In this roundtable discussion, five prominent legal business development professionals ponder how large law firms can sustain revenue in an era of increased competition, pricing pressure, overcapacity, and retirements of senior rainmakers.
Nicholas Gaffney (NG) is the founder of Zumado Public Relations in San Francisco, CA and is a member of the Law Practice Today Editorial Board. Contact him at email@example.com or on Twitter @nickgaffney.
|Felice C. Wagner (FW) is the executive director and general counsel of the Network of Trial Law Firms. She is a nationally recognized leader in the legal industry. A former practicing attorney, she leveraged her understanding of the field into a career as a business development trainer and consultant, including working with thousands of attorneys.|
|John Tate (JT) is a senior member of Stites & Harbison, and a Fellow of the American College of Trial Lawyers. John’s longstanding interests in law firm management and professional development are rooted in his 1970s experience as a government administrator and college teacher.|
|Heather Suttie (HS) is an internationally recognized legal marketing and business development consultant. She works with lawyers, law firms and legal service providers, helping them claim a distinctive position.|
|James J. Stapleton (JS) is the chief business development and marketing officer for Blank Rome. Jim is a high-energy senior business development executive with a strong track record of creating explosive growth and employing best practices business development and marketing strategies for law firms.|
|Mike O’Horo (MO) is known by lawyers everywhere as The Coach, having helped more than 5,000 of them generate $1 billion in new business. He integrated human coaching with online education (Dezurve) and interactive BD training (RainmakerVT). He can be reached at firstname.lastname@example.org|
Let’s begin with some foundation. Despite the rosy revenue picture painted by the very top firms, a number of major studies expose lots of competitive reasons for BigLaw firms to be more than concerned about their ability to sustain or grow revenue going forward:
- ALSPs: The alternative legal service provider market grew 25% from 2015 to 2017, and is experiencing rapid growth exceeding expectations, and is predicted to grow to a $40 billion by 2024. That figure would equal about 39% of the total 2018 revenue of AmLaw 100 firms (and 30% of the AmLaw200).
- Big Four: The Big Four accounting firms’ legal services business grew from $900 million in the 2016 survey to $1.2 billion, and 23% of large law firms reported they had a client use a Big Four firm for work the law firm expected to win.
- Baby Boomer retirements: 16% of current partners will retire in the next five years, and 38% in the next 10. Those partners are responsible for at least a quarter of law firm revenue at 63% of the responding firms, and 35% of revenues at 42% of firms.
- Pension costs: Many law firms don’t fund their pension obligations, so benefits will have to come from annual profits
- Return of capital: Because capital is tied to compensation levels, law firms are returning more capital to retiring partners than they’re bringing in from new partners
- Productivity: Overcapacity is diluting profitability in 58% of all law firms, and almost 40% of US law firms blame “chronic” lawyer underperformance
NG: This paints a picture of serious threats to, and demands on, BigLaw revenues. So, how perilous is the future revenue picture?
FW: That’s a hard one to answer. On its face, it’s extremely perilous. However, while they have taken somewhat of a beating during past recessions, law firms always manage to come out on the other side just fine.
JT: For the majority of U.S. law firms, the peril is real, although the long-term effect is not yet clear. Traditional revenue generation models will almost certainly disappear, and the advent of ALSPs and non-law firm legal services point to a sea change ahead. Predicting the future, however, is never easy.
HS: BigLaw revenues will be negatively impacted by ceaseless competition, such as ALPSs, Big Four, bulking up of in-house legal departments, and advanced technology including artificial intelligence.
While diminishing revenue is a concern, lessened profitability is the crunch factor. Some areas of legal practice have healthy profit margins while others operate on margins that are razor-thin. Smart BigLaw firms should right-size by spinning off non-core practices. Another concern is the general lack of reinvestment.
JS: The legal profession is now undergoing the same contraction that the accounting profession did in the 1970s and 1980s. 42 of the top 50 accounting firms from 1972 had been assimilated by 1988. In just 16 years, half of the Big Eight and 75% of the second-tier national accounting firms had been swallowed up. And all of those combinations happened before Sarbanes-Oxley eliminated much of the accounting firms’ collective ability to offer consulting services to audit clients.
MO: Setting aside the AmLaw 50, I’ll argue that for most firms, “perilous” is the right word. In every other business category, the winners and losers are determined by the effectiveness of their marketing and sales efforts. Look at the competition among the Big Four. None have any “product” advantages. Their salespeople determine wins and losses. They embraced that reality a long time ago, and have invested heavily to make sure that their people have the skills needed to win.
NG: It seems like the burden of retaining clients and generating sufficient new revenue to finance ongoing firm operations and fund retirements of necessity falls on the next two generations of lawyers. How well prepared are they to shoulder the business development (BD) burden?
JT: Upcoming generations of lawyers have an advantage their elders do not: they can re-make the legal profession without regard to “the way we were.” And re-making the profession is a must. Those who came of age in the 1960s know firsthand how a younger generation can turn society on its head in ways both deep and shallow. Hefty law firm payments to retired partners? Unlikely. Any firm that has not already terminated guaranteed pensions is surely being pulled under by the weight of the baby boomer generation.
HS: The major burden of continuing to build law firm business falls on the shoulders of people in their mid-40s to mid-50s, who are in their prime earning years and have major life obligations and hefty financial expectations. Support and succession from the senior generation are critical, as is the grooming of the next generation. The challenge of supporting the next generation is that they are less committed to law firm life.
JS: The next two generations of lawyers are just as prepared as the baby boomers to shoulder the business development burden, which is to say that they will need to be sufficient to their own efforts. The legal profession has always put a premium on a lawyer’s ability to generate business. The lawyer who figures that out early, and learns how to generate business, will be just as well rewarded as the lawyers of prior generations.
FW: Not well at all. Most firms give little or no training to their partners on the basics of business development, let alone the management of a business. For most lawyers, the first they ever hear about the finances of their firms is when they become a partner. It’s really crazy—imagine any other enterprise where you would be required to contribute capital to a business without knowing anything about how it is run.
MO: Some are, most aren’t. It’s unrealistic to expect anyone to possess a completely new skill set innately. If market conditions suddenly required any of us to have aeronautical engineering skills, for example, none of us could perform those duties intuitively. How many of us could learn the skills on our own? 20+ years of abundant legal service demand reinforced the belief that selling meant showing up and talking about your legal prowess.
NG: Law firms have spent a lot of time and money attempting to broaden the ranks of revenue generators by helping their lawyers acquire and apply marketing and sales skills through training and coaching. How well is this working?
JS: I can’t speak for the mass of firms, but the coaching programs at my firms have been exceedingly successful, whether the coaches have been employees or outside consulting firms.
FW: Training and coaching are great tools, but most firms have done nothing to address their biggest obstacles: antiquated compensation systems and a business model that expects those who bring in the work to also do the work. All the training and coaching in the world cannot overcome these disincentives.
Another challenge is the lack of true accountability, not only for the trainee but also for the firm. Law firms make the investment, but then are unwilling to hold people accountable for achieving specific results or even engaging in activities that will result in business. The flip-side is a challenge too—firms either don’t understand or are unwilling to accept the length of time and level of activity required to see real, sustainable results.
JT: Hoping that a broad swath of today’s attorneys will become skilled in marketing and sales is not realistic. Some lawyers aspire to be effective salespeople, but the majority want to learn the law, advise wisely, and be effective advocates. Since lawyers who are effective in generating new business are in the minority, programs to develop marketing and sales skills should be aimed at this cohort. In time, upcoming generations of lawyers will know before taking a bar exam that business development is an essential part of the practice and plan accordingly.
HS: How well business development training and coaching works depends on a number of factors, including who is being trained and why, how training and coaching are culturally supported, and who is doing the training and to what end.
Business development training and coaching works best for lawyers who are determined to carve their own professional path, who dedicate themselves and follow a training/coaching program diligently.
MO: Whether they’ve rented outside consultants or hired internal staff, the results have been mixed at best, and disappointing to most. My survey of law firm leaders, and a poll of ALA’s membership, suggests that lawyers still view BD as a “gold star” activity, i.e., kudos to those who do it, but no consequences for those who don’t. Few lawyers view it as a core part of their job.
NG: Firms can’t afford to offer real training and coaching to everyone. How do they choose which lawyers will receive such an investment?
HS: Any dentist will tell you to “floss only those teeth you want to keep.” Likewise, most lawyers require BD training, however, not all warrant coaching. Training is basic and may focus on gaining profile inside a firm so that internal lawyers have an opportunity to learn about their colleagues both professionally and personally.
Coaching is not a casual pursuit, but a tactic best suited to lawyers who are determined to identify and play to their strengths to generate business.
JT: Since we know from experience that a small minority of lawyers achieve success in business development, law firms should identify as soon as possible law students, clerks, summer associates, and laterals with nascent business development talent. A few years ago, an enterprising law firm experimented with a proprietary method of identifying job candidates with the greatest potential for becoming rainmakers. Technological advances in the tools useful in this kind of assessment may soon revolutionize recruiting and hiring.
FW: I’ve always thought that firms have this all wrong; they tend to want to train and coach under-performers as if somehow it will transform them into marketing machines. It simply doesn’t happen. If a firm isn’t going to provide training and coaching to everyone, then it should only provide it to those who have demonstrated both an aptitude for it and a commitment to it.
JS: Fortunately, most lawyers self-select. The third-year associate who shows facility and promise with clients, who comes and asks for help developing business? She’s probably ready for coaching. The lawyer who clearly prefers to shut his office door and work on legal tasks and doesn’t attend after-work functions probably will not have much business development potential.
When all else fails, tell them the truth. It will take 200 hours of business development time per year for three years. That’s three functions a week: lunch with a client, breakfast with a lead, coffee with a referral source.
MO: According to those surveyed, firms tend to use four main selection schemes: 1) Provide training primarily to associates; 2) Provide it to everyone; 3) Provide it to lawyers who request it; 4) Mash-up of many factors, e.g., “potential,” “previous results,” “seniority,” “partner recommendation,” “sales personality.”
NG: What percentage of lawyers who are given training or coaching make good use of it, and what percentage waste it through inaction or inattention?
JS: My experience has been that lawyers who engage in coaching relationships fall into four categories:
- Some improve moderately, usually by one standard deviation; e.g., a mediocre business developer becomes good, a good one becomes great, etc.
- Some become star rainmakers
- Some do well as long as they have a coach, then once the coach is out of the picture, they regress
- The smallest group doesn’t improve at all
JT: Sales training and coaching are ineffective with a large majority of today’s lawyers because the majority have no interest in the skills useful in business development. As the profession changes, however, upcoming generations should be more attuned—and more amenable—to nurturing this skill set. The legal profession is notoriously slow to change in response to changing conditions, and the reasons are legion. A paradigm shift may be the only way that lawyers and law firms can shed the burdens of inaction and inattention.
HS: In my liberal estimate, the use/waste split might be around 20/80. This is why I coach only lawyers or teams who will be or are currently in a change situation or state of flux.
FW: I don’t have a good answer to this. My gut tells me that most waste it.
MO: Waste estimates in my survey ranged from 22% to 90%, with a huge concentration at 80%. Surprisingly, a quarter of those polled couldn’t even venture a guess about the degree of waste. When we looked at who’s wasting the coaching and compared it to how participants were chosen, the surprise was that the lawyers who requested training and coaching had the highest waste percentage, at 79%. I was also surprised that almost half (48%) of Associates wasted BD training.
NG: Why do you think lawyers waste BD training and coaching?
HS: Training and coaching are about change. Change can be daunting, since doing nothing is usually easier than doing something. Waste can happen when training and coaching are considered a nice-to-have rather than a necessity. Interruptions due to matter deadlines are sometimes real, but often are excuses to escape having to change.
JT: Wasting opportunities is a universal human trait. Lawyers are no worse and no better than the rest of humanity in sometimes failing to answer when opportunity knocks. Subconscious resistance is a big factor, though. A frequently heard phrase when lawyers talk about marketing begins “I didn’t go to law school to XYZ.” We can all fill in that blank based on our own experience.
JS: I think training is wasted more than coaching. Training does not attack the behavioral component, just the knowledge component. Muscle memory must be achieved, which is why coaching is more effective than training.
Coaching gets wasted when lawyers signal that they don’t want to be coached; e.g., they cancel coaching sessions or fail to accomplish their “to-do” list before their next coaching session. If a lawyer executes on 70% of their “to do” list, they’ll succeed.
FW: Lack of interest, conflicting incentives, heavy workloads—the list goes on. The biggest reason is probably the billable hour and a compensation system that only rewards hours and revenue. People do what you pay them to do.
MO: All lawyers want more business, so when their firms offer BD training, they opt in or request it. Most don’t know what it will actually take to get business, so they’re making an uninformed choice. When they see what’s required, they opt out. Others opt in because it’s impolitic not to. Saying “no thanks” to BD training when an influential partner went to bat to include them isn’t wise. As a result, firms enroll those lawyers in training/coaching regimens, only to see them opt out, usually tacitly.
NG: What can firms do to try to reduce the training waste and produce a cadre of reliable rainmakers?
JT: Screen and target. Identify suitable candidates—based on more than just years of practice or fair-haired favor—and inculcate practice-specific, industry-specific, community-specific business development skills. Rinse and repeat.
FW: Picking the right people is critical but so is creating the right incentives. BD training and coaching is like everything else in a law firm—it doesn’t exist in a vacuum.
HS: Train lawyers who will dedicate themselves to the process even if only for a short run. Coach only those who thrive on training and are determined to excel in the long run. Most importantly, protect the process.
JS: Lawyers must feed the billing beast, and they have administrative and family responsibilities. BD can take a back seat.
Here are my Commandments of Business Development:
- When rainmakers speak about BD, listen
- 200 hours of business development (at minimum) a year for three years
- The more relationships you build, the better off you’ll be
- Associates need to know they won’t be associates forever—they will be more successful with more relationships
- Most targets require multiple contacts over time to build a relationship to the point where they buy
MO: The goal is to maximize effectiveness and minimize financial risk by matching your training investment with lawyers’ demonstrated (rather than assumed) degree of commitment.
Skill development is a three-rung ladder: education, training, coaching. A sound strategy is to provide basic education to all lawyers, using digital content at negligible cost. Measure their performance. For lawyers who performed at the education stage, provide online training at modest cost. Reserve expensive coaching for lawyers who earn it by their performance with lesser-cost tools.
NG: Final thoughts?
JS: First, every professional brand has five elements:
- How well you perform your work
- How well you treat your clients
- How much value you deliver for your fees
- How well you know your clients’ industries
- How much you understand the business side of your clients’ legal issues and how much you can, therefore, contribute to running their businesses a bit better
FW: There’s been talk for years about having dedicated sales forces inside law firms, and a small fraction of firms have gone in that direction, mostly with a sales team made of non-legal professionals. I think more firms should consider building lawyer sales teams, allowing their most successful rainmakers to spend more time on building business for the entire firm, and less time on billing individual hours. Firms need to come to grips with the idea that a large percentage of their “partners” are not true partners, they are workers, who would be happy to do the work that comes in the door without the burden of having to bring that work in. Investing training in people who will never embrace it is foolish.
JT: The 20th-century architect Ludwig Mies Van Der Rohe supposedly coined the phrase “the devil is in the details.” In the context of our discussion, building sales and marketing skills in the legal profession might appear to be a straightforward solution to declining revenues, under-productivity, and competition, but I doubt that’s the case. The problems facing 21st-century law firms are deep-rooted and pervasive, which means effective solutions will require much more time and effort than expected.
HS: Building a successful, long-term legal service business, which includes ongoing BD, is a blend of many non-mystical elements, such as contacts, networks, teamwork, opportunities, organization, determination, diligence, patience, tolerance, humor, and skill. And that’s just for starters. Success requires work, recognizing and seizing opportunities, and being sharp rather than smart.
MO: The fundamental mindset shift I’d recommend is to abandon selecting lawyers for coaching by trying to predict performance. Instead, provide low-cost online tools to everyone, then observe and measure actual performance, and let the cream rise and reveal itself.