Managing Law Firms in Transition

Managing Law Firms in Transition

Merger and Operating Cost

Posted in Law Firm Growth, Law Firm Merger, Law Firm Repositioning/Turnaround/Restructuring, Law Firm Transition

If your law firm is considering a merger, it is a perfect time to evaluate the operating cost associated with the combined organizations.

Mergers are risky transactions. Having operating costs in line will decrease pressure on the new entity.

Although all costs should be evaluated, we will focus on three areas in this post. Two represent areas where you should be able to realize a reduction in expenses (space and people), and one is an area where you should plan for a budget increase (business development/advertising).

Office Space

The cost associated with housing a law firm is typically one of the two largest expenses for firms. There are, of course, two key drivers in this discussion — the amount of space, and the cost per square foot.

On the first count, in recent years firms have found ways to decrease the amount of space required. Some of the efficiencies offered by technology combined with less spacious partner offices are among the big factors here. Reports suggest that over the last decade or so benchmarks for space have dropped from 900 square feet per lawyer to closer to 600.

But what about the cost per square foot? Thanks to landlords, this one is out of our control — right? Or is it?

There continues to be what I suggest is a false perception that firms need to be located in the very areas where rates tend to be highest. The inclination remains to lease space in the heart of the central business district, or the hottest new area of town in the newest building.

While many law firm leaders tend to view the cost of premium space as the price of doing business, the increasing reality is that this space is of little to no relevance to virtually any client.

As you begin planning for the combination of your firm with another, look hard at how you can realize some space efficiencies as part of the transaction.

People

The second area of significant cost for law firms is the direct and indirect cost associated with attorneys, paralegals and staff. In virtually every law firm combination, there are redundancies in one or more of these areas.

As you plan for the integration of the two firms each of these human resource areas should be evaluated for redundancy, improved efficiency, and effective client service and support. When two firms become one, the goal is to end up with the strongest organization possible. This means reassuring the best and weeding out the weakest.

Keep your eye on two periods, the “time of transition”, and the long term. Personnel needs are greatest during the transition period.

People decisions are difficult, and critically important. An open and honest approach to assessing the needs of the new firm will serve you well.

Leveraging the transaction

An area that you should consider making additional investment is market awareness. The quickest way to leverage the value of a merger is to ensure that existing, former and prospective clients know of the new capabilities resulting from the transaction.

This awareness comes about through a well-planned communication initiative. The project starts with the development of a clear and concise message, which reflects the enhanced value created by the merger.

The delivery of the message will vary by situation; but generally your plan should include, face-to-face meetings with key clients, direct mail, electronic communiques, and announcements in relevant professional publications.

Have you engaged in a thorough review of the cost structures as you plan for your merger? Do you have a well designed communication plan to let the relevant sectors of the marketplace in on the increased value you now represent?

 

 

Law Firm Merger Checklist Item-Culture

Posted in Law Firm Leadership, Law Firm Merger, Law Firm Repositioning/Turnaround/Restructuring, Law Firm Transition

The spring of 2018 has produced a spate of large law firm mergers.  Despite this noticeable activity, the interest in mergers is not something new-over 600 mergers and acquisitions have closed since 2007.  Based on the tactic’s popularity among firm leaders seeking a competitive edge, we can expect more mergers in the future.

For law firm combinations to make sense, however, a lot of things need to fall into place.  Financial considerations are hugely important to any combination.  Not surprisingly, firm leadership tends to focus on financial issues to assure that any deal proves accretive.

Factors that assess the compatibility of two firms also receives a lot of attention.  Client, practice, and strategic compatibility must be considered to avoid painful and ill-fitting combinations.  Yet when it comes to thinking about compatibility, the most important compatibility test is whether the cultures of the two firms mesh.

For the firm thinking that “merger” may be in its future, the importance of culture can’t be discounted.  But what does “culture” mean?”  “Culture” can be a lofty word that requires specifics to be more than aspirational.   Based on our experience, getting past platitudes and understanding the cultural fit between two law firms is aided by examining six areas of day-to-day law firm life:

Law as a Business.  Today, most firms acknowledge the importance of operating as a business but beyond that unanimity there can be widely divergent views about what that means.  A firm’s unyielding dedication to business principles may be tough to swallow for another firm that has been slowly moving from a “law as a profession” philosophy to a more business-like approach.  Understanding where the two firms stand on the business/profession continuum is important.

Financial Objectives.  For some lawyers and their firms, making as much money as possible is the only important driver.  Another firm may value a comfortable living while enjoying an equally satisfying quality of life.  Forging a union between two firms at distant ends of the spectrum could be intolerable for both parties.  The financial objectives of firms can say a lot about their cultures.  Comparing those objectives is important in finding the right match.

Compensation System Driven Behavior.  One firm’s approach to compensation can be very different from the next firm.  The incongruity of two compensation systems obviously may suggest a poor fit.  But the bad fit can go beyond the technical process of evaluating and rewarding performance.  Compensation systems inevitably encourage behavior.  Bringing together two groups of lawyers whose behavior is widely different can compound an already formidable integration challenge.  Understanding how lawyers from different firms behave is one key to determining whether cultures align.

Non-monetary Values.  All firms make decisions respecting the non-monetary values they find important. There is no right or wrong answer to whether a firm should be civic oriented and/or committed to bar activities.  The law firm industry has more than enough room for firms of varied persuasions.  That said, two firms at opposite ends of the non-monetary value spectrum might prefer to remain apart.

Valuing People.  How a firm’s people (professional and non-professional) are treated says a lot about a firm.  Organizations often thrive when their work-forces enjoy their place of work.  Lawyers or other personnel at a “people place” may find life at a more cutthroat shop demeaning or otherwise unfulfilling.  Conversely, personnel used to a strict bottom-line mentality may feel unchallenged in a softer environment.  In any merger, the human resources equation must be solved.

Collaboration.  The teaming atmosphere at one firm can be dramatically different from a place where being collaborative is neither expected nor rewarded.  If a merger will bring together lawyers not on the same page about the concept of teamwork, inefficiencies and resentment will mount to the detriment of the merged firm.  A culture of collaboration will not likely fit well in a culture where Lone Rangers are lauded.

In any merger, the importance of a cultural fit cannot be shrugged off.  If two firms thinking about combining are different in many of these six areas of day-to-day life, the two cultures may not be aligned.  If merger is being considered and many of these day-to-day characteristics don’t match well, would it be wise to go forward?

Do More Than 83% of Law Firm Mergers Fail?

Posted in Law Firm Growth, Law Firm Merger, Law Firm Repositioning/Turnaround/Restructuring

This Forbes article references a KPMG study which indicated that 83% of mergers fail to yield a favorable return to stockholders while a separate A. T. Kearney study determined that mergers overall yield a negative return to owners. The KPMG study indicated that nearly 70% of business combinations are negative to neutral in terms of value created.

These studies look at business combinations in general and may not have included any law firms. But, if you were to guess, do you believe law firm leaders have a better track record in creating net positive value through mergers than career business professionals?

I would guess not.

With the torrid pace of law firm mergers, the question is what will it take to improve the probability of success for law firms.

Based on our experience, the two most critical factors in order to realize a merger’s highest value are:

  • choosing the right merger partner; and,
  • developing and executing a high-quality integration plan

Both topics are critical; however, the focus of this post is integration, and what is required for successful integration when firms combine.

Six keys to successful integration

  1. Leadership and decision-making

You should count on the fact that integration will give rise to some tough questions that only the leadership of the emerging entity can answer. So firm leadershipdecision making processes and the identification of “where the buck stops” — on both legal and administrative sides of the house — are orders of business that should be dealt with before integration begins.. Size and complexity of the combined firm will dictate specific positions; but don’t fool yourself — the management team should be identified and agreed upon early.

This process should include the clear designation of an individual or team charged with responsibility of a successful integration. Those decisions should be communicated to all personnel with contact information.

  1. Systems

Moving from two systems to one impacts almost everyone involved in the combination. Individuals who know the pieces involved should have a hand in the creation of a detailed plan. Typical platforms to be considered include:

  • Client intake, conflict checking and acceptance
  • Accounting
  • Human resources
  • Technology & security
  • Marketing, business development & competitive intelligence
  • Knowledge management

In some cases, the transition may take months. We know of one combination that saw a single firm operating with three separate accounting systems for more than a year. Whatever the reality, the plan and its timing should be communicated to all personnel with additional information as to who to contact regarding any transition process..

  1. Communication

Everyone talks about it; but there is no more important integration issue than timely, clear and concise communication. In short, merger related communication must start early, be frequent and continue until the two firms are effectively integrated. Separate communication plans should be developed for clients, the public and the various members of the firm.

Attempt to foster an environment in which everyone feels free to ask questions, express concerns, frustrations and criticisms and suggest solutions. Allow an environment of distrust to develop…permit issues to go unaddressed, and be prepared for a turbulent transition. Fear leads to poor integration and unwanted turnover.

  1. Culture, policy, standards and expectations

For two firms to become one they must operate with one playbook — one set of rules, values standards and expectations. Take the time to develop the playbook and deliver it as early in the process as possible.

Consistent with developing one culture, plan on frequent get-togethers during which individuals can grow to know, understand and trust one another. Create an environment in which wins and progress are a product of the new whole, and challenges are jointly addressed.

  1. Clients

Clients are (or should be) at the core of any operational decision a firm makes — including the rationale for a combination. Be certain that clients are advised of the value your transaction brings to them. Develop a plan to integrate members from both sides of the combination into as many client relationships as possible.

  1. Integration team 

The integration effort should include a formal and recognized integration team. It is wise to staff that team, to the greatest extent possible, with administrative personnel, minimizing disruption to client service and revenue generation.

The chair of the integration team should report frequently to the firm’s senior leadership regarding successes and challenges associated with the integration.

A quality integration plan will devote plenty of time and attention to these six basic areas — and will dramatically decrease the odds that your merger ends up being one of the poor statistics.

 

Four Important Elements to Getting Law Firm Merger Right

Posted in Law Firm Growth, Law Firm Merger, Law Firm Repositioning/Turnaround/Restructuring, Law Firm Succession, Law Firm Transition

Already 2018 has proven to be a time for law firm merger.  Since the beginning of the year we have been treated to a constant series of announcements about law firms combining. And although law firm mergers have been part of the landscape for years, the increase in law firm mergers shows its growing popularity as a tool of growth.

Generally, until the merger itself is announced little is publicized about a law firm’s merger activity. Even in the instances in which a law firm’s interest in a merger is leaked before the merger is a done deal, details about the merger mechanics are scant. The leaked news usually only stokes a rumor and a closed deal may or may not result.

For firms that have not done a merger the question often asked is “when thinking about merger, what is important?” While the genesis for each transaction is unique (as are the negotiations), virtually all mergers involve four important elements that are interrelated and build on each other. Addressed well and a merger is positioned for success. Performed poorly and a merger’s prospects are suspect. The four important elements are:

Pursuing Merger for Sound Strategic Reasons. The reasons behind a firm’s decision to pursue a merger can be many. Some firms need a rescue; others see a need for additional capabilities or have a desire to enter a new and critical market. A frequent reason to merge is one premised on the combination adding market share not easily gained through organic growth. As the Boomer generation reaches retirement, merger also can be a useful tactic to address leadership or succession issues. Whatever the impetus, the decision to consider merger should be one premised on meeting a strategic initiative identified through thoughtful and critical analysis.

Establishing Your Requirements. In thinking about merger, it is essential that the criteria for a merger be clearly identified before seeking out a potential merger partner. Only once the criteria are established should a firm purse candidates-all the while remaining faithful to its criteria. Whether acting opportunistically or methodically, staying true to the criteria protects a firm from letting the thrill of the conquest dictate its tactics. It also provides the foundation for the discipline needed to walk away from a bad deal that momentum would have you close otherwise. Understood criteria and discipline prevent emotional or irrational decisions. They should not be compromised.

Finding a Match that is Compatible. For firms approaching merger correctly, a thorough diligence process provides guidance on firm compatibility. In focusing on this element, a firm should consider whether it and its prospect are compatible on matters of culture, finances, compensation systems, clients and operations. Also key is the fit of leadership styles and the potential for evolving to a leadership team that will be accepted by people in the unified firm. Ideas on succession and vision should be compared to further confirm the fit.

Post-closing Focus. While it is essential that the integration and assimilation of the two firms be planned before the merger is finalized, also essential are an attention to detail and a dedication to bringing together disparate groups post-merger. Everything from forging a singular culture to creating systems, processes and procedures to gauge, motivate and reward the new firm’s valued behaviors.   Hard work post-closing is not only important to avoiding crisis during the honeymoon period, but it also is important to the care and feeding of the next generation of performers and leaders.

Doing the right merger and finding the right partner takes work. It does not come about by happenstance but requires an unyielding focus at critical points along the way. Has your merger experience shown you other important steps?

 

How Do You Define the Value of a Law Firm? Thoughts for the firm considering an ownership transition.

Posted in Law Firm Succession, Law Firm Transition

What is your law firm worth?

This question is paramount when the owners of a firm consider the possibilities related to a merger, a succession plan involving existing members, or the outright sale of an established practice.

There are variations by state as to what can and cannot be sold as part of transitioning of ownership of a law practice; and even given the existence of suggested formulas for valuation, when it comes to estimating the value of a given practice, there are often more questions than answers. But in order for a transition to be successful for all involved, it is essential to have a solid idea of what a firm is worth.

To this end, in our experience, here is where successful conversations begin.

Two Broad Considerations

In the typical law firm transition there are two separate areas, each of which represents distinct value:

  • Tangible assets – this is in many ways the easy part of the conversation. Examples include furniture, equipment, cash, investments, receivables, and work in process; and then there is,
  • Good will — this amounts to the equity of the law firm’s name that will be transferred to the new owners, and often represents the significantly more difficult piece of the valuation process.

In the simplest terms, good will is the value associated with the firm’s ability, to generate future income under the newly constituted ownership. That future income generating capability absolutely has economic value; in many cases it may represent the most significant piece of the valuation puzzle.

Think about it. If you could purchase an investment — say an annuity that would guarantee a payment of $2,500 per year for 10 years, what would you pay? $15,000, $18,000 maybe 20,000? The same principle is true in the purchase of a business. The projected future income has value in the context of a present-day transaction.

Unfortunately, the future profits associated with a law firm are not as certain as a guaranteed annuity. Although a firm’s reputation may be outstanding, and the historical revenues may have generated an impressive level of profitability, the continuation of those profits depend on clients choosing to continue to be served by the new firm following a transition in ownership.

Notwithstanding the above uncertainty there are means of estimating future gross revenue and net profit associated with a firm that yield an approximation of the firm’s potential value.  The use of revenue and profit multiples can provide a rough idea of value. That approximation requires further refinement in order to account for the risk associated with projections of future revenue associated with a particular practice.

For Your Consideration

What we are discussing here is what many in the marketplace refer to as the value of a law firm’s brand and the job of valuing that brand is clearly more art than science.  There are more challenges associated with valuing a law firm than most other business types. But these challenges should not get in the way of a focused effort to approximate the value of a firm before beginning a process that will result in a transition to new owners.

What efforts have been made to estimate your firm’s value?

Law Firm Succession: Addressing the Most Important Issue

Posted in Law Firm Leadership, Law Firm Repositioning/Turnaround/Restructuring, Law Firm Succession, Law Firm Transition

After years of success (by any number of measures), more than a few firm founders (or later generation leaders) confront succession.  Some of them are simply ready to step back and enjoy life-turning their worries over to the next generation has great appeal.  Others are driven by unanticipated developments-illness or family circumstances compel them to move away from the practice sooner than intended.  Whatever the motivation, succession is a watershed event that requires careful planning, attention to detail, and comfort in the persons or firm that succeeds to what has been built.

When talk turns to law firm succession, there are some commonly identified considerations.  Are the founders really willing to let go?  Are their successors up to the task?  Do the founders have confidence in their successors?  Do the younger partners have the drive and passion to carry on the firm’s good work. Can the younger partners develop business like their mentors?  Will the firm, in one form or another, survive?

Despite the variety of factors that arise in the succession analysis, eventually all of them funnel down to one issue: money.  Simply put, for succession to work financial considerations must be understood, addressed and resolved.  Without sound economics in place, execution of any succession plan will be difficult.  But by focusing on the following five financial issues, a succession plan with good fundamentals is possible:

Understand and Address the Founders’ Financial Expectations.  Unless a firm’s founders are uncommonly altruistic, their visions of succession will include the receipt of some form of financial benefit.  Founders’ expectations can include the return of all contributed capital, payment for the value of their equity, and a little something for the firm’s goodwill.  Some founders may also be thinking about continuing to work on a modified basis in return for “reasonable” compensation.  Until their financial expectations are understood, met or modified, little progress is possible.

Understand and Address the Successors’ Financial Expectations.  The flip side of the coin is the anointed successors’ financial expectations.  Just like the founders, the successors will have financial expectations.  As in the case of the founders, if the successors’ expectations can’t be met or modified, the successors’ interest in seeing the succession through may disappear.   Lest indentured servitude become an option, the successors’ financial expectations must be understood and addressed.

Understand the Firm’s Financial Capacity to Assist and Regulate its Commitment.  In most instances, any financial benefit or recovery to the founders will come, at least in part, from the firm.  Founders with high financial expectations may find their appetite outsized when compared to the firm’s capacity.  Burdening a firm so that the founders are satisfied almost always leaves the successors unsatisfied.  Post succession, the firm becomes theirs but only if they want it.  A proposal that burdens a firm may lose successor support.  If so, a succession plan quickly may morph into a liquidation plan.

Understand that Succession Economics is a Zero-Sum Game.  Like settled litigation, a hallmark of a good succession plan is that it leaves founders and successors a little bit happy and a little bit sad.  Compromise is often required to find a middle ground between the founders’ and successors’ respective expectations.  There is a limit to what founders, successors, and the firm can afford.  A little recognition that succession is not a blank check can help greatly. 

Align the Economics with a Realistic Time Horizon.  As the financial expectations of the founders and successors gain clarity, the firm’s capacity to assist typically becomes crucial.  The economics of any agreement of the parties usually requires a contribution by the firm that extends beyond one year.  Finding the right period of time to deliver the disparate financial expectations is an essential component in most realistic succession plans. Too short a period can strain the firm.  Too long a period can discourage the successors.  The time horizon should be, as Goldilocks once said, “just right.”

Law firm succession involves important considerations.  Despite the myriad of issues, financial considerations almost always prove to be the most important.  As your firm addresses succession, is it focused on the economics?

 

 

HERE TODAY. GONE TOMORROW. WHAT CAN BE DONE TO SLOW THE LAW FIRM CHURN?

Posted in Law Firm Growth, Law Firm Transition

This is the second in a two-part series addressing one of the most costly and destabilizing realities of a law firm – the seemingly perpetual movement of lawyers from one firm to the next.

The first post on the subject  took a look at why and how to improve the lateral hiring process.  Today we turn our attention to an area that poses significant challenges — the integration side of the equation.

For purposes of our conversation, let’s assume that your firm has done all that can be done to ensure each individual and/or group tendered a lateral offer meets a strategic need and fits the culture of the firm.

Now comes the difficult part of growth by acquisition: devoting the time,  resources, and attention necessary to make each addition a successful one.  Where do we begin?

Once hired, statistics indicate that the quality of integration is the most significant factor in determining the success of the new relationship. This fact is supported by findings from a Major, Lindsay & Africa partner satisfaction survey which suggests that:

  1. Successful integration is the best indicator of lateral satisfaction;
  2. Given a demonstrated willingness on the part of partners to change firms, “…a firm’s failure to integrate a lateral partner often results in the partner moving yet again within several years.”

Put simply, quality integration is key to positive ROI in growth by acquisition.

How does a firm improve the integration process and experience?

To get the discussion started, let’s look at critical activity that should be incorporated  during a lateral hire’s first year with a focus on three important junctures:: pre-start; first day; and first year.

Pre-Start Activities

  • Leadership must create an enterprise wide understanding of and enthusiastic commitment to integration as a firm competency. This should include confidence in the the due diligence process as well as a grass roots belief that any lateral strengthens the firm’s strategic pursuits.
  • Engage a diverse group of existing firm personnel in the integration of every lateral hire. By diverse I mean (depending on the size and make-up of the firm) people from different offices, practice groups and strata of the organization; partner, associate, senior member, and administrative staff members.  The broader the connection to firm personnel — the stronger the connection to the firm and its culture — the better understanding new laterals have of how things operate, how to get things done, the stronger the bond.
  • As part of the offer process, document in detail all material expectations the lateral has of the firm and its support. Also detail specifically the firm’s expectations of the lateral including firm role, clients expected to transfer and level of personal work efforts. Cautionary note: experience suggests that word-of-mouth doesn’t get it done. Write it down.
  • Develop and agree to a plan that accurately maps the transition of the lateral into the firm. Again – talking about it rarely works. Write it down — with specifics as to the ramp-up of the candidate’s practice.

Start Date

  1. There is one and only one start date. It is a wonderful and often overlooked opportunity to make a lasting impression on the new addition. Day One should present the best possible snapshot of the firm’s culture. The lateral should be warmly and enthusiastically greeted. There is much written about the various components of quality orientation programs which I won’t repeat here. Suffice to say, you’re investing significantly in on-boarding a lateral; plan appropriately, and take the time to make the experience reflective of the investment.
  2. Assign a single point-person as primary contact and connection for integration purposes.
  3. Introduce the integration team. (If your firm does not have an integration team, the formation of such a group should be added to your pre-start activities.)

First Year

  • Create some buzz, make clients of the firm and clients of the lateral aware of the move and the new capabilities brought to each. Make the general market aware.
  • Regularly and openly monitor the practice integration plan, and directly discuss any slippage. Regular quarterly checks are essential. In the case of a situation that isn’t developing as expected, the first quarterly check will reveal a lot. If the practice is failing to develop as planned it should be abundantly clear by the 6 month mark and the firm should actively address options…including a strategy for smooth separation, should the trend continue.
  • Don’t forget to integrate other members of the group (secretaries, paralegals etc.)
  • Don’t forget to integrate spouse and family if applicable. To the extent the firm has spouse or family events, these are wonderful opportunities to strengthen intangible but nonetheless valuable bonds between the new hire and the firm.

This is not rocket science. You can no doubt add to this list of integration activities. But it does require some attention to detail. What would you add to the list of activities? Given the significant investment firms make in growth by acquisition, what else might we do to maximize the investment?

Five Key Metrics for Grading Your Law Firm’s Annual Performance

Posted in Law Firm Leadership, Law Firm Repositioning/Turnaround/Restructuring, Law Firm Transition, Law Firm Warning Signs

A law firm report card is a good thing.  Much like a child’s school report card telling a parent how school is going, a law firm report card can inform firm leadership about its progress, shortfalls, and areas that need improvement.  In these days of industry disruption and heightened competition, periodic assessments can give a firm direction that it otherwise might not have.

Taking stock of a firm’s performance can be done at any time-it need not wait until a fiscal year’s close or only be an annual affair.  Simply put, making sure the review gets done is more important than when it is done.  Equally important is the need to review things that are probative of a firm’s health.  Focusing on irrelevant markers can not only confuse leadership about a firm’s well-being, but it can be waste of time.

While a firm’s performance can be measured by any number of relevant facts, the following five metrics can help many firms assess their annual performance:

Financial Efficiency.  Financial efficiency encompasses a lot of things but in essence it examines a firm’s financial health as measured by revenues, profitability, debt levels, margins, productivity, rates, realization-basically everything that impacts a firm’s financial standing.  Because there are many different kinds of firms, the exact financial measurements will vary from firm to firm.  But the importance of a frequently graded financial performance to the longevity of a firm cannot be underestimated.

Client Intake.  The lifeblood of any firm is its clients and the ability to replenish them when some clients are no longer around.  Pick any period of assessment and examine the firm’s success in landing new clients to see how the firm is doing.  It takes a lot of work and much effort to get clients.  If the firm has been light on success in this area, attention needs to be dedicated to fixing any flatness or downward trend.

Matter Openings.  A key measurement of a firm’s success is its ability to open new matters for existing clients.  Nurturing an existing client base often is overlooked by firms in their quest to land new clients.  Indeed, using an existing client base to expand a firm’s workload is a natural strategy that many firms acknowledge but do too little to make happen.  Every firm should assess its performance in expanding its existing client base by knowing the number of new matter openings for existing clients.  An annual grade helps guide a firm towards curative action needed, if any.

Unwanted Attrition.  Law firms are in the talent business.  If it has great lawyers and staff it likely is doing well overall.  A loss of some of those key players can negatively impact a firm’s performance both in the short and long terms.  The challenge to staying on top of the talent game often comes from unwanted attrition.  In the recent past, has the firm lost lawyers and staff it valued? Assessing recent attrition is one way to grade recent performance.

Professional Growth.  A firm that allows its professional growth to stagnate is not going to do well over the long-term.  An attitude or culture of “suit up and show up” will deprive a firm of the needed energy and will stifle its professional development to its detriment.  Continued professional growth by becoming thought leaders, bar association leaders, or the “go-to” lawyers for important substantive issues is something a firm should strive for.  Anything short of a commitment to professional development limits a firm and encourages others to pass it by.  Assessing the professional growth of the firm in the most recent reporting period is critical for the long-term health of the firm.

Bringing the report card home was a time of trepidation for many a kid because it was a time of accountability.  For law firms, grading performance through objective and critical eyes likewise brings accountability-in this case to leadership and the firm as a whole.  If you were awaiting a grade for your firm’s recent performance, would you be nervous?

 

 

 

Slowing the Churn – Rethinking the Acquisition Side of Law Firm Growth

Posted in Law Firm Growth, Law Firm Transition

I think the acquisition of consumers might be on the verge of being mapped. The battlefield is going to be retention and lifetime value.

Gary Vaynerchuk

 Growth through acquisition — individuals, groups or full-blown mergers — has become a norm within the legal profession.

Doesn’t the record suggest it is time we ask whether the normal approach to the process does justice to the parties involved, and serves the industry well?

At the outset we should stipulate that there are two important things to understand when considering the relative effectiveness of growth-by-acquisition:

— First, good or bad, this path to growth is here to stay; and,

— Second, at its best, it has been a hit-and-miss proposition.

So, this post is not about whether growth-by-acquisition is sound. Rather, what might be done to cause the strategy to be more successful?

There are two keys to successful acquisitions. And, while conceptually simple, they are (clearly) difficult to execute.

  1. Improving the quality of the acquisition process (the topic of this post)
  2. Improving the integration of those acquired (the subject of next week’s post)

Improving The Process

Three things will improve the quality of the acquisition process:

  1. Begin with Strategic Targeting
  2. Test to ensure Cultural Alignment; and,
  3. Quality Due diligence.

Strategic Targeting

In its simplest terms, a strategic hire is one that fills a need previously identified. A need identified as important to the firm achieving long-term aspirations. An unfortunate number of lateral hires were never previously targeted but were justified by the non-strategy of “being opportunistic.”

By contrast, strategic hires which significantly increase the probability of being successful will meet one or more of the following criteria:

  • Fulfill an expressed client need in terms of technical capability or geographic presence.
  • Meet diversification objectives previously identified for a practice and or geographic area.
  • Add depth and expertise in an area that the firm has identified to further strengthen itself

Cultural Fit

Lack of cultural fit is high on the list of reasons for lateral hiring shortcomings and failures. Presuming all involved in the hiring process have a solid understanding of the firm’s culture and values, discussions should be specifically designed to identify the candidate’s relevant make-up.

During the interview and courting process, it is important that a candidate be exposed to a diverse sampling of the firm. For multi-office or practice firms, exposure to those outside of the office and/or practice group in which the candidate will reside provides an independent and important perspective.

Due Diligence

So often, there are practice and professional surprises associated with the newly added partner or group.  Disciplined and in-depth due diligence that goes beyond the desire to add an individual or group to the headcount will minimize surprises. Consider the following as steps in an effective due diligence process:

  • Review statistics from existing/predecessor firms for a minimum of 3 years of performance history;
  • Investigate the history of actual or threatened malpractice claims;
  • Obtain assurance of client intent to transfer work;
  • Analyze exposure to “unfinished business” claims;
  • Confirm employment history;
  • Check references (it is surprising how often this step is skipped);
  • Confirm bar association standing.

 

Testing of cultural fit, conducting appropriate due diligence and hiring strategically will dramatically improve the odds of a successful hire. Now, to further improve the odds of long-term success we turn our focus to integration. Next week’s post will focus on integration.

 

What would you add to the above list?

 

When a Law Firm Grows Up-Five Steps to Maturing Well

Posted in Law Firm Growth, Law Firm Leadership, Law Firm Repositioning/Turnaround/Restructuring, Law Firm Transition, Uncategorized

Sometimes it is as simple as two lawyers acting on obvious synergies and a law firm is born.  Once the firm is birthed, the days are heady ones as basic startup chores are mixed with the never-ending pursuit of clients, doing good work and building an enduring reputation.  Coming up for air can almost seem a luxury-there is too much to do and little time to do it.  Done correctly, however, opening a firm can be as satisfying as it is exhilarating.

At some point the onslaught of responsibilities becomes manageable.  There is time to take a breath (or two) and the firm begins to evolve from startup to a mature institution.  But just like when getting the firm started, making the right moves post startup are no less critical.  For the law firm that fought so hard to get established, finding the right steps for the future cannot be underestimated.

Evolving a firm into a more mature institution requires focus and commitment.  Based on experience, five areas of concentration can aid law firm leaders in the evolutionary process.

Processes and Procedures.  When a firm opens, processes and procedures often are neither needed nor wanted.  Good results come from action, not process.  But as a firm matures and stability conjures up thoughts about the future, creating scalable processes and procedures is necessary for a firm to leverage changes in firm size, makeup, locations, and practice sophistication.  An evolving firm will be difficult to manage and not likely to thrive if uniform processes and procedures aren’t in place.

Financial Sophistication.  A startup firm’s financial systems generally need not be too complicated.  Work gets done, bills go out, dollars are collected, and vendors, employees and owners get paid.  But as a firm matures and/or grows, ramping up its financial tracking, reporting, and analytic tools becomes very important.  Managing a maturing practice requires greater financial sophistication.  When taking a firm to the next stage, leadership should invest in improving its ability to understand the financial signals it inevitably receives.  Failing to do so will leave a firm constantly playing catch-up and cause too many of its decisions to be based on guesswork.

Talent.  Talent is a priority in law firm success, and it is never more important as a firm evolves from startup to established institution.  Any momentum a firm enjoys through its formative years can be lost quickly if it loses talent, can’t attract new talent, or harbors within its ranks less than talented performers.  Exceptional people make exceptional firms.  For a firm hoping to endure long-term, a focus on talent is essential.  A misstep or two can be debilitating.

Proactivity.  Starting a firm can be action packed while at the same time a little reactive. In the early stages of a firm’s life, it is common for unforeseen developments to be addressed on an ad hoc basis.  Once a firm is established, however, it is time to exert greater control.  As maturity is reached, every firm should proactively take steps that contribute to it’s the likelihood of success.  A firm proactively seeking to generate client relationships, improve its expertise, grow its reputation, or stimulate its financial outcome will achieve far better results than one that allows a reactive management style to continue.

Planning.  When a firm is first getting started it often operates off a basic but not particularly sophisticated plan.  But because any early stage plan is drawn on a clean sheet of paper, it can often go awry and require revision, adjustment, and sometimes abandonment.  Unlike a firm at the startup phase, however, a mature firm will have years of operational experience, trends and performances on which it can plan for its future.  Indeed, historical data and information should allow a firm’s plan to extend over a number of years.  For that reason, every mature firm seeking success should embrace the idea of planning and impose a discipline to make it happen.

Managing and succeeding at a maturing law firm can be different from the startup experience.  Bringing the right focus is essential.  As your firm matures, are your leaders attentive in the right areas?

 

 

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