Profitable Lawyering: Say goodbye to the dog clients
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Lawyers can’t catch a break.
It seems like every week there is a news article predicting the demise of law firm lawyers.
“Russians train monkeys to expertly manage due diligence and clean up after themselves!!!”
Unfortunately, I have some even worse news for my firm friends. (But also some good news.)
The bad news is that we have reached a tipping point where legal departments are actually spending more on themselves than they do on law firms. In other words, the biggest supplier to legal departments is themselves, making it increasingly likely that they will be replacing you for legal work.
The good news is that sooner or later, most likely sooner, you will also be replacing clients – or at least getting rid of your worst clients.
In this post, you can read about the reasons behind why clients are replacing you as well as a rational response that should better position you for profitable client work.
You are being replaced, quickly
According to Altman Weil, in-house teams are now reporting that, for the first time, they are spending more on themselves than on outside law firms. Although nobody in the legal industry would be surprised that in-house teams are shifting work to their departmental colleagues, it is surprising that this process has gotten so far along that law firms have become secondary players in their main business line, i.e., providing legal advice to corporate legal departments.
Unfortunately, law firms primarily have themselves to blame for this situation as clients have been complaining for years about the law firm business model, but law firms have been slow to respond. For example, clients are rarely happy about law firm pricing, especially billable hours, but the vast majority of firms are unwilling or unable to switch to fixed fees, unless they are forced to by clients. More problematic, clients have been expecting law firms to follow modern business trends and strive to be more innovative in their approach to providing legal services, but law firms are stuck waiting for the other firms to do something first.
Why not replace them?
I have repeatedly heard from law firm lawyers that they understand the complaints of clients; they are trying to accommodate them, but they can only do so much due to their limited resources (i.e. little time, small budgets for non-billable work, punitive compensation schemes).
Although these arguments are completely valid, they don’t change the fact that you have now become the secondary supplier to your clients. Even worse, your biggest competitor has an insider’s advantage. As a result, if you don’t want to further slip down the competitiveness rankings for obtaining legal work, you need to find some additional resources to make yourselves more innovative and otherwise attractive to clients.
Fortunately for you, you have sitting right in front of you a fairly obvious option, an option that your clients have been using against you for years. In particular, your clients have been conserving their budgetary resources by getting rid of overly-expensive law firms and replacing them with cheaper, yet similarly-qualified, law firms. Why don’t you do something similar to conserve your resources? In particular, why don’t you stop wasting your time on super-low paying clients and just get rid of them (or smartly minimize their consumption of your valuable attorney time)?
Modern Client Management
I know that this idea sounds crazy. You are probably shouting at your computer: “I can’t afford to be getting rid of clients.” Actually, you are wrong. Let me show you why.
Imagine the following situation. You have four clients with the following financial details:
Now, if you plot these details on a BCG-like matrix, you will see the following pattern:
If you had to get rid of a client, which would you choose?
You wouldn’t choose Mr. Cow, because despite the fact that you can’t get a good hourly rate for your work, he produces a substantial amount of income – perfect for covering your costs.
You wouldn’t choose Mrs. Star, because she is your firm’s future – leading the way in revenue and paying you a great fee.
You might think about choosing Mrs. Mystery, but that would be a mistake. Although she doesn’t make you a lot of money, she values your time and pays you a great hourly fee.
You should choose Mr. Dog, because not only doesn’t he pay you a fair hourly rate, but he also is very stingy in giving you any work at all.
If you find that you have clients fitting the profile of Mr. Dog (and you will), they present a perfect opportunity to better utilize your resources. If you get rid of your dogs, you will be getting rid of clients that don’t very much value your services and are unlikely to ever be profitable. More importantly, you can use the resource savings to make all sorts of smart business decisions. For example:
Use your time saved from working with dogs to spend more time getting work from your stars (e.g. active cross- selling) or doing some business development to recruit some new stars.
Replace your bad short-term time investment in dogs with a smart mid-term investment in an important firm innovation program (e.g. introducing process improvements to speed up delivery to clients).
At the very least, you can use the hours that you were wasting on dogs to avoid career burn-out and take a well-deserved vacation.
Conclusion
The bad news is true. You are getting increasingly squeezed out by in-house departments transforming themselves into quasi-law firms.
If you want to beat these new competitors, learn to copy and adopt their best strategies.