Corcoran's Business of Law Blog

Entries from May 2009

Law Firm Leaders and Law Firm CMOs: Stop Whining and Get On With It

May 25, 2009 · 5 Comments

The legal marketing community has been abuzz in the last few days after Zach Lowe in the AmLaw Daily posed the question, “How Essential is a CMO?” following the announcement that long-tenured BigLaw CMO Ed Schechter left Duane Morris.  Experts have weighed in, from Heather Milligan’s dead-on comparison between an essential CMO and a non-essential CMO, and Mark Beese’s list of five critical contributions of a top CMO.

Indeed, in this space I have often challenged law firm leaders to take stock of their current organizational structure, adjusting not just compensation and staffing ratios, but finding new and innovative ways to deliver legal services in more cost-effective ways.  Since a seasoned BigLaw Chief Marketing Officer is all-in a half million dollar investment, it certainly makes sense to question whether in today’s economic climate this is a wise use of a law firm’s capital.  Like most good debates, there are multiple valid perspectives.

A seasoned marketing executive can help a law firm differentiate itself from the pack.  In a world where every law firm claims to be big but offers a personal touch, represents big corporations to small businesses, values diversity, is client-focused and offers leading expertise in dozens of practices, one can readily see the value in standing apart from the crowd.  Don’t believe me?  Visit Ross Fishman’s Automatic Brochure Generator and tell me if it’s indistinguishable from your firm’s own copy.

A seasoned marketer can help define the optimal client footprint, i.e., which work do we enjoy, that is profitable, in growth industries, with clients who have needs that span our practice and office mix.  Instead, most of the many firmwide and practice group marketing plans I’ve reviewed tend to fall into the “We’ll chase all new revenue” category.

A seasoned marketer will be able to distinguish between building awareness and generating business, and therefore offer tactical support to move prospects from a wish list to an active client list.  Nearly every marketing plan I’ve observed includes at least one “unicorn” statement (referring to my daughter’s wish for a unicorn on her 3rd birthday):  “We hope to increase revenue from key clients and prospects in our target markets.”  This is essentially useless.  What it really means is “We hope the phone will continue to ring as a result of worldwide demand for legal services, despite our inept approach to business generation.”  Good marketers don’t traffic in unicorns; they take actions and build processes that are designed to generate revenue.

A seasoned marketer will build an operation that performs the above tasks, and many more, in such a way as to optimize the competing constraints of speed, quality, subject matter expertise, available resources, time zones and, shall we say, partner importance.  It’s a poor operation that merely reacts to whoever is shouting the loudest at any given moment.

So why don’t law firms rush to hire experienced professional marketers?  And why are many eliminating, or considering eliminating, those they have in place, or delaying replacement hires?  It’s as simple as BigLaw leaders not understanding the revenue-generating impact of a good CMO.  But the legal marketing community isn’t blameless either.

Many of our most senior marketers are hesitant to embrace the financial aspect of the role.  Measuring return on marketing investment is difficult even in the corporate sector, and BigLaw poses additional challenges because annual budgets are a relatively new phenomenon, partners often have great latitude in spending “marketing” funds and expenditures are typically viewed as one-time debits to cash flow and profits rather than investments with multi-year horizons.  As a result, many senior marketers are thankful they aren’t given budget responsibility and don’t contribute to revenue forecasting when in fact this is a glaring omission.

BigLaw partners operate under the amusing notion that a flat governance model in which every partner is an equal owner with equal authority is somehow a rational business choice, when in fact it’s an inefficient, extraordinarily dilutive and disruptive structure that persists due to inertia.  To be clear, the partners can organize their sandbox however they want, but this scenario rewards senior marketers who have learned to please partners above advancing the financial interests of the firm.  Indeed, there are countless examples of experienced marketers from other disciplines stymied by the bizarre world of BigLaw.

As one CMO put it to me without irony, “Success in a large law firm is all about credibility, which means accepting that we don’t often do things the right way, we do them our partners’ way, but after about a year of serving their needs you should have built up enough credibility to gently make suggestions, most of which they’ll discard, but to survive you can’t try to do too much too quickly.”

And let’s not overlook the recruiters in the field who specialize in moving around the same players, or at least the same skillset, because it’s the safe approach to placement. I’ve been approached more than two dozen times for law firm CMO roles and each recruiter plays some variation of the same tune: “This firm is not like all the rest. They have good practices, with loyal clients, and very few toxic partners. They don’t need a change agent, what they need is someone to keep the trains running on time. They hired someone in the past who spent a lot of the partners’ money (on restructuring, branding, CRM, advertising, or whatever) so now they really just want someone to maintain what’s in place.”  Or as one BigLaw leader euphemistically declared, “We’re picky and we’re looking for the perfect candidate.”

There is no perfect formula for a law firm CMO, though some have offered useful advice here and  here and here.  Others have offered criticism, here and here.  I am a long-time passionate supporter of the legal marketing profession and its professional association, and I’m a paid adviser to law firm and practice group leaders on how to grow and manage their business.  This experience has led me to these simple conclusions:

  • All businesses need a continual focus on identifying targets and pursuing opportunities.  While a law firm shouldn’t mimic a traditional corporation in all respects, recent events aptly demonstrate that BigLaw leaders who confused high demand with business acumen should now seek expert assistance to help them create demand.
  • BigLaw leaders need to discard the outdated notion of the role of a CMO, hire experts who know their craft, and give them air cover to inform the debate and drive positive change.
  • Legal marketing has come a long way but still has opportunities for growth.  The old formulas valuing longevity and loyalty and keeping the peace should make more room for financial acumen, forecasting and planning, business development  and executive presence.  To be sure, people skills are always important, but let’s find a way to solve for financial success rather than merely keeping partners happy.

We don’t all have to get along. But we do have to recognize that long-needed change is afoot, and with change comes discomfort — and this applies equally to BigLaw leaders and legal marketers.  Indeed, in my prior corporate life some of our greatest successes came only after forceful debates and significant disruption. The economic downturn has already provided the disruption, so let’s not let it go to waste.

Categories: Business · Law Firm Marketing · Law Practice Management

Don’t Confuse Responsiveness With Speed

May 20, 2009 · 3 Comments

I’ve made the above admonition countless times, whether to my sales teams in the past or to lawyers in my business development training programs presently.  In short, being responsive to the client’s needs isn’t the same as responding quickly.  In our BlackBerry-enabled world, where we’re accessible 24/7 in the most remote corners of the planet (I once successfully joined a conference call from the summit of Machu Picchu!), we tend to believe that because we can be accessible, we should be accessible.  More to the point, we believe that clients should be able to reach us at any time, anywhere.  I beg to differ.

One thing we’ve lost in a persistent-connection world is the time to contemplate.  Countless times I’ve heard from in-house counsel and outside lawyers that there is no more time to think.  Legal issues are often complex and require creativity and innovation.  And it takes to time to boil down the complex into smaller, more readily digested components.  One of the oft-repeated themes in legal vendor advertising is the harried lawyer who receives an urgent late night call from the client, but with a few clicks of her mouse the lawyer can find exactly the information needed to save the day.  The reality is that we all need time to think.  We need to contemplate the fact pattern, research the underlying issues, frame the response and prepare for anticipated questions.  This can’t be done easily from the ski lift or from the taxicab or from the back porch while the clown entertains the children at the birthday party.  Believe me, I’ve tried!

In my experience, responsiveness is more about setting proper expectations.  Rather than establish a ludicrous requirement that everyone will be accessible at all times in all time zones except while actually in flight (as one BigLaw partner recently decreed in a preposterous missive against the use of out-of-office messages), be crystal clear when setting expectations.  Your phone message and out-of-office message should indicate when you’ll return calls or messages, and provide an alternative source for the visitor to address questions.  And then follow through.  Most clients, even those with pressing business issues, want certainty about when they’ll have a quality response moreso than they want an immediate, but potentially inaccurate or not fully-considered, response.  This applies even when the client reaches you directly.  Just because you picked up the phone doesn’t mean you must provide an instant response.

In today’s ultra-competitive world we aren’t eager to broadcast to our clients that we’re not clever enough to respond promptly, or that we’re not sufficiently aware of their time constraints.  But avoiding the instant reponse in favor a more reasoned response doesn’t have to send these messages.

The potential outcomes are finite.

  • Flexible:  “Based on these facts, Mr. Client, we’ll be prepared to advise you by 4 PM today (or 2 PM tomorrow).  Will this timeframe work for you?”
  • Urgent:  “The facts are complex and it will take some time to develop a thorough response. If you need something urgently, then we can triage the issues and provide a directional finding within a few hours, but for a fully-researched response we’ll need until 4 PM today (or 10 AM Tuesday).”

More often than not, the client will wait for the right answer rather than settle for the quick answer.  If the client relationship is so tenuous, or, more to the point, if your law firm is regarded as the sort of place one calls when the prevailing need is merely for anyone to anwer the phone, then your challenge may be slightly larger than merely responsiveness.  Clients who demand instant responses often don’t trust that their deadline will be met, so they build in an “urgency” cushion to ensure that they’ll have answer in hand when the real deadline approaches.  They may also need to translate your legal response into a business response, so proving that you can offer business guidance and not merely legal advice saves everyone time.

It’s critical to demonstrate client focus at all times.  There’s a difference between responsiveness and speed.  Be clear of your intent when establishing your firm’s service posture.

Portions of this post previously appeared in my personal blog, where additional techniques to improve service can be found.

Categories: Law Practice Management

Calculating the Cost of Doing Nothing

May 5, 2009 · 3 Comments

In any business school finance class you learn capital allocation techniques, whereby you reduce competing projects to a single measure in order to more easily select the capital project with the highest potential to add value to the business. Examples of these measures include NPV (or Net Present Value) which reduces multi-year cash inflows and outflows to a single value in today’s dollars; and RI (Residual Income) or EVA (or Economic Value Added) which both reflect the value created from a project after achieving a required rate of return; or the more simple ROI (or Return on Investment) which is the ratio of money gained relative to money invested for a given project.  Inherent in these calculations is the notion that there are alternatives for the investment of the firm’s capital.  There is no such thing as a good or bad rate of return in isolation.  Only by comparison to alternative uses of the capital can a business deduce what investment returns the maximum long-term value.

In each of these calculations assumptions must be made, particularly with regard to future cash flows.  When a law firm calculates that an hourly rate increase of 10% will lead to a 10% improvement in top line revenue, the partners have assumed that other factors will remain constant, such as demand for their legal services.  And in a price-insensitive (or inelastic) market, this is true.  In other words, when a client is faced with the proverbial “bet the company” litigation, price is far less important than quality in the selection of outside counsel.  Given constant demand, an upward adjustment in hourly fees will increase top line revenue.

Similarly, a prominent legal vendor with which I have some familiarity tends to treat annual price increases as a mechanism for printing money. In one product line it issued annual price increases at about three times the CPI for a very long time, with a continuing assumption that these increases would directly correlate to increased revenues.  As the business innovated to reduce internal costs, the marginal profit on the new revenues was significant, leading to a perpetual assumption that increasing prices will lead to significant increases in profits.

However, each has experienced steep revenue decline and customer attrition, to the consternation of the baffled leaders.  Can you spot the critical mistake made by both the law firm and the legal vendor? It’s not rocket science. Obviously each overestimated the price sensitivity of the market. By assuming that buyers will continue to buy at the same pace even as the price increases, each made a fatal miscalculation. Each assumed that its product was of such high quality, was so unique and special, that buyers didn’t want and wouldn’t seek alternatives. Of course we now know this isn’t true. BigLaw partners everywhere are getting a crash course in microeconomics. After a generation of near unlimited demand for legal services — as close as one gets to the very definition of a mathematical constant — clients are refusing to pay the high rates, realizing that a good portion of their legal needs are closer to commodity than “bet the company,” and they’re running, not walking, to find lower-cost alternatives.

The legal vendor is similarly challenged.  Whether it’s a backlash to high prices, or the rise of alternatives and substitutes in the marketplace, buyers are pushing back, even canceling their purchases.  The vendor is caught in a vicious spiral.  By baking its perpetually flawed assumptions into its annual profit expectations, every cancellation or significant downward renegotiation creates a gap which it tries to make up by — surprise! — increasing prices to other customers or in other product lines.

But law firms and legal vendors aren’t unique.  Every industry, even government, has its own flavor of flawed assumptions.  Pharmaceutical manufacturers lobby Congress for trade protection to prevent consumers from buying lower-cost prescription drugs from Canada.  The music industry laments the millions of dollars in lost CD revenue due to unauthorized music file sharing.  Government officials rail about lost tax revenues from individuals and corporations aggressively seeking tax havens.  In each example, buyers are doing nothing more than logically and legally seeking lower-cost alternatives.

Okay, I guess music file sharing is illegal, but the sentiment’s the same.  None of us who used to pay $12.99 for a music cassette and who now pays $19.99 (or more!) for a music CD really believes that the cost to produce a CD is higher than than the cost to produce a cassette.  Some would say the music industry created its own demise by positioning CDs as a premium purchase and therefore limiting its potential buying audience, rather than lowering the price and dramatically increasing the addressable market, which is exactly what Apple did with iTunes.  (Personally, I believe music file sharing is a backlash against the typical music CD’s inexplicably confounding security wrapper!)

In my years leading a business, my team and I developed the most precise forecasting methodologies and as a result year after year we achieved our revenue goals while others floundered.  Our approach was simple:  we always included a line to reflect expected losses due to rejection of our price increases, and we developed a sophisticated predictive index to identify which buyers were at risk.  Most organizations have a contingency for bad debt but this is reflected on the balance sheet and not at the product level.  We were required to increase our prices by corporate mandate, even though we demonstrated time and again that it impaired our brand equity, resulted in emotional total losses (buyers who would refuse to do business with us again in any product line) and unfairly assessed penalties on good customers who didn’t complain (because when the bad customers left, who do you think had to pay an even higher price to make up the difference?).  The leaders were tone deaf, and today that product line has experienced monstrous losses which, in the usual manner of corporations, the present management blames on past mis-management.

Among the many questions law firm leaders and business leaders should be asking is whether or not they have properly considered their customers’ alternatives.  Many BigLaw partners are astonished to learn that the pedigree of the firm truly doesn’t justify fees that are substantially higher than smaller competitors in most cases.  This isn’t a character flaw and their myopia is shared by many others.  However, those that do nothing now to address the change in circumstances should be held accountable.

You don’t have to be an experienced economist or financial analyst to lead a large enterprise (though it helps to have some chops).  What you do need is a healthy understanding of the mathematical drivers of your success.  In your revenue calculations, use different assumptions for those products and services which you can charge at any rate and those for which buyers have numerous lower-cost alternatives.  Assume the services you believe to cater to a price-insensitive buyer to be shorter-lived than they used to be.  Look to grow your top line as much by offering an innovative new product or service  as by increasing your prices for your present offerings.  When marginal profit contributions from price increases are elusive, look to achieve your profit objectives by reducing internal costs through outsourcing or business process improvement programs.  But do something.

Seth Godin recently described the calculus of change:

“Do nothing is the choice of people who are afraid. Do nothing is what you do if too many people have to agree. Do nothing is what happens if one person with no upside has to accept downside responsibility for a change. What’s in it for them to do anything? So they do nothing.”

In the legal marketplace we have relied on assumptions that are no longer true.  We can roll up our sleeves and re-work the underlying math in our assumptions.  Or we can conduct a few layoffs, cancel the annual meeting, put a freeze on hiring and travel, and wait for the old assumptions to revive.  Or we can do nothing.  Your call.

Categories: Business · Finance · Law Practice Management · Legal Vendors