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Ideas to Recession-Proof Your Law Firm

A tweet from Dennis Kennedy yesterday brought my attention to this blog post from Ron Baker of the Verasage Institute about recession-proofing your law firm. I met Ron several years ago at a LexThink event, and have been a huge fan ever since.  Ron is a value-pricing guru, and his post highlights that his philosophy has even more value for firms now than when the economy is humming. Furthermore, I believe that firms that do change their pricing/expense structure along the lines Ron advocates will find themselves in a better financial position when we exit this recession.

Smaller firms will find it easier to implement value-billing, but many lawyers just aren't sure where or how to start this process. It seems too daunting, too risky. However, as Ron points out, firms that take the risks will reap the profits. In other words, if you keep doing what you are doing, you'll keep getting what you are getting!

Ron has a number of articles and books that will help firms get started (and now is the time when we have a few extra hours to fill) on this conversion process. The ABA also publishes one of the best books on this subject, Winning Alternatives to the Billable Hour, by Jim Calloway and Mark Robertson.

YouTube and the Changing Legal Profession

I recently posted an item on the ABA TECHSHOW blog and forgot to share it here. It highlights Professor Michael Wesch's insight and research about YouTube, with links to several of his video presentations.  After watching the videos prepared by Professor Wesch, I can see that YouTube (and other video storage/delivery tools) is not just a toy, but is a viable tool for the legal profession at many levels.

Lawyers and firms should begin to exploit the benefits of this growing technology in order influence debate on law and policy, serve as an educational delivery system to clients and potential clients, gather information to learn more about the flattening world marketplace, and expand law firm marketing. It seems that most of the videos/visuals presently contributed by lawyers and law firms on YouTube are amateurish, boring, and ineffective, so there is plenty of room for others to command a presence.

In fact, a good portion of the contributions from lawyers on YouTube may diminish reputations, not enhance them. Consumers don't want talking heads statically sitting at a desk talking. To make it interesting, firms must add graphics, camera movements, quality sound, and even music. Yes, YouTube is for amateurs, but that does not mean videos can be amateurish. Remember, what is produced and distributed on YouTube (and similar sites) will be viewed by people used to viewing television as well as seeing professional websites on computer screens. Your competition for consumer eyeballs is not just limited to other law firms, but is made up of all other media your potential clients are viewing.

The use of the Internet for the storage, sharing and delivery of visual/video information is still in its infancy, and is certain to grow in importance in 2009 and beyond. Law firms that take the time and initiative to create, share, and promote interesting, professional, and timely videos will certainly have an advantage in the evolving legal marketplace.

Time to Raise Your Rates!

Over the past several years, I have noted that large firms continue to raise their standard rates while smaller firms have raised rates modestly, if at all. At least part of the reason is that big firms have higher cost structures, but they also have a world view that their legal services are not commodity services. Smaller firms, have lower cost structures, but seem to view their services as commodities and, therefore, more price sensitive.

I have urged smaller firms for some time to raise their rates and do it in light of the value they provide to clients, not in response to perceived economic trends.  However, now comes this post from the Harvard Business Press to raise rates and raise them now. Driven by the rapidly escalating cost of energy and other commodities, all businesses--including law firms will be squeezed. It is best to get ahead of the curve so that if the current economic trends continue your firm will have raised rates and can better withstand cost increases. Those increases will be magnified further when employees begin seek higher pay increases to cope with their own rising household costs.

Raising rates is part art, part science, and must be accomplished with open and direct communication to existing clients, especially those with open-ended engagement agreements. Many firms tend to want to only raise their rates of new clients; however, with new clients, it often takes six months or longer to have any impact on cash flow. Now is not the time to be timid.

A Lesson From Starbucks

In case you hadn't heard, Starbucks is closing all of its stores today at 5:30 to retrain their baristas and enhance the customer experience. It is another in a series of steps initiated by CEO Howard Schultz to "revisit the standards of quality that are the foundation for the trust that our customers have in our coffee and in all of us. Schultz also views it as "a time to celebrate who we are and to be proud of what we have built." Powerful stuff that offers several lessons to those of us in the legal profession.

1. Closing the doors to devote time to enhancing the customer experience is an expensive endeavor. All costs and no revenue for 3 hours. OK, maybe it is a slow time at many outlets, but it is still making a commitment to all customers and to the future well-being of Starbucks. How many law firms close to enhance the experience of their clients?

2. Howard's real reason for the closings may be to make more money in the long run, but he is focusing it on rebuilding the trust of the consumer. Far more admirable, but ultimately with the same result. Never underestimate the power of trust in an attorney-client relationship.

3. Rather than just announce a temporary closing, Starbucks has trumpeted the store closings and the reasons why for several weeks. And the media has obliged with stories about getting your afternoon Starbucks fix early today. It has been a great marketing coup.  They are letting their customers know they have heard their complaints and are making the answer very public.

So take a page from Starbucks, set a date for staff training focused on client service, announce to your clients that you are closing for an afternoon to enhance their experience. It will deliver multiple benefits, just ask Howard Schultz!

Law Firms Top Forbes Profitability Survey

Citing the low cost of entry and a steady flow of lawsuits, Forbes.com lists legal services as one of the most profitable businesses to start in America. Statistically, says Forbes, "[b]ean counters trumped all, with a 25% average pretax margin. Next came the legal-service firms, at 21.6%, followed by dental offices (20.9%) and specialty design shops (17.6%).  Specialization helps in health services, too. Chiropractors, optometrists, podiatrists, and physical, speech and mental health therapists--the fifth most profitable group as a whole, with a 17.5% margin."

I bet that comes as a surprise to many smaller law firms in the U.S. who are facing rising labor and real estate costs, but a slow-down in the rate of fee increases.  However, I have worked with a number of firms that will not settle for less than 25% pre-tax, and some who can raise that five or more points.

Still, it is nice to know that despite the demands of practicing law today, if managed properly, a firm can be among the most profitable businesses to launch and build today.

Beware of Tax Scam Targeting Law Firms

My good friend, J.R. Phelps, Director of the Law Office Management Assistance Service at the Florida Bar, shares this story about a tax scam that is sure to be attempted against other firms across the country:

I recently learned of this tax scam from a bookkeeper for a law firm that had just been scammed by the IRS (or so they thought.)  Here is how it worked:

The bookkeeper received a call from the IRS stating that the month end payroll tax had not been received .  The caller insinuated that unless the IRS could track the payment electronically from her bank account - today- there would be a significant tax penalty assessed.  They then asked her for the account number of the firm's checking account, the bank's routing number, and the amount of her payroll tax payment so IRS could track her check.  It seemed logical to her that IRS would need that information to trace a payment from her bank.  Hearing nothing further from the IRS she thought all was okay until she received the following month's bank statement.  She could not balance the firm's bank account and began looking for a reason why.  She then noticed an amount equal to her payroll tax paid to a business she did not know with the notation TEL (Telephone initiated Entry).  AND her payroll tax check to IRS cleared. The firm, it seems, had been scammed and not by the IRS.

So how did it happen?

A key difference between checks and electronic payments is that when funds are electronically debited though the ACH (Automated Clearing House) network  the transaction is initiated by the business that is going to receive the funds, not by the person paying the bill.  As an example, if you pay your electric bill automatically, each month the electric company, not you, instructs the bank to have money withdrawn from your account and deposited into its account. 

The bogus IRS agent utilized a type of electronic payment called a "Telephone Initiated Entry," which the ACH network accepts.  This is similar to paying for something over the phone with a credit card, but instead of providing your credit card number you provide your banking account information off the bottom of your check.  However, unlike other types of ACH transactions, no written approval is required and the potential for fraud is greatly increased.   The company initiating a telephone transfer through the ACH network is required to use "commercially reasonable procedures" to verify the identify of a customer.  Businesses are only required to record your verbal authorization or hold off making the transfer until they send you written confirmation that you verbally authorized it.  They seldom use written confirmations they just record your phone authorization.  In the instant case they recorded enough of her conversation to make it seem she  authorized the deduction.

So what can you do to avoid this from happening to your firm?

It is up to you to object to a questionable ACH withdrawal on your account. Your bank has NOTHING to do with authorizing these payment and has no way of knowing whether they are legitimate or not, until you complain.  You have 60 days from the time your bank statement is sent to you to contest an ACH debit on your account. Moreover, your bank is not liable for fraudulent ACH activity.  Here again, ACH payments are different from other account activity.  Typically your bank is responsible for obtaining proper authorization to access your account -  your ID if you visit your bank in person or your signature on a check.  But ACH entries are different, by law, it is the merchant's bank which originated the payment, and not your bank, that bears the final responsibility for any fraudulent entries.

By law you cannot be responsible fraudulent charges IF you report them in time. Your best defense is to review your bank statements regularly, and to protect your checking account information and checkbook as carefully as you protect your credit cards.  Even if you have never paid a bill by phone or through automatic deduction, your bank account is vulnerable. Forewarned is forearmed.

Wow, what a hard lesson to learn. But I know there are many lawyers who might learn the same hard lesson because they can't stand the thought of reviewing their bank statements each month.  It seems like drudgery, but at what cost? Now is the time to begin the habit of taking time each month to sit down with your bookkeeper to make sure your account(s) are in proper order.

Thanks, J.R.! Consider us warned!

Webcast: Small Business Summit

I don't always have good vibrations when I hear of something "free" from the good folks at Microsoft, but maybe the times they are a changing:  March 14 through 17, Microsoft is offering the Small Business Summit, an on-line series of webcasts to help, well, small businesses.  The array of over 25 webcasts is quite impressive, including many applicable to most law firms.  Day One includes Greenlight CEO Keith Ferrazzi on Skills and Techniques for Building and Maintaining Your Network of Contacts, and Day Three features financial columnist, Joseph Anthony, on Maximizing Your Cashflow.  Of course there are webcasts featuring Microsoft products, but why not?  I look forward to the session Windows Vista Demo, showcasing the next evolution of the Windows operating system.  All told there are more than two dozen webcasts on marketing, finance, productivity, and computer security--all focused on small business.

If that isn't enough to make business owners take note, Microsoft is adding in a couple perks to attendees.  If you attend one webcast you receive Microsoft's book "Small Business Kit", self-valued by Microsoft at $50.00. OK, not terrific, but if you attend 3 webcasts, Microsoft will sweeten the deal to a free copy of Microsoft Office Small Business Management Edition, which is valued at $669.00. What is MOSBME?  Basically it is Office 2003 with two new additions: Outlook 2003 with Business Contact Manager Update and Microsoft Office Small Business Accounting 2006.  Just for listening to leading experts help me to build my business from the comfort of my office? Yeah, that's better.

Free software or not, I'm pleased that Microsoft is using their technology to deliver business-building content to my computer, making it easier for me to learn more about running my business. That's customer value. I guess Microsoft is trying to make sure I have better vibrations about the company. That's good business--for both of us!

Zen and the Art of Practice Management

I was pleased and honored to be a featured presenter at the ABA GP Solo Roadshow in Miami this past weekend. It was a pleasure to once again share the playbill with Jim Calloway, Natalie Thornwell, Bruce Dorner and Dan Coolidge.  The size of the crowds surprised all of us, but hey, the weather wasn't the best.

I presented one of my favorite seminars, Zen and the Art of Practice Management.  It is an opportunity for law practice entrepreneurs to get a Big Picture view of the practice of law; to step back, see themselves, then develop new strategies and ideas to improve and/or build their firms.

I have uploaded my slide presentation for those who are interested in the concepts I teach.  Let me know what you think!

Update: Some readers are having problems viewing the slide show.  Email me and I'll send it to you.

When Law Firms Become the News

Rarely does a law firm governance issue make the national news, but that's what has happened at Holland & Knight.  And rather than fade away, the stakes just got higher.

According to the St. Petersburg Times and Law.com, the controversy started as an internal sexual harassment matter in the Tampa office of Holland & Knight, but became public when the subject of the investigation was promoted to Chief Operating Office six months after the firm found the harassment complaints against him "credible."

The public stir caused the partner to surrender his position as COO, but not his partnership.  Now Managing Partner, Howell Melton, Jr. is under fire to resign despite the fact he has apologized to the firm for making the promotion.

Now word comes that Chicago-based partner, Charles Wright, has written a confidential memo urging Mr. Melton to resign or face the possibility of a recall vote of the partners.

Enter Martha Barnett, chair of the firm's Directors Committee and a former president of the American Bar Association, to reinterate her support of Mr. Melton and convey overall support from partners.

But the most interesting fact revealed by Ms. Barnett, according to her interview with the Tampa Tribune: it takes 20% of the firm's partners to seek Mr. Melton's recall.

As large law firms merge and expand to create a national presence they have to face several natural truths:

• The firm is no longer a small organization where everyone knows your name and shares your values.  It becomes harder for partners to reach concensus on many issues, including who leads them.
• Law firm internal activities and public actions will increasingly interest more people in and out of the legal profession.  Controversies once ignored are now magnified.  If a management misstep can bring down a Boeing executive, why not the managing partner of a large international law firm?

While Barnett claims partner support for Mr. Melton, it seems that tracking the opinions of 700 partners across 27 offices throughout several continents is no easy task--even with e-mail.  It will take some time for both sides to marshall their votes.

Given the stakes and status of the players involved, and the desire and ability to leak internal memos, it appears that the final chapter of this public drama has yet to be written.

LexThink Chicago

I am honored to be one of the invitees to the first LexThink! Conference on April 3 in Chicago.  LexThink is the brainchild of blawgrepreneurs, Matt Homann and Dennis Kennedy.  The invitation sets the tone for this first-of-its-kind conference:

Fifty dynamic and innovative “big thinkers” from the worlds of law, business, design, marketing, and technology will join together in a unique collaborative brainstorming enterprise with a single purpose:  to build the perfect professional services firm.  Utilizing the Open Space method, we will turn the Catalyst Ranch space in downtown Chicago into our laboratory as we create and test ideas that will transform the delivery of professional services to an increasingly sophisticated and informed clientele.  By mixing targeted presentations with small group discussions and collaborative brainstorming exercises we will make this the single most productive and thought-provoking day you’ve spent thinking about your business. By the end of the conference, everyone will take away the sum of the accumulated knowledge “produced” during the day.  You’ll have an unprecedented opportunity to network with bloggers, authors and speakers who have motivated and challenged you over the years and who share a high-level passion for their business and their life.

Justice Oliver Wendell Holmes would applaud Dennis and Matt's efforts: He knew that "man's mind, once stretched by a new idea, never regains its original dimension."  I'd say that's pretty good company.