Olmstead & Associates Law Practice Management Asked and Answered Blog

Law Firm Growth and Reduction in Profits

Question:

Our firm is a personal injury plaintiff firm in Topeka, KS. Until two years ago we had two attorneys (both partners) and two support staff members. In early 2012 we added an associate attorney, increased our marketing investment, moved our offices and took on additional space, added five additional support staff members, and implemented a case management system. We currently have 500 open cases - up from 200 cases 2+ years ago. Revenues are up - but the two partners are each taking home $40,000 less than they were before the expansion. Our home grown office manager manages and runs the office. What should we be doing differently?

Response:

My first thought is that your revenues have not caught up with the overhead and the growth investments that you have made. (You should review your reports and verify this) Personal injury cases have a much longer revenue lag than does work that gets "time-billed" monthly. Some cases may be in progress for two years or so. So be patient but don't be complacent.

You do need to be proactive in managing your case pipeline and your team. Someone needs to mind and manage the store. You are a larger firm now and you can't assume that your team is working to maximum effectiveness and efficiency. Insure that you actually need all of these people and that people are working smart. Roles for each member of the team should be created and performance standards and expectations established. Goals (cases) should be created for each team member, metrics and measurements established, standard reports created - generated - and used, and team members held accountable for results. Use the reports that the new case management system provides to measure goal accomplishment and performance.

Evaluate whether your office manager has the leadership skills that the firm now requires.

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John W. Olmstead, MBA, Ph.D, CMC

 

 

Law Firm Expansion - Expanding Your Geographical Reach

Question:

Our firm is a 14 attorney firm in central Iowa. We have one office in Des Moines and have been considering opening an office in another city. We represent business organizations and very few individual clients. I would appreciate your thoughts and suggestions.

Response:

I hope this is part of an overall strategic planning process and not a random act. If it is then the first consideration should be the needs of your most important existing clients. The first questions you should address are:

1. Where are your present clients located and how do they communicate with the firm?
2. To what extent have the needs and demands of these clients changed due to advances in technology?
3. Are your client relationships based upon direct contact and communication? To what extent are interpersonal relationships crucial to the maintenance of these clients?
4. Are any of these key existing clients expanding into new geographical areas?

After giving some thought to the above questions determine whether the firm can meet the needs of key clients from existing geographical locations, or whether it must consider new venues. Then consider the following:

1. It is necessary for the firm to be physically present where the client is located or is the firm better served utilizing existing resources to expand practically, while not physically?
2. Is a physical presence required to practice in the new location?
3. Would the firm be better served by utilizing technological resources instead of physical location expansion?
4. Are there marketing disadvantages by not having a physical presence even if the firm can service the legal needs of the client with a local presence? Could the firm lose out of opportunities by being out of site out of mind?

A geographical strategy must carefully consider and weigh the importance of personal contact.

Think through the process strategically and as a part of your planning process - run the numbers on a few scenarios - and weight the pros and cons of moving into other areas.

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John W. Olmstead, MBA, Ph.D, CMC

Focusing the Law Firm To Improve Profitability

Question:

Our firm is a 9 attorney firm in Joplin, Missouri. We have our first partner meeting this weekend and we are looking for ideas that we can implement this year to improve our practice and profitability. We would appreciate any ideas that you may have?

Response:

Based upon our experience from client engagements I have concluded that lack of focus and accountability is one of the major problems facing law firms. Often the problem is too many ideas, alternatives, and options. The result often is no action at all or actions that fail to distinguish firms from their competitors and provide them with a sustained competitive advantage. Ideas, recommendations, suggestions, etc. are of no value unless implemented.

I suggest the following:

• Recognize that unless your firm is a large firm - full-service may not be an appropriate strategy. Unless you are in a rural are small firms should identify fewer areas of practice and specialize and aggressively market these areas.
• Limit your practice
• Consider industry niches
• Identify three to five key goals and strategies for the year and actually implement them
• Be selective in client acceptance
• Use your business/marketing plan as a tool to keep you on track
• Create an environment in your firm for effectively getting decisions implemented

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John W. Olmstead, MBA, Ph.D, CMC

 

Law Firm Management - Planning Ideas for 2013

Question:

Our 16 attorney firm is having our first planning retreat next week to plan for 2013. I have been charged with putting together the agenda and program. Do you have any suggestions that we as a firm might consider or think about adopting? 

Response:

1. Take a serious look at the firm's present position in the marketplace. Review financials, compare against financial ratios, compare with both firm past history and against law firm benchmarks. Examine how well the firm is competing. Is the firm too dependent on a narrow base of clients? Is the practice at risk? Conduct a client survey and obtain client feedback both on firm performance as well as possible unmet needs and opportunities. Consider a comprehensive management review.
2. Formulate business goals and develop a strategic business plan as a roadmap for the future. Design and simplify business reports designed to measure the goals identified in the strategic business plan. Strive for a one page summary as the primary report.
3. Require all timekeepers in the firm to submit personal one page business plans which in addition to outlining goals for the year provided fee revenue goals with an element of stretch. The goals should have a stretch component but yet be realistic and attainable. These plans should be approved by the Executive Committee, Managing Partner or the Partnership.
4. Find ways to focus the firm and foster accountability from all.
5. Undertake a few projects at a time that can be realistically accomplished. Delegate tasks across the firm.
6. Law firms must adopt management structures that enables the firm to act decisively and quickly. Structures that do not support such a culture must be replaced.

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John W. Olmstead, MBA, Ph.D, CMC

Law Firm Owners and Partners - What is Your Primary Focus - Business Person or Lawyer?

Question:

I am an attorney in Chicago. I am the sole owner of an estate planning practice consisting of 4 other attorneys, 4 paralegals, and 2 administrative support staff members. We have reached a size where I am having problems handling and balancing the demands of serving my clients and managing my firm. It seems I am working day and night and have no time for anything but work. I am frustrated and it is driving my crazy? I would appreciate any thoughts that you may have.

Response:

You are not alone. This is a common problem in law and other professional service firms. I have similar problems in my own firm - it is very difficult to serve two masters - serving your clients and managing your firm. Eventually you have to pick one - client service (doing legal work) or managing and running your business - as the area that receives your primary focus. This is not to say that you should not do both - but you select the primary area that you are going to focus on and get help with the other area.

A question that I typically ask my new law firm clients - what do you want to be or do - be a business person or a lawyer. The answer to the question often provides a hint to how you should structure your firm. If you want to be more of a business person - hire legal talent to help with serving clients and performing legal work and spend more time working on your firm rather than in it. If you want to be more of a lawyer and do legal work and serve clients hire a legal administrator or business manager (this is more than an office manager) to manage and run your firm.

I have more and more owners of small law firms that are managing their law businesses and not practicing law. I believe the appropriate direction is what makes you happy and what type of work you enjoy doing. You practice should support and fulfill your personal goals, what you want out of life and what makes you happy. If that is managing - then manage. If that is doing legal work - do legal work.

Two great books on this subject are - The E-Myth Revisited and The E-Myth Attorney - available on Amazon. The theme of both of these books is:

• Work on your business rather than in it.
• Small business owners wear three hats - entrepreneur (10%); manager (20%); and technician (70%)

Small business owners often spend too much time being the technician (i.e. lawyering) and not enough time managing and innovating.

Think about where you want place the priority of your focus - working on firm (business) or in it.

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John W. Olmstead, MBA, Ph.D, CMC

Law Firm Branch Office - Key Issues

Question:

Our firm represents general business clients in Cleveland, Ohio. We have 37 attorneys. Currently we have only one office at the present time. As part of our planning process we have been discussing whether we should open a branch office in another major city in Ohio. What issues should we be thinking about?

Response:

Branching is being incorporated into more firm strategic plans. However, often the results do not meet firm expectations considering the time, effort and investment made. Overhead increases, anticipated opportunities do not materialize, management becomes more complex, resources are spread too thin, and the firm loses sight of its common identity.

Branching can be risky due to the dollars and managerial time investment. However, there can be significant benefits as well.

The starting point is to avoid knee jerk reactions such as branching because other firms are doing it, assuming that clients want you to have a presence in another geographical area, etc. Do your homework and build a business case for the branch office. Here are ideas to get you started:

1. Ask your clients what they think about the move. Is the move important to them?
2. Determine your objectives for the branch office. For example:

a. It meets the firm's strategies outlined in the firm strategic plan
b. Geographic expansion
c. Client requirements
d. Defensive measures
e. Convenience office for client meetings

3. Obtain and analyze quantitative data.

a. Client information obtained from meetings and surveys
b. Information concerning referral sources
c. Competitor analysis
d. Business growth market research

Build your business case (a business plan for the branch office if you will) and make sure that a branch office makes business sense for your firm. Create a pro forma budget and review the financial impact. If a branch office makes sense begin thinking about implementation issues such as staffing, actual location, management, etc.

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John W. Olmstead, MBA, Ph.D, CMC

Law Firm Business Plan Implementation and Accountability

Question:

Four years ago our 45 attorney firm developed and launched a strategic business plan. While we have implemented a few action items and achieved a few goals - overall our success has been dismal. What can we do to improve our success?

Response:

Many of our law firm clients tell us that they have problems with implementation and accountability. They debate the issues and develop elaborate strategic business plans but then have problems getting people to step up to the plate and help implement many of the tasks that have been identified. Often the problem with business or strategic plans is more the "who" than the "what." Getting partners to come forward and be willing to be held accountable for results is a major challenge - especially- in lone ranger firms where partners are not accountable to each other.

Often firms are strong on ideas but weak on implementation. Typically, there is lack of management and structure and a general lack of leadership and focus. Communication is generally poor. Partner compensation systems are often not defined nor tied to goal attainment or performance.

What makes strategic management projects so difficult is that they are often complex and results are not immediate and are often delayed into the future. It is extremely hard for a group of attorneys to focus on strategic long term projects when they are up to their elbows in daily crisis. Lawyers must learn how to effectively partition their routines to enable an appropriate focus on long term projects. Lawyers must learn to think differently. This will require changes in skills, behaviors and working relationships.

The primary problems facing law firms are accountability, implementation, follow-up, and a reluctance to explore new ways of delivering legal services. Partners must begin to raise their hands and sign up for special firm management projects and be accountable to other members of the firm.

Any good plan has an action item section with a timeline built into the plan with due dates and names of responsible parties next to each of the action items. Unless there is an action plan with consequences for non-compliance - there is little chance of success.

Also suggest that the firm discuss the issue of accountability in general. A group of lone rangers often have little chance of implementing firm level strategies.

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John W. Olmstead, MBA, Ph.D, CMC

Using Competitive Intelligence to Support Law Firm Strategy

Question:

I am managing director of a 45 attorney firm in Pittsburg. Due to changes in our client industries, competition from both regional and national law firms, and shrinking demand we are starting to work on our first strategic plan. I have been hearing a lot about competitive intelligence. Should this be part of our planning process?

Response:

Competitive intelligence is a popular term being used to describe information gathering (secondary research) on your clients, client industries, prospective or target clients, competitors, geographic markets, emerging practice areas, etc. Its goals are to provide actionable intelligence that provides a competitive edge. It reduces risk and identifies opportunities.

All strategic plans should contain a secondary research (competitive intelligence) component. Research objectives might focus on one or all of the following:

1. Identify prospects
2. Spot litigation activity for current and prospective clients
3. Identify emerging litigation issues and trends
4. Improve the quality of your client proposals
5. Identify lateral candidates
6. Identify potential acquisition and merger partners
7. Identify emerging client and industry needs
8. Identify emerging new practice areas
9. Explore expansion into new geographic locations

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John W. Olmstead, MBA, Ph.D, CMC

Law Firm Staff Investment - A Sound Marketing Strategy

Question:

Our Chicago firm of 14 attorneys has been discussing various marketing investments that we should be considering. We have a very proactive marketing program but want to insure that we are exploring all avenues. What are your thoughts?

Response:

Invest in your people – your staff - your intellectual capital.

I am amazed at the minimal investment that law firms make in their staff. Law firms are in the knowledge business and their product is their intellectual knowledge. While law firms do invest in their attorneys, such is not the case with the staff. Although staff members are often on the front lines in dealing with clients, very few law firms are providing them with skill training in areas such as communication, marketing, client service, conflict management, effective writing and speaking, time management, computer applications, client complaint management, etc. By the way, attorneys need training in these areas as well. Why do law firms hire the cheapest talent they can find to fill the receptionist position when it is the receptionist who often has the initial contact with a new client. I find it amazing that firms spend huge amounts of money on advertising and marketing and they fail to invest in the other tools needed for effective new client intake. Small firms should consider assigning their receptionist the role of marketing coordinator with responsibility for assisting in the management of client relationships and the firm’s marketing program.

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John W. Olmstead, MBA, Ph.D, CMC

Growing a Law Firm: Issues to Think About

Question:

Our practice is located in Memphis. We have three attorneys, 3 paralegals, and two staff members. We will generate $1,500,000 in legal fees this year. We plan on growing the firm and hope break the $2.5 million barrier in three years. We have a very proactive marketing plan and program. What else do we need to think about?

Response:

Growth will involve more the marketing and getting more clients. Particularly a firm your size. To generate this revenue you will have to add several revenue producers which could almost double your size. Your will become a different firm. Instead of three attorneys - you may have six or seven unless your growth will occur by adding mostly paralegals. Even so, there will be more people. This will impact your physical facilities and physical plant, your systems, your IT infrastructure, approach to talent management, and how the firm is managed. Growth requires investment and puts strain on cash flow. So this needs to be planned for. If you don't have a strategic plan (see our blog under strategy section) I suggest that your consider developing one. A strategic plan will require you to think beyond the marketing plan and getting clients - and address all of the other issues that will impact the firm as you grow.

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John W. Olmstead, MBA, Ph.D, CMC