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May 2006

Vertical Markets in Law

There has always been a lot of talk around the technology water cooler concerning the concept called vertical markets.  Back in 1994 or so, the world awoke and realized that something called the Internet existed.  The initial concept was that you could create a software product for the entire world.  Financial projections for internet companies back then and through the mid 90’s typically exceeded $100 million over five years.

Software technology companies soon realized that users had specialized needs and that it was extremely difficult to create a product which really did cater to the entire world.  We have seen a decade of rather specialized software being developed even over the Internet.  Unless you’re the browser or the operating system, your functional requirements typically get narrower.

So companies began talking about vertical markets.  So you couldn’t reach a billion people across the globe. You could reach 1.5 million within a niche vertical market.  The numbers still projected well enough (Ahh..longing for the days of the fantasy tech companies where a simple idea could net you a $100 million).

I believe in vertical markets.  If you jump out on your own, you will eventually start to see more work in certain practice areas.  You need to be careful to try and direct the traffic areas you are interested in. For instance, if you want to be a technology lawyer, you better integrate a lot of technology and look the part. You better do license agreements, trademarks, copyrights, domain transfers, WIPO arbitrations and the like. Pick a niche which is low risk and high return as your base.  On top of that niche, grab a couple vertical markets which are higher risk but with greater potential return. Decide what you want to do and go out and do it.  If you are a smart attorney, you will quickly become very good at your vertical choice and gain tremendous experience in a relatively short period of time.

Lawyers need to get vertical, reduce the size of the market which they are pursuing and focus their marketing and client development activities within that vertical space (didn’t I sound like a software developer there?).

While your competition is trying to go horizontal by doing anything that comes in the door, you’ll be gaining the efficiencies of going vertical.

Who is GAL Talking To?

I don’t know too much about all the people that read The Greatest American Lawyer blog. I do get a lot of emails. Some of them I am able to answer. Some of them I am not. But I know from these emails that a lot of solos are reading (or they like to call our fraternity/sorority, independent practitioners). I know a lot of medium firm lawyers read as well as associates at large firms who would love nothing more than to get out. Many attorneys read for the technology tips and especially the "paperless office" implementation. I get a lot of questions which simply ask about how we bill our clients. I get comments all the time from lawyers hungry to find another way, but unsure how to implement the change.

I will try to comment more on these issues over the summer. I am settled into a billing model which is relatively simple and straightforward. It uses time as one of many factors in deriving a bill to a client. My virtual worker program is now rock solid. We will soon have over ten virtual employees performing a variety of functions from case manager on down to law clerk (no offense law clerks). Our scanning process is finally honed. Our wireless network is up. Our extranet is programmed in. Our billing process is on line from the dictation of entries to the five page cover letter which accompanies every detailed bill.

I fear I won’t be an independent practitioner for much longer. I need one or two other local attorneys to handle work, work with clients and provide the attention needed for a customer service oriented firm.

But don’t worry. I am bringing the independent practitioner process forward and building relationships with other attorneys. A relationship will certainly not be a standard partnership. I haven’t quite got it square in my head yet. But I’ll let you know when it pops in there.

Advertising in the Business News.

We have a new advertisement running in the regional business news. I have to say that I love the ad and the market.

What do we say? We say we are "different than any other firm in town."

If you’re going to start your own firm, know this one thing. You can’t blend in. You can’t work off the back alley office where no one knows you're there. You should try and become part of a business community if at all possible. You need to market yourself as innovative and different. Standing out from other law firms is about the easiest damn thing you’ll ever do in your entire life. You want other attorneys and lay people to think of you when they think of law. You can be the airport from which all legal matters take off.

I always tell people that there is no competition for me in my market. It’s true. And we stand out in every way. We tell clients if you want a suit and power tie, go down the block. We push substance over form. People hate lawyers. Don’t be a lawyer.

So what are you waiting for? Blow off that mega firm. You are way too talented for that. Jump out of that ten-person partnership and that asshole that works at the end of the hall. Don’t spend another minute thinking about the partner formula or committee approval for your latest business idea or advertising campaign. If you want to collect a fee, collect it. If you don’t want to collect a fee, don’t.

You only have yourself to blame. You’ve been working for that self-righteous egomaniacal self-absorbed loud crass partner for four years. Have you asked yourself lately, why you are working for this firm?

My motto here hasn’t changed. Jump. Jump. Jump. I’m here swimming in the water and I’m telling you that the temperature is fine, the water is clear and there is beer in the cooler.

Change Can Be Intoxicating

Sixteen months into my new practice I realize that change can be intoxicating and perhaps even a little addictive. Once you start looking under the rocks, you soon want to start to dig. The more you dig, the more you find.

As I look over these last sixteen months, I see one big trail of constant innovation and change. When I look forward, I see growth. A far more complex and technology oriented life and hopefully some days off in between.

I love change. I must get board really easily because my passion for innovation is almost insatiable. The most wonderful thing about being an innovative law firm is that you can envision your life and then go solve the problems which stand in the way of creating it. I used to sometimes drift through the practice of law. There are many days it just seemed mundane and boring. There are none of those days now. I’d almost forgotten what its like to wake up at 6 a.m. in the morning and take a shower with a smile of expectation on your face.

We’re changing the way law is practiced. What are you changing?

The Flattening of the Legal World

What I really see going on around me. What is really becoming clear. What almost seems tangible.

By applying the virtual worker/independent contractor model in legal services, we are doing nothing more than is already going on in the world around us. In many ways, law seems a natural market in which to use technology as a force of change. The fundamental philosophy shift in play here is from an extremely patriarchal and geographically centered base to one where efficiency and raw talent are the only two tests. Conservative nature of law and lawyers would cause one to think that the law would be one of the last places to innovate with technology.

Why not the law? The legal market is ripe for change from both internal and external forces. The thought that everyone hates lawyers, even other lawyers, is one indicator. The reality that many people view lawyers right there with used car salesman. The grin that many people get on their faces when taking the legal profession to task, really says something.

Watch and see what happens. The technology revolution is coming to the law office near you. Business models will evolve quickly and the billable hour will become an ugly word which people don’t want to speak. The force for change will surprisingly not come from the top as much as it will come from the bottom. Great lawyers will give up all the fallacies of partnership, gain complete economy over their talents, ethics and business principles. The physical, cultural, financial and general business culture of the big firm will drive talent away and that talent will realize that they do not need the trappings of a large firm to make a great living changing the way law is practiced. You wait and see. It is starting to happen all around you. I’ve got a dollar in my pocket that says it is so.

More Firms Are Implementing Change

You have probably seen much in the press recently about a firm called Exemplar Law Partners. One of the partners of the firm is Christopher Marston, who has just launched a new blog called Inside the Firm of the Future. Welcome to the Blogosphere Mr. Marston. Your law firm and insights will fit very well in the context of this blog.

Chris has an interesting post called "Exemplars Zero Tolerance Policy for Negativity." The gist of it is that they require lawyers to focus in on what is possible, not impossible. Chris notes that lawyers are often trained to be cynical (in my words) bastards. He correctly notes that this kind of training is great for perpetuating controversy and problems, as well as creating new problems. But it doesn’t work very well for clients who are focused in on solutions.

Of course, one of the hourly billing problems is the incredible incentive provided to lawyers to perpetuate client problems so that they continue to bill. Most lawyers spend very little time discussing with the client how they will solve the client’s problem and in what time frame they expect that to occur. Few lawyers document the strategy and exit on the front end of the case. Of course, lawyers would never want to commit to anything with their clients beyond the fact that they will receive a monthly hourly bill.

Here is Chris’s money quote:

  • "Exemplar has a policy to only hire attorneys who are capable of seeing beyond the problems to a solution for our customers. We have something we call "solution-discipline" at Exemplar that permeates our culture. Being around a group of "positive" people on a daily basis creates a tremendous energy that helps us to provide the best service to our customers every day. In fact, though we are also aware that a positive culture is very sensitive (see merger of Coopers & Lybrant with Price Waterhouse), it only takes one Grinch to ruin Christmas for a lot of people (disclaimer: the grinch has also been shown to ruin Hanukkah, Qwanza, and other important holidays). I think we all know a Grinch. Often, they are the biggest producers in the office or those with the most power or egos. Now, close your eyes, imagine you are Donald Trump, and exclaim to that person with a grin of pleasure "Yer Fired!" Feels good, doesn't it? You see, at Exemplar we are all the guardians of our positive culture. You cannot buy a position at our firm with your book of business. In fact, we have turned several of them away. Your name will not be on the door no matter how many hours you can bill. If you need a power trip then you need a personality transplant, not a managing partner position. These people will not find an open door to Exemplar, and if one of them ever finds a side door (note: even Jack Welch only made the right hiring decisions 80% of the time at the height of his career), then our "positive" people will most proudly proclaim "Yer Fired." At Exemplar, the practice of law is not about our ego, it is about Excellence, Leadership, Integrity, Team, Trust, Respect, Communication, and Equanimity. . . the very values that will distinguish us well into the future."

For those of you who have not visited the Exemplar Law Partners’ website, you should do so. For those of you who think that the Greatest American Lawyer blog is trying to suggest change, you miss the point. We are actually implementing change. Change is here today. Alternatives in the market exist today. Firms like the one we have created and The Exemplar Law Partners are doing it and thriving as a result of the fact that they are different, innovative and provide positive energy to their clients.

Chris: this message is for you. Keep up the great work. Continue to innovate. Inspire others. Help change the way law is practiced.

Document Routing Coversheet

I have had numerous inquiries from folks about our paperless system.  I always tell people that going paperless is not a problem from a technology point of view.  The hard part about going paperless is the process which workers have to follow in order to get the mail into digital form.  We played around with a number of systems early on.  Initially, we scanned every piece of paper first into a special file where I reviewed it like I would review mail in my inbox.  This did not seem to work that well, since it tended to accumulate in my inbox. I ultimately decided that it was best to actually see the paper in paper form before scanning.  We developed this document routing coversheet which identified the client matter, assigns an appropriate priority, provided for calendaring, scanning, routing, uploading to the extranet and filing.  Essentially, we do everything that needs to be done with each piece of paper through our routing coversheet.  If documents have to be forwarded to a client, virtual workers and the experts, it is all noted on the coversheet. Our staff scans the document and then each staff member who is involved in the process then performs the functions indicated on the routing cover sheet. They calendar the items that need to be calendared. They upload the document to the extranet where indicated.  They send the document to the client, to workers, and others including experts and defense counsel.  We indicate whether or not the document gets sent by email, mail, and fax or through our leap file system for larger files.

I also dictate all of the tasks associated with that document while I am working on the coversheet. So if an attorney has sent me a letter indicating that they refuse to provide further responses to discovery, I would dictate a series of to-do items which would result in a motion to compel.

Clearly, we spend a lot more time with the paper in document form than most firms spend with the paper altogether.  After it is filed, I could always go back and make sure that everything that needed to be done with the piece of paper was in fact done.  Each worker has a custom stamp which they can insert onto the specific task on the routing coversheet with their initials.  So whoever uploads the document to the extranet stamps it with their initials. Whoever sends the document to the client and experts will also stamp the specified portion of the coversheet with their initials.

This system has worked wonderfully and has essentially erased any thought of going to a high end world docs system.  I’ve uploaded the routing coversheet in Microsoft Word for viewing.

"The Billable Hour"

Adam Smith, Esq. blog has an interesting post concerning alternative billing. Bruce MacEwen is the creator and host of the Adam Smith blog. Bruce provides a link to an often cited ABA "billable hours report" which is issued in 2001-2002.  Bruce knows that the ABA found that the profession and its clients suffer for the billable hour and has some theories as to why the billable hour perpetuates despite the profession's virtually, I guess, universally recognized shortcomings.

Bruce provides the "you can’t beat somebody with nobody" and believes there really are no persuasive economically sustainable and mutually-agreeable alternatives available today.

Bruce is right on his observation that most clients would have a heck of a time trying to locate a firm that incorporates alternative billing into their business model. Bruce proposes a billing model which is similar to the one we use at our firm which effectively involve a flat fee option, or a maximum budget or hourly rate whichever is less model. Bruce points to a company called Mckinsey, a large consulting firm which services the Fortune 500.  Bruce reveals that Mckinsey’s billing model contains the following components:

No one at McKinsey has an hourly billable rate.

Everyone does have a "per diem" rate, but it's not disclosed outside the firm or to clients, even upon request.

Projects are generally assessed in terms of how many months they will take, and whether they're appropriate for a "small team," a "medium team," or a "big team."

A "small team" might typically consist of, say, 20% of a senior partner, 50% of a junior partner, 100% of an associate, and 100% of two analysts.

Virtually without regard to the scope or substance of a project, McKinsey assumes that the team will call on colleagues who are not team members for an additional 20% of what they need (based on specific industry, substantive, or client knowledge, of course).

Teams are assigned monthly price tags: A "medium team," e.g., might cost $350,000 per month.

The Mckinsey firm budgets the project by the number of months it will involve, and the size of the team which it will be assigning to the project.  If the project gets done sooner, the fee gets adjusted downward because it did not take as many months as projected.  The "monthly clock" stops running.  If it is more complex, the McKinsey firm reports that there is more involved than originally anticipated and they allow the company to add more months or a larger team to the project, or fish and cut bait if they decide that it is more than they anticipated. Bruce proposes that both the McKinsey firm and the client come out fine under this scenario.

The one missing component in the McKinsey model is a true sense of value and delivery of results. Law firms need to allow for an adjustment of their bill, based on the quality of their deliverables.

Bruce suggests that the billable hour may or may not be on its way out any time soon. He does suggest that the underlying structure of the hourly billing model which involves adding associates to the firm at a continually faster clip and adding billable hour expectations to attorneys provide functional limits to the billable hour method.  I happen to agree and believe that the billable hour method will soon turn in on itself.  Law firms will not be able to sustain continued growth and will look for alternatives in order to sustain profits.  Perhaps inevitably, they will have to start talking about the value they provide to clients rather than the number of hours.  Perhaps they will have to start selling the results they deliver, as opposed to the minutes they spent working.

I happen to believe that the billable hour will find true competition in the market over the next five years. I also believe that virtual workers and innovative staffing solutions will be a large part of the transformation. The underlying problem with the billable hour method is that it requires you to add significant overhead with each and every employee.  Another problem, as noted in previous posts, is that it requires a law firm to make a financial commitment to an associate who may or may not be busy four months from now.  Like in so many industries, virtual workers provide a solution to these and other problems which law firms are facing right now. Technology makes those workers available to law firms.  Soon, there will be legitimate companies which match those law firms and workers, and provides the technology which connects them together.

Being a Lawyer in the Summer

You can feel it in the air.  Spring is just outside the door and summer is coming.  I have some pretty lofty goals this summer.  Most of them have to do with fun summertime activities such as kiteboarding, boomerang, hacky sac, sailing, camping and, the one thing we do around these parts better than anything, hanging out on beautiful Lake Michigan beaches. It’s not easy being a lawyer in the summer.  Neither the Court nor your clients take any time off for sunshine.  The moral to my story is that it is time to kick it in gear and start getting ready for summer so that it does not pass me by. This means improvements in diet, exercise, and productivity. Isn’t it time you started getting ready for summer?