Business Development in the Economic Downturn

At the recent Legal Marketing Association annual conference, I was interviewed by Incisive Media, publisher of countless legal trade journals, organizers of legal conferences and provider of competitive intelligence tools to legal marketers. I was asked how law firms can adapt their legal marketing tactics in light of the economic downturn. You may view the short interview here.

A Note on Reducing Law Firm Associate Compensation

A recent op-ed in the New York Times stated the obvious point, at least for readers of this blog, that some of the mechanics of the legal profession are in dire need of updating.  The author specifically identifies associate compensation as a leading target for significant revision. The author is right, of course, on several points.  Associates at large firms enjoy generous starting compensation packages that by comparison to entry level legal jobs in the public sector, or in small firms, or frankly to entry level jobs anywhere, appear disproportionately large.  Implicit in the piece is the burden these high fixed costs present to law firms who have experienced a fairly sudden and substantial decrease in demand for legal services.

Not expressed in the article, but known to observers of the legal profession, are two additional challenges:  newly graduated lawyers are by and large not prepared to practice law; and they don't stay long enough to generate sufficient profits to pay for their own learning curve.  So large law firms are paying substantial wages to green recruits, trained to think and act like a lawyer, but not yet ready to lawyer, and then incurring additional expenses for on-the-job training. Some of this learning curve has been subsidized by clients, many of whom are finally asserting that their high legal fees should buy senior lawyers with deep experience rather than a host of trainees inefficiently learning while doing.

The author suggests a drop in associate compensation is needed, from $160,000 in major cities to perhaps $100,000. This suggestion will no doubt rally the snarky set who frequent the legal tabloids:

“YOU feel sorry for THEM? ...the spoiled Ivy grads - who lost their silver spoon overpaid jobs that they never deserved in the first place, because they only billed 1600 hours and half of that was padded time anyway . . . wah wah wah!”

The simple fact of the matter is, when demand for labor declines then labor rates decline.  It's no more nor less justified or "right" than in recent years when demand for labor was high and labor rates for the most desirable new lawyers increased.

But is it enough?  I don't believe reducing associate compensation, or laying off staff members, is even close to approaching the solution.  And I'm not even referring to the crying need to reduce partner compensation, or even to cull the partner rolls -- even though doing so would be in keeping with the declining demand-declining labor rate equilibirum impacting associates.  No, to "solve" the challenges facing the legal profession requires a re-think, as the New York Times writer suggests.  But rather than limit the conversation to compensation and overhead and billing rates, it's time to take a good hard look at how law is practiced.

In any industry, the inexorable encroachment of technology or innovation provide new entrants with advantages that can disintermediate or displace incumbents.  Refer to any grammar school text book for a recap of how Eli Whitney's cotton gin transformed the postwar Southern agricultural industry.  Undoubtedly there were a few cotton pickers whose jobs and wages were disrupted.  Henry Ford's assembly line turned the automobile from a quaint toy for the wealthy into a necessary tool for modern life, shrinking the continent and making suburban life practical... and wreaking havoc on the proverbial buggy whip manufacturer.  The story continues, from the invention of the computer to the Internet to eBay to Amazon's "one-click" business method to global positioning satellites to asset securitization and so on.  In the march of human progress when we find a better, cheaper, more effective alternative, we shed a tear for a nostalgic moment and then we move on.

It's time that the typical law firm of today take a good hard l0ok at modern business practices such as governance structures which improve rather than impair organizational effectiveness; supply chain management techniques to eliminate redundant and unprofitable workflow steps; the application of technology to automate repetitive tasks; the use of alternative fee structures to promote efficiency and reward successful outcomes rather than time.

Some of these topics have been promoted before. Very few law firm leaders haven't heard the drumbeat of alternative fees, for example.  But what has been lacking is specific, actionable, quantifiable information to demonstrate how these business practices will improve the practice of law for both the suppliers -- the law firms -- and the consumers -- the clients.

No more, I say.  Let's move from theory to practice.  We will address these topics in more detail in this blog in the coming weeks.  Stay tuned.

For another perspective, read Ron Friedmann's reaction to the NYT article here.

Law Firm Leaders – Save Money Now By Cutting Marketing!

One truism in any economic downturn is that marketers will unfurl the union banner which reads “Good companies grow share by expanding marketing while others cut.” Another truism is that business leaders, when faced with an economic slowdown, will often apply the cost-cutting scythe to all departments in the interest of fairness, suggesting that every department should bear its proportionate share of the burden. You may note that these approaches are mutually exclusive. Both can’t possibly be right. However, both approaches, if interpreted or executed incorrectly, can be dead wrong.

Of course there is truth to the historical notion that when some companies hunker down and cut costs, others spend more to fill the ensuing vacuum, raising visibility and name recognition. But this doesn’t mean that whatever you spent last year on Marketing should be the same or more this year.

The more critical analysis is how you invest in Marketing, not how much you spend.

I’m writing this as I travel to the Legal Marketing Association’s annual conference where for the next several days I will hear (and deliver) commentary to legal marketers, and any number of fantastic ideas will be proffered. The ever-present challenge in the legal marketing arena is not a paucity of good ideas; it’s an inability to execute these ideas.

I engaged in an interesting dialog with a large law firm partner, who was typically harried, intense and exceedingly bright. He described his marketing needs as simple: “We need someone to track all of our completed deals so they can be searched by client, region and type. Then the marketer needs to be able to quickly pull this info and plug it into an RFP template to send to the client.” My first reaction was that he didn’t need a marketer at all; all he needed was an Excel spreadsheet that his secretary could maintain. After a bit more analysis, I learned that the partner and others in his practice had a dismal win rate on RFPs, in part because they didn’t understand that strong relationships with clients can often win work without an RFP.

A veteran partner at another firm, a bit long in the tooth and primarily a service partner, lamented that he was not comfortable “working a room” in the same manner as his successful rainmaking partners did with ease, so he preferred to sponsor client events such as the cocktail reception at an industry annual convention. He deserves credit for spending time in the client’s backyard. But when he described the benefits derived from his sponsorship (essentially the firm logo on the cocktail napkins and a polite podium mention from the association president) it was clear there was very little value obtained for the significant investment.

I engaged in a dialog with a bright, energetic young partner in a mid-size firm who was eager to learn rainmaking skills. “We’ve arranged an introductory meeting with a manufacturer across town, but we need to know how many partners to invite in order to fully present our capabilities.” The intended approach was to present several of the firm’s practices to a polite audience of in-house counsel, in the hopes that this would win work.

Some lawyers reading the above anecdotes will recognize these recurring challenges and wonder why I find fault.  In fact, some marketers who have learned their craft in traditional law firm settings will ask the same. But savvy marketers will attack:

“In the first example, the partner should focus on identifying, establishing and growing key client relationships, and rely on RFPs only as a last resort. A well-oiled machine that efficiently plays your 78-rpm phonograph records in an MP3 world is still a waste of time.”

Others will declare:

“Eliminate all sponsorships that don’t provide a public speaking opportunity, and if you get stage fright then bring a colleague who doesn’t.”

Finally, some will advise:

“When you first meet with a potential client, your objective is to learn their business and not to promote yourself and your capabilities. How could you possibly know what challenges they face if you don’t ask?”

Marketing carries so many different meanings. For lawyers who have enjoyed the luxury of a generation of near unlimited demand for legal services, Marketing is nearly synonymous with high-end administrative support. It’s event planning, brochure writing and writing elegant prose about how wonderful we are. For the rest of the business community, Marketing is about identifying optimal target markets, taking steps to increase visibility and demonstrating expertise in these markets, understanding client concerns and then developing and offering solutions to address these concerns.

When the expense reduction committee turns its attention to Marketing department, I suggest it’s less impactful in the long run to view Marketing as a collection of fixed and variable expenses and people comprising a cost center. Focus instead on what the firm is doing to articulate its strategy, pursue clients and prospects, enter new markets, replicate financially successful engagements, improve inefficient operations and thus elevate the service posture, and protect and defend its key client relationships. If the red pen you wield in the budget discussion doesn’t directly improve any of these metrics, then what’s the point? You can continue to reduce expenses across the board without regard to what generates revenue, but this won’t buy enough time until client demand returns to previous levels. That train has left the station. Don't cut "marketing expenses." Rather, cut the wasteful expenditures and activities which have little impact in generating new revenue.

What’s needed right now, more than ever, isn’t an expense reduction committee. It’s a revenue generation committee. It should be the first firm-wide committee. All hands on deck. And for those who are too busy or disinterested to participate, you can still put your red pen to use by circling your name as an ineffective investment.

Tough Times Need To Be Acknowledged

Today's blog post by Dilbert creator Scott Adams brought back fond memories. He mentions a work group that ordered team mugs imprinted with an unintentionally inappropriate acronym. Many of us have been part of these teams at work. A cross-functional team is pulled together to build a new product or tackle a major assignment and as part of the team-building process they order mugs or shirts with a snappy new logo or saying. Fairly harmless, except when the brain power exerted to come up with a slogan exceeds the effort directed to the project itself!

I had a related experience many years ago. The business I ran was a traditional print publisher poised on the precipice -- either retool and remain relevant in the digital age, or hide under the covers and hope for the best. A colleague and I decided to bring together a large group of our employees to share what we saw in the market and what it meant for our business, laying the groundwork for what would likely be years of fundamental change. The troops were not unaware of the market turmoil, but recent management changes and apparent random cost-cutting had left a wake of confusion. Our HR colleagues strongly recommended against sharing facts with employees (a stance to which they continue to adhere, presumably assuming employees left in the dark are productive employees). Since we were insistent on proceeding, HR decided to boycott the session so they wouldn't be held accountable for too much information sharing.

Essentially the message we wanted to send was one of hope. Yes the markets were battering us, and yes the corporate parent was tone deaf to our plight and continued to cut our expenses while increasing our revenue and profit targets, but nevertheless we had a plan to succeed and we needed everyone to pull in the same direction. Due to low morale, we had mugs printed with the slogan "The pride is back" alongside a photo of a majestic lion. Corny symbolism, but it served as one small token of the pride we felt in our history and our future. As with most tokens of this sort, many of the employees embraced the message, a few laughed and few weren't moved at all.

After a nice lunch and more than enough talking heads, we dismissed the employees back to their cubicles to finish out the day. By that evening, HR had convinced one of our new senior leaders that our slogan might be interpreted as a sign of looming trouble for our business. So later that evening they methodically visited each cubicle, taking away the mugs and destroying them. They left no note, no explanation, and refused to discuss the matter with me or my colleague. They would not acknowledge the mug theft program the next day when employees entered their cubes and found the mugs gone. Nothing was ever said. After all, if you don't speak about bad news, it won't happen. The symbolism of confiscating and destroying the mugs so the employees wouldn't lose morale had, as you might imagine, the opposite effect.

Several years of more profit squeezing and a determined failure to invest and I moved on. Since then the company has, naturally, lost tens of millions of revenue and profit, irreparably harmed goodwill with legions of customers, and been deemed irrelevant if not a laughing stock by industry insiders. A senior leader at the parent company predictably blamed prior management, claiming everyone failed to note the market changes.

How many business leaders today are afraid to speak openly about the challenges every industry and every business faces? How many leaders pay more heed to their "mug police" advising them to stay mum because potential legal liability or bad press is far worse than addressing the challenges head on, with conviction and bold action? Too many. Tough times should be addressed. The vast majority of employees are grown ups who manage to get dressed every day, raise their families, send kids to college, make it to work every day without the kindly mother ship directing their every move! Sharing tough times with employees doesn't mean you've somehow created a lifetime employment contract. They know there will be cost-cutting and even layoffs. But I'd much rather foster a work environment where employees know why things happen than one where we purposely keep everything secret out of a misguided sense of fair play.