The largest firms are facing a new economy shaped by a “perfect storm” in which finance, transactional, and litigation work have turned down simultaneously, with few offsetting increases elsewhere. These, of course, were the hot practices during the boom times, and they spawned practices at larger firms that now are coming back to haunt them. For example, high associate salaries and the de-equitization of partners made leverage more expensive; clients fought rising hourly rates by using RFP “beauty contests” and demanding fixed fees; and frenzied mergers, lateral hiring and law school recruiting gave many firms high headcounts just as demand for legal services turned soft.

Of course, small firms and solo practices face the valley of lean times frequently, sometimes more than once a year. Experts say, and the experience of most of us confirms, that the recent megafirm profits-per-partner figures are of little relevance to most practitioners. The average American lawyer is working at a small firm making $60,000 to $100,000 a year. In California, by far the most populous state, one-quarter of all lawyers earn $50,000 a year or less, and the situation is similar in many other states.

In other words, a “challenging new economy” for the big firms is often what smaller firms consider business as usual. Either way, all firms, no matter what size, need a survival strategy such as the economics of running a law practice.

Take Eight Action Steps To Stay Viable During Economic Downturns

1. Emphasize collections. If clients are facing hard times, paying their lawyers is not uppermost in their minds. That’s why you need to constantly monitor overdue accounts, keep in regular communication with slow payers to remind them of their engagement agreement terms, and use a collection service if necessary before a bill becomes too old. Age does not improve an account receivable.

2. Conserve cash. Investment and staffing plans made in better times may simply not be feasible in a recession. Consider postponing any major new investments in more technology or additional staffing.

3. Expand marketing. This doesn’t mean running up bills for advertising and brochures that you can’t afford. It does mean getting on the phone and into the community, speaking to current and potential clients and letting them know what you can do for them.

4. Control bonuses. In firms that give lawyer or staff bonuses, people tend to expect what they’ve always gotten, an entitlement mentality that makes bonuses become virtually like a salary. But if receivables don’t get received, the firm cannot afford to pay the usual bonuses. Cuts or elimination should be based on the bottom line P&L.

5. Reassess office space. Firms should look hard at their space needs and lease terms. Consider what is affordable, which features are most critical to operations, and what is required by the lease. The firm that is not locked into its current space and terms may be able to negotiate one or several months rent-free as an inducement to signing a new lease.

6. Outsource. With today’s options, any position in the firm could potentially be done by someone other than a full-time hire anywhere in the world. More firms are using virtual assistants—paralegals or other administrative specialists who work offsite and online, and create work product to the specifications of the firm’s practice.

7. Know your banker. Building a mutually beneficial and effective business relationship with your bank is crucial for firm survival when business conditions become tough. If you created and have maintained good financial standing, you may face a modestly higher interest rate than you paid before, but you will still be able to get a needed line of credit.

8. Consult a coach. A business downturn is scary to face alone. A coach who has been through the business cycle can often help you assess where your firm stands and what’s needed to stay competitive. A professional coach uses real-world experience to help resolve practice management problems caused by tough economic times.

Cut Fat, Not Muscle

One economic strategy far too many firms use is not recommended—staff and lawyer terminations. Too often, driven by perceived or real economic pressures, firms make hasty and harmful decisions by cutting too many people too fast. Why can’t these people be transferred from their current practices to other practice areas that are still performing? After all, these lawyers are trained in the culture of the firm, are capable (otherwise they shouldn’t have been hired), and should be able to learn new technical skills. Certainly those lawyers who do not generate the profit to cover their cost may be candidates for layoff, but cutting without a measured assessment of what and where to cut eliminates muscle and not just fat. This strategy will likely cause a problem when (not if) the economy recovers and firms must scramble to catch up with client demand after their layoffs. If we’ve learned one thing in the new economy, it’s that nothing—good times or bad—lasts forever.

RESOURCES

Poll, Ed; Attorney and Law Firm Guide to the Business of Law: Planning and Operating for Survival and Growth, Second Edition, American Bar Association, January 25, 2002.

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They understood something that too many in our profession have lost sight of: The profession was designed to provide at least a measure of independence and autonomy. That’s why it’s called a profession and it’s something we need to practice.

And so it was with most of our clients who had been with the firm for a very long time. We sent them bills every now and again that said “For legal services rendered” and were adjusted up or down to reflect the outcome for a particular matter. These client relationships also had a “for better or worse” quality to them. Lawyers thought they brought gravitas as well as technical skills and zeal, and many client conversations began something like “Now, Carl . . . .”

Billable Hours Can Turn Legal Services Into Commodities

Less than a decade later, I was asked to address a gathering of a client’s corporate counsel and executives. Over dinner, one of the senior officers decided it would be entertaining to give me a hard time about a new concept emerging in the legal profession: the fungibilty of lawyers.

The billable hour had taken hold and by then we were minutely describing every step we performed in rendering our services. Clients played a version of “Where’s Waldo?” with every bill, scrutinizing it to determine if the quarter-hour internal conference for which they were billed was really necessary. Thus we aided and abetted the conversion of our services from advice into widgets. Clients in turn were increasingly deciding that one lawyer was about as good as the next, so legal services could be purchased as a commodity.

“If you want a fungible lawyer,” I told the man who was ribbing me, “you better hire somebody else.” Professional services are not something you deliver to a client but something you create with your client. That involves a deep level of understanding of the client’s objectives, which is best achieved in the context of an ongoing relationship. I still feel that way. I also believe that the profession badly needs to return to the principle that lawyers are more than potted plants wielding pens or highly trained assault weapons.

Believe me, I am not pining for the good old days. I am about to get a grip on the reality that my sixth decade is just around the corner. In my lifetime I hid under my desk during air raid drills and later stayed glued to the car radio during the Cuban Missile Crisis. I watched too many of my generation lose their lives in Vietnam. I threatened to file a gender discrimination case or two, paid close to 18% interest on my first mortgage, watched the S&L’s take down much of the Southwest, delivered my third child a few days after the First Gulf War began in shock and awe, and watched the Twin Towers crumble.

Before we became McLawyers, we were lawyers who trusted in a continuing attorney-client relationship. We expected to invest time in getting to know our clients and their businesses; to understand their long-term objectives; and, when necessary, to give them advice they didn’t particularly want to hear. Lawyers and law firms built credibility over time—credibility that could sustain a few losses and, more importantly, disagreements about the wisdom of a course of action. Today, because an attorney fears that a client will simply walk across the street at the first ripple of trouble, she might be tempted to go along or placate when that isn’t the wisest course for any objectives except those billable hours.

Pressure To Compromise Our Principles Increases

This is our real occupation: holding a space for good judgment and reason. Yes, we advocate zealously for the interests of our clients, but only after we first understand what those interests actually are. No, it is not our prerogative to decide what a client should want. If clients want to make what looks like bad decisions, that is their choice—as long as the decisions are legal and ethical. However, as lawyers, we don’t need to stand by and watch—or worse yet jump in—simply because we fear the client won’t like being challenged. An important part of our representation is giving good advice in the privacy of our offices, telling our clients things they may not want to hear, and asking them the tough questions they may not have asked themselves.

When we read stories of the financial failures of the past decade, I often wonder what is truly intentional dishonesty and what is more the result of that sneaky duo, greed and cynicism. Greed allowed people to buy and sell things that didn’t exist and cynicism suggested that we didn’t have to attend to our nagging suspicions as long as more swag was available. All the actors willingly played their parts without asking what the play was about. As the American poet Anne Sexton wrote, “Like carpenters they want to know which tools. They never ask why build?”

What might have happened if more corporate executives had lawyers who looked at the big picture and said, “Wait a minute”? What if we had been helping board members understand the purpose of their roles instead of taking just a “stay out of SOX trouble” compliance mentality? What were we saying among ourselves at professional and purely social bar meetings?

As a profession, we found ourselves blinded by the glitter of the Emerald City—but we’re supposed to be the ones looking behind the curtains.

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Succeeding in troubled times isn’t really about luck, though we often talk about it that way; in fact, people who find opportunity and put themselves into positions to be “luckier” than some of their colleagues rely on an elegant combination of strategy and effort.

It’s not the circumstances themselves but rather our response to circumstances that makes all the difference. Firms don’t survive poor market conditions: individual lawyers do. Over the course of the past thirty years of market ups and downs, I have observed three types of associates and partners: those who survive, those who fail, and those who thrive regardless of external conditions. While the lawyers in this last group come from many different talents and backgrounds, they share three traits that support their success.

Clients Come First

Putting your client first means more than paying attention. Associates who thrive treat partners’ and clients’ problems as their own, not as mere assignments that generate billable hours. Focusing on the quality of their work, they learn what keeps their supervisors and clients up at night. They seek opportunities to add value to the tasks they are given and to broaden their roles on projects to alleviate the stress of more senior lawyers. That partner and client are satisfied with their work is what matters most to these associates.

Partners who thrive think of clients not as revenue sources but as friends and colleagues, which is why these partners focus on getting great results. They do not work at the 30K level on cases and deals—they know what is going on in their matters. When they communicate with clients, they know they need to inform, include, reassure, and offer support. It’s their responsibility to make their clients look good in any way possible. These partners also make it a priority to invest time learning about their clients’ businesses so they can partner with them to serve their needs ably.

Care About Learning, Not About Being “Learned”

Highly successful associates recognize that being “learned” means being left behind; instead, they demonstrate a level of intellectual curiosity that sets them apart. They pay attention to their professional development: asking for and acting on feedback, seeking information on expectations and developmental milestones, and reaching out for new experiences. Without asking whether their time is billable, they invest time in activities that will build skills and experience. They develop a plan to become better lawyers faster, and recommit to achieving that goal with every new task.

Partners who thrive balance healthy confidence in their expertise and level of mastery with an understanding that they can never stop learning. Welcoming new ideas and creative approaches, they keep abreast of trends and people both within and outside of their areas of practice. Although they share their knowledge, they are often the first to seek the opinions and ideas of others. They listen more than they talk and want to expand their knowledge and improve their skills.

Invest In Relationships

In bad times, it is easy to keep your head down and attend to only those problems that affect you. Today’s technologically isolating law practices support this individualistic approach. Yet associates who thrive have unusually large networks of positive relationships built over time. They don’t lose touch with classmates and colleagues—not because it’s good for business, but because they had real bonds with them, while at the same time establishing positive relationships with each person with whom they work, including staff. Successful associates are sought after by many people: junior associates want to be mentored by them; peer associates aren’t threatened by them because these associates know how to share the spotlight; partners know that these associates can step into managerial roles with confidence; and clients feel as if these associates took the time to really know them.

Partners who thrive are others- rather than ego-oriented. They establish and maintain strong relationships and use their connections to help others—to get good work for associates, make client introductions for colleagues, alert clients and friends to job openings and business opportunities, refer business to colleagues within and outside of the firm, and raise the visibility of the firm. By mentoring associates, they inspire loyalty. Leading by example and by sharing their client relationships with others, they inspire fellow partners to commit to strengthening the firm. They retain clients over the long-term by nurturing relationships both during and apart from the work they do together.

Given a choice, most of us would prefer to thrive, not just survive. Emulating the characteristics of the highly successful lawyers you know can help you navigate even a stormy stock market. “There are costs and risks to a program of action,” said President John F. Kennedy, “but they are far less than the long range risks and costs of comfortable inaction.”

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In today’s economic climate, lawyers who bill hourly are facing significant price competition and pressures on profit margins because their business models do not translate their work into value as it is seen through the eyes of their clients. However, there are many things you can do immediately to add significant value to clients, prevent client attrition, and keep your profits in line through these tight economic times.

Explain Value In Pre- And Post-Action Reviews

A best practice for attorneys is to have clients define, in their terms and at the beginning of the engagement, what success means to them. This allows you to make sure their expectations are reasonable and that you understand what they really think they are paying for. Remember, they are not buying your time and effort. Make sure to have clients identify what they value, how they desire to work together with you, and what communication style they prefer: this way, you will be more likely to hit the bull’s-eye.

If you do not plan to change your pricing model anytime soon, this is a great way to keep your clients happy and reinforce your unique value. Many lawyers get so caught up in creating the outcome for the client that they forget to tell the client all of the great things that they did to get there, and I don’t mean in the form of an itemized bill.

Finally, before giving clients your bill, have a detailed discussion with them reviewing the process you went through. Reveal the thought and expertise that you put into the matter and connect that with the outcome that you achieved. Sometimes, you might even tell a story about how you successfully used a negotiating tactic with opposing counsel or explain that you crafted a unique argument to the US Patent and Trademark Office and prevailed. This will reinforce your unique value and keep clients from focusing on itemized bills for emails, phone calls, and vague line items that they do not understand or value. As a general rule, if you do not first reinforce value to clients, they will look at your bill to find it. When they don’t find it there, the first thing they will do is complain about line items—or even worse, say nothing and never return.

Designate The Scope Of Outcomes

If you’re a bit more adventurous, include in your engagement letter a definition of the scope of the project defined by desirable outcomes rather than by process. When clients see their own definition of success in your engagement letter, they will see that you “get it” and that you have your eye on their prize rather than on a process that you find intellectually stimulating. With proper communication, clients will understand that an outcome is not guaranteed, but they will also be significantly less likely to blame you for not achieving their desired outcomes if they know that you were aiming for the right goal to begin with.

Give A Value Guarantee

A few innovative firms have begun to offer a value guarantee to clients, ultimately putting the “perceived” power in the hands of the client. This may seem scary, but it isn’t. First, a value guarantee is not a guarantee about outcome. It is a value promise of the firm to make sure that what clients pay is ultimately no greater than what it was worth to them. This has several benefits: it keeps you constantly thinking of how the client perceives value; it also significantly reduces client attrition and complaints, and ultimately prevents you from losing referrals.

If you think about it, clients already have a value guarantee: we call them write-downs, write offs, non-paying or slow-paying clients, etc. By offering a guarantee, you create an incentive for clients to talk to you about what they value and how much they value these qualities. This is valuable intelligence for a firm to have. The alternative is a silent killer. All of the research we have done shows that unhappy clients are unlikely to tell you how they really feel, but they will not hesitate to pay less, not pay, or tell everyone they know how horrible their experience with you was. To a great extent, they already have the power to control your profits, which is why it’s a great practice to give them an incentive to address issues with you that allow you to maintain a long-lasting relationship and avoid the silent killer. Remember, it costs five times more to acquire a new client than to maintain an existing one.

Adopt Fixed, Value-Based Pricing

Fixed, value-based pricing is the most effective way to align your economic interest with the success of the client in a manner that can earn you significantly more in the long run. It’s also the most value-aligned pricing model that, done well, almost assures client satisfaction. There are a few firms nationally that have completely abandoned hourly billing in favor of this model, and many others are exploring the possibilities in light of the earnings pressures faced by the industry today. ¹

Value pricing is a form of fixed pricing that sets a price for work based on its subjective value to the client. There are significant resources online and in print to help professionals navigate the inevitable change to fixed-pricing in the market. ²

In order to price based on value, attorneys must work with the client up-front to discover the value-drivers, desired outcomes and preferences, and then carefully scope out an engagement around what the client wants to achieve. Next, ask your client to attribute a value to the engagement and get your money up-front. That way, you don’t need to manage your entire life in six-minute increments and you can work effectively and efficiently to achieve the outcome in a manner that increases, rather than decreases, your profitability.

Your client’s last memory of you will be your achievement for him or her rather than your bill. If you feel as if you need some courage to try this model, remember that the reason you are in business is to be profitable, not to make exactly the same profit margin on every job you do or to know exactly how many pennies you made on each engagement.

With careful scoping, great communication about value-drivers and good project management, you should be able to successfully implement a value-pricing system that will differentiate your firm and make you a provider of choice. As many innovative professionals have discovered, clients highly value what we do and are willing to pay a premium for certainty, allowing us to focus on value creation and quality lawyering instead of timesheets, billing, and collections.

In this economy, the uncertainty of hourly billing makes value pricing more compelling than ever before. After all, who can afford to write a blank check?

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To achieve this, think of others and be interesting. Skill levels being equal, decision makers are hiring in part based on qualities that make a person memorable. Become memorable by creating opportunities to meet interesting people and then staying in touch with them on a regular basis. Also, pursue activities that both excite and inspire you.

Avoid Self-Made Obstacles

The first step is to avoid sabotaging your efforts by cultivating certain feelings that block your career path. Regret, envy, insecurity and pride are just a few of the emotions that prevent you from ascending the ladder of success and becoming a great rainmaker.

The best way to rid yourself of these negative feelings is to adjust your perspective, remain positive and become more methodical. Also, gauge where you fall on the risk-aversion spectrum and tailor a strategy that meets your tolerance level. This will make it easier for you to remain committed to change.

Bear in mind that levity, whimsy and excitement can enhance your results. An occasional deep breath does not hurt either.

Ask For Advice

One of the best ways to combat an economic downturn is to genuinely upgrade your networking efforts. Asking for advice is ironically a great way to do so because as you ask more people for their guidance, those advisors become part of your network. Your request also acknowledges their skill and experience.

Listen to how people ask you for advice to learn the most effective way to relate to others. Evaluate their questions and find opportunities to be seen as a mentor. When asking for advice, do so with authenticity. Strategic requests may be perceived as insincere.

Be A Relevant Writer

Demonstrate your sincerity by incorporating the advice people give you into an article. This indicates that you appreciate their opinion and help.

Remember, however, that timing is as much a critical factor in getting published as it is in distinguishing yourself. Those who succeed have foresight: they anticipate what issues will be on the minds of their readers at the time the article will be published. The current financial climate provides a great time hook.

Here’s a publishing secret: Writers who review editorial calendars and submission guidelines of target publications have an advantage over their peers who submit articles blindly.

Editorial calendars outline the focus of each issue in a periodical over the course of an entire year. They are generally available on the web along with the writer’s guidelines (which give you instructions on issues such as length and style). Reviewing the calendar not only streamlines the process but also reduces frustration and increases the likelihood for success. It will also endear you to editors, who will then be more inclined to accept a story idea or, if they reject it, suggest an alternative.

Master The Art Of Following Up

Whether you are writing an article or focusing on business development, you’ll have an exponentially greater chance at succeeding if you follow up. Though Woody Allen famously claimed that 90% of life is showing up, many would argue that success is built on follow-up.

Even the most successful people encounter rejection, especially over our first attempts. This rejection is usually not a reflection of the merits of an idea or strategy; most often, it is simply a function of poor timing. Human instincts assign erroneous meanings and project negative judgment on our qualifications until we follow up and learn the truth.

To master the art of follow up, you need to control and balance two opposing forces: your temptation to call or e-mail someone ten times a day, while fighting your natural complacency to make one call and then give up. Scheduling is critical. Between billable hours, schedule items you need to complete. To-do lists are fine, but enhance them by using an electronic calendaring system with automatic reminders. If you speak with someone about a job or client development opportunity, add a follow-up e-mail or phone call to your calendar. Whether it’s a month or six away doesn’t matter; just remind yourself to keep in touch.

Collaborate

Ultimately, opportunity-makers collaborate. They engage with the community and celebrate the work of their peers. That celebration helps to spotlight the contribution of the subject individual, but also emphasizes the character of the messenger. Whether they initiate contact by getting published or asking for advice, or harness the power of strong follow-up to generate momentum, their goal is to work together.

Those who work alone and focus narrowly miss prospects that only come from interaction. No one can afford to remain isolated in this sensitive period in our history. By working together, you can stand out and by standing out, you can find success.

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