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The Dangers of Excessive Optimism

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People who see themselves as successful are especially susceptible to overconfidence. Business owners often fall into this category, knowing how optimism has served them well as entrepreneurs. But in uncertain times like these, it’s doubly important not to get carried away betting on best-case scenarios.

In practical terms, this means that owners should plan for scenarios that include losing a third or more of their revenues in the near term, even those that have been generated by historically reliable clients. Many companies are conscious of managing cash flow, but fewer are considering that they may need to depart substantially from their existing business models to make money.

An article posted on the financial industry blog Naked Capitalism connects the dots in a way that accounts for the increased risk of a substantial downturn in business. Notably, it quotes from a recent Wall Street Journal article which details how restaurants, retailers, hotels, and other companies from Medtronic to Vox Media are recalibrating their time horizons:

“Executives who were bracing for a monthslong disruption are now thinking in terms of years. Their job has changed from riding it out to reinventing. Roles once thought core are now an extravagance. Strategies set in the spring are obsolete.”

The extra degree of caution needed also applies to underlying expectations regarding the prognosis for and timing of a vaccine. Experts have expressed some confidence that a vaccine is forthcoming in 2021 and that some of the preliminary experimental results have been promising. It is easy, however, to fall victim to a confirmation bias and ignore stories like this recent article in the San Francisco Chronicle which cites researchers at UCSF with concerns that people are shedding antibodies to COVID-19 too quickly to make a virus practical (full text available via the Benicia Independent). A vast majority of people are rooting for an effective vaccine, which is why we need to be mindful of the possibility that reality won’t conform to our hopes.

None of this information is meant to engender a sense of hopelessness. The unfortunate reality is that, while many sophisticated corporations are taking steps to weigh the risks of undesirable scenarios, many law firms and other professional services firms are not. We wrote early on in the pandemic about the importance of humility. COVID-19 has lasted far longer than most of us predicted in March and April. That fact alone suggests that law firms in particular need to do a better job of examining options and strategies that even a short time ago may have seemed unnecessary.

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.

Increasing Retention of New Hires at Law Firms

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Too many law firm leaders subscribe to a plug-and-play mentality when it comes to hiring. They believe that you can take someone who has certain skills and essentially get them to produce effectively in a short period of time. Firms recognize that the new hire needs to learn about the firm’s time entry, billing, and other computer-based systems. But other than that, it’s assumed, for example, that litigation associates who have experience writing certain kinds of briefs will start being productive beginning on their second day on the job.

The problem with this mentality is that humans aren’t plug-and-play creatures. Hiring legal talent is not like moving a computer from one room to the next. To the contrary, we are very sensitive to even small changes in routine and environment. Internally, we feel lousy when our internal body temperature changes by as little as one degree. And to name just one example, I’ve seen lawyers get thrown off by the fact that the coffee at their new job doesn’t measure up to the morning coffee that they are used to.

The plug-and-play mentality also fails to recognize how long it takes for lawyers to feel really comfortable at their new employer. In my role as a business consultant to law firms, I have encountered numerous managing partners and law firm leaders who are surprised to learn that it commonly takes up to two years for a lawyer to make a complete transition to a new firm. This is partly because lawyers are probably more resistant to change than most humans, but mostly it’s just a reflection that lawyers are human.

Does this mean that you can’t expect a new litigator or transactional lawyer to bill sizable numbers of hours right away? You can, and many experienced lawyers do manage to be productive billers fairly quickly. This is especially true if they are working on projects or clients that followed them to their new firm. But there is more to feeling comfortable at a new firm than billing hours.

A better approach would be to view the process of hiring someone as akin to adding a new roommate to an already full house. The new person will figure out the basics quickly. They will park in the correct spot, they will figure out how the new shower works and, if it’s important to them, they will figure out where the closest good coffee can be had. But working out the interpersonal dynamics between the new person and the existing residents will take time. In fact, some problems between roommates won’t even surface for months or years. That’s why scenarios involving roommates make for good reality TV shows. The potential for conflict and drama is ever present.

This same dynamic applies to that new lawyer or paralegal who bills a large number of hours every month. It’s not unusual for the person changing firms to be surprised about how long it takes them to fully adjust to their new surroundings. After all, they too might buy into the plug-and-play myth.

If you are the assigning partner, managing partner, in the HR department or otherwise have a responsibility for staff retention, stop being surprised that the care and feeding of lawyers is a never ending process. And since law firms don’t have much to sell other than the abilities of their employees, the sooner you stop expecting that new hires will “hit the ground running,” the more successful you will likely be in attracting and retaining the best people. And if you really want to have a competitive advantage vis-à-vis other law firms, establish a mindset that accepts and even celebrates the complexity of the human beings that you are bringing onboard.

To Grow Your Law Firm, Hire A Professional Administrator

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Law firms chronically under invest in training and developing their people.  One manifestation of this is the curious persistence of the part-time, combo secretary/paralegal/office manager role in many firms with more than five attorneys.

For a variety of reasons, too many law firm managing partners and executive committees are reluctant to hire professional, full-time office administrators.  For example, I recently came across a 20 attorney office that for the past several years had relied on one of its secretaries to manage the office.  This might not seem strange to lawyers, but it should.  How often do you come across a company that generates annual revenues of between $10 and 20 million that doesn’t have a chief operating officer or some other chief administrator officer?  Not very often.

Yet law firms persist in acting as if managing an office of 20 -40 employees isn’t a skill worthy of their attention or resources.  They act as if human resources, accounting, finance, IT and related functions can be managed by pretty much anyone.  Sometimes it’s a question of money.  Some law firms resist paying substantial and competitive salaries to highly qualified administrators because of a misguided reluctance to pay a higher salary to a non-lawyer than is paid to some of the lawyers in the office.

More commonly, however, law firm leaders just don’t have the experience of working with a top-flight manager, and aren’t aware of the extent to which that a person with the right skill set and personality can spur the growth of the law firm.  An experienced law firm administrator can free up the law firm partners to focus on serving clients, business development, and charting the future course of the firm.  Moreover, in today’s dynamic market for legal services, implementing a growth strategy almost always requires changing and enhancing a firm’s administrative capabilities.  To site just one example, a strategic decision to open up a new office requires the firm to engage in a whole host of administrative activities ranging from locating office space, negotiating a lease, creating marketing materials, hiring new personnel, and integrating a new location into the IT system.

This is somewhat of a chicken and egg problem.  A high percentage of law firm partners lack the experience and expertise to manage administrative functions.  Thus, law firms don’t spend enough time on strategic expansion goals in part because they lack the desire or aptitude to take on larger administrative burdens.  As one managing partner told me a few years ago, “managing two offices is a pain.”

It is. That is why law firm administrators can be so helpful.  Law firm leaders often complain that they spend too much time on managing inter office personality disputes or what they see as tedious administrative tasks.  They complain that they struggle just to do the legal work of serving clients, coupled with submitting their time, and attending some partnership meetings.  Very few partners focus on where the firm should be 12-24 months down the road.

A skilled law firm administrator isn’t a panacea.  Skilled administrators usually have strong opinions and require partnerships to adjust.  Thus, don’t hire an administrator if you think they will automatically rubberstamp every decision made by the partnership. A good law firm administrator will help manage change, and that by definition involves causing some partners and staff members to be pushed out of their comfort zone.

But if you are serious about running a law firm like a true business and want to speed up the process of growing a firm, hire a skilled officer and manager and support them in their efforts.

Leadership Language For Law Firm Partners

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The partnership structure of law firms creates specific communications challenges for law firm leaders. Some communications styles are more effective when leading a group of people over whom you have little absolute authority, and with whom you have to interact on an ongoing basis. Unlike some corporate structures, the people at the top of a partnership often can’t rely on the ability to fire subordinates. To be sure, accomplished communicators in a corporate setting rarely have to rely on overtly threatening to fire those who disagree with what they say. Good leaders in corporations and partnerships rely more on persuasion and motivation than threats of coercion.

And that’s the challenge for many law firm partners.

In my experience consulting with law firms, attorneys tend to be more nuanced writers than speakers. For example, the communication skills litigators bring to a lawsuit often don’t translate well to communications with their colleagues. This is especially true with respect to delicate issues such as partner compensation, where lawyers tend to be hyper-vigilant about the direct and implied meaning of every word (including what may have been said in the past that has now been omitted).

To some extent, effective communication requires law firm partners to avoid their inclination to win arguments with fellow partners. As people in successful long-term relationships know, it is easy to erode trust and damage the relationship by winning a short-term argument. Likewise, the well-being of a partnership often requires law firm leaders to avoid escalating issues and to give all partners a sense that dissenters won’t be punished in the future.

The examples set forth above only touch the surface of the communications skills required of law firm leaders. And different law firm cultures require different communications styles. What works in one firm won’t in another.

What is clear, however, is that communications skills are essential for law firm leaders. But how often do you see a firm select a managing partner on that basis? And even more tellingly, how often are future law firm leaders trained to improve their communications skills?

Well-run corporations invest in such training for their most promising executives. Law firms should follow suit and invest more in improving the communications skills of their present and future leaders.

It’s Time to Create Your 2017 Org Chart

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What kind of law firm are you building?

Whether you are a sole practitioner or the managing partner of a 200 attorney firm, that’s the question you have to constantly answer. You have to create the future in advance. That’s the essence of leadership. And one of the singular tasks of law firm leaders is strategic planning.

The phrase “strategic planning” gets tossed around a lot. It can be hard to define, but the idea behind it is unmistakable. You are more likely to grow and thrive if you follow a plan. Just as you can complete a jigsaw puzzle faster if you know what the finished product looks like, a law firm should know where it is going. And that is where an organizational chart comes into play.

But strategic planning requires a special kind of org chart. Unlike the chart that human resources departments churn out, you need to create the chart that reflects what you want your firm to look like in about 18 months. In fact, the best way to create the strategic organizational chart is to do it independently of the current chart. This is not an exercise in looking at precedent and extrapolating from there. That approach tends to generate incremental changes. And the whole point of this exercise is to see how far you can push your firm in the next 18 months. That is the best way to ensure that your firm will thrive in turbulent times.

In my experience the single most difficult aspect of creating an effective organizational plan of the future is visualizing evolving roles for existing partners. Most firms have some kind of process for identifying which associates are likely to become partners; that is an example of a more foreseeable change. But identifying a partner who would be willing to open up a new office requires an active and open-ended discussion of what’s possible. Likewise, too many firms fail to create succession plans for members of the leadership team. There seems to be an unspoken assumption that firm leaders will want to stay put, or that they won’t shift their responsibilities. That might be true, but the future of the leadership team is too important an issue to leave to chance.

A strategic organizational doesn’t have to be entirely accurate to be effective. The future can’t be predicted perfectly. But if you take the lead in creating the future you want, your firm is less likely to be the victim of circumstances.