Quote of the Day

"Swim upstream. Go the other way. Ignore the conventional wisdom." Sam Walton

An Employee's Perfect Law Firm

I've been giving a lot of thought lately to the question, "What is the perfect law firm?" As I work to change my practice, I admit that I have been looking at the firm from my perspective as the lawyer, and not from the perspective as a firm employee. In this article in Information Week the authors point out ways to motivate employees in uncertain times:

Focus on satisfying fundamental needs first, such as workload relief and compensation, then move on to higher-level motivators such as empowerment, creative work, and advancement opportunities.

The authors also suggest eleven factors to take into consideration when designing a job:

1. Direct feedback that is prompt, objective, constructive and actionable
2. New learning and skills that are valued by the employee for his growth or security
3. Efficient work processes and scheduling to alleviate deadline pressures
4. Control over scarce resources, i.e., mini-budgets
5. Open communications to counter the rumor mill
6. Accountability
7. Elimination of unnecessary threats and punishments
8. Tasks and group missions that are related to both personal and organizational goals, and that pay off in results
9. High levels of trust, respect, and encouragement
10. Recognition of accomplishments and
11. Re-matching people to jobs based on the new vision and direction

I am going to be hiring at least two new employees in the next twelve months. I am already planning on offering flexible part-time schedules and competitive pay, but these factors will be good for me to keep in mind when preparing the job descriptions and interviewing the candidates. However, the factors strike me as something all reasonably competent bosses/managers should do already -- then I remembered big law firm life.

Value Billing Unethical?

I promised David at EthicalEsq that I would respond to this post of his today. In a response to my previous post on value billing, David argues:

There are a lot of problems with the billable hours system, but most of them are the result of abuses rather than of the inherent nature of using hourly billing. In determining the reasonableness of a fee, therefore, the legal profession has attempted to avoid the worse distortions from hourly billing by not fully charging for hours spent "getting up to speed" in an unfamiliar area of law. The client rightfully expects expertise and needs to be informed by the ethical lawyer when he or she is not yet fully competent in a particular legal subject.

The client also rightfully expects to pay a fee that corresponds -- at least roughly -- to the amount of time spent by the lawyer. And, the honest fiduciary should let the client know approximately how much work is involved. Some sophisticated clients might want to experiment with or negotiate for some kind of value-related fee. But no sophisticate would say "I know you'll only spend a few minutes on this, but it's worth millions to me, so here's a seven-figure check." Instead, the savvy client would negotiate for, or shop around for, a more competitive fee, no matter the "value" of the result.

David and I both agree on quite a few things, the primary one being that a lawyer should educate his or her client up front about the basis for the fee and give them an estimate of the range of costs and outcomes. However, I feel (unlike David) that the billable hour system is the problem, for both lawyers and clients. The best indictment of the billable hour that I've found on the web is in this article where the author writes:

The billable hour, a practice used only since the early 1960s, has become an artificial device that ill serves both professionals and clients. It divides the time of the accountant and lawyer and consultant into parts, turns each professional into a bookkeeper, and creates such profound guilt for every working hour that’s not billable that important non-billable firm needs are inadequately addressed. It affords the opportunity for the worst kinds of excess, such as padding hours, thereby increasing revenue without supplying value – a short-sighted practice bound to backfire. It makes no distinction between the hour spent on trivial activities and the hour spent on substantive matters. Moreover, if the client perceives that there is no added value in the hourly bill, the general practice is to renegotiate the fee, which is becoming a common practice in today’s competitive environment – and makes a mockery of hourly billing. It’s such an anachronism, and so entrenched, that it precludes such rational billing approaches as value added and enhanced worth or contribution to a client’s business, neither of which is best calculated by the hour. As one sage put it, it’s a virtual cartel in which every firm seems to arrive at the same billing rate, even though quality of service is not consistent from one firm to another. Or even from one partner to another in the same firm.

How many other products are bought this way? My wife and I are going to be building a new home this year. We we were given a choice by our contractor to pay a set price or be charged on a "time and materials" basis. We chose the former. I don't care how much my contractor profits on the job so long as I get a quality home for a price I'm willing to pay. To use another example, should I agree to buy a car at $200.00 per hour multiplied by the time taken to build it? If I get a lazy shift the day my car rolls down the line, should I expect pay more than my neighbor who bought the same car built by a more efficient crew for thousands less?

The Illinois Supreme Court requires lawyers to adhere to the code of ethics. Rules of Professional Conduct, Rule 1.5 (which David quotes in part in his post) states:

Factors to be considered as guides in determining the reasonableness of a fee include the following:

(1) The time and labor required, the novelty and difficulty of the questions involved and the skill requisite to perform the legal services properly.

(2) The likelihood that the acceptance of the particular employment would preclude other employment by the lawyer.

(3) The fee customarily charged in the locality for similar legal services.

(4) The amount involved and results obtained.

(5) The time limitations imposed by the client or by circumstances.

(6) The nature and length of the professional relationship with the client.

(7) The experience, reputation and ability of the lawyer or lawyers performing the services.

(8) Whether the fee is fixed or contingent

. Only one of the thirteen underlined factors speak to the time spent on the task. I argue that many of the other factors speak to the value received by the client. In the end, I think David and I both agree that a lawyer should charge a fair fee. In value billing, what is "fair" is in the eyes of the client. In hourly billing, what is "fair" is in the eyes of the lawyer. Which is a better way to serve your clients?

I do know this, I will not be offering my clients the option to choose between hourly and value billing. I refuse to perpetuate a system that allows me to charge more to a given client the less efficient I am. My prospective customers will have the choice to use me and my value billing system – or they can go to a “traditional” lawyer who bills by the hour. As my site says: "No more stinkin' timesheets."

Branding vs. Naming your firm.

I know that we have all heard at one time or another about "branding" a law firm. I am going to be renaming my law firm from "Homann Law and Mediation" to some other name because I have spun off my mediation business into a new entity: Consensus Mediation, LLC. Eric Heels writes in this post on his law firm website titled, "Just Say Moo - How To Name And Brand Your Product To Make It Stand Out From The Crowd," that:

You should avoid choosing a brand name that is generic or descriptive. Don't name your bookstore "Bob's Bookstore," or "Affordable Books." Instead, choose a name that is suggestive of the qualities your product stands for. If you are selling data backup services, perhaps include "elephant" in the name, since elephants supposedly have good memories. If you are starting a bus company, consider the fact that "greyhounds" are very fast dogs.

An even better strategy is to choose a distinctive brand name that is unrelated to your product or service. "Apple" is a good name for a computer company because computers have nothing inherently to do with apples.

The best strategy is to choose a distinctive company name that is a brand new word. Like Verio. This is, of course, the most fun and the most challenging. Made-up words can sound cool or they can sound like names that didn't make the final cut for the Seven Dwarfs.

I love Eric's advice to avoid your name as your brand -- especially when you have a name like mine that everyone spells "Holman." However, as this article by William Arruda on the MarketingProfs.com website (registration required, but worth the trouble) illustrates, branding is about more than the name and logo of your firm, it is about the entire customer experience

What separates you from others with similar skills and abilities is your unique promise of value. Communicating that unique promise through all that you do enables you to stand out and greatly expand your success.

But if you send messages that are incompatible, those around you will not know what you stand for or what to expect from you. So remember, being “the same” is essential to successful branding.

“Saming” doesn’t mean that you will be forever stuck where you are. In fact, saming enables you to get where you are going. Once you have built a reputation through consistent expression of your unique promise of value, you have the permission to evolve, as long as that evolution is consistent with your brand promise.

So, to recap: name + logo + consistent (and unique) customer experience = brand.

Lawyers as Retailers

In this interview, retail consultant Paco Underhill answered the question, "What are some of the more innovative things you're looking at and seeing in the physical world of retailing?" His response:

Some are the trends to edu-tainment. Where people have realized that if they give people other reasons to come to the store, people stop worrying about prices. I was at a beautiful store yesterday here in Chicago called American Girl, which is sort of an actualization of the fantasy life of a doll. There's a little lunchroom where you can bring your doll, and little chairs so your doll can sit at the table with you. You could buy matching sets of doll clothes and then clothes for you, for your kid. I mean, the whole thing was wonderful, but it was also very scary. Look at Restoration Hardware, where you go in and sort of get lost in stuff.

Can law firms give people other reasons to engage their lawyers (come into the store)? If so, does providing ancillary services your clients value in an atmosphere they like make them more likely to stop worrying about your price?

There is a law firm I've heard of in Urbana, Illinois that has a pool table and bar on the third floor of its office in a renovated old building. They often ask clients to, "Come by for a beer and shoot some pool." What a cool idea.

Thanks to Marginal Revolution for the link to the Underhill interview.

Scarcity in Law Firms - Part 1

In this article, from the December, 2003 issue of Fast Company magazine, Seth Godin talks about the relationship between scarcity and value. Godin argues that the only way to make a profit is by trading in something that's scarce. Then Godin takes up the legal industry:

It's not just about product knockoffs, of course. While there are almost half a million lawyers practicing in the United States today, there are (gasp!) more than 125,000 in school right now. No matter what you believe about lawyers creating ever more work for ever more lawyers, there's no question that with so many of them, they're hardly scarce.

How can lawyers take advantage of the scarcity principle to make what they do (or sell) more scarce and more valuable? Godin continues:

So what's scarce now? Respect. Honesty. Good judgment. Long-term relationships that lead to trust. None of these things guarantee loyalty in the face of cut-rate competition, though. So to that list I'll add this: an insanely low-cost structure based on outsourcing everything except your company's insight into what your customers really want to buy.

I have been struggling with the scarcity issue for quite some time. I am a general practitioner, and take most kinds of legal work except for personal injury and criminal cases. In the town I practice in, there are seven lawyers (including myself) serving a population of approximately 13,000 people. None of us limit ourselves to just one kind of work, nor do we market our practices except for the obligatory yellow pages ads.

What I would like to do is make my firm stand out to a clientele I want to serve. A friend of mine has an uncle who is a small-town butcher. If he advertises chickens for thirty-nine cents per pound, he sells ten per day. If he says, "Limit 3" at that same price, his sales increase five-fold. Can lawyers capitalize upon this principle? I think I have my answer, but welcome comments. I'll post a summary of my business plan next week when I finish it.

The Grind of Business

In this Business Week Online article, author B.J. Hawkins discusses her company's committment to bring balance to the lives of its employees. Interesting read, and Ms. Hawkins concludes:

I work an average of 10 hours a day now, rather than the 18 I used to put in prior to my advisers' urging me to face the truth about myself. Work is no longer a continuous grind, but rather what it was always meant to be: a fulfilling aspect of a life that also includes family and self -- indeed, even an entrepreneur's life.

How many lawyers can make a similar transition?

One good reason for value billing.

Carolyn Elefant asks the question on MyShingle.com: "How do you know if your big firm lawyer is overbilling?" While I want to answer, "Because he's breathing," I got to thinking about an article I read several weeks (months?) ago about a firm that got in trouble by billing two clients tens of thousands of dollars (in hourly billing) for the same product. The firm's deceit was found out because they failed to erase the metadata in the documents they sent the second client.

While my initial instinct is to say how awful the law firm's conduct was, was the client harmed? The client got a product (the documents, advice, etc.) that they valued at a price they were probably willing to pay. In this case the value received by the second client was at least as great as that received by the first (for whom the hourly work was done to begin with). And while the firm's conduct was dishonest, to say the least, should the second client have been charged significantly less because the documents were already "in the system" and just needed to be revised?

This is the dilemma many lawyers face when trying to bill hourly when they have become proficient at any given task. If my technology investment allows me to complete a task in one-third the time it took me last year, does that task become two-thirds less valuable to my client? Staying away from hourly billing should allow lawyers to maximize their revenue, capitalize upon their efficiencies, and keep their law licenses.

What do lawyers sell?

What do lawyers sell? In this post at startupskills.com the authors (talking to software companies) argue:

No more beating around the bush. You can’t sell software. You can’t sell cool technology. You can’t even sell a good idea. In order to sell anything, you need to sell a solution. And even that’s not good enough. But it’s a starting point—selling a solution to a specific consumer segment

I would argue that the same applies to lawyers. Find a specific consumer segment and sell them a solution -- don't sell them your time.

Via The Entrepreneurial Mind blog.

UPDATE: This article asks the same question (Thanks, David at ethicalEsq).

Solo lawyers as developing countries?

The dilemma most small firm lawyers face -- especially when they first hang up their own shingle -- is a lack of resources. In a new article on the Harvard Business School Working Knowledge site, authors Donald N. Sull, Alejandro Ruelas-Gossi, and Martin Escobari talk about how innovation is often stymied in developing countries. The impediments to innovation faced by developing countries seemed much like those barriers I faced (and continue to face) when I decided to become a solo lawyer:

1. Developing countries generally lack a solid technology base of trained scientists and world-class research universities.
2. Companies in developing countries must manage to eke out a profit while serving customers with low disposable income; per capita gross domestic product in the advanced economies is on average ten times that of developing nations.
3. Managers in these companies must often innovate on a shoestring budget, since the high cost and scarcity of capital preclude massive spending on R&D. As a result, they must innovate from other areas of their business's structure, including manufacturing, logistics, marketing, and customer service

The three keys to innovating on a limited budget, the authors argue, are: knowing your customers' mindsets—intimately; innovating around—rather than through—the technology; and scouring the globe for good ideas. Each key comes with great examples from successful companies in the developing world. My favorite:

Employees of China's Haier, for example, discovered through visiting rural customers that they frequently used their washing machines not only to launder clothes but also to clean vegetables. By making a few minor modifications to the washers they manufactured, Haier was able to market the machines as versatile enough to wash both clothing and vegetables, and rapidly became the market leader in rural areas of its home country

.As a lawyer, a limited budget should not keep you from becoming an innovative service provider to your clienst. Listen to your customers, use your technology efficiently, and look outside the legal profession for great ideas.

What's your value proposition?

In this article on the MarketingProfs.com website (free registration required), Michael L. Perla suggests that "anyone should be able to answer the question, 'What's your value proposition?'" Perla defines a value proposition as follows:

In essence, a value proposition is an offer to some entity or target in which they (the possessor) get more than they give up (merit or utility), as perceived by them, and in relationship to alternatives, including doing nothing. In terms of form, a value proposition is generally a clear and succinct statement (e.g., 2-4 sentences) that outlines to potential clients and stakeholders a company’s (or individual’s or group’s) unique value-creating features.

In my line of work, then, a value proposition is an offer to a client giving them more value than they expect for less money than they think. While I'm still working on my value proposition, Perla suggests a few questions to help in formulating yours (paraphrased for lawyers):

-What are your core competencies and how do you differentiate yourself from the competition?

-How do you create value for your clients, and how do your clients measure the value that you deliver?

-What capabilities can you bring to bear to execute against your value promise?

-Why should your prospective clients accept your particular offer?

-How do you compare and differentiate the value that you deliver from the value that your competitors deliver?

-How do you substantiate your ability to deliver on your value promise?

These are tough questions. I wonder how many lawyers can answer them -- or have even tried? They sure don't look like any final exam I remember from law school.

The problem with the billable hour, Part 1.

In this article, Patrick J. Schiltz, a Notre Dame law professor, discusses the collision of money and ethics in traditional law firm practice. Arguing that the culture of the law firm -- with its focus on billable time -- induces many young lawyers to regularly "steal" from their clients:

For the typical young attorney, acting unethically starts with his timesheets. One day, not too long after he starts practicing law, he will sit down at the end of a long, tiring day and he just won't have much to show for his efforts in terms of billable hours. It will be near the end of the month. He will know that all of the partners will be looking at his monthly time report in a few days, so what he'll do is pad his timesheet just a bit. Maybe he'll bill a client for 90 minutes for a task that really took him only 60 minutes to perform. He will, however, repeatedly promise himself that he will repay the client at the first opportunity by doing 30 minutes of work for the client for "free." In this way, he'll be "borrowing," not "stealing."

Then what will happen is that it will become easier for the young lawyer to take these little loans against future work. And after a while, he will stop paying back these little loans. He will convince himself that, although he billed for 90 minutes and spent only 60 minutes on the project, he did such good work that his client should pay a bit more for it. After all, his billing rate is awfully low, and his client is awfully rich.

And then he will pad more and more. Every two-minute telephone conversation will go down on his timesheet as 10 minutes, every three-hour research project will go down with an extra quarter-hour or so. He will continue to rationalize his dishonesty to himself in various ways until one day he stops doing even that. And, before long � it won't take him much more than three or four years � he will be stealing from his clients almost every day, and he won't even notice it.

As a solo lawyer, I don't have the pressure to bill a certain number of hours to please my superiors and pay for their BMW's. My problem with relying upon the billable hour isn't that I steal from my clients, it is that I steal from myself. I consistently fail to record all my time, and have yet to find a method that allows me to capture it all. It is not the big projects that escape me, but rather the 5 -10 minute projects, letters, and phone calls that happen throughout the day. I have had many 10 hour days with six or fewer hours of billable time. I also feel guilty sometimes about the time it takes me to do something -- thinking that I've taken too long to complete a project -- and I adjust my bill accordingly. Ditching the billable hour entirely gets me away from these problems and moves my practice toward a more fulfilling method of earning a living.