The Most Common Mistake Made By Managing Partners

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For most of their careers, lawyers are encouraged to bill more hours, and they’re rewarded financially and otherwise for doing so. But as a managing partner, billing so many hours likely means not spending enough time overseeing your practice. While this can be a confusing shift, the managerial duties neglected in pursuit of hourly fees can cost the firm much more than that initial income.

Managing partners often make decisions and address issues that financially impact their firms on a far greater scale than any billable hour. What, for example, is the monetary value to a firm when the managers consider expanding to another market, take steps to reduce turnover, or improve collections? In today’s dynamic legal services sector, sound management is often more valuable than rainmaking, and it is certainly a rarer skill at most firms.

So, how many hours should a managing partner bill monthly?  It is, of course, difficult to state an absolute rule. As a consultant to lawyers and law firms, I am suspicious of managing partners who routinely bill beyond a hundred hours. And the larger the firm or the more systemic problems it faces, the less that managing partner should be billing on average.

What complications have you seen when managing partners don’t spend enough time managing?

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Something else to think about.

McDonald’s founder Ray Kroc assembled very few hamburgers himself but created a system that’s sold billions. Read about how managing partners can scale up their firms and take a step back in this post from our archives.

What’s Surprising About Millennials in Large Law Firms

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A recent survey conducted by Major, Lindsey, and Africa and the American Lawyer explores attitudes of millennials at large law firms.

The unspoken premise of such surveys seems to be that generations of workers are different enough such that we need to really know what makes them tick. I’m old enough to remember when my cohort, Generation X, conducted such surveys.

So let’s see what’s new in this survey.

It’s a non-scientific questionnaire filled out by over 1200 respondents. The respondents were not randomly selected. And the description of its methodology doesn’t tell you how they were selected. So it’s possible that some folks responded more than once. Stat-heads would tell you that such survey results from respondents who are not randomly selected are of no predictive value. Here, the results don’t necessarily tell you anything about the broader population of millennial lawyers.

So with this significant caveat let’s explore what the survey said.

When deciding what factors are most important to selecting which law firm to work at, millennial men care most about money. And millennial women care most about work-life balance followed by money. Interestingly, the survey does take a non-binary approach to gender identity. The respondents self identified as follows: 52.3% Male, 44.1% Female, o.8% non-binary Third Gender, 0.5% Prefer to Self-Describe, 2.3% Prefer Not To Say.

When asked why they would change firms only 1.7 percent of respondents selected diversity as their most important factor.  This is a contrast to 28.6 percent who selected compensation and 20.0% percentage who identified work/life balance as their most important considerations.  Apparently, a very small percentage of respondents cared a lot about diversity and many cared very little when deciding where they should work.

When asked about their career goals, 40% said their goal was to make partner at their current firm. Is that a sign that millennials are more loyal, or that they are ignorant about their real chances of making partner?

One of the survey responses that has garnered the most media attention relates to compensation. Nearly 75% of respondents reported that they would trade a portion of their compensation for more time off, a flexible work schedule, or a cut in their billable hours requirement.  This seems like a new attitude, but it’s not clear that it is.  As a consultant to lawyers and law firms, most of the associates I have talked to have indicated that they would accept a reduction in pay for a reasonable decrease in work. This seems to be the most common opinion for the last fifteen years or more, and doesn’t only apply to millennial associates.  It’s probably been true of all associates for quite some time.

A majority of associates (50.9%) also see the large law firm business model as broken. And guess whom they see as changing that model for the better? Not clients or changes in supply in demand or regulatory rules but themselves. They see themselves as changing the system.
But it is easy to underestimate how difficult it is to change systems. And not only in law firms. A recent report in the Guardian reveals an anecdote about one of the first encounters between Senator John McCain and Jared Kushner.  The two were discussing military procurement reform and McCain asked how Kushner intended to do that. Kushner is quoted as saying that McCain should not worry, because “we’re going to change the way the entire government works”. To which McCain reportedly said, “good luck with that, son.”

Good luck indeed–to millennial associates as well. Fewer of you will make partner than you believe, and the chances of you bending market forces to suit your desires are questionable at best.

In other words, this non-scientific survey may have inadvertently shown that millennials are not as different from prior law firm generations as most people, including law firm leaders, believe.

Five Mistakes to Avoid When Sending Your Law Firm’s First Bill to a New Client

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The first invoice a law firm sends to a new client sets the tone for the attorney-client relationship. When handled strategically, the first bill sets the stage for a long and lucrative relationship. But too many law firms are tone deaf to the nuances of client communications with a new client.

Here are five common mistakes law firms make in their first bill to a new client:

1. Description of Work is Too Cursory.

In my experience as a consultant to law firms, the most common, significant invoicing mistake relates to the description of the work performed. Many lawyers describe what they do very narrowly without explaining the connection between what they did for the client and why they did it. Common examples include time entries that merely refer to researching an issue, drafting a brief, or calling opposing counsel. If you want to avoid resistance to your fee, your initial bill should explicitly explain what your specific tasks were designed to accomplish for the client.

2. The Invoiced Amount is Too Low

When you work with a new client for the first time you want to maximize the chances that they will pay you in full. It’s therefore tempting to bill an usually low amount in the first bill. This is problematic especially if a lower than average initial bill gives the client unrealistic expectations about the amounts invoiced in subsequent bills. 

3. The Invoiced Amount is Too High

The initial benefits of legal representation are often intangible. And if your first bill is too large, it causes the client to question their decision to retain you or whether your firm is worth what the representation might cost. Law firms should therefore scrutinize the initial bill to evaluate how the client will perceive it relative to the expectations that have been set for them, their prior experience with lawyers, what has been accomplished in the representation, and the client’s financial condition. 

Whether a bill is too high is a client-specific determination. A ten-thousand-dollar bill can be a shock for an individual and a rounding error for a large corporation’s in-house counsel. If your client’s experience writing a $10,000 check has been limited to putting a down payment on a car or house or paying for a vacation, the law firm should strongly consider sending a smaller initial invoice. The easiest way to do this is to send out the bill more frequently.

4. The Law Firm Takes Too Long to Send the Bill.

Too many law firms act as if a law requires them to wait at least a month before sending out their bill. As discussed above, it can sometimes be important to send bills more frequently than that. The more common problem is that firm wait closer to 60 days (or more) to send out their initial invoice. This practice is risky for several reasons. Most importantly it increases the nuances of creating an accounts receivables problem. The lawyers will continue to work the case without having evidence that the client has actually paid the bill. Collecting a retainer can be a partial solution. But even when the client has paid a retainer, delaying sending an initial bill sends the wrong message to the client about the importance of paying the invoice promptly. It’s better to habituate the client to paying the bill shortly after it is received.

5. Failing to Communicate with the Client Before Sending the Invoice.

An invoice should not be used to disseminate important information to the client. There should be no unpleasant surprises in your bill. The bill should provide details about what you did and when you did it. But when clients are blindsided by the amount of the bill or find out about material developments in their case from the bill, they are likely to delay payment, ask for a reduction, or refuse to pay the bill in its entirety. 

The examples listed above all relate to communication issues. That’s not an accident. If you want to ensure that your initial and subsequent bills get paid in full, focus on your initial bill as a way to establish clear and productive communications with your client. 

What issues have you encountered in connection with sending an initial invoice to a new client?

Evaluating Your First 50 Days of 2018

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February 19th is the 50th day of 2018.  It’s an auspicious time to take stock of how your firm has started the new year.  Many of you may be thinking that it’s too early to know how the year is going.  I hear that sentiment a lot in my role as a coach and consultant to lawyers and law firms.

It’s not too early to know.  In fact, the opposite is more likely to be the case.  The trajectory your firm or individual book of business is on now will likely carry through the entire year—unless you make a concerted and consistent effort to change that trajectory.

It seems like the year has just started but your actions and results often carry a distinct momentum.  For example, a law firm that charges by the hour and invoices its client on a monthly basis has already largely baked in its results through April.  Time that is billed now will be invoiced to clients in March and the money won’t be received until April or perhaps May.  Thus, if such a firm wants to dramatically change its annual financial performance, it shouldn’t wait until June or July to do so.

The longer a firm waits to change its performance the more dramatic the change in performance has to be to reach a certain result.  This is a simple mathematical truism.  If a lawyer wants to generate $500,000 annual book of business, and has only collected $200,000 by June 30, she will need to collect $300,000 in the second half of the year.  That’s a 50% increase on the results achieved through June 30.  But if collected revenues on September 30 are only $300,000, the lawyer needs to collect $200,00 in the last three months of the year when they were only able to collect $300k during the first nine months.  This is one reason why the results through the first six or seven weeks of the year are more important that they might initially seem.

And this brings us to another problem law firms tend to have when evaluating their results this time of year.  How to you distinguish between isolated and systematic disruptions.  The tendency is to attribute disappointing results to one-time events.  For example, a partner might say that her revenues are lower than expected because a certain deal closed earlier than expected.  Another might explain he billed fewer hours in January because he had to relocate his family because of a mold or flooding problem in his house.  The implication is that this disruption is such a singular event that it isn’t likely to happen again.

One-time disruptive events do in fact occur.  The mold and flooding example is probably a good example of that.   But too often law firm leaders fail to recognize issues as being systematic.  While it’s true that January’s disappointing collections are the result of a particular client not paying their bill on time, late payment is far from an isolated problem at most firms.  In January one client was late for one reason and in February some other client will present some other seemingly unique reason for delaying payment or disputing a bill.  Every month will have its seemingly unique soap opera relating to collections or business development, without the firm realizing that it has a systematic problem on its hand.  As a parent you may be surprised what your kids do that causes you to visit doctor’s offices, but it’s not hard to predict that parents of children of a certain age will go to the doctor more often that did before they had children.

And so the idiosyncratic thing that happened at the beginning of 2018 to explain why revenues are down or why marketing results are disappointing is probably not as unique or you might think.  And that means that you need to make systematic changes to dramatically improve your results.

If the full year was compressed into a single week, we are now approaching the very end of the first day of that week.  Contrary what you might hear from others or feel, it’s not too early to take a long hard look at your year-to-date performance and see what it means for the rest of 2018.

In fact, if you don’t act now, it will only become harder to attain your goals.

Law Firm Strategic Dos and Don’ts for the Fourth Quarter

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The fourth quarter is upon us and now is the time to work on business development and practice management initiatives that will help law firms finish the year strongly and set a solid foundation for growth in the new year.

Here is a list of ten Dos and Don’ts for the fourth quarter:

  1. Do Focus on your VIPs and recognizing them in a personalized way.
  2. Don’t mindlessly send out holiday cards that are going to look just like everyone else’s and arrive at the same time as theirs do.

Too many firms treat the holiday season as a chore rather than an opportunity to reach out to those individuals and organizations who have made a real contribution to their firm in the last year.  Identifying your VIPs and treating them accordingly can make a big difference to your business.

  1. Do give VIPs personalized recognition that shows that you have been paying attention and valuing them.
  2. Don’t assume that the best VIP gifts are expensive.  Personal almost always beats expensive.

Corporate America focuses on fiscal quarters, so the beginning of October is often a big deal.  Same with the federal government, where October 1 is the beginning of their fiscal year.  As a business consultant and coach to lawyers I know firsthand that too many law firms, however, fail to take any account of the beginning of the fourth quarter, especially as it relates to financial planning.

  1. Do start the budgeting process with an eye of finishing it well before the end of December.  Use the budget as way to establish priorities for next year.
  2. Don’t plan to raise your client’s rates automatically beginning January 1.  Your clients will remember, “Happy New Year! We’ve raised your rates” much more than the actual content of your bland holiday card.
  3. Do make prompt reporting of billable hours a higher priority during the fourth quarter.  This is important year around, but is especially important in October and November.
  4. Don’t be surprised when billable hours for your firm decline after Thanksgiving. They do most of the time for most firms that charge by the hour. So don’t get all pouty; do something about. See the preceding item.
  5. Do tax planning for the firm as well as its partners.  You have many more tax planning options between now and the end of the year than you do once the new year begins.
  6. Don’t drain all the money out of the firm in the form of partner compensation.  A well-run business maintains a cash cushion. It doesn’t start every year if it’s the first day the business existed.

How about you?

What fourth-quarter initiatives do you have in the works for your law firm?

What Managing Partners Should Think About on Vacation

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Law firm attorneys have an uneasy relationship with vacations.  This is part a reflection of the fact that Americans take far fewer vacation days than their counterparts in other advanced economies.  Moreover, there is an element of business legal culture that takes pride in not taking vacations.  To cite an extreme example, Elon Musk has stated that he tried to take a week off twice in twelve years and both times bad things happened during those weeks.

But in my experience as a coach and consultant to lawyers and law firms, there is something broader at work.  Too many lawyers don’t take vacation time because their firm is mismanaged.  A well-organized office shouldn’t be dependent on the everyday presence of the boss.

So how can you tell if your office is mismanaged?  This is a deceptively hard question to answer.  The folks who run well run offices generally don’t acknowledge that their office is well run, and badly run offices generally don’t advertise that fact.   Thus, you can’t rely on what people say about how well run their firm is.  You need to observe what they do.

When a firm is managed badly, the boss’s involvement is required to put out fires.  The managing partners and the executive team are constantly working on the details of their business.  This might include what to do with an underperforming partner, a late paying client, potential malpractice risk, and most commonly of all, poor cash flow.

By contrast, well-run law firms allow the managing partner and the executive team to think about where the firm should be in the next 6, 12, or 24 months.  And vacations can be an unusually good opportunity to brainstorm and be creative.  Sometimes you need to get away to see things more clearly.  Elon Musk may resist taking a traditional vacation, but it’s extremely unlikely that he runs Tesla, SpaceX, and other ventures without taking the time and think about where he wants to take his businesses.

So, if you are spending time during your vacation thinking about whether your paralegal sent out that document today as he promised, or whether your partner sent out the invoice as she promised, that’s not a good sign.  But if you give yourself a chance to think and plan and strategize, that can be unusually productive.  And for goodness sake, don’t schedule time on your vacation with the express intent of being creative.  That’s an appointment, not a real chance to get away.  Just give yourself a chance to see where you mind and emotions take you.

What Managing Partners Should Learn From McDonald’s

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Ray Kroc was the founder of McDonald’s Corporation.  He wasn’t, however, the originator of the system of making burgers quickly and uniformly.  That credit goes to the McDonald Brothers of San Bernardino, California, who launched their hamburger stand in 1940.

The brothers believed in operational systems.  They figured out how to make one hamburger to exacting specifications every 30 seconds.  But they failed when tried to franchise their store to other locations.  They concluded that quality control depended on their physical presence.  That is why they preferred having one successful stand to 50 mediocre ones.

Ray Kroc, by contrast, developed a system that enabled him to franchise thousands of stores, and the only way to do that is to create a process that involved training other people to replicate a system.  The McDonald’s Corporation’s franchise agreement and training programs were key elements in getting their franchisees to adhere to the corporation’s rules and to churn out hamburgers that looked and tasted the same.

McDonald’s has for many people become the symbol of what’s wrong with how we eat.  It’s become the rallying cry of what not to do nutritionally and environmentally.  And I’m sympathetic to those criticisms.  I haven’t eaten at a McDonald’s in years.

That being said, McDonald’s exemplifies what systems can do.  And too many law firm leaders overlook the power of systems.  Specifically, too many managing partners run a firm that requires their involvement in every detail of the firm rather than creating a firm that takes them out of its day-to-day operations.

If you want to scale up or take a vacation, you need to learn how to build a system that functions well even when you aren’t physically present.  The following thought experiment can be a good starting point:  Imagine that, beginning a month from now, you can only work five hours a day.  What would do between now and then to make sure that your firm continued to thrive?

And if you are tempted to say that it’s impossible to run a firm without you physically being there constantly, I suggest that you get to Netflix and watch the movie, the “Founder,” which tells the story of the rise of McDonald’s.  And if it makes you feel better, eat an organic kale salad while watching the movie.

Three Time Management Tips For Lawyers

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As a business coach to lawyers and law firms, I hear lots of explanations why someone didn’t get as much as done as they had planned.  The most common reason is some variation of “I didn’t have enough time.”  Time management is a recurring problem for law firm attorneys, but most attorneys receive little or no formal training in time management.  And project management training for lawyers is rarer still.  It’s therefore not surprising that too many lawyers don’t know even basic concepts about how to manage time when managing a project. So here are three productivity-building tips every lawyer should know.

  1. Identify the Next Step in a Project

Too many lawyers create to-do lists that aren’t helpful.  They will, for example, note that they should draft a brief, call opposing counsel, or review a patent.  But that kind of list isn’t sufficiently detailed.  Specifically, identifying the nature of the project doesn’t tell you what’s the next step that needs to get done on the project.  For example, you may not have opposing counsel’s phone number, but one of your colleagues down the hall does.  The next item on your project list should be to obtain opposing counsel’s phone from your colleague.  When you identify the next step that needs to take place, you make it much easier to move projects forward.  The failure to identify next steps is in my experience the most common reason why lawyers struggle with time management.

  1. Do Work in Batches

When you are trying to things done, interruptions are the enemy.  And many interruptions are self-inflicted.  We move from task to task in rapid fire and act as if that must be a good way to get things done.  But the reality is that the more often you shift your attention, the less productive you are likely to be.  You brain needs time to transition and you may need to track down a new file.  These seemingly minor interruptions add up over the course of a day, week, or month.

The better approach is to do similar things in batches.  Need to write three quick emails? Set aside 15 minutes and write emails, one at a time.  That’s better than jumping back and forth from an email to a phone call to a meeting to legal research.  Likewise, it’s better to devote 90 minutes to working on a single matter than working on four different projects over that span.  If you are billing time to 7 or 8 different maters each day, you will probably be more efficient if you spend more time on a single project and work on it in batches.

  1. Delegate to the Advance Team

So many lawyers have been told that they need to delegate more that it’s become almost a cliché.  Attorneys intellectually understand that delegation can be useful.  But they are also perfectionists and feel with some justification that they can do at least as good a job on most tasks than other people on their project.  That leads them to delegate the work they don’t like, rather than the full scope of work that would most benefit the project.

There is a way to encourage lawyers to delegate more despite their perfectionist tendencies.   Think of other people on a project as part of an advance team.  Just as a campaign employs scouts who identify and set up venues for the candidate, members of a project can act as each other’s advance team.  The lawyer can, for example, ask someone else on their team to track down the phone number they need rather than doing that themselves.  This is a minor task, but the approach behind it is powerful.  Begin your day by getting other people started on aspects of the project that you will need later.  And this is worth doing even if you can do the task in question at least as well as they can.

These three tips can, of course be used in combination. So consider setting aside a block of time in which you batch the process of identifying the next steps in time on your critical projects.

The Coming Scandal in Litigation Funding

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The rise of litigation funding is by now well-documented.  Hedge funds and a wide variety of other financial players see litigation finance as way to generate returns for their investors that are uncorrelated to their other holdings, such as stocks, bonds, and commodities.  For clients in divorce, business litigation, and class actions, litigation funding can level the playing field when litigating against well-healed adversaries.  A growing number of law firms see litigation funding as increasing their capacity to handle a wider range of cases.  As with many markets that are entering their growth phase, the benefits of litigation funding are becoming more visible and widely accepted.  It seems like a win-win for all involved, and that perception has played a part in fueling the growth of litigation funding.

There are, however, several problematic issues that aren’t garnering the attention that they should.  First, there is some evidence that courts will scrutinize litigation funding arrangements if given the opportunity to do so.   In January 2017, the United States District Court for the Northern District of California proposed a new rule that would have required disclosure of litigation funding arrangements in all cases. After a period of public comment, the final version of  Civil Local Rule 3-15  was scaled back to require such disclosures only in class-action cases. At present, other courts have not gone down the road of requiring mandatory disclosure of litigation funding agreements. And at least two federal courts have split on whether to permit discovery relating to the terms of litigation funding agreements.

It seems probable that some courts will have no choice but to intervene and examine the details of litigation funding agreements.  This is because litigation funding is based on a fundamental contradiction.  On the one hand, legal ethical rules make clear lawyers may not split fees with non-lawyers, and lawyers must maintain control of litigation. On the other hand, how reasonable is to expect that a litigation funding company will provide hundreds of thousands if not millions of dollars without in essence calling the shots in the litigation?

Moreover, as more litigation funding companies enter the market and more law firms and parties to litigation use their services, it is inevitable that some companies will cut corners.  And there are many corners that could be cut.  For example, when enough money is at stake, and when litigation funding companies feel pressure to keep their investors happy, there will be incentives for litigation funding companies to pay undisclosed payments for referrals.  And inevitably some law firms will feel that the litigation company failed to deliver on their promises, and some clients will conclude that they were duped into entering a litigation funding agreement. It doesn’t require a crystal ball to see that, as litigation funding grows, litigation over litigation funding will also become more prevalent.  As a former litigator, I know that litigation isn’t the same as a scandal. Some percentage of all business deals go bad and become the subject of litigation.  That will also happen with litigation funding.

The scandal will come into play when it becomes clear that in some circumstances the lawyers did abdicate their professional responsibilities and let the litigation funding company call the shots to the detriment of the law firm’s client.  Some in the legal profession will profess to be shocked by such conduct and in extreme cases lawyers will be disbarred for their involvement in such arrangements.   We will act surprised, but we shouldn’t be.  The coming scandal in litigation funding is going to happen.

The Most Overlooked Trait in Potential Law Firm Partners

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When law firms consider adding a partner, or colleagues consider starting their own firm, they understandably focus on business metrics such hourly rates, billable hours, and portable books of business.  There is no denying that such metrics are critical to the success of any law firm.  But in my experience consulting with lawyers, too many partnerships fail because law firms and attorneys fail to pay enough attention to certain personal qualities of a prospective business partner.

Specifically, law firms fail to give adequate weight to how stable and reliable prospective partners are in their personal lives.  Too often a partner’s personal life bleeds over into how the firm manages money.  For example, a lawyer going through a divorce may convince the firm to forego capital contributions or distribute funds imprudently.  In firms with five or fewer equity partners, some of the pressure firms face to carry a small cash reserve arises because one firm partner needs an unusually large infusion of cash.  Similar cash flow pressures can also arise because partners live beyond their means.  Whatever the cause, too many firms imperil their financial viability by catering to the short-term cash flow needs of a single partner.

That is why well-run firms and strong partnerships will set up mechanisms that will make it harder for them to be held captive by the private life of a single partner.  It can, for example, be wise to strictly enforce provisions in the partnership agreement that deny the payment of bonuses to partners who haven’t submitted their time sheets.  Likewise, firms should generally be skeptical about loaning firm assets or money to a partner whose personal life is in relative disarray.

There are no easy or part answers when a firm partner develops an immediate need for cash.  Firm leaders need to weigh carefully the best interests of the firm with treating a colleague decently.  Human beings are unpredictable and forming law partnerships inherently involves assuming certain uncertainty regarding the personal lives of partners.  Medical and family emergencies impact even the most stable and reliable of people.  It is impossible to eliminate the risks associated with making any significant hire.

Law firms that are considering adding new partners should therefore be more vigilant than they are about identifying high-risk behaviors and traits in those partners.  This is especially important for lateral partners who have little or no previous connection to the firm.  Too often firms have been burned by not performing adequate due diligence on prospective partners.  In today’s dynamic and competitive market place, law firms have much to lose by failing to pay attention to troubling personal qualities of potential business partners.