What Works to Develop New Business for Law Firms in the “New Normal”?
By Julie Savarino, Managing Partner, Business Development Inc.
What is the reality of the “new normal” for outside law firms? With current demand for outside legal services relatively flat and projected to remain so in coming years, and a consolidating and diversifying supplier base continuing to evolve (where large law firms get larger, boutique firms proliferate and alternatives to traditional, outside law firms continue to gain significant market share formerly held by major law firms), effective business development for all outside law firms is now more important than ever.
Will laterals and/or acquisitions continue to be the main growth driver in the “new normal”?
Obviously, lateral hiring, acquisitions and combinations have worked to drive law firm growth to date, since over the last 20 years, approximately 50% to 95% of headcount growth (depending upon the law firm) can be directly attributed to it. However, now, in the “new normal,” continued primary emphasis and focus on growth through lateral acquisitions is revealing the law of diminishing returns in action. This fact is being played out all over North America and even globally in certain markets. Most major law firms invest considerable leadership, lawyer and staff time, money and other resources into identifying and hiring new laterals. However, once they are brought on, with an increasing number of lateral hires, it becomes clear within three to nine months that the original expectations for the number of clients and/or amount of new business the new lateral partner(s) were going to bring over have not been met (see Bloomberg article entitled: Successful Lateral Integration for Law Firms, published July 2013).
This law of diminishing returns is also causing internal pressures on the entire partnership, especially younger partners or those partners who have a fluctuating work load (such as litigators). In past years, most law firms would be quite patient with new and/or young partners—allowing them plenty of time to build a book of business and weather their up and down billable cycles. But in the recent “new normal” many younger partners are being encouraged to look elsewhere for employment simply because firms can no longer continue to compensate all partners as they did in the past while facing the reality of a static or shrinking pie. As a result, the law of diminishing returns is continuing to drive the record number of law firm mergers, ongoing lateral movement from firm to firm and the intensified, internal focus on reducing costs and expenses.
Can business development expenses be controlled and still generate new work?
With law firm business development budgets increasing exponentially in recent years, the majority of law firms continue to seek ways to control them. What’s working to control costs yet also develop new business?
Unfortunately, while law firm leaders and partners repeatedly state in numerous studies that their number one, current need is to develop new business, too many law firms are either cutting their internal business development departments, nickel-and-diming them, and/or hiring one, relatively expensive Chief but then reducing the rest of the staff. As a result, too many law firms’ business development departments are understaffed and/or lag behind competitors. After conducting a Moneyball-type review and assessment of its internal marketing/business development department, one law firm revamped its existing business development department structure, positions and job descriptions to de-emphasize business development “generalists” and to emphasize business development “specialists.” So, for example, instead of searching for and hiring a business development “manager,” they instead hired a “capital markets specialist,” and an “events coordinator.”
Another response to tight budgets and lack of available support is the use of temporary staff and interns for various projects and also outsourcing select tasks/projects, since with outsourcing, the firm can obtain similar or better quality output/deliverables without adding to its headcount and benefit expenses.
With a current (and increasing) average ratio of one internal marketing/business development staff member to every 40 to 50-plus lawyers, rarely does any single law firm’s existing, internal marketing/business development staff have the time and/or bandwidth to effectively support all firm lawyers who are interested in and could benefit from individual, more proactive support. In fact “lack of adequate support staff” has been named in recent surveys as one of the top reasons major law firm CMOs are frustrated and/or feel inhibited in their current positions. Also, over 30% of AmLaw CMOs have applied for recent, open positions in competing law firms which may suggest a statistically significant level of CMO dissatisfaction.
Outsourcing or re-vamping traditional methods can save money. For example, to avoid having to pay for hundreds (often thousands) of seminar handout copies each year, more law firms are licensing the use of existing apps to post and distribute online and on mobile devices all materials and information associated with firm-sponsored events. A few law firms have even built their own apps to serve a similar function. Again, an initial investment is required, but an immediate saving on copies and staff time is attained and as a result, a positive return on investment is achieved usually after the third or fourth use.
Offering outsourced business development training and coaching services to interested partners and/or groups of lawyers, such as senior associates, women lawyers, industry and/or target teams, etc. is another way law firms are saving money while insuring measurable results. Selective outsourcing is a viable option since a recent study showed that qualified, external business development trainers and coaches help generate new business that is both measured and reported to the firm.
Since few law firms pay to have truly top-notch technology talent internally, this is a key area in which most law firms outsource. In the last 18 months or so, truly mobile and smart technology is now available and can be tied to a firm’s website allowing all sorts of client interactions and support. While this requires an initial investment, automating input and updates (which never end in most law firms) saves considerable staff and lawyer time and reduces errors, as does tying numerous other functions to a secure, yet mobile-ready website. For example, substantive CLE programs and other professional development programs can be taped and securely tied to the firm’s intranet, so that increasingly mobile lawyers can “attend” other than in person. Algorithms can be created and tied to the firm’s website to make it “smart” (i.e. similar to Amazon.com or Netflix, which provide suggestionsof what might be of interest based on a visitor’s history) to allow firms to tailor pricing/billing options to a client or potential client’s needs, to tailor firm website visitors’ experience to their history and legal needs and/or tailor their on-line invoicing/billing portal, etc. The key to success is to outsource only after careful vetting of potential vendors/developers.
What else has been working to drive law firm growth and profitability in the “new normal”?
To grow revenues and profitability, law firms have also implemented other effective growth strategies. One of the most effective has been the formalization of “key client teams,” where numerous lawyers are regularly brought together to review, discuss and update one another on their legal work with a particular client and the firm’s overall relationship with that client. Issues discussed may include: service enhancements, CLE offers, recent developments, new opportunities, who knows whom, who is new, who is leaving/being hired, etc. Implementing select, formal client teams has worked because all studies show that developing more or new business from existing clients is easier, faster and more profitable than developing business from new clients.
The main issue with these well-functioning, existing client teams is that supporting them takes a considerable amount of internal business development staff time, which, as mentioned above, is on average under-staffed. Therefore, many firms are “missing” or under-emphasizing a dedicated, focused effort on clients that are not “key,” i.e. existing clients who do not rank among the current top clients of the firm, yet have great potential to grow as a company/entity and have increasing legal needs. In addition, approximately 50% of AmLaw 200 law firms do not formally compile all the business development opportunities listed by the firm’s partners on their required, Annual Business Plans. For the 50% of major law firms that do in fact compile all these opportunities into a usable format, it provides the most viable pipeline of new business opportunities on which internal and external coaches can help firm lawyers pursue and follow-up upon. As a result, several major firms (approximately 30% to 40% of AmLaw 200 firms) have hired a chief business or client development officer whose main responsibility is to create and implement a firm-wide “sales” pipeline of these opportunities and help the firm’s lawyers make the most of them as is appropriate.
One of the best ways to identify prospective clients and referral sources and one of the most underutilized is a law firm’s use of LinkedIn. With the average lawyer having approximately 300 LinkedIn contacts, there is no other single tool that reaches as many known qualified potential clients and referral sources. For example, in a law firm with 500 lawyers, there may be up to 150,000 LinkedIn connections associated with the law firm. Even most law firms’ internal CRM systems are not populated with as large or as high quality a pool (since many major law firms still do not require that all lawyers’ contacts be part of the firm’s CRM system). Creating a firm page (that can be followed) is the first task, but there are many other ways LinkedIn can be used and leveraged.
In the “new normal” quality, professionalism and appropriateness are still imperative. Yet, there is less time to react and respond because service life-cycles are much faster and competition is much more intense, while existing staff support is thin in most firms. Law firms that continue to re-assess, adapt, refine and focus on what works will continue to survive and thrive.
Julie Savarino is an attorney and managing director of Business Development Inc., www.BusDevInc.com.For over 24 years she has successfully assisted lawyers and law firms to develop business. She has worked with thousands of lawyers and hundreds of law firms, helping generate millions of dollars in new business – as an outsourced trainer, coach,professional business developer, program and process developer and strategist. Julie@BusDevInc.com.
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