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Florida Bucks the Trend Toward Nonlawyer Ownership

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With all the changes impacting law firms right now, it would be easy to overlook an important regulatory development that recently took place. In November, the Florida Bar Association’s Board of Governors unanimously voted down proposals to test nonlawyer ownership and fee sharing in legal practices. The decision represents a sharp deviation from the trend of “regulatory sandboxes” that have taken root in states including California, Utah, and Arizona.

Debating arguments from the Florida Supreme Court’s Special Committee to Improve the Delivery of Legal Services, which suggested these measures as opportunities to improve access, board member Josh Chilson expressed concerns, saying, “I’m troubled that this is being offered with no real evidence that the proposal will improve access to justice… This is a bell that once rung, will never be able to be unrung.” Member Sia Baker-Barnes asserted that allowing companies driven by profit to enter the legal services industry would impede the “independent judgment of a lawyer… critical to the fair administration of justice in [the] state.”

Those who support opening up law firm ownership to nonlawyers rely on a variety of arguments, ranging from a belief in the power of markets to assertions that such changes will improve access to legal representation among the middle class. The Florida Bar should be commended for asking for more evidence and reaching a unanimous decision.

Whether you think these changes are long overdue or expect they will bring on the demise of the legal profession, it’s clear that, if implemented, these changes will be very hard to reverse.  So let’s dig deep and examine whether allowing nonlawyers to invest in law firms is the best and only way to improve access to justice. Let’s also explore more incremental changes that will enhance the economic standing of law firms that represent individuals. As consultants to law firms, we see firsthand that the more financially secure a law firm is, the better positioned it is to serve a wider range of clients.

California Counties Represent Growing Markets for Law Firms

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Despite some highly publicized news about the decline of California, it continues to have by far the largest number of residents in the country, and along with Texas and Florida accounts for over a quarter of the total U.S. population. Los Angeles maintained a real GDP of approximately $726 billion in 2019, with Orange County and San Diego, the second and third most populous counties in the state, accumulating $233 billion and $222 billion, respectively.

Data from last year’s census show growth toward the south and west, with Texas, Colorado, Florida, Montana, North Carolina, and Oregon gaining seats in Congress. But despite slower growth in California, the state still represents a huge portion of the American economy. If it were its own country, the state would be ranked the fifth largest in the world, beating out the United Kingdom, India, and France. Los Angeles alone has a larger GDP than countries like Switzerland and Saudi Arabia. Orange County and San Diego each land ahead of Bangladesh, Iraq, and New Zealand, with Orange County comparable to the entire economy of Greece.

The Inland Empire, including San Bernadino and Riverside counties, also has about 4.5 million residents, almost half the population of L.A. County. These numbers signal emerging markets to which law firms, especially those already practicing in the surrounding counties, should pay close attention. Larger law firms are increasingly recognizing that Southern California counties represent major opportunities for growth, not to mention the possibilities of expanding into Northern California.

For those firms that treat West L.A. and Pasadena like they’re worlds apart, or L.A. and Orange County as if they’re in different galaxies, the risk of losing out on clients and handicapping yourself in the competition for talent is only increasing. Too many law firms impose psychological barriers on their expansion. Please stop thinking about serving a location outside of your neighborhood as if the only way to get to a second or third office is to walk there on your hands.

Business Law Firms Need R&D Departments to Increase Profits

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Many businesses formally invest in research and development (R&D) to improve products and services and to stay competitive. This is, in many ways, an unremarkable notion, but law firms have largely ignored it. This is even true for law firms that represent business clients and other entities where the potential for repeat business exists.

If you are wondering what a law firm’s R&D department would do, there is one great place to start: collecting and analyzing data about how much its services actually cost clients in the long-run.

Many business law firms that primarily charge by the hour assume that they can’t predict how many hours and resources a certain case might require. As we discussed in a prior post, it’s most effective to communicate your fees to prospective clients in terms of overall costs rather than hourly rates. This is especially true if your firm’s fees are higher than the market average.

While it may not be possible to predict the cost of a complex litigation case to the exact dollar, it is certainly possible to project the costs of various scenarios that might unfold.   Your R&D department should be able to tell you how much clients spent on average for various aspects of a representation. Fortune 500 companies have access to data aggregated by third parties which can tell them how much their outside counsel will likely charge, for example, to handle a summary judgment motion on a certain issue in a particular court.

There is no reason why a boutique firm couldn’t collect and otherwise analyze its own billing data in the same way. This would enable the firm to focus on total budgets for clients, not just hourly costs. Understanding this information would allow the firm to estimate fees more precisely, and it would provide a significant advantage in the sales process with new business clients.

The time has come for law firms to invest in R& D and to adopt the mindset that collecting information will help them innovate, stay ahead of their competitors, and increase profits.

How to Get More People to Read Your Law Firm’s E-Newsletter

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There is a straightforward and massively overlooked way to improve the effectiveness of your e-newsletter and other electronic communications: sending messages to relevant sub-sections of your recipient list. Just as you wouldn’t send holiday cards that say “Merry Christmas” to folks who don’t celebrate Christmas, you shouldn’t always send a single message to your entire email database. This seems like common-sense advice, but as consultants to law firms, we know that many attorneys violate this rule and few fully appreciate the potential benefits of segmenting their databases.

Let’s use the example of an estate and tax planning law firm to show you a more effective way to maintain your database. At a minimum, keep track of the city, state, and zip code of every potential recipient. You may be attending a conference in a particular city and want to notify only people who live or work nearby.  And you may not want to send information about a change in California law to people who live in other states.

Next, identify specific categories of referral sources. In our example (the estate and tax planning firm), this typically includes CPAs and financial advisors, so you should segment your database accordingly. This will, for example, allow you to avoid sending messages to CPAs during the height of tax season.

Most law firms receive many of their referrals from other lawyers, so you should generally segment your database to include at least two sub-categories of attorneys. One category should consist of lawyers who broadly do what you do. The other should contain every other kind of lawyer. Segmenting your database in this way will allow you to write content that is specifically targeted to each audience. You will also be able to send some messages that you don’t want your competitors reading.

Larger law firms need to decide whether to segment their lists by originating attorney or by practice area. It is often most effective for lawyers to contribute their individual email lists to the creation of a larger database. But this is hard to accomplish at firms where lawyers view clients as their clients as opposed to firm clients. This lack of cooperation among partners is more likely to happen at firms with “eat-what-you-kill” compensation plans.

Marketing professionals and advertisers know the power of segmenting your database into finer and more specific segments. Readers respond better and more frequently when they feel that a message is specifically directed to them.  And modern e-newsletter services make it easy to identify which segments of your database will receive certain messages.

Market segmentation is a powerful tool for reaching your intended audiences. The first step is to collect and input the data.

Five Overlooked Numbers in Law Firm Marketing

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Many law firms overlook a free source of critical marketing data.  Law firms and other service providers benefit from understanding their clients and referral sources as well as they can.  And yet, in my experience as a business consultant to lawyers and law firms, very few firms take advantage of the wealth of demographic information that is stored in one five-digit number.

The zip code.

It can make your marketing efforts far more effective, but I’ve almost never met a small or mid-sized firm that collected and analyzed zip code information relating to where clients and referral sources live and work.

You might be wondering what’s the big deal about zip codes.  Plenty.  Zone Improvement Plan codes were introduced in 1963 to streamline mail delivery by the postal service.  An additional four digits were added to the codes in 1983.  There are now approximately 42,000 codes.

The Census Bureau has for many years collected and disseminated a vast array of data that is tied to zip codes.  This information is searchable through the Bureau’s American FactFinder portal.  See  https://factfinder.census.gov/faces/nav/jsf/pages/index.xhtml

Thus, if you know the zip code where someone lives works, or goes to school, you can collect a lot of information about them and their community, including its demographic and economic profile, as well as specific information about income, average household size, and educational attainment.  Moreover, private companies sell more detailed analyses that includes information about political and religious affiliation, purchasing habits, and other characteristics that allow direct mail companies and others to pinpoint their marketing efforts.

So how should law firms use zip code information?

The answer depends on the nature of the practice and the geographic scope of its best clients.  An AmLaw 200 firm that serves global corporations may have less use for zip codes than a firm that serves local businesses or individuals.  For the AmLaw 200 firm, the most important geographic consideration might be where the General Counsel works.  And that information doesn’t require a detailed zip code analysis.

But almost every law firm is likely to benefit from analyzing the geographic distribution of its referral sources.  One easy way to begin to find out where your best referral sources live and work, and show that on a map.  This analysis can be performed for an individual lawyer’s book of business, a practice area’s results, or for the entire firm.

So, for example, the next time a law firm wants to know where a reception should take place for its alumni, or what business networking events junior partner should attend, don’t guess.  Take the time to see where your best alumni referral sources live and work and use that data to make an informed decision.  Zip code analysis formation can also be helpful in in recruiting or when deciding where to open a new office location.

Zip code analysis is an accessible, low cost, and powerful tool.  And if you didn’t previously know how zip code analysis can help a law firm, now you do.

Law Firm Succession Planning: Senior Lawyer’s Perspective

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What are founding or managing partners going to do with themselves once they retire?

This question comes up regularly when consulting with law firms about succession planning issues.  Law firms commonly struggle with succession planning in part because of their inability to find a satisfactory post-retirement role for the senior lawyer.

Some of the difficulty relates to the personalities of law firm senior partners.  The traits that cause them to excel as lawyers are the very same traits that make the thought of retirement especially difficult.  Many managing partners who I’ve spoken to started to work when they were children.  Whether it was a paper route, hanging out at the family-run store, or babysitting, they have been working for most of their lives and enjoy it.  I recently spoke with a lawyer who helped found her firm and she hadn’t taken more than a two-week vacation in more than 20 years.  Her story is typical, so it’s therefore not surprising that people who have done one thing and excelled at it struggle with finding out what their life might look like once their role at the firm diminishes.

Part of the difficulty inherent in succession planning for law firms lies in the fact that too many of us view retirement through an oversimplified and outdated prism.  Too many lawyers view retirement like the knobs on an old-fashioned radio.  They only have two settings.  Thus, too many lawyers (including senior lawyers) believe that senior lawyers have two options—either they essentially continue to do what they have been doing and bill the hours they have billed as if nothing should change, or that they should turn the knob to zero and leave.

But retirement isn’t a binary option.  There are many ways in which senior lawyers can continue to contribute to the firm while still reducing their role.  Moreover, a gradual approach is often the best business strategy because it allows the firm to tackle the financial and other aspects of succession planning in an orderly manner.  It is, to cite just one example, easier to spread out the payments for a departing lawyer (the buyout) than do it in a compressed period.

It isn’t hard to grasp intellectually that a gradual transition may be better for all concerned than a sudden departure.  But in my experience consulting with lawyers and law firms, the senior members of the firm as well as the younger partners who are looking to increase their roles frequently underestimate just how difficult and new it is for the senior lawyer to imagine a different life, let alone make the necessary changes to create it.  And for some senior lawyers, the very act of thinking of doing less at the firm they built and love feels like a form of death.

Not every senior lawyer fears or dreads leaving their firm.  But even when the senior partner is enthusiastic about reducing their role, a law firm will dramatically increase the chances of having a smooth and successful transition if, at the beginning of the process everyone understands that the feelings and concerns of the senior lawyer are a central issue and not a nuisance or quirk to be rushed through or set aside.