I just wanted to be clear that I am not saying big firms cannot implement VP because they are big, I am saying that an attempt to do so would likely cause them to dissolve.
At a macro level, please follow my logic and allow me to lay the foundation for my argument, first with questions, then with analysis:
Who get’s positional authority in a law firm? Usually the biggest rainmakers and billers in the office.
Who get’s promoted to Partner from Associate? Those who bill the most hours (a beauty contest of inefficiency) or come with a book of business
Therefore, who controls the organization? Partners (who got there by billing more TIME)
How do big firms attract top talent? Bidding wars, with winners curse.
What motivation in people does a bidding war attract? Those who are motivated by the money
How do firms attract lateral partners? By selling Partner positions for large books of business (Again, a highest-bidder problem . . .attracting money motivated attorneys)
How does a Billable Hour firm use work-flow to maximize revenue? Hoard work at the highest levels (systemic underdelegation) . . . have everyone in the organization bill for work that is well below their competence level because their rates are higher.
Implication of that practice? No delegation, Little challenge in work, therefore, little need to mentor, therefore, little workforce development and skill development in people AND no project management skills (or people management skills in attorneys on the team)
What are the IT systems designed to do? Minimize non-billable time, capture all billable-time well (NOTE: NOT minimize billable time, which would be to maximize efficiency)
Most Partners are? Old-white men, Close to retirement, risk adverse, financially comfortable and not in need of taking risks with capital to achieve greater returns. Particularly those in control of the firm hold the largest books and may be very close to retirement.
Note: Partners cannot maintain an equity interest in the firm after they leave, so there is no such thing as an “investment in the future of the firm” that extends beyond the term of their employment with the firm.
I could go on and on. Here is my point:
To be profitable in Value Pricing, you need to:
Have IT infrastructure that operates 180 degree opposite from the current infrastructure.
Implications? Significant up-front capital investment required before proof of concept. Since our industry is almost operating entirely under this model, great tools do not yet exist to MINIMIZE time investment for VALUE ADDED activities
Have a workforce that is willing to make less money while they work out the quirks in the system.
Do you really think they can do that? Consider this: If all of their talent chose the firm because of money, those will certainly NOT be the ones to approve a change to Value Pricing. None of us could argue that a change to this model from a billable hour model would be without an initial impact on profits and a significantly increased variability in cash flows (higher cash low risk- lower INITIAL returns)
Furthermore: the people who really are in a position to make that decision will not be around long enough to reap the rewards of the change in pricing model because they will be retiring within 5yrs. It would take a significant feat for the change in model to have a positive Net Present Value to Partners with such a short time-frame. PLEASE keep in mind that one rainmaker is supporting an entire department of these firms, and they occupy several floors of a high-rise for sure. . . . the departure of any one Partner can create an instability in a firm that is enough to destroy it. The Partners with the big books who are there because of the high-pay to begin with would likely move to a competitive firm that Is paying more (again, the same game that get’s em there, loses them in the end) while his old firm is “testing” the model and making less money for everyone. It won’t take to many of these to mark the end of a big firm as we know them today.
Have ATTORNEYS with Project Management Expertise:
Because delegation and use of lowest-cost-competent resources are critical, it will be essential that the leading attorneys have project management skills. This breed of attorneys simply does not exist today. I will bet you that most attorneys don’t even know that the hell project management really means in this context, let alone have an ability to manage costs in an organization.
Have attorneys who TRUST others:
Why do you think this is a core value at Exemplar? Most attorneys do things themselves because they really believe that nobody can do it better, or they want it done THEIR way! Problem? If you do not trust others to do the work competently, you certainly cannot project manage. This, unfortunately, is a character issue. You cannot change this in your people. They either have it or they don’t. Unfortunately, I believe that success in a Value Pricing model depends on this quality!
Have Pricing Competencies:
Decision-makers at BigLaw have been practicing under the billable hour model for decades and simply lack the ability to see what they do in the context of it’s value to the client. They are not wired to think this way and I have found it to be extremely difficult to try to change this mentality once it has solidified in an attorney. At best, attorney-pricers will go back to a cost-based pricing method and estimate time to arrive at a price because it is within their comfort zone to do so!!!! THIS IS A RECIPE fOR DISASTER – Why? Because fixing a price has shifted the risk to the service provider (higher beta), without increasing the potential return (because it is still based on time). The result is a guaranteed lower profit every time. As for pricing committees? Can you imagine getting a bunch of partners who are trained to only value time they can bill for to get together and talk about value in a meeting that is not billable?
Have Communication Skills
Sorry to say it, but success in the current model does not require one to be socially normal or have good communication skills. In Value Pricing, it is CRITICAL. If you add value without communicating the value you added, then you should not have quit your day job! Pricing profitably BEGINS with an ability not just to comprehend value, but to communicate value! Again, this is a core skills that people either have or they do not. Even so, they could not learn this skills quick enough to keep the firm from falling apart.
OK – There are about 50 more reasons, but I do have to sleep every once in awhile!
Wednesday, March 28, 2007
Tuesday, March 20, 2007
Interview with Chris Marston: Exemplar's Genesis
This week I thought I would post my response to an interview I did this week with a colleague in the legal industry:
In the forming of Exemplar Law how did you or other members of the group see things differently from other firms?
It started with me. I took a look at the business model under which corporate law firms operated and it was inconsistent with my common sense or “gut” about what good business means. For instance, I saw nearly EVERYTHING differently from most law firms because they all operate under the billable hour model, which affects management, power, structure, work-life balance, diversity, culture, and nearly everything else in a way that is inconsistent with by convictions, my education, and my experience about what it means to do business in this economy.
How did you re-frame your understanding of the market in a way that you saw your firm as viable and beneficial to clients?
You know the saying “treat people the way you want to be treated”? I believe the customers of law firms do that . . . they give us a fixed-price for their services and they don’t nickel and dime me by billing me for food, photo copies, and phone calls. I deal with CEOs all the time and have done so long before becoming a lawyer and nobody does business this way. I didn’t need to reframe my understanding of the market because my understanding of the market (non-legal) is the way I think it should be. If you google the words “Billable Hour” you will find that nearly everyone hates it!
Was it challenging to see things differently, or communicate or sell the idea to others that didn't see things the same way?
For me, it was intuitive to see things that way. Regarding whether it was difficult to communicate to people who did not agree I have this to say: I learned at a very young age about optimism and its power. My mother was a pessimist. Before I knew any better I thought she was doubting me and that really made me angry. In my rebellion years I channeled that anger into a passion to succeed and, even, to prove that I could do anything. It was after several straight successes in my endeavors that I saw the power I had within me to affect positive change with raw conviction to succeed and pure optimism. When I got older I learned what is really going on with pessimists and never took offense again to the doubt they project. You see, pessimists are not doubting that others can do something . . . that is just how their world view manifests itself . . they are projecting their own self-doubt onto others. Therefore, the view of a pessimist says more about them than it does about me. I have known this since I was a young adult, and ever since then I knew what I was looking at then I met a pessimist . . . someone who will never reach their potential.
Did you have a manifesto, philosophy, values statement or guiding vision? Was it in writing?
Absolutely: There are several philosophies and a set of eight core values that guide or vision. Myself and each new member of the team are guardians of these values and philosophies. They are our foundation and our constitution and cannot be compromised at any cost. They are in writing at the moment.
2. Appreciating the Positive
Lawyers tend to see the obstacles to a new idea, or the flaws in an argument or proposal, rather than focusing on what is working well, or appreciating the positive. What were/are some of the positives that you focus(ed) on that led you to launch and pursue an entrepreneurial model? Was it challenging to focus on the positive when lawyers are trained to find the vulnerabilities?
Law is actually 1 of 2 professions of 104 professions where pessimists perform the best! I am an optimist by nature. I know my strength is as a visionary and not someone who would be mired in the details of deal. I have interviewed more than 300 attorneys in person and over 500 by phone in 2 years. You ask if it was a challenge to focus on the positive when most of them are trained to focus on the negative. To me the answer is absolutely not. Why? Because I knew what I was looking at when I saw it. Lawyers to focused on weaknesses or barriers to success were doing me a favor a self-identifying as people that would never be a part of our team! Not only that, I am sending them back into the market to go work for the competition and create barriers to success over there! I knew with a marketplace full of pessimists at the country’s largest firms that a truly visionary and positive firm could rise to heights never seen (we have years, if not decades to go mind you). I take great wonder and amazement in the fact that many law firm partners think a fixed-price model will not work because they are too ignorant to understand that hourly billing only started in the late 1950’s and was an accident. Most of them had no idea that corporate law was fixed priced for hundreds of years!
Clearly, you started your firm because you saw an unfilled opportunity in the market. What was that opportunity, and why do you think you saw it and others have not?
I will answer the last question first. I was not the first to see the opportunity. Visionaries in the professions such as Ron Baker, author of “The Firm of the Future” saw the market opportunity long before I was thinking about it. In fact, the problems with the billable hour have been increasingly at the forefront of discussion in the legal profession over the last decade or so. The difference is that this world is in not in a shortage of revolutionary ideas. It is in a shortage of revolutionary leadership. Now, I saw that the opportunity was enormous because there are so many systemic problems that can be solved simply by changing the business model. . . one change, . . . and it impacts so many problems . . so many people . . . so many lives:
- Competitive, Individualistic work environments.
- Attrition rates at all time highs
- Work-life balance at all-time lows
- No Mentoring/Lacking Mentoring
- Bill Padding (Unethical practices quietly promoted by partners)
- Continued lacking in diversity and women in leadership
- Client Hoarding problems
- Power Struggles at partnership level
- Self-accommodation in the compensation committees
- Class System: Terrible treatment of Associates
- Inhumane Business Operation: New hires are used as leverage with NO visible up ladder, goal-setting, or leadership development
- It is clear that today’s Partners will DIE with their book of business. . . . they are sending
this signal loud and clear to Associates because they are not developing new leaders . . . they are simply allowing those who provide the most leverage to stay while the real leaders walk out the door. The future of such a business is bleak at best.
I can go on and on.
Some attorneys can re-frame a situation, appreciate the positive, and even recognize a market opportunity, but haven't a clue what to do about it. As you were planning your venture (and implementing it), did you clearly see the steps to take to launch the practice? Did you have a plan with specific, workable, time-specific steps? If not, how did you go about starting your entrepreneurial venture? Did you have a business plan? Did it work out the way you envisioned it?
Yes – I did 6 months of full-time research and wrote a business plan before I did anything. I was how all of the parts interrelated . . . which parts were critical, and had to understand all of the conditions precedent. I knew that I was embarking on a life-long adventure and it was even larger than I had imagined. As for your last question, it certainly did not go exactly as planned. It never does. But what entrepreneurship means is that you have to balance a solid plan with the ability to roll with the punches. Our weakness as people are that we tend to think people are like we are. I went into this marketplace with complete conviction and belief in what we are doing. . . . as a leader. I thought there were more people out there who would burn the ships for a vision of a better way. . . . . at first I was disappointed . . then I came to realize that the same cause of my disappointment was the reason for my being the first to undertake the challenge . . . this industry needs leadership, and when I saw what was out there it just reinforced why it had to be me. We are everyday seeking leaders at different levels to explore their talents, the market, and a vision within Exemplar’s vision and intend to remain an entrepreneurial organization for the life of our firm. Then again, the dearth of leadership in our industry only magnifies the market opportunities for those who have the guts to create the future. There is a saying “The people who get on in this life . . . if they do not find the circumstances they are looking for, they create it” That is the essence of Exemplar. We are creating the Firm of the Future. The way we envision it to be. It has been the most rewarding experience of my life. Never a dull moment!
More questions? Bring it on! :-)
In the forming of Exemplar Law how did you or other members of the group see things differently from other firms?
It started with me. I took a look at the business model under which corporate law firms operated and it was inconsistent with my common sense or “gut” about what good business means. For instance, I saw nearly EVERYTHING differently from most law firms because they all operate under the billable hour model, which affects management, power, structure, work-life balance, diversity, culture, and nearly everything else in a way that is inconsistent with by convictions, my education, and my experience about what it means to do business in this economy.
How did you re-frame your understanding of the market in a way that you saw your firm as viable and beneficial to clients?
You know the saying “treat people the way you want to be treated”? I believe the customers of law firms do that . . . they give us a fixed-price for their services and they don’t nickel and dime me by billing me for food, photo copies, and phone calls. I deal with CEOs all the time and have done so long before becoming a lawyer and nobody does business this way. I didn’t need to reframe my understanding of the market because my understanding of the market (non-legal) is the way I think it should be. If you google the words “Billable Hour” you will find that nearly everyone hates it!
Was it challenging to see things differently, or communicate or sell the idea to others that didn't see things the same way?
For me, it was intuitive to see things that way. Regarding whether it was difficult to communicate to people who did not agree I have this to say: I learned at a very young age about optimism and its power. My mother was a pessimist. Before I knew any better I thought she was doubting me and that really made me angry. In my rebellion years I channeled that anger into a passion to succeed and, even, to prove that I could do anything. It was after several straight successes in my endeavors that I saw the power I had within me to affect positive change with raw conviction to succeed and pure optimism. When I got older I learned what is really going on with pessimists and never took offense again to the doubt they project. You see, pessimists are not doubting that others can do something . . . that is just how their world view manifests itself . . they are projecting their own self-doubt onto others. Therefore, the view of a pessimist says more about them than it does about me. I have known this since I was a young adult, and ever since then I knew what I was looking at then I met a pessimist . . . someone who will never reach their potential.
Did you have a manifesto, philosophy, values statement or guiding vision? Was it in writing?
Absolutely: There are several philosophies and a set of eight core values that guide or vision. Myself and each new member of the team are guardians of these values and philosophies. They are our foundation and our constitution and cannot be compromised at any cost. They are in writing at the moment.
2. Appreciating the Positive
Lawyers tend to see the obstacles to a new idea, or the flaws in an argument or proposal, rather than focusing on what is working well, or appreciating the positive. What were/are some of the positives that you focus(ed) on that led you to launch and pursue an entrepreneurial model? Was it challenging to focus on the positive when lawyers are trained to find the vulnerabilities?
Law is actually 1 of 2 professions of 104 professions where pessimists perform the best! I am an optimist by nature. I know my strength is as a visionary and not someone who would be mired in the details of deal. I have interviewed more than 300 attorneys in person and over 500 by phone in 2 years. You ask if it was a challenge to focus on the positive when most of them are trained to focus on the negative. To me the answer is absolutely not. Why? Because I knew what I was looking at when I saw it. Lawyers to focused on weaknesses or barriers to success were doing me a favor a self-identifying as people that would never be a part of our team! Not only that, I am sending them back into the market to go work for the competition and create barriers to success over there! I knew with a marketplace full of pessimists at the country’s largest firms that a truly visionary and positive firm could rise to heights never seen (we have years, if not decades to go mind you). I take great wonder and amazement in the fact that many law firm partners think a fixed-price model will not work because they are too ignorant to understand that hourly billing only started in the late 1950’s and was an accident. Most of them had no idea that corporate law was fixed priced for hundreds of years!
Clearly, you started your firm because you saw an unfilled opportunity in the market. What was that opportunity, and why do you think you saw it and others have not?
I will answer the last question first. I was not the first to see the opportunity. Visionaries in the professions such as Ron Baker, author of “The Firm of the Future” saw the market opportunity long before I was thinking about it. In fact, the problems with the billable hour have been increasingly at the forefront of discussion in the legal profession over the last decade or so. The difference is that this world is in not in a shortage of revolutionary ideas. It is in a shortage of revolutionary leadership. Now, I saw that the opportunity was enormous because there are so many systemic problems that can be solved simply by changing the business model. . . one change, . . . and it impacts so many problems . . so many people . . . so many lives:
- Competitive, Individualistic work environments.
- Attrition rates at all time highs
- Work-life balance at all-time lows
- No Mentoring/Lacking Mentoring
- Bill Padding (Unethical practices quietly promoted by partners)
- Continued lacking in diversity and women in leadership
- Client Hoarding problems
- Power Struggles at partnership level
- Self-accommodation in the compensation committees
- Class System: Terrible treatment of Associates
- Inhumane Business Operation: New hires are used as leverage with NO visible up ladder, goal-setting, or leadership development
- It is clear that today’s Partners will DIE with their book of business. . . . they are sending
this signal loud and clear to Associates because they are not developing new leaders . . . they are simply allowing those who provide the most leverage to stay while the real leaders walk out the door. The future of such a business is bleak at best.
I can go on and on.
Some attorneys can re-frame a situation, appreciate the positive, and even recognize a market opportunity, but haven't a clue what to do about it. As you were planning your venture (and implementing it), did you clearly see the steps to take to launch the practice? Did you have a plan with specific, workable, time-specific steps? If not, how did you go about starting your entrepreneurial venture? Did you have a business plan? Did it work out the way you envisioned it?
Yes – I did 6 months of full-time research and wrote a business plan before I did anything. I was how all of the parts interrelated . . . which parts were critical, and had to understand all of the conditions precedent. I knew that I was embarking on a life-long adventure and it was even larger than I had imagined. As for your last question, it certainly did not go exactly as planned. It never does. But what entrepreneurship means is that you have to balance a solid plan with the ability to roll with the punches. Our weakness as people are that we tend to think people are like we are. I went into this marketplace with complete conviction and belief in what we are doing. . . . as a leader. I thought there were more people out there who would burn the ships for a vision of a better way. . . . . at first I was disappointed . . then I came to realize that the same cause of my disappointment was the reason for my being the first to undertake the challenge . . . this industry needs leadership, and when I saw what was out there it just reinforced why it had to be me. We are everyday seeking leaders at different levels to explore their talents, the market, and a vision within Exemplar’s vision and intend to remain an entrepreneurial organization for the life of our firm. Then again, the dearth of leadership in our industry only magnifies the market opportunities for those who have the guts to create the future. There is a saying “The people who get on in this life . . . if they do not find the circumstances they are looking for, they create it” That is the essence of Exemplar. We are creating the Firm of the Future. The way we envision it to be. It has been the most rewarding experience of my life. Never a dull moment!
More questions? Bring it on! :-)
Tuesday, March 13, 2007
Sometimes You Just Want To Fly Coach!!!!
What lawyers don't seem to understand is that sometimes clients just want to fly coach! I am always surprised to hear our clients complain about their lawyers who just can't help themselves . . . they lawyer everything to death! They keep beating the dead horse . . . and all you can do is watch . . . knowing that whole time that you hired them to save the horse and win a trophy, not beat it to death and then beat it some more!
Lawyers suffer from many afflictions and so many of them are at the expense of the client. Some try to justify the defensive practice of law under the guise of "excellence." They are not listening to the needs and wants of the client, but are rather acting on their own defensiveness in order to avoid "perceived" potential liability. The funny thing about this whole concept is that most lawyers I meet simply cannot wrap their brain around anything else. . . . they actually think their clients are incompetent to consent to flying coach or business class. Wake up lawyers! Sometimes clients just want to fly coach!!!
What does this mean in real terms, you ask? Well, here is the disconnect:
Attorney point of view: We are being thorough for the client. . . we believe in excellence and perfection and want to avoid every single pitfall possible because that is the best way to represent our client. They don't know any better so we have to know for them.
Client point of view: Son of a XXXX, would you take a look at this bill? The value of the entire deal is less than what I have to pay my lawyer. First, this guy was not listening to me when I told him that (although I have money) I have bigger battles to fight than to nit-pick details on this small deal and that I just wanted to make sure there were no "glaring" errors. Second, he spent $10,000 to save me $5,000 in "potential" liability. . . I mean seriously, even if it were a 5% chance of $50,000 in liability I might have taken my chances. . . he never asked me if I thought it was worth it before he just went filling in every pot hole in the road! Who does he think he is? The only thing I can do with this "perfect contract" if frame and hang it on my wall because at this point the deal is a loser . . . thanks a lot!
Who is right here? (Hint: I never ask questions I do not know the answer to) The client is ALWAYS right!! This is a service business folks, and you chose this profession. If you do not want to serve your clients, then get the hell out of this profession! The clients are absolutely reasonable in their perception that most lawyers have no concept of the risk/reward matrix that forms the basis for business decisions. Even Fortune 500 Companies have contracts and deals that are not worth lawyering to death. Usually, companies reserve these deals for in-house counsel, but in small to mid-sized companies who do not have in-house counsel, they need attorneys who are strategic and who are acutely aware of the risk/reward relationship at every turn and with each engagement. This really puts the client at ease and helps them to focus on what they do best and not on managing their lawyers "runaway train."
At Exemplar, this "strategic" approach to the practice of law has served our customers very well and has made them happier than I can imagine. Why? More than anything, because we are listening to them. Like an airline, we understand that sometimes our clients want to fly First-Class, and sometimes they want to fly Coach. (Let's not ignore Business-Class. . . we offer that too!). We empower our clients to understand their options and we immerse ourselves in the business to be the strategic partner that they really need and want. The defensive practice of law is not necessary when you are in a true partnership with your clients and have good communication with them. We find that they really appreciate being informed and able to participate in the legal strategy . . . flying Coach to some destinations with us, and First-Class to many more! Exemplar is listening to their customers while the rest of the industry tells them to pay up or "get off the plane!" When customers realize they have a choice, Big-Law Airlines will have to start understand what it means to serve clients (not themselves) if they plan to be in business a decade from now.
Lawyers suffer from many afflictions and so many of them are at the expense of the client. Some try to justify the defensive practice of law under the guise of "excellence." They are not listening to the needs and wants of the client, but are rather acting on their own defensiveness in order to avoid "perceived" potential liability. The funny thing about this whole concept is that most lawyers I meet simply cannot wrap their brain around anything else. . . . they actually think their clients are incompetent to consent to flying coach or business class. Wake up lawyers! Sometimes clients just want to fly coach!!!
What does this mean in real terms, you ask? Well, here is the disconnect:
Attorney point of view: We are being thorough for the client. . . we believe in excellence and perfection and want to avoid every single pitfall possible because that is the best way to represent our client. They don't know any better so we have to know for them.
Client point of view: Son of a XXXX, would you take a look at this bill? The value of the entire deal is less than what I have to pay my lawyer. First, this guy was not listening to me when I told him that (although I have money) I have bigger battles to fight than to nit-pick details on this small deal and that I just wanted to make sure there were no "glaring" errors. Second, he spent $10,000 to save me $5,000 in "potential" liability. . . I mean seriously, even if it were a 5% chance of $50,000 in liability I might have taken my chances. . . he never asked me if I thought it was worth it before he just went filling in every pot hole in the road! Who does he think he is? The only thing I can do with this "perfect contract" if frame and hang it on my wall because at this point the deal is a loser . . . thanks a lot!
Who is right here? (Hint: I never ask questions I do not know the answer to) The client is ALWAYS right!! This is a service business folks, and you chose this profession. If you do not want to serve your clients, then get the hell out of this profession! The clients are absolutely reasonable in their perception that most lawyers have no concept of the risk/reward matrix that forms the basis for business decisions. Even Fortune 500 Companies have contracts and deals that are not worth lawyering to death. Usually, companies reserve these deals for in-house counsel, but in small to mid-sized companies who do not have in-house counsel, they need attorneys who are strategic and who are acutely aware of the risk/reward relationship at every turn and with each engagement. This really puts the client at ease and helps them to focus on what they do best and not on managing their lawyers "runaway train."
At Exemplar, this "strategic" approach to the practice of law has served our customers very well and has made them happier than I can imagine. Why? More than anything, because we are listening to them. Like an airline, we understand that sometimes our clients want to fly First-Class, and sometimes they want to fly Coach. (Let's not ignore Business-Class. . . we offer that too!). We empower our clients to understand their options and we immerse ourselves in the business to be the strategic partner that they really need and want. The defensive practice of law is not necessary when you are in a true partnership with your clients and have good communication with them. We find that they really appreciate being informed and able to participate in the legal strategy . . . flying Coach to some destinations with us, and First-Class to many more! Exemplar is listening to their customers while the rest of the industry tells them to pay up or "get off the plane!" When customers realize they have a choice, Big-Law Airlines will have to start understand what it means to serve clients (not themselves) if they plan to be in business a decade from now.
Tuesday, March 06, 2007
What? You Mean Customers Deserve to Have Options?
YES! Customers absolutely deserve to have options. In fact, if you don't, your competition certainly will. . . . or will they? Lawyers are notorious for telling their clients that what their singular strategy should be, stating their billable rate, and getting to it. Client after client that we encounter talks about how horrible they felt when their attorneys told them they only have one way to go "which made no economic/business sense" (a symptom that they are not really listening to what the client is trying to accomplish) or simply was not solution-0riented enough to find a path to success as defined by the client. Many attorneys I meet have pre-conceived notions of what success means based on the legal system we work within. This structured framework causes lawyers to think "inside the box" and fail to be responsive to client needs. For instance, what I find most important in client service at Exemplar is listening loudly for what the client perceives as success, and then thinking of all of the business, legal, political, social, and tactical ways that we can accomplish the goal for the client: To what end? To empower the customer with CHOICES. The fact is that if customers have come to you they are essentially shopping in your store. If you only have one product in your store then customers are going to look at the store next door to see what they have too. The fact is that you simply have to offer your customers options so that they find what they are looking for within your organization. They will appreciate the fact that you respect them enough to offer them choices and will not feel compelled to look elsewhere.
Wednesday, February 28, 2007
The Tail Is Wagging The Dog!
The Tail Is Wagging The Dog!
Backwards. That is how many people describe the way law firms operate and the billable hour. The tail is indeed wagging the dog. What I find very interesting is the direct link between low professional satisfaction (not just in hours worked, but in terms of the "type" of work that legal professionals do and the billable hour model.)
All of the best management books tell you that the best companies and managers legislate the ends, not the means for their people. This is how they get the very best out of them. I completely agree with this. After all, which boss would you rather work for a boss who tells you what to do? Or one who tells you what goal you have to achieve? What management experts say quite clearly is that you can NEVER get the best out of your people by legislating the means. . . it is just poor management. Consequently, an organization that does so is destined for mediocrity. What does this all have to do with the billable hour, you ask? EVERYTHING. The tail is wagging the dog, and the billable hour is to blame. Allow me to lay the foundation and you will see!
Everything is about cause and effect, right? When you do something, make changes to policy, choose to promote someone, it all has an effect on the organization. Well, implementing the billable hour model certainly did. In the 1960's the legal industry was full of general practitioners. Even those who had specialized expertise had a broad enough knowledge to be useful in a few areas. Prior to the institution of the billable hour in the late 50's and early 60's clients were buying outcomes . . . RESULTS. Then, those whom we served were legislating the ends and letting the attorneys use their talents to achieve the best result for the client. Then came billable hours . . . we started to sell units of time. Clients don't want time, they want results, but if all we are selling is time then what do you think is going to happen? All of a sudden, you are making it your clients business what you do with every bit of your time, and by the way, they will want everything done faster (I don't blame them! I don't want to buy time either). Cause: Billable Hour, Effect: Pressure to get it done faster, which is the cause of the super-specialization of attorneys who then go back to clients and claim that through their infinite wisdom they can get it done faster (though a 3x the rate). CAUSE: Super-specialization EFFECT: The dumbing down of the legal profession by way of over specialization. Like in manufacturing, in order to claim to be faster you get people who do the same task over and over again, suffering from intellectual atrophy and doing work well below their competence level just to tell the client they can go FASTER. They have commoditized themselves and made talent and skill irrelevant and Tail is Wagging the Dog! We have created a model where clients, who really want results, are forced to legislate the MEANS and not the ends because attorneys insist on billing time. They scour over your bills and start picking at what you do with every minute of your time . . . because you want to bill time . . your clients are running your business . . . . your clients are managing your people . . . and the Tail is Wagging the Dog!
What, then, becomes of the unique talents and skills that attorney might normally use to effect a winning result for a client? NOTHING! Why? Because you have to justify "value" to the client who is not present with you in 6 minute increments on a timesheet that is presented often months later. It is not only nonsense, it is simply ridiculous. As a firm that does not bill by the hour and gets results every time, I can tell you that the most value added activities we can do for clients are not ones that a traditional firm would consider "billable." Most attorneys do not want to do one thing and only one thing for the rest of their lives. Attorneys are people too, who find meaning in diversity of work, challenge of work, and the freedom to set free their talents to achieve "you can't get this anywhere" kinds of results. They are people who do not want to be slaves to a model that dictates what they do with every minute of their time, wondering if that 6-minute increment they are on right now will end up with a red line through it on the clients bill! That is no way to live. . . it is no way to manage and develop your people and it is certainly no way to run a business. Our well-rounded attorneys use every bit of their unique skills everyday and combine them in ways that get results for clients that cannot be found anywhere else. Clients do not want to buy our time. They want results. They do not care if we have a team meeting to strategize their case (they don't care if there are 5 attorneys in the meeting because we are not billing them for 5 attorneys x $400/hr). They care when the business deal is done, when their dreams come true, when the battle is won. And our people? They care that they are building an organization that cares about result, not tasks. One that let's its people leverage every unique bit of who they are to achieve a positive end for the client, and one who does not artificially force them to over-specialize for the sake of doing the same repetitive task again and again and again. It is time for the Tail to Stop Wagging The Dog! At Exemplar, this happy dogs wags its tail to the end of the billable hour tune! Wanna play?
Backwards. That is how many people describe the way law firms operate and the billable hour. The tail is indeed wagging the dog. What I find very interesting is the direct link between low professional satisfaction (not just in hours worked, but in terms of the "type" of work that legal professionals do and the billable hour model.)
All of the best management books tell you that the best companies and managers legislate the ends, not the means for their people. This is how they get the very best out of them. I completely agree with this. After all, which boss would you rather work for a boss who tells you what to do? Or one who tells you what goal you have to achieve? What management experts say quite clearly is that you can NEVER get the best out of your people by legislating the means. . . it is just poor management. Consequently, an organization that does so is destined for mediocrity. What does this all have to do with the billable hour, you ask? EVERYTHING. The tail is wagging the dog, and the billable hour is to blame. Allow me to lay the foundation and you will see!
Everything is about cause and effect, right? When you do something, make changes to policy, choose to promote someone, it all has an effect on the organization. Well, implementing the billable hour model certainly did. In the 1960's the legal industry was full of general practitioners. Even those who had specialized expertise had a broad enough knowledge to be useful in a few areas. Prior to the institution of the billable hour in the late 50's and early 60's clients were buying outcomes . . . RESULTS. Then, those whom we served were legislating the ends and letting the attorneys use their talents to achieve the best result for the client. Then came billable hours . . . we started to sell units of time. Clients don't want time, they want results, but if all we are selling is time then what do you think is going to happen? All of a sudden, you are making it your clients business what you do with every bit of your time, and by the way, they will want everything done faster (I don't blame them! I don't want to buy time either). Cause: Billable Hour, Effect: Pressure to get it done faster, which is the cause of the super-specialization of attorneys who then go back to clients and claim that through their infinite wisdom they can get it done faster (though a 3x the rate). CAUSE: Super-specialization EFFECT: The dumbing down of the legal profession by way of over specialization. Like in manufacturing, in order to claim to be faster you get people who do the same task over and over again, suffering from intellectual atrophy and doing work well below their competence level just to tell the client they can go FASTER. They have commoditized themselves and made talent and skill irrelevant and Tail is Wagging the Dog! We have created a model where clients, who really want results, are forced to legislate the MEANS and not the ends because attorneys insist on billing time. They scour over your bills and start picking at what you do with every minute of your time . . . because you want to bill time . . your clients are running your business . . . . your clients are managing your people . . . and the Tail is Wagging the Dog!
What, then, becomes of the unique talents and skills that attorney might normally use to effect a winning result for a client? NOTHING! Why? Because you have to justify "value" to the client who is not present with you in 6 minute increments on a timesheet that is presented often months later. It is not only nonsense, it is simply ridiculous. As a firm that does not bill by the hour and gets results every time, I can tell you that the most value added activities we can do for clients are not ones that a traditional firm would consider "billable." Most attorneys do not want to do one thing and only one thing for the rest of their lives. Attorneys are people too, who find meaning in diversity of work, challenge of work, and the freedom to set free their talents to achieve "you can't get this anywhere" kinds of results. They are people who do not want to be slaves to a model that dictates what they do with every minute of their time, wondering if that 6-minute increment they are on right now will end up with a red line through it on the clients bill! That is no way to live. . . it is no way to manage and develop your people and it is certainly no way to run a business. Our well-rounded attorneys use every bit of their unique skills everyday and combine them in ways that get results for clients that cannot be found anywhere else. Clients do not want to buy our time. They want results. They do not care if we have a team meeting to strategize their case (they don't care if there are 5 attorneys in the meeting because we are not billing them for 5 attorneys x $400/hr). They care when the business deal is done, when their dreams come true, when the battle is won. And our people? They care that they are building an organization that cares about result, not tasks. One that let's its people leverage every unique bit of who they are to achieve a positive end for the client, and one who does not artificially force them to over-specialize for the sake of doing the same repetitive task again and again and again. It is time for the Tail to Stop Wagging The Dog! At Exemplar, this happy dogs wags its tail to the end of the billable hour tune! Wanna play?
Monday, February 19, 2007
Managing People: Taking a Close Look at Yourself!
As our firm is growing fast, there is a critical need to make sure that measures are in place to ensure that we are being good managers, not just that our new team members are performing. Why is it so important? (Other than the obvious). Well, if you think of it . . . it is the same reason that the logic for starting a firm like Exemplar is so compelling. How do you know there is a compelling problem that needs to be solved? Look around at what everyone in the marketplace is complaining about and writing about. As for Exemplar, you need only Google the words "billable hour" and see pages upon pages of clients and lawyers alike complaining about how it is the bane of their existence. Problem? Clearly! Solution? Exemplar. So by this time you are asking yourself what all of this has to do with managing people, right? It has EVERYTHING to do with managing people. The next time you go to the book store take a stroll down the business section and take a look at how many books are out there on managing people. Book after book (and, not surprising, person after person that I know) complains about how bad managers tend to be at managing people. Problem? Clearly! Solution? Well, here is what I propose:
1) We need to have an open and candid environment among our managers to talk about our strengths and weaknesses in our own management process and "look in the mirror" every once in awhile so that we can improve our management process.
2) We need to not only make sure that direct reports are empowered and performing, but also that our managers are not just managers because they stuck around long enough, but because they are GOOD MANAGERS. To me, this means trusting them and treating them like partners from the START rather than being skeptical and treating them like they are on trial. . . you have to be in idiot to think that your people can't feel the difference. The rules of psychology apply!Make success a self-fulfilling prophecy for your people. This is not a chicken or egg theory problem. Believe in your people FIRST and you get performance. If you don't, then at least you will know for sure that you got a dud! :-)
3) We need to sit down with each new person and set goals together with them. Then, we need to do everything we can do empower them, position them to stretch and leverage talents, and get the heck out of the way. At the end of the day, we want our people to have every reason to perform (and the only way to do that is to ask ourselves the tough questions . . NOT to look at them and wonder why they are not performing. . . I guarantee you, much of the time the answers become clear by taking a critical look at the management process) It is only when we do everything that we can that we can then look to our direct reports for accountability!
4) We need to pay close attention to each new person in order to identify the difference between each member's strengths, non-talents, and weaknesses. Do you know the difference?
-- Strengths: You are great at these. It may not be as obvious as it sounds, because someone who is not performing may be non-performing because they are not positioned by their employer to leverage their strengths. Are you? After all, I think it is our job as employers to make sure we position our people to leverage their strength before we can hold them accountable for performance. You can't expect better performance out of someone who sucks at something. With talents, it is our job as employers to look at each person and find out just how much we can get them to focus on these strengths, create stretch goals that are dependent on leveraging them, and doing what we can to support them
-- Non-talents: Often confused with weaknesses, these are areas where there is no natural talent or significant skill development, but where performance is average at best. If the skills need to be developed, this is where we set goals with them to work on the skills that they need to perform in a well-rounded job.
-- Weaknesses: You suck at these. The worse companies with the worse managers in the country have managers that always focus on people's weaknesses. They get you on these stupid "weakness improvement programs" which the employees absolutely dead. After all, most people NEVER want to be good at a weakness! This is a symptom of 1) POOR MANAGEMENT, and 2) an organization that is destined for mediocrity, because winning organizations focus on people with leveraged strength, not strong weaknesses. What kind of company do you work for?
5) We need to do everything we can to educate our organization that being a manager is a job unto itself, and that it comes with responsibilities, accountability, and tremendous power to influence the future of the organization. The largest Gallup study of profit centers ever showed that people do not leave companies, they leave managers!!! Does this surprise you? It shouldn't'! In big law firms, every time an associate walks out the door it costs them more than $250,000! On the other hand, the best companies in the world use good management as a tool to develop the future of the company in a way that makes them millions of dollars each year.
6) Finally, at the end of each day, we need to take a close look at ourselves, ask ourselves "did we do the best we can to position our people? How can we communicate better with our people? What can we do better to inspire each other to greatness? As managers, we have more power than we understand. Most have no clue what to do with it.
Those are the human capital goals to which I aspire. Ambitious? Certainly! Nonetheless, you never go higher than you aim. As Excellence is a core value that must never ring hollow in the halls of Exemplar, I will certainly do my part and expect our great people to to aspire to the same level of Excellence in management . . . a standard that, if set, will define the future of law practice as we know it.
1) We need to have an open and candid environment among our managers to talk about our strengths and weaknesses in our own management process and "look in the mirror" every once in awhile so that we can improve our management process.
2) We need to not only make sure that direct reports are empowered and performing, but also that our managers are not just managers because they stuck around long enough, but because they are GOOD MANAGERS. To me, this means trusting them and treating them like partners from the START rather than being skeptical and treating them like they are on trial. . . you have to be in idiot to think that your people can't feel the difference. The rules of psychology apply!Make success a self-fulfilling prophecy for your people. This is not a chicken or egg theory problem. Believe in your people FIRST and you get performance. If you don't, then at least you will know for sure that you got a dud! :-)
3) We need to sit down with each new person and set goals together with them. Then, we need to do everything we can do empower them, position them to stretch and leverage talents, and get the heck out of the way. At the end of the day, we want our people to have every reason to perform (and the only way to do that is to ask ourselves the tough questions . . NOT to look at them and wonder why they are not performing. . . I guarantee you, much of the time the answers become clear by taking a critical look at the management process) It is only when we do everything that we can that we can then look to our direct reports for accountability!
4) We need to pay close attention to each new person in order to identify the difference between each member's strengths, non-talents, and weaknesses. Do you know the difference?
-- Strengths: You are great at these. It may not be as obvious as it sounds, because someone who is not performing may be non-performing because they are not positioned by their employer to leverage their strengths. Are you? After all, I think it is our job as employers to make sure we position our people to leverage their strength before we can hold them accountable for performance. You can't expect better performance out of someone who sucks at something. With talents, it is our job as employers to look at each person and find out just how much we can get them to focus on these strengths, create stretch goals that are dependent on leveraging them, and doing what we can to support them
-- Non-talents: Often confused with weaknesses, these are areas where there is no natural talent or significant skill development, but where performance is average at best. If the skills need to be developed, this is where we set goals with them to work on the skills that they need to perform in a well-rounded job.
-- Weaknesses: You suck at these. The worse companies with the worse managers in the country have managers that always focus on people's weaknesses. They get you on these stupid "weakness improvement programs" which the employees absolutely dead. After all, most people NEVER want to be good at a weakness! This is a symptom of 1) POOR MANAGEMENT, and 2) an organization that is destined for mediocrity, because winning organizations focus on people with leveraged strength, not strong weaknesses. What kind of company do you work for?
5) We need to do everything we can to educate our organization that being a manager is a job unto itself, and that it comes with responsibilities, accountability, and tremendous power to influence the future of the organization. The largest Gallup study of profit centers ever showed that people do not leave companies, they leave managers!!! Does this surprise you? It shouldn't'! In big law firms, every time an associate walks out the door it costs them more than $250,000! On the other hand, the best companies in the world use good management as a tool to develop the future of the company in a way that makes them millions of dollars each year.
6) Finally, at the end of each day, we need to take a close look at ourselves, ask ourselves "did we do the best we can to position our people? How can we communicate better with our people? What can we do better to inspire each other to greatness? As managers, we have more power than we understand. Most have no clue what to do with it.
Those are the human capital goals to which I aspire. Ambitious? Certainly! Nonetheless, you never go higher than you aim. As Excellence is a core value that must never ring hollow in the halls of Exemplar, I will certainly do my part and expect our great people to to aspire to the same level of Excellence in management . . . a standard that, if set, will define the future of law practice as we know it.
Tuesday, February 13, 2007
Fixed-Pie Thinkers Need Not Apply
Some people go through life thinking it is a zero sum game! They have a fixed-pie mentality. It is like they are born this way . . . with fixed-pie-disease! Sometimes life throws these people little crumbs of bread . . . and they all stomp on each other like pidgeons to get a bigger piece of the crumb. Sometimes when I walk down the street I throw pennies and watch people with fixed-pie-disease rush to pick them up for fear that someone else might get them. Half of them are lawyers, I'm sure. These people don't know a thing about value creation. The one's I like are the ones who pick up my pennies while whistling to a tune, feeling like it was their lucky day. They understand value creation. You see, my penny wielding experience is proof that value creation exists and that the economy is chugging along in a healthy fashion. For me, the reason I throw the pennies is because it is worth more than a penny to me to either 1) watch people infected with fixed-pie-disease frantically chase my pennies as they bounce happily down the street on their ends, OR 2) enjoy that warming feeling of watching someone who appreciates value pick up my penny and feel lucky, if only for that moment! For them, it was clearly worth more than a penny to bend over and pick it up. . . it was almost the principle of it! Value creation is such a beautiful thing.
Every day infected lawyers go to work and fight over origination credits, pad their time sheets or try to out-bill their colleagues in order to get one of the "fixed" number of partnership positions at the firm. Firms get into bidding wars over the "fixed" number of graduates in the top 2% of their class (as if such a designation were the ONLY redeeming quality of significance to a firm). What are you working for? There are only 24 hours in the day . . . the game is "fixed" folks! You don't win in a competition where the prize for the pie eating contest is . . . well . . MORE PIE! That is, unless you are infected with fixed-pie disease. Somehow they just never learn. . . and so I will continue to watch them chase down my pennies much to my amusement (fortunately for them . . I mean my pennies . . . they will never be out of a job!) Life will continue to throw these poor souls crumbs of bread and the rest of us will watch them posture for their crumb slices as those of us who truly understand value create loaves of bread from air!
Every day infected lawyers go to work and fight over origination credits, pad their time sheets or try to out-bill their colleagues in order to get one of the "fixed" number of partnership positions at the firm. Firms get into bidding wars over the "fixed" number of graduates in the top 2% of their class (as if such a designation were the ONLY redeeming quality of significance to a firm). What are you working for? There are only 24 hours in the day . . . the game is "fixed" folks! You don't win in a competition where the prize for the pie eating contest is . . . well . . MORE PIE! That is, unless you are infected with fixed-pie disease. Somehow they just never learn. . . and so I will continue to watch them chase down my pennies much to my amusement (fortunately for them . . I mean my pennies . . . they will never be out of a job!) Life will continue to throw these poor souls crumbs of bread and the rest of us will watch them posture for their crumb slices as those of us who truly understand value create loaves of bread from air!
Monday, February 05, 2007
Changing Lives . . One By One . . Until We're All Done!
Several months ago I ended my blog post with a statement that people who think Exemplar is just about fixed pricing have missed the point. I went on to say that Exemplar is about changing lives, one by one, until we're all done. While many posts have been about the economic theory behind our pricing model, psychological barriers, and mechanics of fixed-pricing, I wanted to take a moment to talk about what we are really about. . . changing lives. This journey called Exemplar has changed my life . . . it has given me meaning in what I do as a professional. I am personally connected to the outcomes that we help our customers to achieve every day. I have not in two years counted my time, my "effective" hourly rate, and I actually have no clue how many hours a work a week. I know only one thing: I am truly happy and I would not trade a moment of this experience for anything. What does all of this mean? For me, this model is about giving professionals meaning in their work, valuing people, leveraging talents, inspiring our young, giving back, loving life, and doing well by doing good. At first, it may not be clear how connected the billable hour really is to the problems of our profession, but a closer look reveals that they are hopelessly intertwined. For instance, I see the following:
I see attorneys who's practice is all about going from crisis to crisis. They live their lives this way. It desensitizes them and it takes a crisis to get their attention. They let their personal lives reach a point of crisis before they pay attention to it . . . many of them getting divorced or falling apart altogether. These professionals either face enormous pressure to "Bill time" to meet quotas or they feel tremendous pressure to "fill time" by "billing time" when work is light because of the beauty contest that our industry has created by comparing the "spreadsheet" of numbers of each attorney against one another as means of determining their value to the firm.
I see attorneys who are so entrenched in counting their entire lives in 6-minute increments that they go home to their loved ones and think of time with their family as an "opportunity cost." These people know exactly how many billing units they are giving up by attempting to have a work life balance, and the very attempt to balance life is offset by a cloud of guilt and worry, knowing that they simply cannot beat the clock.
I see minority attorneys at large firms who readily state that they feel like "tokens" and are ONLY invited to client meetings when the client is of the same race. Since all attorneys are treated as fungible billing units, their unique value is not considered or leveraged. At the same time, the white-male partnership is ignorant of the fact that their own people feel this way and have yet to make meaningful headway in valuing diversity in their firms.
I see the most wonderful and talented female attorneys leaving the practice of law because of an inflexible business model that values "putting in more time" rather than "being effective for the client." At least these women are smart enough to vote with their feet and stand up for what they believe in when they realize that work-life balance is not and never will be a priority of their firms when profits, by definition, are increased by "billing day and night." This has been happening for YEARS and only reinforces that fact that firms are not addressing the real issue! They just keep hiring new young female attorneys to keep their "statistics" up so that they look good in the beauty contest!
I see young lawyers suffering from low professional satisfaction due to under-delegation, low client contact, competitive-individualistic work environments, little to no mentoring, and a partnership that is NOT grooming the next generation to be leaders of their firms tomorrow. The signal they are sending to their young is loud and clear . . . they would rather take their clients to the grave with them than pass on relationships to maintain viability of the firm in the future.
I see a traditional partnership model full of ego-driven, bottom-line oriented (to the exclusion of all else), untrusting professionals who have all but abandoned the next generation when it comes to professional development and addressing the needs of today's workforce. . . clinging on to a dying billing model that is based on a long-refuted economic theory. If you did not know the definition of "Lip Service" when you read this blog, look at a partnership. Nationwide, the partnerships have made promises to embrace diversity, be sensitive to work-life balance, address client-hoarding, mentor their people, and give their people a clear sense of what it takes to make partner, when they will be evaluated, and help them to achieve that goal. What has come of the their promises? Their lips are moving but nothing is coming out!
These are only a few of the things I see in our profession. What I see I do not like. I read a quote in the book The Firm of the Future that read "the people who get on in this life, if they do not find the circumstances they are looking for, they create it." and it really resonates with me. This is an appropriate month to quote Malcolm X, who said "If you are not a part of the solution, you are part of the problem." It is revolutionaries like these who make change by first believing it is possible, and then taking a stand with an uncompromising conviction to succeed in creating the new vision. Exemplar is about a new vision, founded on a faith in what we can be and do together, and grounded by our conviction, our values, our character, and our unending desire to do well by doing good. We are changing lives indeed . . . one by one . . until we're all done!
I see attorneys who's practice is all about going from crisis to crisis. They live their lives this way. It desensitizes them and it takes a crisis to get their attention. They let their personal lives reach a point of crisis before they pay attention to it . . . many of them getting divorced or falling apart altogether. These professionals either face enormous pressure to "Bill time" to meet quotas or they feel tremendous pressure to "fill time" by "billing time" when work is light because of the beauty contest that our industry has created by comparing the "spreadsheet" of numbers of each attorney against one another as means of determining their value to the firm.
I see attorneys who are so entrenched in counting their entire lives in 6-minute increments that they go home to their loved ones and think of time with their family as an "opportunity cost." These people know exactly how many billing units they are giving up by attempting to have a work life balance, and the very attempt to balance life is offset by a cloud of guilt and worry, knowing that they simply cannot beat the clock.
I see minority attorneys at large firms who readily state that they feel like "tokens" and are ONLY invited to client meetings when the client is of the same race. Since all attorneys are treated as fungible billing units, their unique value is not considered or leveraged. At the same time, the white-male partnership is ignorant of the fact that their own people feel this way and have yet to make meaningful headway in valuing diversity in their firms.
I see the most wonderful and talented female attorneys leaving the practice of law because of an inflexible business model that values "putting in more time" rather than "being effective for the client." At least these women are smart enough to vote with their feet and stand up for what they believe in when they realize that work-life balance is not and never will be a priority of their firms when profits, by definition, are increased by "billing day and night." This has been happening for YEARS and only reinforces that fact that firms are not addressing the real issue! They just keep hiring new young female attorneys to keep their "statistics" up so that they look good in the beauty contest!
I see young lawyers suffering from low professional satisfaction due to under-delegation, low client contact, competitive-individualistic work environments, little to no mentoring, and a partnership that is NOT grooming the next generation to be leaders of their firms tomorrow. The signal they are sending to their young is loud and clear . . . they would rather take their clients to the grave with them than pass on relationships to maintain viability of the firm in the future.
I see a traditional partnership model full of ego-driven, bottom-line oriented (to the exclusion of all else), untrusting professionals who have all but abandoned the next generation when it comes to professional development and addressing the needs of today's workforce. . . clinging on to a dying billing model that is based on a long-refuted economic theory. If you did not know the definition of "Lip Service" when you read this blog, look at a partnership. Nationwide, the partnerships have made promises to embrace diversity, be sensitive to work-life balance, address client-hoarding, mentor their people, and give their people a clear sense of what it takes to make partner, when they will be evaluated, and help them to achieve that goal. What has come of the their promises? Their lips are moving but nothing is coming out!
These are only a few of the things I see in our profession. What I see I do not like. I read a quote in the book The Firm of the Future that read "the people who get on in this life, if they do not find the circumstances they are looking for, they create it." and it really resonates with me. This is an appropriate month to quote Malcolm X, who said "If you are not a part of the solution, you are part of the problem." It is revolutionaries like these who make change by first believing it is possible, and then taking a stand with an uncompromising conviction to succeed in creating the new vision. Exemplar is about a new vision, founded on a faith in what we can be and do together, and grounded by our conviction, our values, our character, and our unending desire to do well by doing good. We are changing lives indeed . . . one by one . . until we're all done!
Monday, January 29, 2007
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
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
Monday, January 15, 2007
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!
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!
Tuesday, January 09, 2007
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!
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!
Tuesday, January 02, 2007
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.
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.
Monday, December 18, 2006
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.
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.
Monday, December 11, 2006
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.
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.
Tuesday, December 05, 2006
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?
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?
Tuesday, November 28, 2006
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!
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!
Monday, November 20, 2006
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! :-)
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! :-)
Monday, November 13, 2006
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!
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!
Subscribe to:
Posts (Atom)
Posts
