How Much Should Law Firms Pay Associates For Making Rain?

There seems to be a magical belief in certain law firms that emphasizing the importance of rainmaking is the same thing as actually increasing revenues. Nowhere is this conflation of intent and result more obvious than in discussions of how to pay associates for their successful rainmaking efforts. In the past few years increased attention has placed on encouraging associates to bring in business, but in my experience consulting with law firms, the talk generally doesn’t translate into actual business.

Part of the problem is that law firms generally don’t articulate a career development philosophy for associates that puts rainmaking into a proper context. At the beginning of associates’ careers, the primary focus should be on mastering skills. If an associate happens to bring in business during this early phase, it’s a bonus for the firm, but that’s not the primary or even secondary role of a beginning associate.

The duration of this phase depends to some degree on the complexity of the work associates are required to so. Certain practice areas lend themselves to mastering a routine. For example, lawyers who represent plaintiffs in state court litigation may need to master certain kinds of pleadings. It might take the average associate two or three years to be very familiar with this work. By contrast, law school graduates are often less prepared to handle certain kinds of transactional work and the learning curve for M&A, real estate, and related transactions are often longer. As a general rule, the longer the learning curve to achieve mastery, the longer the firm should wait before emphasizing rainmaking for associates.

And when rainmaking is emphasized it should be presented as an additional skill a lawyer needs to master to become a full professional. Too often, firm leaders assume that associates will be primarily motivated by the possibility of additional pay. These are the firms that announce that they will pay associates a portion of what the firm collects from their rainmaking efforts, but do nothing more to foster a culture of rainmaking among associates. It isn’t enough to announce a policy that, for example, associates will receive 10% of what the firm collects on a case brought in by the associate.

A firm that is serious about encouraging associate rainmaking also needs to provide training, mentorship, and resources to associates who try to make rain. The most basic and overlooked training takes the form of teaching associates how to find a relevant target audience and how to talk about their individual capabilities. In other words, most associates (and partners) need help identifying who to talk to about business development and what to say when they are in front of that audience. Networking is a learned skill and trial and error plays a large part in mastering it. That is why mentoring is so important. Associates often underestimate how much effort and persistence it takes to bring in a client. This is something that more experienced lawyers are in a strong position to demonstrate.

Associates who have graduated from law school since 2008 don’t need to be reminded of the importance of bringing in clients. I have taught a few business development classes to law school classes and the students are infinitely more aware of the importance of networking than my generation of lawyers was. Associate rainmaking can be much more effective than it currently is, but as with many aspects of running a successful law firm, it requires a strategic approach and a commitment to implementing that strategy consistently.

Law Firm Strategic Planning 101: What Clients Do You Want to Serve?

Too many lawyers mistakenly believe that the strategic core of their firm is defined by their substantive expertise. If you ask them what their firm does, they say things such as, “We are business litigators” or “family law specialists”. And if they are at a bar association event or other venue where other lawyers are present, they define their expertise more narrowly. The accomplished business litigator might, for example, say that he “focuses on trade secret disputes.”

There is both an obvious and subtle problem with defining your firm primarily in terms of your substantive expertise. The manifest defect is that it provides no competitive advantage. It doesn’t begin to explain how you and your firm are at all different from all the other lawyers who claim to have the same substantive expertise as you do.

The more subtle problem is that it tends to devalue lawyers by artificially limiting the scope of the services they could provide. Lawyers who can handle trade secret lawsuits are generally also able to litigate a wide range of other business disputes including breach of contract claims, fraud, unfair business competition, and other business torts.

There is a better approach to defining your firm’s strategic center. Identify the clients you most want to serve. That’s what has contributed to the growth to the largest law firms in the country. For the most part, they don’t define themselves as having certain kinds of lawyers. They have grown because they serve large corporations, and as those corporations have become global, so have the law firms. As data privacy became an issue for these corporations, these firms developed an expertise in that area. Likewise, as intellectual property became a larger share of the value of these corporations, AmLaw 200 firms moved heavily into IP and especially patent litigation. And if, in the future, global corporations start using drone technology extensively, you can be sure that at least some of these law firms will start developing an expertise in drone law. Some already have.

It’s especially important for small firms to position themselves as serving the needs of certain clients. Among other benefits, it will make it much easier for them to have repeat business. For example, a business litigator I know worked with the top executives of several local businesses. She noticed that many of those executives owned second homes that fronted a series of lakes. When one of the executives called and asked for assistance involving a lakefront boundary dispute, the lawyer saw this as an opportunity to develop an expertise in such disputes. Had the lawyer defined himself as a particular kind of litigator, this opportunity would have been missed. By focusing on how to help a particular kind of client, she and her firm were able to grow and expand into an area that they had never previously considered.

Focusing on serving particular clients works as a business development strategy only if you take the time to learn about your clients and what is happening in their lives. Most service companies see this as axiomatic. But the culture of too many law firms is resistant to investing heavily in understanding their clients. They act as if it’s too salesy or unprofessional to do so.

In today’s competitive market for legal services, such an attitude can be fatal. In my consulting work, I have seen firsthand that positioning a firm as an alternative to those who merely tout their substantive expertise can be fun and profitable.

Law Firm Networking: What’s In It For Us

Ten years or so ago I attended my first sales training class. The speaker emphasized that it was critical to recognize that all sales prospects listen to the same radio station. Its call letters are WIIFM: What’s In It For Me? Since then dozens of speakers and articles have repeated either this exact example or the notion that underlies it. Specifically, people are essentially self-interested and if you want to do business with them you need to tap into this aspect of human behavior. Much of economic theory is predicated on this view of humans as selfish, economically-driven creatures.

There is, however, a major flaw in thinking that everyone is always tuned into WIIFM. It isn’t true.

A growing body of research from a variety of disciplines including psychology and behavioral economics shows that altruism plays a much larger role in human decision making than the classical view ever recognized. To cite just one example, humans as well as some other animals have a sense of group fairness. We tend to shun or isolate members who are perceived to have treated others unfairly.

Professor Adam Grant of the Wharton Business School has written an outstanding book about how people who are altruistic can and often do succeed in business.  It’s entitled, Give and Take: Why Helping Others Drives Our Success. It paints a complicated and nuanced view of the role that altruism plays in successful networking. There is a risk of being too much of a giver. That can lead to being taken advantage of, and to spending so much time helping others that you don’t devote enough time to one’s own responsibilities. But as a general matter, givers get ahead in the business world and organizations with cultures that recognize and reward giving behaviors perform well economically.

This is especially important for law firms to recognize. Law is a service-oriented profession and an increasing percent of work requires teams of people to work together to serve clients. In this environment, it can be easy to overlook the contributions of those people who help their colleagues or who otherwise display giving behaviors.

So the next time a law firm leader or partner suggests that increasing pay or otherwise rewarding individual performance will incentivize lawyers and staff members to act in a certain way or reach a certain goal, you should explore the possibility that the firm would be more likely to succeed if it enacted business-development strategies that rewarded giving behaviors and recognized that people are not always listening to WIIFM. In fact, the success of the firm may depend on the extent to which the people at the firm are genuinely acting in a way that shows that they care about What’s In It For Us.

Make the Obvious Customer Driven Change

Growing a law firm involves a myriad of steps, some of which can be difficult to determine. There is, however, a category of changes that is a good place to start when considering business-building and marketing strategies. They are requests and complaints made by your clients and prospective clients.

A recent experience in a coffee store demonstrates how overlooking the obvious directly resulted in lost sales. It’s the kind of place that sells high-end coffee, but whose owner would cringe if someone referred to their store as a coffee shop. This particular store is directly across from a Starbucks that is usually crowded and doesn’t have much space for people like me who want to work on a computer. I was therefore happy to see this non-chain store, and even happier when I saw a few people working inside on laptops. I walked in and asked the man behind the counter whether I needed a password to use their Wi-Fi. That’s when I found that they don’t have Wi-Fi. I proceeded to find out that people like me ask for Wi-Fi about five times a day. When I asked why they don’t provide Wi-Fi, I was told that the owners wanted to provide a more old-world experience. I suggested that they consider giving their customers what they want.

When considering changes to make to their business, this is an example of low hanging fruit. It’s a screamingly obvious complaint that customers or potential customers repeatedly voice. It doesn’t require a degree in marketing or sophisticated focus group testing to see that, for this store, providing Wi-Fi would be a relatively easy way to keep and attract more clients. I was prepared to give them my money. Moreover, if my initial experience was good, they had a chance of having me return every week or two. Instead, I picked up my laptop and reluctantly crossed the street to go to the Starbucks.

So how about your law firm?

What easy change are your clients and potential clients asking for? Stated differently, what is a clear source of displeasure for your target audience? What do a cross-section of them complain about? Making changes with respect to that issue or topic can be the easiest way to generate more repeat business or attract more and better new clients.

Law Firm Resolution: A 5,000 Billable Hour Year

It’s the middle of January and many New Year’s resolutions have already bitten the dust. In part that’s because setting annual goals is inherently unreliable, especially when the goal isn’t accompanied by a mechanism for reaching it.

Annual billable targets for law firms aren’t exactly resolutions. In most firms they are couched as requirements that are tied to compensation. Increasingly law firms are creating tiered billable hours targets. The lowest tier is set at a level that is necessary to keep one’s job. And higher tiers correspond to higher levels of compensation.

Too often, however, the billable hour target becomes a career development milestone for senior associates and non-equity partners. When you ask such lawyers what their goals are for the year, they answer in terms of meeting or slightly exceeding the firm’s targets.

The problem with this approach is that it tends to encourage incremental thinking and subtly discourage ambitious rainmaking. If you are locked in a system that pegs compensation to billing a certain number hours or collecting a certain number of dollars, it is hard to devise a system that significantly exceeds that figure. If the billable target is, for example, 1,800 hours or the expected book of business is $1 million, lawyers are unlikely to bill or collect much more than that.

But there is a different and better way to set your billable hour goals or revenue goals for the year. When I advise lawyers who have been out of law school for 8 years or more, I suggest that they set for themselves the goal of generating enough work to keep at least three attorneys busy. This translates to generating about 5,000 billable hours in a year. Depending on the nature of your practice, the 5,000 hours could be divided among half a dozen of paralegals and other lawyers in your firm. From a revenue standpoint, 5,000 hours is roughly equivalent to a book-of-business of at last $1.5 million. In my experience, that is the level of production that provides attorneys with the maximum flexibility and control over their careers. At this level, there is an active market for the lawyer’s services and the lawyer can stay where they are, move to another firm, or start their own law firm.

In today’s dynamic legal market, it is common knowledge that a portable book of business provides career insurance. What is less appreciated is that the optimal situation is when you can keep at least three lawyers busy.

That’s why in 2016 you should seek to bill 5,000 hours.

Issue Spotting Isn’t a Law Firm Business Strategy

Lawyers have been traditionally rewarded for spotting issues. Most law school exams were of the issue-spotting variety. As a result, law school grades and law jobs are correlated with the ability to spot issues. That might seem logical or benign, but it isn’t.

As a business development tool, the ability to spot issues without more is at best overrated and is often harmful to a law firm. This is because the essence of issue spotting is the ability to identify what might go wrong in a given situation. It’s a valuable legal skill when applied to client problems, but it’s not a business strategy.

In fact, too often issue spotting is an important element of what ails law firms. When facilitating partner retreats, I often see a law firm partner try to shoot down a proposed business development initiative simply by verbally identifying potential problems with the strategy. Too often other partners react as if it’s difficult to poke holes in a proposed strategy. It’s always possible to do that, even for what proved to be the most successful business ventures of all time. It’s not hard or particularly useful to have been the one who told Bill Gates and Mark Zuckerberg that it was risky for them to drop out of Harvard before earning their degrees.

Moreover, lawyers who simply spot issues rarely articulate the risks of inaction. For example, they will complain about the costs of revising the firm’s website or expanding into a new practice area or opening a new office, but won’t assess the risks of standing pat. Thus, too often issue spotting becomes an all-purpose tool used to oppose any change. Given the dynamic landscape in which law firms operate, issue spotting by itself is of marginal benefit.

What’s much more important and rare is a culture that fosters and rewards solutions spotting. The hall mark of solution-spotting is rewarding those who take the lead in implementing strategies that are designed to grow the law firm. This often requires focusing on outputs (what actually gets accomplished) as opposed to inputs (resources such as time billed). Most importantly, solutions-spotting requires law firm leaders to support partners who led a business-development effort that fell somewhat short of expectations in the face of the issue spotters who say “I told you so.”

Growing any business involves embracing taking aggressive and calculated risks. Most law firms are a very long way from embracing a solutions-spotting culture. If you are looking to make an important and impactful change to your firm in 2016, you could a lot worse than making your firm more solutions focused.

Don’t Forget Your Exes & Your Near Misses

Law firm marketing efforts tend to focus on the new; new clients, new practice areas, and new lateral partners. At many firms, marketing efforts directed to the old often take the form of electronic newsletters and, this time of year, holiday cards. In this context, old primarily refers to former clients and referral sources.

If this describes your law firm’s marketing strategy, you are probably overlooking a more promising target audience than many of your new prospective clients. Rather than focusing exclusively on the bright, shiny, new potential client, devote some of your marketing efforts to client relationships that turned sour and those that considered retaining you and went in another direction. These are your exes and your near misses.

If you read the last paragraph and cringed, you are in good company. Thinking about exes and near misses brings back unpleasant memories, and it’s only natural to want to avoid pain and focus on the promise of a new, unspoiled, client relationship. It would be a natural reaction to avoid reaching out to clients that previously fired you and those who refused to retain you in the first instance. It would also be a mistake.

Marketing to exes and near misses has one dramatic advantage over marketing to new potential clients. They already know you and at worst they came close to retaining you. And that in turn means that on average it will be cheaper and faster to market to them than to a stranger. It’s not as if you have a 100% success rate with new potential clients and referral sources. Thus, it’s not a valid criticism that many or most of your repair efforts might not be successful. That’s the nature of marketing.

To be sure, some client relationships cannot be salvaged. But that misses the point. I’m not suggesting that you will repair every past relationship. My experience, however, is that it is profitable to identify relationships that require some repair. Most often, these are relationships that broke down because of a bad result that was achieved on a particular matter. If a relationship was generally solid and mutually beneficial before the break up, it is a good candidate for your repair list. This is true even if the break itself was difficult, painful, or dramatic.

The case for following up or staying in touch with near misses is even more compelling. In contrast to exes, these are folks who usually don’t harbor strong negative associations against you. They simply preferred someone else.

When reaching out to former clients, be mindful of the ethical rules in your jurisdiction regarding contacting a party that you know is represented. You certainly don’t want to run afoul of rules regarding impermissible solicitation. Most of the time, however, the solicitation rules don’t come into play because the best approaches to rekindling a broken relationship do not begin with a direct request to be retained.

If you want to reach out to an ex or near miss, make the first communication positive, short, and non-demanding. Thus, for example, I have seen a simple request to connect on LinkedIn restart a dormant relationship. Likewise, it can be effective to send an email congratulating the ex or near miss for an accomplishment that is part of the public record. This time of year, strongly consider sending holiday cards to exes and near misses. You want to make it as easy as possible for the ex and near miss to respond in some way.  That’s why the LinkedIn request works well; they simply have to click once to accept your request to connect.

In many cases, repairing a broken relationship will require face-to-face interaction and perhaps more than once. But you don’t have to start there. In fact you generally shouldn’t start by asking someone you haven’t seen in a while to join for you lunch. That’s often too big of an initial step for them to take.

You need to undertake an individualized analysis of what is likely to work in each situation.  The key, however, is to start and make sure that your ongoing marketing efforts include some exes and near misses.