will DO! When I tell some attorneys that we offer a satisfaction guarantee, they all want to know the details like;

How do you define it?
How can you do that, clients are never satisfied?
Do you at least put in a disclaimer?
How do you qualify it? Blah blah blah blah .

It is like these people have not lived a life in normal society. Seriously . . use your brain. . . how many things have you bought in your life with a satisfaction guarantee? (yes, probably hundreds of things). How many times did you return something based on that guarantee? Yes, for most us it was not often at all (studies show only 2% of people return things on these grounds). How many times did you return something for a reason that was not legitimate (no defect or problem)? (If you did this several times, please never call us for services). For most of us the answer is NEVER! OK lawyers, so let me get this straight . . . you have lived your entire life buying hundreds and hundreds of products (and services) with a satisfaction guarantee (defining it on your terms and not the company's terms), have rarely used it, never for a non-legitimate reason, and yet you are scared to death to offer a satisfaction guarantee to your clients? Not only does your consuming behavior speak for itself, the studies also speak for themselves. One of two things must have happened to you:

1) Your skeptical attitude has clouded your judgment and perspective on life so much so that you wouldn't believe the sun was out unless 50 scientists ruled out the possibility that one a 100,000 other stars out there didn't cause the bright light you saw this morning that rose from the east and eventually set in the west. You do not trust anything. . . . nothing can be true in your eyes unless someone takes the time to prove it out to you (and you will challenge every assumption and make them miserable in the process even if they are right). Even if it is true you still may not agree.

Lesson #1: Skepticism is a TOOL you learn in law school to help advocate for and solve problems for clients, NOT a perspective on life, a way you deal with your spouse, or a way that you should interact with the world on a daily basis. You may have just forgotten that something can, in fact, be what it is. If you are looking at opposing counsel's brief, be skeptical. If you are looking at a $100 bill, stop looking at it funny to see if the watermark of Ben Franklin portrays his face properly and put the damn thing your wallet! Only 2% of millions and millions of consumers take advantage of a satisfaction guarantee, and of that nearly 80% do it for a legitimate reason (so you ought to be giving them something back). We have served over 100 clients and have not had a SINGLE CLIENT take advantage of our guarantee (because we go the distance to make sure they are happy). I just gave you a $100 bill. Stop looking at it. Stop intellectualizing it. IMPLEMENT IT! Your clients will thank you for it!

OR

2) You know that you are not really satisfying your clients and you are scared to death of what will happen! You would rather be accountable to keeping a detailed timesheet than be accountable to your clients, and the thought of having the customer be the arbiter of your value seems just demeaning and demoralizing to you.

In the background: Your client's brains are still functioning while you are in denial, you know! While you are sheltering your fragile ego and your mountain-high pride, they are at every instance gauging the VALUE of your services and many are deeply disappointed. Your psychological barriers prevent you from asking them what they think. Theirs prevent them from telling you because they really have no incentive and it is just plain uncomfortable to do so. Even if you asked them they still have no incentive to tell you what is bothering them. It will fester and eventually they will just go to another firm. This happens all the time to you and you don't even realize it. For both them and you it is easier to leave than to face the issue. Here's your challenge: You cannot change human nature: your customers WILL leave for service related issues without telling you unless YOU are proactive and partner with them in being the best that you can be. This means that you have to (as David Maister so perfectly puts it) have the courage to care more about your clients needs than about your own psychology (you ego and pride). You are human. It is okay that you are not perfect. . . clients can understand that. If you backup your service with a satisfaction guarantee they take your "humanness" and work with you to make you the best service provider you can be. If not, you must be intelligent enough to know that your attitude of infallibility is not fooling anyone . . . denial is dangerous to your clients, and they will not consider it their problem to "train" you how to serve them better unless you give them a reason to care. You are faced with a difficult decision choice to make: Your Clients or Your Ego? What will you decide?

OK - I know that I am being hard on attorneys that fall into these categories. The fact is that the 2 issues above (skeptical SOB perspective on life, and psychologically defensive "ego and pride protection plan" behaviors) are both serious and pervasive. They are also hard behaviors to change. For those who are just plain skeptics, it is like they have been infected with the "prove it" virus and there is no cure. We all know people like that . . . they are annoying as hell. Then there are those who would rather protect their pride and ego than know if they really suck! Why? Because it is human nature too. . . plus. . . lawyers have among the highest egos of all . . . to fall from that height you are bound to break something! Most people are not self aware enough to open the safe to their own mind to understand it, let alone alter its contents.

For those of you for which there is hope, a Satisfaction Guarantee is sound from both a theory and a practice perspective. If you are truly curious about how it works and are considering it for your firm, I welcome you to contact me and I can show you how to do it! Satisfaction Guaranteed!

Are Corporate Firms Dizzy From Chasing Their Tails?

There is nothing more funny than watching a dog chase its tail. They go round and round as if they are thinking "I'm gonna get it . . . I'm gonna get that tail of mine!" all the while the rest of world is nearly rolling on the ground with laughter, smart enough to know what a futile effort looks like when we see one. The big corporate law firms are like dogs chasing their tales, so caught up in their own game of "I'm gonna get it" that they don't know how silly they look to the rest of us: How are they chasing their tales? Ahh, join me for a game. . . but remember to take your Dramamine!

Tens of thousands of lawyers work at the nation's largest firms. Law firms, in an effort to get the "smartest" candidates (or those who prefer white-collar slavery to a life), are all sucking from the same gene pool for candidates . . . dangling the financial carrot in front of them. Since the candidates all come from the same gene pool (tippy top of the class and top schools), it is no wonder that firms have a difficult time differentiating . . . this is a people business, and they all have the same "types" of people (thus, little diversity). Consequently, they have similar cultures. Therefore, they have very little to entice these candidates to their firms other than competing on price (higher and higher salaries). So, in true bidding fashion the biggest firms end up with the winners curse . . . sure, they got the candidates, but now they have to work them longer and harder for the money they are paying. If these associates actually used their critical thinking skills and took a second to think about where the heck the money comes from, they would realize that the offer letter really says "Welcome to Discovery Hell." So, the work hard, get burned out and quit. So let's try chasing our tails like a big firm: Try this

1) Be the highest bidder and get the "smartest" slaves
2) Make them work longer and harder for their money
3) Watch them burn out and quit faster than associates at your competition
4) Go see a Financial Consultant who will tell you that it costs you $250,000 each time an associate walks out the door
5) Don't learn a lesson from this. . .
6) Go back in the market and be the highest bidder again for laterals to fill the spot of those who just quit.
7) Make them work like dogs with no indication of how, if, or when they will ever make partner
8) See Spot Quit
9) Blame them for quitting, citing that they lack work ethic (if only they had a mirror handy)
10) Do the same thing over and over again because apparently the firms are so busy salivating whilst panting "I'm gonna get that tail of mine" that they cannot see how they really look to the rest of us!

Dizzy yet?

Here's a basic lesson for firms: Having a "highest bidder" recruiting policy will start you spinning like a dog chasing its tail. You will attract candidates who are primarily motivated by money. The very same people will leave your firm as soon as they can get more money elsewhere, and the ones who stick around will be terribly competitive against one another for the fewer and fewer spots available as they move up the pyramid scheme, creating a nasty working environment for those who don't live to work. Don't chase your tail! While it is terribly entertaining for the rest of us to watch, it is no way to run a business. It's just inhumane.

At Exemplar, we love what we do and we don't live to work. We recognize that the "smartest" candidates choose a firm for how rewarding their careers can be at the firm. . . for how much responsibility they can have. . . for the respect and trust they have amongst their colleagues. . . and for the reward of watching the clients they serve thrive with their support. We appreciate (and so do our clients) the diversity that comes from looking outside of the limited "gene pool" that big firms pull from. There are more than one million lawyers serving clients in this country . . . most are not at the big firms. . . 90% of the time you do not need a brain surgeon . . . so if you are using YOUR brain you will realize that you don't to pay 10x the price for a brain surgeon when you don't need one. But if you do it anyways tell the surgeon to take your brain out and give it to someone who will use it! :-)

Kids With Candy Bags and Financial Transparency

Children can teach us so much about human nature. . . . and a lot about how not to do business (yet so many never learn from childish mistakes). I was told a story about a teacher who sat a bunch of young children in a circle in the classroom. She asked the kids if they wanted a "surprise." Naturally, they all got excited exclaiming "yeah!!! we want a surprise. We love surprises." The teacher said to the children that she would give them each a surpise only on one condition . . . they must promise never to show anyone else what they got. "We Promise!" they exclaimed as their imaginiations ran wild with wonder. The teacher then handed out paper bags with candy inside to each student. Each on of them peered into the bags from above, and with mouths watering, they cheered with excitement. Ooohs and Aaahs filled the room. Minutes later, she then asked each of the children to pour out the contents of their bags onto the floor in front of them. As each one did so, it became clear that one child had 5 candies, another 7, and yet another 25. What do you think happened? Well, Naturally, what was a positive experience was turned to fightining, resentment, and jealousy. Some kids were arguing that it was not fair that some children got more than others, and they all started to fight. You and I both know that this is an important lesson in human nature . . . one that is no different when you are an adult. For those who are really keen, this is also an important lesson in how NOT to run a business:

So, What do kids with candy bags have to do with financial transparency? Well, it certainly answers the question of how much transparency in a partnership is too much. Lawyers in partnerships are like kids with candy bags. They sit around a table every once in awhile and pour out their spreadsheets filled with data on theirs and everyone elses billable hours and business originations, then they fight like all hell trying to justify who should get more, who should get less and why. They never learned a very simple lesson from childhood. Consequently, partners in law firms tend to endure the most challenging, negative, and nasty work environments of any profession. I was told by one partner for a big firm in crisis (it eventually dissolved) that "the compensation committee, which was (no surprise) comprised of the highest producers in the office, went into the board room, closed the door, and then accommodated themselves out of existence. The level of greed and nastiness was beyond belief." What is the lesson here? The lesson here is that you cannot beat human nature. If you want a culture of collaboration and teamwork, you simply cannot have 100% financial transparency with the partners in the firm. Everyone has a self-interest in the numbers, but not everyone is competent (99% of partners are not competent) to decide how to divide profits fairly. If you put a bunch of hungry children in a room with candy and asked them to divide it amongs themselves and 10 that are not present, what do you think will happen?

Now, let me draw a distinction. We are operating in a time where shareholders are pushing corporate America for greater financial transparency. How does that jive with what I am saying? Here is the distinction: Financial transparency in corporate America is about protecting the integrity of decision making through disclosure. In Partnerships, the opposite can often be true since the shareholders are employees of the firm (therefore subject to self-dealing). Here, protecting the integrity of decisions is accomplished by safeguarding against too much Financial Transparency (partners usually demand 100%). If law firm compensation committees set compensation criteria and policy in advance and made those policies clearly known to the people, then it would be unnecessary to distribute individual numbers to the committee for comparison because no subjective review and decisions need to be made on hard data. In other words, the application of sound policy can replace the comparative analysis with regard to hard data, leaving the subjective anaysis to the most important factors (additive rather than comparative) that are more difficult to calculate. This way the old white men in the boardroom spend less time whipping it out and comparing size and more time actually thinking about the qualitiative ways in which their fellow partners contributed to the firm. Waht a wonderful change that would be, right? Ignorance can, indeed, be bliss. After all, Great performance is not great beacuse everyone else sucks. Great performance is, well, simply Great! So, learn a lesson from childhood and stop spending your life making everyone else the benchmark of what you "deserve" in life. It is no way to live. . . and certainly NO WAY TO RUN A BUSINESS!

Apathy Abounds, Until The Walls Come Tumbling Down

I was inspired to write this blog after an interesting discussion with Jim Belshaw and other attorneys regarding the lack of succession planning at medium and large firms. We have all seen the walls come tumbling down at many large firms when certain partners (in the undiversified portfolio) leave, retire, or die. In this blog I offer a unique perspective on why this is happening and why good succession planning is not likely to occur in the near future at the large firms: APATHY!

If you think about it, being a partner in (and therefore owning a piece of) a law firm is like owning 100 shares on Intel Corp. stock. You own just enough to want it to go up in value, not enough to make a contribution to its success, and if the management is doing a poor job you are more likely to just sell your shares and buy something else then fly across the country to its annual meeting hoping to have a loud enough voice to make a difference. It is a crisis of apathy. You see, partnerships lack the checks and balances that exist in a regular corporation to ensure the long-term health of the organization. . . there is no oversight body (such as a board of directors) making sure that the partners are not acting in self-interest (taking out all of the profit for themselves leaving little or no working capital and putting the longevity of the organization at risk). What's worse, partnerships, by definition, incent the partners to take everything out and put it in their pockets, leaving little or nothing to continue running the business. It is no wonder that succession planning does is nearly non-existent at the big firms. Here is why our profession does not invest in the next generation and why it is unlikely that they will anytime soon:

1) Lacking Majority Owners: Unlike a corporation, there is no "majority shareholder(s)" who has a vested interest in maintaining the long-term health of the organization (through capital appreciation of the shares). Imagine if Intel Corp (how many billions of shares do they have?) were run by a million shareholders each owning only 100 shares? Not one person has a loud enough voice to make a difference. What's worse, NOBODY owns enough to be held accountable for poor management or poor results!!!!!!

2) No Outside Shareholders: In a normal company, there are manager shareholders and there are shareholders and stakeholders on the outside of the company. The outside shareholders work through the board of directors to hold management accountable for maximizing the return on investment to the shareholders of the company. In a law firm, all of the shareholders are partners (employees), so there is nobody outside of the firm keeping partners from acting in complete and utter self-interest with regard to the distribution of profits.

3) Buyback Rights Incent Short-Term View: Since law firms compel the buyback of shares when a partner leaves the firm, (thus, all shareholders work at the firm) there is simply no incentive to invest in the future of an organization that you are "prevented" from investing in long-term. Since you are not able to leave the firm (by quitting or being asked to leave) and maintain an interest in the firm, to invest your money into the firm is a "gamble." Under these circumstances, why wouldn't partners take all of their money out now rather than give the money away to the partners who will be there in the future?


4) The Corruption Trifecta: Owning 100 shares of Intel does not guarantee you a cash flow stream unless they declare a dividend. Even so, the cash flow stream is not locked to ownership percentage. What's more, owning 50,000 shares cannot buy you a position on the management team. Why do you care? Well, if you are an owner of a regular company you are happy that the board of directors is looking out for your interest and selecting the right people with the right skills regardless of who owns how many shares. In fact, they find the "right" people for the job first and then align their interest with the company by giving them shares rather than what law firms do (putting the richest partners in power by virtue of their ownership and regardless of their ability to manage a business . . . . most lawyers don't know how to manage people, let alone a whole business). The "Bundling' of rights of ownership, cash flow, and power is a Corruption Trifecta!! If you look at the incentives created here (with no accountability to anyone and no oversight) then it is blatantly clear who self-interest prevails at the partnership level of most large firms.

5) Tax Treatment Discourages Reinvestment: Don't just blame the partners. . . blame uncle Sam! Partnerships discourage long-term investment and longevity by design. Partnerships are technically designed to dissolve when a partner leaves - the incentives are BACKWARDS from a normal company with regard to business longevity. We may have to do some math here, so be patient.

Let's compare the corporation to the Partnership.

Corporation: Here, profits are taxed at the corporate level FIRST. Then, management decides how much money it wants to reinvest in growth of the enterprise and how much it wants to pay in a dividend (profit sharing). Whatever is paid out gets taxed at the individual shareholder level. Here is the psychology behind this if you can follow: FIRST, the profit belongs to the COMPANY. LASTLY, a decision is made on how much to give to shareholders. (** Note that there is no individual tax liability for owners who do not receive a dividend)

Partnership: In a partnership the opposite is true. Profits of a partnership are treated by the IRS AS IF they are paid out to all partners in proportion to their ownership share of the partnership and taxed at their individual tax rate. So, each partner has tax liability on every dollar of profit whether or not it is reinvested (each at different individual tax rates). Here, the psychology is the opposite: FIRST, it is the Partners' money, LASTLY, the partners would have to choose to part with their post-tax earnings to reinvest in their firm. Will that happen? With professional satisfaction at all time lows, partners selling their books from firm to firm, and a trust-free environment, I think not.

6) LOW RETURNS: Seriously, I can get a better return in my savings account. With a billing model that discourages innovation and efficiency, the legal industry is one of the most stayed and stagnant industries in the global economy. Law firms don't invest in themselves, why should anyone invest in them? Most people want to put their money somewhere they can watch it grow. . . . if you invest in your firm, you are more likely to die watching than you are to see it grow. This is a sad reality that I hope we can change.

Fortunately, we are beginning to see innovative models popping up (like Exemplar) in the marketplace that are adopting more corporate-like structures that put the incentives in the right place. Over time, we hope to create an ideal environment for our people, investors, customers, and our stakeholders!

The Innovators Dilemma in a Billable Hour World

The last several conferences I have been to have been revealing with regard to the challenges that innovators face when trying to sell new products to the legal industry. The vendors all expressed how difficult it is to sell to law firms since decision making is so decentralized and because the logic for investing in new technology that works so well in "normal" businesses does not work in the legal industry. In fact, the logic is BACKWARDS. What do I mean, you ask? Well, if the legal industry is so different in that regard, you might find the root of the problem by asking what makes the legal industry so different from a normal business. Yes, since this is my blog, you can probably guess it is that the legal industry bills by the hour. Normal businesses actually tell you how much their product costs BEFORE you buy it! How does this impact investments in technology and why do you care? Here is the link. . .

In Normal businesses, you and your competitors give the customer a fixed-price. Since there is competition in the marketplace, you use every edge you can to gain cost efficiency so that you can offer your customer a better price than your competition and/or improve your profit margins or market share. Since your price is fixed, your profitability depends on your efficiency and investments in technology that improve your efficiency have a positive return on investment. This puts maximum pressure on companies to innovate and embrace new technologies.

Law Firms, on the other hand, bill you by the hour. The economics of this business model are exactly the opposite of a normal business. In the billable hour world, you make more money when you are inefficient. Since law firms are billing for time (and therefore cannot amortize the cost of R&D over the course of several projects -- eg. like a good template, for example) there is an incentive to reinvent the wheel for each client rather than build on solid foundations that we already know exist. Investments in technology that improve efficiency actually REDUCES revenue in a billable hour firm. The faster we are able to do things, the less money we make (that's really backwards, isn't it?). Technology has a negative return on investment in most firms. So, such investments are only made at the lowest-common-denominator level or when the customers demand it. Have trouble believing it? Well, there is easy math here. Billable hour requirements at the largest firms are at historic highs. With recent charges of billing fraud and padding at large firms, high attrition rates, and sweat-shop work environments, you can count on the fact that the pressures to bill more hours are enormous. With that fact, you can also count on the fact that the associates are not looking for "innovative ways" to make it harder to bill hours (to be more efficient) and partners who are getting rich by eating their young are also not looking for "innovative ways" to reduce their profits at the end of a quarter.

This leaves us with two types of technology providers to the legal industry: 1) Providers who have technologies that the practice of law more efficient, and 2) Providers who make non-legal activities more efficient. Here is what I have discovered about their fate.

1) Providers who have technologies that the practice of law more efficient: These providers fall into two categories:
A) Mass-market products (high consumption)
B) New Innovations

A) The category makes all of the difference in success. Mass-market products that are widely subscribed-to (Lexis and WestLaw are examples of these). They provide tools that actually make the lives of the attorneys who use them easier. The resources they provide actually do make lawyers more efficient and, arguably, reduce billable time. What makes them acceptable is that they are so widely consumed that it effects the competitive market equally (all boats rise with the tide) and these technologies actually serve as the "innovation floor" for the legal industry. In addition, the products are already being consumed . . . the partnership is not being asked to consider a "new" product that would change the way they operate. The firm evolves with the subscription.

B) The New Innovations have the most difficulty. The vendors I have spoken with cite tremendous frustration selling to firms, saying that they have been challenged by partners of firms who ask them "why would I buy your product? If I did I would make less money!". Sadly, it is true. The problem, however, is not the technology. It is a backwards billing model!

2) The true winners in the legal industry have been the products that reduce non-billable time. These new technologies are widely purchased because they are the only technologies that have a positive return on investment. With partners wanting to squeeze every minute out of each hour in order to bill their clients (as well as to get their associates to bill more), they happily purchase products that make non-billable time more efficient. These technologies can include document retrieval systems, or billing software (counting time for you), etc. Next thing you know, innovators might find a way to put a toilet in every lawyers office just to reduce the commute time (non-billable right?). Sadly, many big firm attorneys I know admit that they think about the client on the way to, and during, their bathroom break. It will show up somewhere on their timesheet. . . you can count on it. So, if the next time you get a bill from your law firm you notice that something stinks, You'll know that it's not just the service. . . . . it's, well, "pressure!"

This is just a glimpse of the innovators dilemma in the legal industry. In general, I find it quite backwards that the legal industry has adopted a billing model that promotes inefficiency and where investments in new technologies have a negative ROI. It is no wonder why the legal industry is one of the most stagnant industries in the nation. Hopefully, with the new trend toward fixed-pricing in the profession, we can be rewarded for innovation and provide customers with the service they deserve and a high quality product without reinventing the wheel!

Want More Clients? Get Over Yourself!

We have all seen the problem: Pride, Hubris, Ego, Conceit, Contentment, Smugness. Sometimes lawyers just can't get over themselves. It is as if they would rather be looking in the mirror to make sure every hair is in place than look at the client and ask "how can I serve you?" I am struck by the smug attitudes that some attorneys have with regard to client service, which explains why we are a service industry that is known for TERRIBLE service. Below I will describe a few attitudes that I recently encountered:

"If they are not my client yet, they should come to me. I am not going spend my time to visit them" -- To which I responded "Are you serious?" Am I missing something here? In my view, if you have a prospective customer that is worth having, a good attorney ought to bend over backwards to show them how much they care about the customer's business. You are asking someone to invest several thousands of dollars in you and your firm for something that is about as exciting as a trip to the dentist! The least you can do is invest a little to show that you care. In my view, this attorney's perspective represents a "taking" mentality, which is rather "old school" in my opinion. There are twice as many lawyers as a ratio of non-lawyers today as there were in the 1970's. We are competing for half of the business. If you want to be around in another 10 years, your going to have to learn to "give to get." You are not going to be desired as an attorney because you are smart. . . there are thousands of attorneys just as smart in the high rise right next door to yours. . . . . . . (smart lawyer is now nodding whilst looking out the window at competitive firms in ivory tower next door). . . People don't care how much you know until they know how much you care! In this day and age, smart lawyers are a commodity. . . . lawyers who really know how to serve their clients are a rare breed.

"All of our clients come to us. We don't need to 'market' our services" -- This is a funny one, because I hear this all of the time. Lawyers who utter these words smile with a sense of pride actually thinking that somehow their presence at the firm contributes to this phenomenon! They never bothered to use basic process of elimination or logical deduction (asking "if I were gone would that still be true") in order to figure out that the clients are not coming to the firm for them. This is where I introduce them to the word "branding" and walk them by their own marketing departments that they never knew existed. All dreams and ego being shattered, I refrain from telling them that it is the hard work of thousands of OTHER attorneys who created the referrals that give them their perceived "freedom." Is there a slavery analogy here? The only difference here is that most attorneys still think they did it all themselves! If they only knew what they looked like to the rest of us . . . the ones with their feet on the ground and some sense of reality. Someone should create a support group.

"I dictate my letters to my secretary" -- Really? You dictate your letters? Dictatorships never work! They are costly to your partnership. . . . thousands of dollars paying someone else because you can't get with the times and learn how to use a computer. Even worse, your clients are paying the bill . . . for you to talk into a machine, and then for your secretary's time to interpret your ramblings into complete sentences. I want the economy to be healthy too, but I can think of far better ways to create jobs! Can't you?

"I love the legal work, but I just hate talking to clients" -- I cannot tell you how many lawyers actually feel this way. They love the legal issues and absolutely dread client contact. Did anyone ever tell them when they entered law school that they were going into a SERVICE INDUSTRY?!@(*& NO TIPS FOR YOU! Proving that this is a recipe for disaster is an easy one. Let's say that you go to a fancy restaurant with great food and horrendous service. What will you think about your dining experience? Most customers I talk to have a bad taste in their mouth from the lack of service from their last attorney. At least half had indigestion. It's amazing how poor service can make the food taste bad. What's more amazing is how few attorneys understand just how critical the service element is with regard to client satisfaction.

Did you ever meet someone who was dangerously clueless? So oblivious that they are actually dangerous? Well, in my experience people with the highest egos who think they know everything are just too clueless to know how much they don't know. They are dangerously clueless. I would not go to a doctor if I knew his pride would blind him from a sound diagnosis. Would you? Well, next time you visit doctor ESQ, make sure that you are not being taken on a trip to prideville. YOU ARE THE CUSTOMER. You are in control. Demand excellence in service. Accept nothing less. Communicate your expectations and hold the professionals you work with accountable for serving you the way you deserve to be served. The price of professional ego is TOO HIGH. Don't be afraid to say "NO TIP FOR YOU!"

Dilution By Consensus of the Clueless - The Partnership Dilemma

I was inspired to write this post by an email I got from an attorney overseas who was discussing the challenge of getting agreement on innovative ideas in their partnership. The email sparked a memory of numerous conversations I have had with BigLaw partners who talk about how difficult it is to reach a good decision in a partnership meeting. Everybody wants to have a say in everything, and often the best ideas become so diluted by the end of the discussion that they have lost the very quality that made them good ideas. Most attorneys feel competent to argue their position on just about any topic (even if they have little or no information on the subject matter discussed), and this causes discourse and bad feelings among the partners in the partnership. This begs the question: How can you have a group of happier partners and higher quality decision at the same time? I would like to propose a win-win that we have implemented at Exemplar.

At Exemplar, we recognize that there exists a difference between having an interest in a decision and being self-interested. Every partner in a firm has a self-interest in a decision so long as the decision can be said to affect the partnership in some way. We can rationalize that since all decisions impact us, we should be involved in every decision. You see this all the time, right? Well, if that were allowed to occur in corporate America then the US economy would come to a halt. Law firms should learn a lesson from the most successful corporations that you need to hire great people into positions that match their expertise, and then TRUST them to make competent decisions. Yes, that means you may not have a say in what copy machine gets bought next month, or whether your firm uses a cash or accrual method of accounting. Is that really why you became a lawyer anyways? Below I suggest a better way:

OLD MODEL: Decisions are all made by committee and by consensus. Because lawyers are risk-adverse by nature and a great at scaring the heck out of each other with their nuclear "what if" scenarios (on any idea proposed), law firms get the lowest common denominator of innovation and creativity. By the time consensus is achieved, what you get is a product that still looks and tastes like vanilla (just by a different name). This explains, in part, our industry's failure to innovate at the speed of business. Now, here is the worse part! When the decision goes wrong, who do you blame? Nobody and everyone! Everyone blames each other and nobody takes accountability because they claim they just voted based on their opinion and it is not their fault that most people agreed. It is like a ghost in running the ship. You can't change the direction of the ship if you can't talk to the captain (the captain being the popular vote of whatever contingency showed up for the meeting).

NEW MODEL: At Exemplar, we still have committees and attorneys who are interested in a functional area of the business are encouraged to attend the meetings where decisions are made on those topics. Each committee has a chairperson (the one with the most expertise or substantive knowledge in the area relevant to the committee). In exchange for having input in the decisions, everyone splits up the responsibility of doing "homework" on issues so that everyone is invested in the decision and not just there to pontificate. Everyone has a chance to weigh in, but the ultimate decision is made by a committee chair based in part on the combined input and also on the TRUSTED expertise of the committee chair. After all, why have someone THAT GOOD in your organization and not TRUST them to make quality decisions. Now, you do not face the issue of having decisions get diluted by popular vote of strong personalities. If things go wrong, you have someone who has agreed to take accountability for making good decisions in the organization. What's more, trusting your colleagues sets you free! You do not have to worry about every decision if you trust in the people you work with.

I am always amazed how the largest firms in the nation manage to hire the smartest minds in the industry and yet many attorneys still do not trust each others' competence. This blog, on its face, appears to be about adopting a more corporate-like decision making model for a law firm. What I am hoping that you will see is that a condition precedent to adopting a more efficient and higher quality decision making model is TRUST. Without trust in an organization it will be impossible to make the change I have recommended above. Am I right? If you have an opinion on this topic I would love to hear from you. (I will post the results)

Making Policy: Linking Core Values to Compensation Part-1: Communication

Compensation experts say time and time again that "what you measure and compensate is what you get for behavior" and yet it is amazing how many companies fail to motivate the behaviors they want through their compensation system and then complain that people are not acting the way that they should. Many companies have "core values" that are no more than mere words on a page somewhere deep in an employee manual that never gets read. Even that is far beyond what most law firms have, since I have neither seen or heard of a law firm that touts of having a set of common values (other than vague references to integrity, quality, etc). The true test, of course, is to ask an employee to recite them. Our goal at Exemplar is to find a way to integrate these values into the evaluation and compensation system so that the values really do become common values. What seems to be the age old challenge is that the most important things are perhaps the hardest to measure.

This particular blog is about Communication, which is one of the 8 core values at Exemplar. Why did I start with this one? Because it is less common to have communication as a core value and I also believe it is among the hardest value of them all to measure (and very important). Why? Well, let's start with the fact that most people don't even know what the heck it really means. How do I know this? Well, we put in our job ads that we are seeking people with excellent communication skills. Hundreds upon hundreds of resumes come pouring in with candidates who claim that have such skills. After interviewing them it is clear that most people think "excellent communication" means that they know how to talk and complete a sentence. In fact, I don't think I have ever met a person who thought they did not have great communication skills, yet I also don't think I have ever met a person that did not know a long list of people who have terrible communication skills. This tells me that we all seem to be suffering from a crisis of self-awareness. One thing is for sure: Miscommunication is costly to an organization and often unnecessary, and no organization has ever failed because it over-communicated. Therefore, it seems to be a worthy mission to explore how communication can be measured and rewarded in an organization. Here is where your input comes in. I would love to hear your thoughts on the following questions:

1) Since most people are not self-aware of how well (or poorly) they communicate, the feedback needs to come from the people with whom you work. If the system is to be effective, the feedback itself needs to be constructive. If you were designing this system, how would you collect and deliver the feedback? Should you "rate" a person on a scale based on several adjectives that describe good communicators? Should it be open form to allow for examples and explanation?

2) Firm Yet Flexible: A system for promoting good communication needs to be firm enough to offer guidance on what excellence in communication means within the organization, but also needs to be flexible enough to accommodate various communication styles and cultural norms in communication. Since the people giving the feedback will not be communication experts trained to make evaluations against set standards (some of them will themselves receive poor feedback in their communication review), should everyone be involved in this process?

3) You all know and have worked with someone who was a terrible communicator. How much easier would your life be if that person communicated better? How important do you think good communication is in an organization? If you could find a way to evaluate and promote good communication through an evaluation system, would you do it?

I appreciate your comments and look forward to the discussion. Feel free to post them below or email your thoughts to me and I will either post them with a response or keep them private if you wish: cmarston@exemplarlaw.com

Reengineering A Broken Industry: Contribute to the Best Practices of a Firm Dedicated to Excellence

I always tell people that what we are doing at Exemplar is reengineering the practice of law into the business of law by examining why we do what we do and asking oursleves how we can make it better. Since we have opened, I have been overwhelmed with the supportive responses from attorneys and businesspeople all over the world who have written me personally with their words of support. Because I am dedicated to creating the standard in our industry and best practices that will shape the future of the business of law I am everyday thinking of how, as we shape our policy, we can ensure that we are making deliberate improvements on what has already been done or otherwise create it in the vision of what we think is best. This requires us to take on challenging questions like how to reward the most important qualities in one's performance (often these are the hardest things to measure). Because the readers of this blog seem to be as interested in positive change in our industry as I am, I would like to open the lines of communication between us and start a "conversation." For those of you who are interested in exploring those challenging questions and brainstorming with me on innovative solutions to challenging questions I will create additional blog posts that begin with the words "Creating Policy:" and I welcome you to think with me on how we can be the best we can be here at Exemplar. I will respond to thoughtful posts with good ideas and we can work on a solution together. Since I know that so many of you support Exemplar, I welcome you to be a part of shaping the future of the profession through your intelligent feedback, innovative ideas, and engaging discussions! I will look forward to your comments on my next post.

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

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

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

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

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

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

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

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

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

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

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

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

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

Client Hoarding -- A Profession Ruined By Greed

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

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

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

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

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

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

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