Finding Tall Guys to Play on Your Team: Five Important Reasons Why Lateral Recruiting Strategies Fail
Lateral hiring is among the most frequently used strategies by law firms as a means of increasing profitability. Unfortunately, for many firms it doesn’t work out as well as the firms hope. But that doesn’t necessarily make it a flawed strategy. The problem may be in the execution.
Almost every law firm’s strategic plan is designed to increase revenues. Sometimes the plan is to increase rates or focus on more sophisticated practices. Other firms may want to do increase revenues through growth in new geographic areas. But most of the time they envision the revenues coming through new business – usually from new clients.
Like so many other things, there are two ways to make this happen: the classic “make or buy” decision. In getting new clients, “make” involves marketing and business development which requires partners to increase their efforts to develop new clients. “Buy” on the other hand can be accomplished by bringing in new lawyers who have business, either as lateral entry partners or through a merger. Not surprisingly, most strategic plans focus on the “buy” option.
But the buy option is a bit like what basketball coach Gene Bartow said about recruiting players. “The problem is not finding tall guys; there are plenty of them. It’s finding tall guys who can score and then convincing them to play on your team.”
Why Lateral Recruiting Strategies Fail
Like tall basketball players, there are plenty of laterals available. The problem is identifying those who will be successful and getting them to come to your firm. There are some truisms that I have learned in watching lots of firms try to build their practices with lateral partners. Here are the five biggest faults that seem to haunt lateral recruiting programs:
1. Failure to focus on areas of strength. Often, strategic plans will include a laundry list of practices where firms want to add laterals with business. Typically, these are the practices where they have the greatest need because they represent the firms’ weak spots. But there are two problems. First, the likely scenario is that, even if the firm is successful in finding laterals, they will probably end up with mediocre strength compared to competitors. Second, trying to sell a top candidate on the concept of coming to your firm to build a powerful practice group from scratch may sound like an exciting challenge but most lateral candidates will see it as too big of a risk compared to going with a firm that has a dominant position and lots of bench strength. The best possible strategic result and the strategy with the greatest likelihood of success is to double down on your firm’s areas of strength.
2. Not understanding the motivations of candidates. Laterals, especially high quality laterals, are rarely willing to consider a move because of money. Sure, more money is nice but they are almost always considering a change of firms because they are running away from something or running toward something – shedding a problem or looking for an opportunity. I did a series of interviews not long ago with recent laterals about why they moved. The most common reasons were:
- Seeking a stronger platform on which to build their practice (joining a firm with a stronger reputation in their practice area, an office in a location that supports their practice, or international capability were the most common platforms they wanted).
- Their current firm wouldn’t provide them with the staff or marketing support they needed.
- Personality dispute with their firm’s leadership (especially their practice group leader).
- A romantic entanglement at their current firm.
- Consistent loss of potential clients due to conflicts with a large institutional client at their current firm.
- The unwillingness of the current firm to partner associates who work with the candidate.
The key is to understand the candidate’s motivations early on and focus on satisfying the issues.
3. Not creating a credible story. If the candidate decides to move, he or she will need a clear cut reason to give their former partners, clients and friends. A big part of being able to close the deal is to help them create the story they can tell. I know one managing partner who prepares a written list with two columns titled “why we want you” and “why you want us.” He claims that its value is not only to sell the candidate and the Executive Committee on the deal, but also as a personal “gut check” that adding the partner on makes business sense.
4. Not doing the math. Lateral hiring involves making an investment. Like all investments, laterals should be measured based on risk and return. The firm is providing compensation, associate and staff support, office space and other overhead expenses to a lateral partner until revenue from the partner’s clients begins coming into the firm. On average, it takes about eight or nine months for the total revenues to break even with the advanced costs and, presumably, thereafter the firm enjoys a profit on the billings of the lateral. But, surprisingly often, this doesn’t happens as firms get the math wrong and partners never break even let alone show a profit. A simple Excel spreadsheet laying out the cash flow can easily demonstrate the issues.
5. Taking on excessive risk. To justify the firm resources put at risk, there must be a reasonable reward. Consider the following simple litmus test for lateral candidates. Divide the total firm annual revenue by the number of partners to produce the statistic of Revenue Per Partner. If a candidate has a history of billings less than your firm’s average revenue per partner, don’t bother talking to him or her. Your firm can not afford the risk of an unsuccessful candidate unless there is sufficient upside. Please also recognize that, in many firms, the partners will only tolerate a limited number of lateral investments each year. If leaders use up the political capital necessary to get marginal lateral candidates approved, they may not be able to generate enthusiasm when a top person is available.
There are other problems: failure to successfully integrate laterals, unwillingness to follow through on promises made during the recruitment process, and lack of established standards on which to measure the success or failure of a lateral. But the key take away is that many firms favor lateral hiring over other forms of growth (mergers or internal development) because it seems to require less effort. In truth, it is among the most difficult strategies for advancing a law firm. But, with planning and effort, it can be among the most successful.