Trust is as vital as any factor in developing successful business relationships – and is at the core of the strategies we pursue in our Profitable Partnerships Programme. In an effort to engender trust earlier in the relationship-building process, many professionals spend huge amounts of time and money trying to establish credibility.
The key to building trust with clients, allies and prospects lies in recognising what leads people to trust us, and in having strategies that help to demonstrate our trustworthiness. Establishing credibility is certainly one element, but just as important are building rapport and demonstrating reliability.
Establishing Credibility
Credibility is all about self-presentation – how professional do we come across; how user-friendly is our website; do we have sufficiently glowing client testimonials? This is all a necessary precondition for building trust, but it is far from sufficient.
Building Rapport
Rapport is quite a different matter, and is far harder to develop than a website. It is a question of empathy and showing that we understand the client’s concerns, asking clarifying questions and engaging with them in a two-way discussion.
Demonstrating Reliability
Of these elements of trust, reliability is the slowest and most difficult to demonstrate. Credibility and rapport are generally established up front, whereas reliability requires that we can show our ability to make and keep promises.
Thus, the key factor in building trust is having a system to keep promises. This could involve directing someone to valuable resources, inviting them to an event, or sending them your client bulletin or newsletter.
The important thing is to recognise the role of trust in business development, and to employ a strategy to build trust as quickly as possible. Fee earners and partners alike who follow this route can reap the benefits.
Monday, 14 June 2010
Friday, 14 May 2010
Value Pricing
Without doubt one of the biggest concerns that comes up in conversation with clients and contacts in the legal world is the fear of having to quote competitive fixed fees, the impact that will have on business – and how to respond. With economic pressures likely to be compounded by the implications of the Legal Services Act, this is an issue that will be with us for some time – and could dominate the management agenda throughout 2010 and beyond. Our experience is that, with the right training and the ability to understand the context of the assignment, solutions can readily be reached.
The Old Approach
The culture of the legal industry epitomises the hourly-billing approach – which places the burden of risk squarely on the shoulders of the client, with a focus on efforts rather than results and little incentive for an efficient approach to case management. Aside from the effect on work-life balance, charging by the hour inevitably leads to price competition – and a ceiling on earnings.
In the legal sector of old, this limit on potential earnings was barely perceptible, as charge-out rates increased year-on-year and firms returned ever healthier looking profit figures. However, this world is gone and the flaw in the system has been fully exposed. Hourly billing leaves only two possibilities for increasing revenues – charge more per hour; or work more hours. When these options are unpalatable to either clients or fee earners, a fundamental shift is necessary.
A New Paradigm?
The shift to pricing by value is not a difficult one to make, but it does not happen overnight. Partners and business developers need to become practiced in when and how to hold the conversation, fully comprehending the process to enable them to clarify the value up front, and creating payment schedules that reflect the value delivered at each stage of delivery.
The benefits, however, will be worthwhile. Demonstrating value, and being remunerated accordingly, helps to develop trust and build a credible reputation, and brings with it invaluable opportunities for cross-selling and soliciting referrals.
The Old Approach
The culture of the legal industry epitomises the hourly-billing approach – which places the burden of risk squarely on the shoulders of the client, with a focus on efforts rather than results and little incentive for an efficient approach to case management. Aside from the effect on work-life balance, charging by the hour inevitably leads to price competition – and a ceiling on earnings.
In the legal sector of old, this limit on potential earnings was barely perceptible, as charge-out rates increased year-on-year and firms returned ever healthier looking profit figures. However, this world is gone and the flaw in the system has been fully exposed. Hourly billing leaves only two possibilities for increasing revenues – charge more per hour; or work more hours. When these options are unpalatable to either clients or fee earners, a fundamental shift is necessary.
A New Paradigm?
The shift to pricing by value is not a difficult one to make, but it does not happen overnight. Partners and business developers need to become practiced in when and how to hold the conversation, fully comprehending the process to enable them to clarify the value up front, and creating payment schedules that reflect the value delivered at each stage of delivery.
The benefits, however, will be worthwhile. Demonstrating value, and being remunerated accordingly, helps to develop trust and build a credible reputation, and brings with it invaluable opportunities for cross-selling and soliciting referrals.
The Business of Relationships
In a hectic business world of networking events, seminars and conferences, a systematic campaign to keep in touch with key contacts is a crucial strategy for maintaining the sustainable business development pipeline.
When it can take 15-20 interactions to turn a relationship into business, and when business roles and relationships are becomingly ever more transient, the danger of forgetting – or being forgotten by – an important contact is an increasingly significant concern.
Cultivating Contacts
Some lawyers will need to keep in touch with many people on a frequent, but perhaps a slightly more impersonal, basis. Others will need to cultivate fewer, deeper relationships with key sources of business. Both have inherent dangers, of being known to many people but trusted by few, or of putting too many eggs in too few baskets, but a successful Keep in Touch strategy will combine the two approaches.
The Broadcast Media
Keeping in touch regularly with a large pool of contacts can be done relatively easily through a generic contact system – such as a newsletter(!). Of course, key personal contacts will also receive this, but it is an ideal way to ‘touch base’ with many people on a regular basis, without the drain on resources (physical and financial) associated with constant networking or generic advertising.
The Personal Touch
Within this larger pool of contacts there will, of course, be the crucial people with whom we have good personal relationships and who are consistent sources of profitable business. These people naturally deserve a more personalised approach, but this should still be monitored systematically so that they are not lost under the mountain of fee-earning work (which will constantly need replacing in any case, if the business development pipeline is to flourish).
Profitable Relationships
Keeping in touch with clients, allies and prospects forms a crucial part of the sustainable business development pipeline – an approach that underpins our Profitable Partnerships Programme, helping partners and key solicitors measurably improve business development and profitability.
When it can take 15-20 interactions to turn a relationship into business, and when business roles and relationships are becomingly ever more transient, the danger of forgetting – or being forgotten by – an important contact is an increasingly significant concern.
Cultivating Contacts
Some lawyers will need to keep in touch with many people on a frequent, but perhaps a slightly more impersonal, basis. Others will need to cultivate fewer, deeper relationships with key sources of business. Both have inherent dangers, of being known to many people but trusted by few, or of putting too many eggs in too few baskets, but a successful Keep in Touch strategy will combine the two approaches.
The Broadcast Media
Keeping in touch regularly with a large pool of contacts can be done relatively easily through a generic contact system – such as a newsletter(!). Of course, key personal contacts will also receive this, but it is an ideal way to ‘touch base’ with many people on a regular basis, without the drain on resources (physical and financial) associated with constant networking or generic advertising.
The Personal Touch
Within this larger pool of contacts there will, of course, be the crucial people with whom we have good personal relationships and who are consistent sources of profitable business. These people naturally deserve a more personalised approach, but this should still be monitored systematically so that they are not lost under the mountain of fee-earning work (which will constantly need replacing in any case, if the business development pipeline is to flourish).
Profitable Relationships
Keeping in touch with clients, allies and prospects forms a crucial part of the sustainable business development pipeline – an approach that underpins our Profitable Partnerships Programme, helping partners and key solicitors measurably improve business development and profitability.
Friday, 16 April 2010
Transforming the Business Development Process
Most fee-earners fail at Business Development because the typical sales process involves a combination of constant networking, fishing for introductions, and some direct marketing. This can be an exhausting and demoralising road to travel, and ultimately leaves an insecure pipeline of often small, one-off invoices – not to mention the high cost of sale and the time this takes away from other fee-earning work.
Repositioning Professional Services
However, you can avoid Business Development failure by changing tactics. The crucial tactic in transforming business development is to position yourself so that clients seek you out, rather than the other way around. This does not happen overnight, but the rewards will be worthwhile. The most important criterion in this strategy is that fellow professionals must be able to identify who your ideal clients are. We outlined five key strategies to this end in Sustainable Business Development Post-Recession.
Soliciting Referrals
Getting referrals from satisfied clients should form a key part of any professional’s business development pipeline. However, many find it difficult to hold the conversation – whether through lack of confidence or simply not finding ‘the right moment’. The timing of the conversation is important, as the perceived value of a service diminishes after the service has been delivered. Therefore, during delivery or immediately after successful completion (over lunch) are favourable times to ask for referrals.
Strategic Allies
Just as professionals can expect to achieve more by operating in a niche market, so the benefits of allying with strategic partners in niche markets can be considerable. There is, of course, the danger of relationships becoming unequal or falling by the wayside. However, when nurtured properly, strategic alliances can bring financial rewards to both sides, as well as the ‘kudos’ of introducing a trusted service provider to a key client and, of course, excellent service for the client.
Approaching Business Development in this way will bring a far lower cost of sale and will help to feed a sustainable pipeline of new instructions. Moreover, this approach will free up more time – for chargeable work; for business management; and, ultimately, for life.
Repositioning Professional Services
However, you can avoid Business Development failure by changing tactics. The crucial tactic in transforming business development is to position yourself so that clients seek you out, rather than the other way around. This does not happen overnight, but the rewards will be worthwhile. The most important criterion in this strategy is that fellow professionals must be able to identify who your ideal clients are. We outlined five key strategies to this end in Sustainable Business Development Post-Recession.
Soliciting Referrals
Getting referrals from satisfied clients should form a key part of any professional’s business development pipeline. However, many find it difficult to hold the conversation – whether through lack of confidence or simply not finding ‘the right moment’. The timing of the conversation is important, as the perceived value of a service diminishes after the service has been delivered. Therefore, during delivery or immediately after successful completion (over lunch) are favourable times to ask for referrals.
Strategic Allies
Just as professionals can expect to achieve more by operating in a niche market, so the benefits of allying with strategic partners in niche markets can be considerable. There is, of course, the danger of relationships becoming unequal or falling by the wayside. However, when nurtured properly, strategic alliances can bring financial rewards to both sides, as well as the ‘kudos’ of introducing a trusted service provider to a key client and, of course, excellent service for the client.
Approaching Business Development in this way will bring a far lower cost of sale and will help to feed a sustainable pipeline of new instructions. Moreover, this approach will free up more time – for chargeable work; for business management; and, ultimately, for life.
Tuesday, 13 April 2010
“We Never Used To Have An Overdraft”
One of the most common complaints we hear from managing partners is ‘we never used to have an overdraft, but . . .’
In recent years, reliance on overdraft funding has become so widespread that many firms now operate on near-permanent facilities, prompting the accusation from some quarters that banks are seen as providers of ‘quasi-equity’. This dependence on bank funding is one of the (numerous) problems that has emerged from the industry’s single-minded focus on Profit per Equity Partner.
Profit is an Opinion . . .
Focusing purely on PEP has led to the booking of ever-increasing amounts of Work in Progress – which would be fine, if all WIP was billed. However, as WIP contributes to profits before the work is billed, there has been no disincentive to prevent firms from increasing WIP (often only to write it down at a later date). By this time, however, the profits have been posted – and, in many cases, distributed to the partners. Furthermore, the generation of WIP creates a tax liability to be paid. In this way, partners have been drawing on unrealised profits, and the only way to fund this and meet tax obligations has been through increased borrowings.
But Cash is a Reality
The flip side of this coin is that equity partners come to expect a certain level of drawings – especially when the firm is achieving stellar levels of profits ‘per equity partner’. The cycle is thus self-perpetuating, and this has an undermining effect on the firm’s cash flow and balance sheet (an issue to which we will return).
Our repeated mantra is that ‘What Gets Measured Gets Better.’ Until firms get off the treadmill of ever-increasing targets for PEP and learn to focus on measuring cash generation, financial management in law firms will be a continuing uphill struggle – and lenders will not become more sympathetic.
In recent years, reliance on overdraft funding has become so widespread that many firms now operate on near-permanent facilities, prompting the accusation from some quarters that banks are seen as providers of ‘quasi-equity’. This dependence on bank funding is one of the (numerous) problems that has emerged from the industry’s single-minded focus on Profit per Equity Partner.
Profit is an Opinion . . .
Focusing purely on PEP has led to the booking of ever-increasing amounts of Work in Progress – which would be fine, if all WIP was billed. However, as WIP contributes to profits before the work is billed, there has been no disincentive to prevent firms from increasing WIP (often only to write it down at a later date). By this time, however, the profits have been posted – and, in many cases, distributed to the partners. Furthermore, the generation of WIP creates a tax liability to be paid. In this way, partners have been drawing on unrealised profits, and the only way to fund this and meet tax obligations has been through increased borrowings.
But Cash is a Reality
The flip side of this coin is that equity partners come to expect a certain level of drawings – especially when the firm is achieving stellar levels of profits ‘per equity partner’. The cycle is thus self-perpetuating, and this has an undermining effect on the firm’s cash flow and balance sheet (an issue to which we will return).
Our repeated mantra is that ‘What Gets Measured Gets Better.’ Until firms get off the treadmill of ever-increasing targets for PEP and learn to focus on measuring cash generation, financial management in law firms will be a continuing uphill struggle – and lenders will not become more sympathetic.
Tuesday, 6 April 2010
“Thinly Capitalized Workers’ Cooperatives”
Back in November of last year, we wrote that the upturn would present significant difficulties for overstretched firms, in terms of working capital and funding requirements (see The Growth Imperative). As far back as May 2009, we commented that surviving the downturn would require a re-prioritisation of cash flow above profits and other traditional measures of success within the sector (see Cash is King in Recession).
So we may perhaps be forgiven for feeling a little smug on reading this piece in the Times a couple of weeks ago, which describes the huge increases in borrowing right at the top end of the market. It seems that even the top firms in the country are still shying away from tough conversations with the partners about the level of capital they have invested in the business – and that, for now, the banks are still prepared to fund firms playing at this level.
Two of the banks have been repeatedly telling us that their lending to the legal profession has increased over the last year – and we have taken that to start with a much greater use of facilities by the good risks.
What is not clear to us is whether this uptake at the top of the market potentially squeezes the amount available to others – or whether there is still plenty of lending capacity for ordinary firms.
An Alternative Approach
For many firms going back to the bank manager for yet more overdraft funding is simply not an option today. As the Times article suggests, firms in this category will find it difficult to fund growth in the recovery, and (perhaps even more pertinently) will be a wholly unattractive prospect to investors when external capital enters the market in the next couple of years. There has to be an alternative approach for the “Thinly Capitalized Workers’ Cooperatives” that make up the majority of the profession.
There is really only one viable alternative approach: become a better managed, financially stronger business.
. As we have written before, since the balance sheet must balance, reducing lock-up will reduce correspondingly the level of debt (or equity) required to fund the firm’s assets. This is no longer just a desirable approach; it is an essential one for any firm hoping to succeed in the next couple of years.
. Partners must learn to recognise that they are business owners – and must behave accordingly. Decisions must be taken by the firm’s management, in the interests of the firm as a whole. The days of partners running their own personal fiefdoms, with ‘their’ clients and ‘their’ staff, are gone in any serious business.
. Business development should be accorded the priority it deserves. Steady income streams will not come from haphazard initiatives, and staff must be given the requisite training to ensure they can manage a sustainable pipeline of regular instructions.
Taking Responsibility
This approach does not remove the necessity for increased contributions from the partners. A well-managed, financially successful business is one in which the owners (i.e. the partners) have a significant stake, and for which they take responsibility. This means that prosperous law firms can no longer afford such thin capital ratios, especially in an increasingly competitive market. It’s high time for tough conversations – as well as a tough approach to financial management and business development.
So we may perhaps be forgiven for feeling a little smug on reading this piece in the Times a couple of weeks ago, which describes the huge increases in borrowing right at the top end of the market. It seems that even the top firms in the country are still shying away from tough conversations with the partners about the level of capital they have invested in the business – and that, for now, the banks are still prepared to fund firms playing at this level.
Two of the banks have been repeatedly telling us that their lending to the legal profession has increased over the last year – and we have taken that to start with a much greater use of facilities by the good risks.
What is not clear to us is whether this uptake at the top of the market potentially squeezes the amount available to others – or whether there is still plenty of lending capacity for ordinary firms.
An Alternative Approach
For many firms going back to the bank manager for yet more overdraft funding is simply not an option today. As the Times article suggests, firms in this category will find it difficult to fund growth in the recovery, and (perhaps even more pertinently) will be a wholly unattractive prospect to investors when external capital enters the market in the next couple of years. There has to be an alternative approach for the “Thinly Capitalized Workers’ Cooperatives” that make up the majority of the profession.
There is really only one viable alternative approach: become a better managed, financially stronger business.
. As we have written before, since the balance sheet must balance, reducing lock-up will reduce correspondingly the level of debt (or equity) required to fund the firm’s assets. This is no longer just a desirable approach; it is an essential one for any firm hoping to succeed in the next couple of years.
. Partners must learn to recognise that they are business owners – and must behave accordingly. Decisions must be taken by the firm’s management, in the interests of the firm as a whole. The days of partners running their own personal fiefdoms, with ‘their’ clients and ‘their’ staff, are gone in any serious business.
. Business development should be accorded the priority it deserves. Steady income streams will not come from haphazard initiatives, and staff must be given the requisite training to ensure they can manage a sustainable pipeline of regular instructions.
Taking Responsibility
This approach does not remove the necessity for increased contributions from the partners. A well-managed, financially successful business is one in which the owners (i.e. the partners) have a significant stake, and for which they take responsibility. This means that prosperous law firms can no longer afford such thin capital ratios, especially in an increasingly competitive market. It’s high time for tough conversations – as well as a tough approach to financial management and business development.
Tuesday, 23 March 2010
Sustainable Business Development Post-Recession
In a tough economic climate, all firms should be focusing on getting more work from existing clients and contacts. This means a strong and clear focus on the firm’s strengths, cross-selling and up-selling, referrals from satisfied clients, and introductions from allies. However, the first stage in a sustainable business development programme is to set the standards and to establish the vision – to ensure that the firm’s client base is developing in line with the business plan.
Setting the Standards
Solicitors are professional people, and they respond well to being treated as such. Imposing ‘targets’ to which they should aspire is unlikely to elicit a sustainable positive response. Setting ‘standards’ together with the team concerned, to which they all agree they will conform, generates engagement and means that underperformers cannot claim unfair treatment.
The approach should be one of ‘what gets measured gets better’. If we measure number of chargeable hours, this is what people will focus on. If we also focus attention on the other factors that really impact on the top and bottom lines – new client take-on; new instructions; referrals; realisation rates; billing; collections – then we will see commensurate improvements in these areas of the business development pipeline.
Establishing the Niche
This is a subject we are covering in greater depth in training course throughout the Spring.
Setting the Standards
Solicitors are professional people, and they respond well to being treated as such. Imposing ‘targets’ to which they should aspire is unlikely to elicit a sustainable positive response. Setting ‘standards’ together with the team concerned, to which they all agree they will conform, generates engagement and means that underperformers cannot claim unfair treatment.
The approach should be one of ‘what gets measured gets better’. If we measure number of chargeable hours, this is what people will focus on. If we also focus attention on the other factors that really impact on the top and bottom lines – new client take-on; new instructions; referrals; realisation rates; billing; collections – then we will see commensurate improvements in these areas of the business development pipeline.
Establishing the Niche
Service professionals can develop a more prominent reputation, and usually charge rates accordingly, when they operate in a ‘niche’ area. Developing a niche takes time, but the rewards will be worthwhile. Therefore, all key fee earners should be asked to identify their own potential niche, clearly in line with the firm’s and the team’s reputation and strategic direction.
In this way, the key people throughout the firm develop a clear vision as to what they plan their client base will look like, and this can form the basis for a ‘gap analysis’, comparing the vision with the current situation – and identifying what resources and training are required to enable achievement of the vision.Sustainable Sources of BusinessClosing the gap between where the firm is, and where it wants to be, involves a systematic programme of training and development in five key areas:
. Repeat work from existing clients
. Introductions
. ‘Keep in Touch’ campaign
. Strategic Alliances
. Collateral
This is a subject we are covering in greater depth in training course throughout the Spring.
Friday, 19 March 2010
Using Management Information for Performance Improvement
Setting the Standards
A key theme in our approach to performance management is to collaboratively set professional standards, together with each key group of fee-earners. Individuals must know what they are expected to achieve, and how their current performance compares to these objectives. This provides the basis for using management information to improve performance.
The crucial point here is that, if we have agreed upfront that the “standards” are reasonable, we cannot be accused of being unreasonable when we subsequently expect people to perform to them.
The Individual Pipeline
You need user-friendly, comprehensible management information that addresses all aspects of the individual’s Pipeline – i.e. not just chargeable hours, but aged reports for debtors, WIP and disbursements. You can also use charge-out rates and hours billed to establish realisation rates (as well as new client instructions, to which we will return).
From a financial management point of view, performance can then be identified which does not meet the agreed standards, and can be presented in a report that can be used with fee-earners, team leaders, heads of department, and management staff. Therefore, it is possible to use exception reporting to boost individual and overall performance.
Performance improvement is not a simple task, but by using the Pipeline approach as the basis for analysis, processes can be designed that will identify what the exceptions are; where (i.e. in which department/team) they occur; why they have not been dealt with; who is responsible for dealing with them; and when and how they are going to be eliminated.
Improvement Across the Firm
For the firm overall, there should be user-friendly reports created on a daily, weekly or monthly basis. Reports should also contain forecasts for performance this month, in the next quarter, and the year’s performance. When it comes to improving the cash position, emphasis should be placed on WIP – it should be fairly straightforward to forecast billings on the basis of (accurate) WIP figures.
Exception reporting and billing overdue WIP turns WIP into debts, which are more visible and can be acted upon – by the accounts department, by the client, and ultimately by debt recovery.
What Gets Measured Gets Better
Whether billing and collection is carried out by the fee earner or by a credit controller is a decision for the firm’s management, but in either case they must be suitably trained to perform the task efficiently and effectively. If this is a fee earner’s task, then they should be measured upon it.
A key theme in our approach to performance management is to collaboratively set professional standards, together with each key group of fee-earners. Individuals must know what they are expected to achieve, and how their current performance compares to these objectives. This provides the basis for using management information to improve performance.
The crucial point here is that, if we have agreed upfront that the “standards” are reasonable, we cannot be accused of being unreasonable when we subsequently expect people to perform to them.
The Individual Pipeline
You need user-friendly, comprehensible management information that addresses all aspects of the individual’s Pipeline – i.e. not just chargeable hours, but aged reports for debtors, WIP and disbursements. You can also use charge-out rates and hours billed to establish realisation rates (as well as new client instructions, to which we will return).
From a financial management point of view, performance can then be identified which does not meet the agreed standards, and can be presented in a report that can be used with fee-earners, team leaders, heads of department, and management staff. Therefore, it is possible to use exception reporting to boost individual and overall performance.
Performance improvement is not a simple task, but by using the Pipeline approach as the basis for analysis, processes can be designed that will identify what the exceptions are; where (i.e. in which department/team) they occur; why they have not been dealt with; who is responsible for dealing with them; and when and how they are going to be eliminated.
Improvement Across the Firm
For the firm overall, there should be user-friendly reports created on a daily, weekly or monthly basis. Reports should also contain forecasts for performance this month, in the next quarter, and the year’s performance. When it comes to improving the cash position, emphasis should be placed on WIP – it should be fairly straightforward to forecast billings on the basis of (accurate) WIP figures.
Exception reporting and billing overdue WIP turns WIP into debts, which are more visible and can be acted upon – by the accounts department, by the client, and ultimately by debt recovery.
What Gets Measured Gets Better
Whether billing and collection is carried out by the fee earner or by a credit controller is a decision for the firm’s management, but in either case they must be suitably trained to perform the task efficiently and effectively. If this is a fee earner’s task, then they should be measured upon it.
Monday, 15 February 2010
Filling the Pipeline with Client Care
Just as there is, more than ever, an economic imperative to ‘flush’ cash through, it is vital for firms of all sizes to ensure they are managing the front end of their pipeline. Technical expertise is only valuable as long as the fee earner is achieving sufficient client instructions – from new or existing clients.
The Ideal Client
The philosophy must always be to exceed client expectations. It may sound obvious, but ‘ticking the boxes’ simply isn’t enough. It is hard work, but once client care is firmly established as a conscious priority, you can begin really in-depth client profiling – to drive growth into areas of specific strength and business priority. This is an issue we will return to.
The Ideal Client
Your ideal client will probably already be on your database. It may require some thought, but all key fee earners should identify their most valued clients. These are the people with whom you want to be deepening the business relationship. The questions you should be asking yourself are:
. What are their business needs?
. How can you best service their requirements?
. Who will best handle the relationship?
Leading the Initiative
It is important to recognise that not all clients will make it onto this list. Therefore, clients should be categorised into, broadly speaking, the ‘most valued clients’ (MVCs); ‘key clients’ (KCs); and all other valued clients (VCs). It should go without saying that service levels should be high for all clients, but those clients in the top two categories clearly need the most dedicated attention.
The client care initiative should be led from the top. Buy-in is needed at all levels to make sure fee-earners are clear about the business they want; how they select their clients; how they price the work; and, crucially, how well they know their clients. Once these points are established, the initiative can really get underway.
Individual Service
The philosophy must always be to exceed client expectations. It may sound obvious, but ‘ticking the boxes’ simply isn’t enough. It is hard work, but once client care is firmly established as a conscious priority, you can begin really in-depth client profiling – to drive growth into areas of specific strength and business priority. This is an issue we will return to.
Friday, 12 February 2010
Unblocking the Pipeline
As the UK slowly emerges from recession, it is worth considering the impact on cash flow in small and medium sized businesses across the land. As has been acknowledged elsewhere, an upturn can be a dangerous time, putting extra strain on a firm’s cash flow and working capital management.
Our approach is based on the premise that the value-adding process in a law firm can be seen as a pipeline – instructions enter the pipeline, and cash emerges at the end. This is often in stark contrast to the approach that many professionals take – that the only important step is the ‘technical’ bit in the middle.
Capturing Value
Just as the pipeline should be constantly being filled with instructions, it is vital to ensure that all of the value created is actually developed, captured and billed, or significant losses will arise. In some senses, the effect of missing these steps, or doing them badly, is even worse than not bringing in the work in the first place - because all of the time and resources consumed in actually doing the work are wasted, as the cash doesn't come through as a reward.
Starting at the End
When it comes to improving cash flow, the key is to start at the end of the pipeline and work back. There are two major benefits to taking this approach. In the first instance, by ‘flushing out’ cash that you have already billed but not collected, and billing overdue WIP, you will create an immediate effect on your cash situation.
Secondly, by measuring each stage in the pipeline process, you can quite accurately gauge how long matters should take from beginning through to collection for each department, and thus provide fairly accurate cash flow forecasts (for your own management and for the bank manager!).
Prospering through the Upturn
Effective pipeline management is important for businesses of all sizes, but it has a particularly noticeable impact for smaller firms. Getting a firm hold on the billing and collection process, and ‘flushing’ cash through the pipeline, will help firms stay on a stable footing through a tough recovery. This will potentially create growth and acquisition opportunities – and will give lenders the confidence to back the winners in the new economy.
Our approach is based on the premise that the value-adding process in a law firm can be seen as a pipeline – instructions enter the pipeline, and cash emerges at the end. This is often in stark contrast to the approach that many professionals take – that the only important step is the ‘technical’ bit in the middle.
Capturing Value
Just as the pipeline should be constantly being filled with instructions, it is vital to ensure that all of the value created is actually developed, captured and billed, or significant losses will arise. In some senses, the effect of missing these steps, or doing them badly, is even worse than not bringing in the work in the first place - because all of the time and resources consumed in actually doing the work are wasted, as the cash doesn't come through as a reward.
Starting at the End
When it comes to improving cash flow, the key is to start at the end of the pipeline and work back. There are two major benefits to taking this approach. In the first instance, by ‘flushing out’ cash that you have already billed but not collected, and billing overdue WIP, you will create an immediate effect on your cash situation.
Secondly, by measuring each stage in the pipeline process, you can quite accurately gauge how long matters should take from beginning through to collection for each department, and thus provide fairly accurate cash flow forecasts (for your own management and for the bank manager!).
Prospering through the Upturn
Effective pipeline management is important for businesses of all sizes, but it has a particularly noticeable impact for smaller firms. Getting a firm hold on the billing and collection process, and ‘flushing’ cash through the pipeline, will help firms stay on a stable footing through a tough recovery. This will potentially create growth and acquisition opportunities – and will give lenders the confidence to back the winners in the new economy.
Monday, 25 January 2010
Profiting from Fixed Fees
We discussed this issue back in September and, looking at the discussion going on over on LinkedIn, it seems as though the debate isn’t going to abate.
The American author Ron Baker has written at least five books on the subject of pricing – although you don't need to read every word of every book. He demonstrates that you can make real money out of fixed prices if you take the trouble to know the client, and to set up the pricing conversation properly. This is a question of demonstrating value to individual clients.
We personally know an accountant who runs a small (4 fee earner) firm doing largely one-off project work who claims that by using these pricing techniques he has earned over £1million in additional fees over the past 5 years - compared to his standard hourly charges. I have no reason to disbelieve him.
Can it be done in legal work? In many cases, the answer is yes. But it is not as simple as thinking up a number and sticking to it. And sadly, many lawyers (encouraged by their performance measurement systems) are unwilling to put in the upfront effort, either in learning the techniques or getting to know the clients.
In work where the price is externally determined, the focus has to be on identifying and improving cost of production. This will be the focus of an article we have appearing in the Gazette’s In Business section in the spring. Any thoughts would be much appreciated.
The American author Ron Baker has written at least five books on the subject of pricing – although you don't need to read every word of every book. He demonstrates that you can make real money out of fixed prices if you take the trouble to know the client, and to set up the pricing conversation properly. This is a question of demonstrating value to individual clients.
We personally know an accountant who runs a small (4 fee earner) firm doing largely one-off project work who claims that by using these pricing techniques he has earned over £1million in additional fees over the past 5 years - compared to his standard hourly charges. I have no reason to disbelieve him.
Can it be done in legal work? In many cases, the answer is yes. But it is not as simple as thinking up a number and sticking to it. And sadly, many lawyers (encouraged by their performance measurement systems) are unwilling to put in the upfront effort, either in learning the techniques or getting to know the clients.
In work where the price is externally determined, the focus has to be on identifying and improving cost of production. This will be the focus of an article we have appearing in the Gazette’s In Business section in the spring. Any thoughts would be much appreciated.
Wednesday, 20 January 2010
Lawyers, Newspapers and the Future of Law
We have been involved in a discussion recently about the impact of the internet on the provision of legal services – and specifically whether law firms will face the same problems as newspapers, i.e. strategic confusion, and how to adapt their business model to continue adding value.
Most law firms outside the top 50 or so create enough confusion of their own already by resolutely adhering to a partnership model which precludes the successful implementation of strategy. That, however, does not mean that things won’t get a lot more complicated in the next few years.
David Maister, in his book Strategy and the Fat Smoker, has a chapter called "Strategy Means saying No" - and eloquently explains why most Law firms (and other PSF's) find it almost impossible to say “No” to potential work.
To paraphrase Larry Ribstein (Professor of Law at the University of Illinois, who has described law firms as "Thinly Capitalised Workers' Co-operatives"), many firms are coalitions of jobbing lawyers who will take any work which earns a crust. As a result they have none of the advantages that an incumbent should have as the market deregulates.
One significant theme emerging is the “problem of free” – that in a market where two competitors provide a largely commoditised product, the price rapidly falls to zero. It has been suggested that this could occur in the provision of legal services, with the emergence of free or low cost online documents that would be ‘self-built’, with advice also provided online.
However, it is my contention that the Legal services Act and the intrusion of truly focused Legal Businesses funded and managed by non-lawyers will put paid to many smaller firms before the internet and the "problem of free" gets the chance to.
In the end, people buy results – those lawyers who use their skills to deliver quicker, better or more certain results to people who are prepared to pay for speed, quality or certainty will still prosper.
The trick is to find people or organisations who have those needs and who recognise that whilst it can sometimes cost a lot to get things right, it can cost much more to get them wrong!
Most law firms outside the top 50 or so create enough confusion of their own already by resolutely adhering to a partnership model which precludes the successful implementation of strategy. That, however, does not mean that things won’t get a lot more complicated in the next few years.
David Maister, in his book Strategy and the Fat Smoker, has a chapter called "Strategy Means saying No" - and eloquently explains why most Law firms (and other PSF's) find it almost impossible to say “No” to potential work.
To paraphrase Larry Ribstein (Professor of Law at the University of Illinois, who has described law firms as "Thinly Capitalised Workers' Co-operatives"), many firms are coalitions of jobbing lawyers who will take any work which earns a crust. As a result they have none of the advantages that an incumbent should have as the market deregulates.
One significant theme emerging is the “problem of free” – that in a market where two competitors provide a largely commoditised product, the price rapidly falls to zero. It has been suggested that this could occur in the provision of legal services, with the emergence of free or low cost online documents that would be ‘self-built’, with advice also provided online.
However, it is my contention that the Legal services Act and the intrusion of truly focused Legal Businesses funded and managed by non-lawyers will put paid to many smaller firms before the internet and the "problem of free" gets the chance to.
In the end, people buy results – those lawyers who use their skills to deliver quicker, better or more certain results to people who are prepared to pay for speed, quality or certainty will still prosper.
The trick is to find people or organisations who have those needs and who recognise that whilst it can sometimes cost a lot to get things right, it can cost much more to get them wrong!
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