Managing the Firm in a Slowly Recovering Economy
While there are signs of an improving economy, revenue continues to be down by 5-10% for some of our clients. The difference between firms that are doing well and those that continue to struggle is often attributed to leadership and management. The following guiding principles have served many firms well over the past two years:
Lawyers often say that they love serving clients, but they hate the business aspects of practice law. Those laywers are particularly vulnerable in an economic downturn because they do not have tools to evaluate their condition and take remedial action. Panic is a typical response, but the better course is to recognize the improtance of calm leadership that is open to making changes and embracing management issues in a deliberate fashion.
Don't ignore the emerging issues. Too many lawyers in small firms tend to practice the same way as they did the day before, day after day after day. Over the years, many firms have lacked the leadership necessary to address issues and move the firm to a higher level or position it for greater success in the future. For these firms, the first step is to take the steps necessary to understand how the economy is affecting the firm. Then address the issues presented with both common sense and a willingness to challenge the firm's business procedures and practice methods.
UNDERSTAND THAT NEEDED CHANGES IN THE PRACTICE OF LAW ARE PERMANENT
Avoid, at all costs, the belief that if your firm rides out the recession, things will be back to normal and you can continue practicing as you did five and ten years ago. Nothing is further from the truth. Businesses are recognizing that success in the future requires an appreciation of the world as it is, not as it was. What made you successful in the past will not make you successful in the future. It is time to re-evaluate your business model and join the 21st century.
PRESERVE A LONG TERM STRATEGY
No matter what the issue, take a balanced approach. Make no decision without weighing both the short term advantage and the long term affect on the firm. Layoffs, if necessary, should be limited to those marginal lawyers and staff personnel who are not critical to the long term success of the firm. To the extent possible, hold on to core people critical to the long term success of the firm.
We are continuing to see a movement away from hourly billing and in favor of altenative methods that offer the client both predictability and a fee that equates to value to the client. The number of law firms using alternative billing methods has risen dramatically. Many of those firms are growing and prospering in spite of the recession For the first time ever, a majority of corporate counsel expect their outside layers to offer alternative fee methods. The time is here. No firm should ignore this trend. Learning to price services other than by counting hours will be essential to a firm's future success.
Do You Know...
...WHAT THE COST OF ASSOCIATE TURNOVER IS IN YOUR FIRM?
Those who have done the analysis have determined that the cost of replacing one associate is over $50,000 in small firms and as much as $200,000 in some of the largest law firms. The cost of associate turnover can seriously affect the profitability of your law firm. Recruiting costs, bringing a new associate up to speed on files and writing off most of that time, client dissatisfaction, and partner inefficiency all go into the analysis. Associate turnover can be avoided by developing effective associate programs with efficient delegation, constructive evaluations, and career planning.