Lawyers and business plans <sigh>

Four or five years ago, I recall going to a law firm cocktail party. The firm – now no longer with us – was in the ‘mid-tier’ (= covers a multitude of sins), and had a respectable name. The chief executive excitedly told me that at the recent partners’ conference, the firm had approved its first ever business plan.

Mark Brandon
Mark Brandon

I was shocked that a firm which was well-established and decades-old didn’t have any kind of business plan up to that point. That was until I got sight of more firms’ business plans, departmental, group, overall, partner-individual, you name it.

I quickly came to realise that what most people in the business world call a business plan often doesn’t exist in law firms. Instead, where there is a plan, it is often worked backwards from what senior equity partners want to earn, creating targets for each department, partner-billable hours targets and notional hourly rates, ideal leverage, utilisation and targets for the assistants.

Stick in a notional per-partner overhead cost, derived from a division of aggregated costs for the business, salary costs, a client list or two, some airy objectives and all the departmental plans combine to create the firm’s plan.

That the firm in question had got along without having any kind of business plan (or I presume individual or departmental business plans) until that point might suggest that it didn’t need one. In fact, the standard law firm business model  has worked perfectly well for hundreds of firms over the years.

Frankly, if most of the key players in any sector at present could point to double-digit or high single-digit revenue growth in the last year, which seems to be the case for many of the top law firms, I’d be very surprised. But as The Lawyer’s feature on legal process outsourcing (21 November) demonstrates in frightening detail, the times they are a-changing.

When I came into the law, some 20 years ago now, the ambient ‘threat level’ in the profession was next to zero. If there was a warning light, it was in some darkened basement, covered in cobwebs and unconnected to the electricity supply. Now, the threat level is at ‘extreme’. Yet many firms continue to sit on their hands and, as one partner put it to me yesterday “wait to see what everyone else is going to do”.

If ever there was a time to get serious about business plans, now is the time. What do I mean by ‘get serious’?

Well, let’s consider it in very simple terms: ambitions, threats and resources. Or, put even more simply: where are we going, how are we going to get there, and what’s going to hinder us (or help us) along the way?

What is your ambition, as a firm? For many firms, it’s comes down to the ambitions of the individual partners, which usually boil down to “staying in business” and “earning more money”. Most firms find it difficult to articulate a key purpose or distinctive offering – what makes them different from other firms – often because they don’t believe they have one.

The ambition might be “increasing profitability” but as a goal it’s pretty empty, and it certainly isn’t a plan, as some firms seem to think. It’s also highly questionable: to what end? At what cost? For how long? How much is enough? Or is there no such thing as enough?

The ‘how’ is often poorly articulated. Do your resources meet the needs of clients, or do you simply structure your service and product offering according to what you already have and what you think you can recruit, assuming that you’ll be able to sell the additional resource as you do your existing resource?

Who are you hiring and are they performing? Are they getting proper support? Who are you going to hire in future? How are the potential resource-pools looking for lateral hires in various areas? Are there any strategic threats to your hiring strategy? How does your hiring strategy impact upon resources and therefore on objectives? Are you paying properly to attract the talent you need to meet your needs?

What is your retention strategy? Are you structured correctly? Is your system of targets too crude, squeezing out vital ‘gateway’ partners? How does your structure and pay policy compare to your recruitment competitors? Are you keeping the people you want to keep, losing those you shouldn’t have hired in the first place and able to attract the people you need to meet your goals?

Then the threats; where do we start? A few threats will be common to all, but many perceived threats will be opportunities in disguise. According to research from LexisNexis, 60% of law firms reckon the advent of Alternative Business Structures (ABS) will have a negative impact on their business, with 87% of small firms and sole practitioners fearing for their very survival. Is ABS a threat or an opportunity for you?

Or take Legal Process Outsourcing (LPO), threat or opportunity? If your competitors can access lawyers in Manila for 10% of the cost of your lawyers, but you can’t or won’t, it’s probably a threat. So what are you doing about it? Equally, economic circumstances will favour some practices, not others. Some practices may be immune, but may have other, specific threats or opportunities.

How well do you know your competitors? What are their strategic aims? What’s the shape of their resource? Do you know what they charge? How they bill? What’s their client offering like?  Are they using value billing? Are you considering it? Do they have methods of service delivery you don’t? What’s your hit-rate on pitches? Why are you losing the ones you lose? Why are you winning and are you leveraging your advantages across the business?

I could go on and on. There are hundreds of questions one could – and should – ask of a business plan. Of course, even you construct the perfect business plan, it’s not going to do you much good shoved in a drawer. It should be a ‘living’ document, understood by everyone it governs and monitors, flexible, adaptable, regularly reviewed and developed over time so that future iterations are better and better.

Ah, I can dream…Mind you, as I say, if you’re clocking up 10% revenue growth in a flat market with no business plan or nothing resembling a proper one, maybe I’m whistling Dixie.

On the other hand, can you say with certainty that the 10% wouldn’t be 12% or 15% if you had a better plan? And will you be able to manage without one, or without a proper one, forever?

Mark Brandon, managing director, Motive Legal Consulting