Law-firm leaders must learn how to assess their firms objectively in order to effectively guide them into the future.
One of the most deadly faults a law firm leader can have is to make decisions based on their own misperceptions about their firm. Whether it is the reveling in past glories or simply believing their own public, law firm partners and leaders alike seem to often have a distorted view of their firms. Unfortunately, this inability to accurately understand their firm’s image, practice, client base and capabilities can lead to some dangerous and expensive mistakes.
The most common of these misconceptions is an inflated view of the sophistication of work being performed by the firm’s lawyers. There is a natural reaction of lawyers to talk about their most interesting and challenging cases and it is easy for leaders to believe what they hear in hallway conversations. A second equally common misconception is the makeup of their client base. A quick look at a firm’s “Representative Client” list in comparison to their revenues by client provides an example of firms’ desire to show off their Fortune 500 client base even though the work they do for those clients may be minor. Another area of leaders’ misunderstanding relates to the capability of their lawyers. While it is important to be proud of your partners, leaders often boast about lawyers’ experiences in areas where they have not done substantive work in years.
The good news is that maintaining an accurate unvarnished view of their law firm does not involve much effort for leaders. A couple of hours of review each year will help give them a clearer understanding of the firm they lead. Here are three things that leaders, at a minimum, should be looking at:
- The firm’s client list in descending order of billings (or collected revenues) for the past year. It’s great if you can get this in an Excel spreadsheet so you can look at the median revenue per client. Scanning the list gives a fast idea of which clients you depend on to keep the doors open, how much of your revenues are dependent on singular transactions or litigation matters compared to ongoing clients, and how much of your practice is dependent upon small clients paying small amounts of fees.
- If your time and billing system can provide it, obtaining a breakout of what your firm does for each client is particularly interesting. In addition to demonstrating how good your firm is (or is not) at cross-selling, the list sometimes provides surprising insights into the sophistication of the work. Firms often find that prized relationships with major clients can deteriorate into commoditized work, or see how quickly a full-service client relationship can be winnowed into a few limited areas of work.
- For getting an understanding of what partners actually do, nothing beats sitting down with them for a candid review of an annual list of the matters where they charged time. Oftentimes, the partners themselves are surprised to see how the chase for billable hours has lead them to do work below their skill level.
The simple fact is that leaders who clearly understand the details of their firms’ strengths and weaknesses are going to do a better job of guiding and directing its future. In the process, they may find some surprising hidden crown jewels from which the firm can benefit.