Growth Strategies for Law Firms VIV WILLIAMS

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Growth Strategies for Law Firms VIV WILLIAMS

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Contents Foreword...........................................................................................................................VII Executive summary..............................................................................................................IX About the author................................................................................................................XI Chapter 1: Current market conditions................................................................................. 1 Is it too late?......................................................................................................................... 2 All change............................................................................................................................. 3 Legislative enforcement.......................................................................................................... 4 Shut up shop and go home?.................................................................................................. 5 Is this a threat or an opportunity?............................................................................................ 5 Chapter 2: The new competition......................................................................................... 7 The new players – The brands................................................................................................. 8 Co-operative Legal Services – Value for money........................................................................ 8 Saga and AA Legal Services – Well-known brands with legal services websites............................ 9 Myhomemove – Private equity investment.............................................................................. 10 Riverview – Corporate fixed price legal services...................................................................... 10 Stobart Barristers – Cutting out the lawyer and going direct to barristers ................................. 10 Knights and James Caan – Private equity and the profession................................................... 11 So how do law firms fight back?........................................................................................... 11 Reserved legal activities........................................................................................................ 11 Chapter 3: Defining your strategy..................................................................................... 13 Defining what the firm wants................................................................................................. 13 What should be at the core of the strategy?........................................................................... 14 Partner retreats.................................................................................................................... 16 How to ensure clients value the firm’s services and how that becomes part of the strategy......... 18 The firm’s services................................................................................................................ 20 Chapter 4: Comply or die – Using OFR as a growth strategy............................................. 23 How to use this as a strategy for growth................................................................................ 23 Consolidation and the cost of compliance............................................................................. 23 Bringing compliance into your strategy.................................................................................. 24 The 10 SRA Principles for a compliant firm............................................................................ 26

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Contents

Chapter 5: Law firm finance – Strategic considerations for growth..................................... 27 The business model............................................................................................................. 27 Financial strategy................................................................................................................. 27 Collecting the firm’s cash..................................................................................................... 28 How to manage cash flow.................................................................................................... 29 Creating a credit control policy............................................................................................. 31 Re-shaping a law firm.......................................................................................................... 31 Implementing change........................................................................................................... 32 Chapter 6: Restructuring the practice................................................................................. 35 The firm’s options................................................................................................................ 36 Commercial benefits............................................................................................................ 38 Chapter 7: Pricing............................................................................................................. 41 Ron Baker – The value pricing guru....................................................................................... 42 Value-pricing strategy........................................................................................................... 43 Adding benefits.................................................................................................................... 44 Chapter 8: Growth by merger........................................................................................... 45 Be clear and honest about the reasons behind the merger...................................................... 46 Do not just talk to people you know...................................................................................... 46 Have a clear process........................................................................................................... 46 See and seize the opportunity............................................................................................... 47 13 important lessons when contemplating a merger............................................................... 47 Conclusion.......................................................................................................................... 48 Chapter 9: Alternative business structures......................................................................... 49 All change ......................................................................................................................... 49 Why consider becoming an ABS?.......................................................................................... 51 ABS case study: Quindell Portfolio Plc................................................................................... 52 Is the firm’s business model suitable?.................................................................................... 53 What are the main management considerations before/during/after forming an ABS?.............. 53 What does a firm need to do to make itself an attractive ABS partner?.................................... 53 The questions to ask before considering an ABS..................................................................... 53 Selecting a suitable partner................................................................................................... 54 What are the main benefits of forming an ABS?..................................................................... 54 What are the top rules of forming an ABS?............................................................................ 54 Maintaining independence................................................................................................... 55 Lawyers as entrepreneurs?.................................................................................................... 56 Goals................................................................................................................................. 56 Predicting the future............................................................................................................. 57

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Growth Strategies for Law Firms

Chapter 10: Using people wisely....................................................................................... 59 The centrality of people........................................................................................................ 60 The Maister model for success.............................................................................................. 61 The three fundamental mismanagement problems of professional practices.............................. 62 Problem practices................................................................................................................ 62 Patterns of practice development........................................................................................... 63 Managing client service........................................................................................................ 63 The marketing tactics that work and those that will not........................................................... 64 Before managing the firm, manage yourself........................................................................... 64 The insecurity of the professional........................................................................................... 65 Why would a lawyer want to become a partner or the equivalent?........................................... 65 People crisis........................................................................................................................ 65 Creating a productive culture................................................................................................ 66 The importance of networking and the myth of cross selling.................................................... 66 Chapter 11: Diversification strategy – Keeping your eyes open.......................................... 67 What lessons can be learned from the optical market?........................................................... 68 Online legal services............................................................................................................ 69 Chapter 12: Finding the skills to manage change.............................................................. 73 What has led to the problems experienced by mid-tier firms?.................................................. 74 Does this signal a change in the delivery of legal services in the UK?...................................... 74 Case study: Gordon Brown Law Firm LLP .............................................................................. 75 Driving private client volume................................................................................................. 76

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Foreword FOR 15 years, from the early 1990s, law firms really did not have to worry about growth. There was an unprecedented increase in the number of qualified lawyers and students, and in the turnover of the sector as a whole. London became the major international hub for legal services. On the high street, firms saw continuing flows of business on the back of easy credit conditions, a booming housing market, and general economic confidence. How different the world looks today! London now faces tough new rivals. The combination of the economic downturn, government policies, more demanding consumers, and technological change presents smaller firms with the proverbial ‘perfect storm’. Regulators are trying to give people greater flexibility to innovate, but making the transition to more enabling regulation can, of itself, sometimes look like more complexity. So is growth now for the birds? Emphatically not. LSB research shows potentially huge addressable markets out there – perhaps up to £100bn from SMEs. The one-third of the population who do not act on their legal needs provide another opportunity for imaginative, flexible, and innovative providers. Meeting those needs would be good news for growth for UK Plc – not just for law firms. Of course, grasping those opportunities is not easy. It calls for a mixture of tough self-critical reflection and practical, imaginative action. The two qualities do not

always go together, but this report offers a really useful toolkit to help firms both think and act. I am delighted to commend it to you. Chris Kenny Chief Executive, Legal Services Board

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Executive summary IN THE changing legal landscape it is essential that firms who are planning their future to compete in the new world of legal services have a complete strategy to both survive and thrive. The partnership model is under attack and is perceived by many to be unfit for purpose in the current era. The traditional collegiate approach to law firm management is not conducive to a more modern corporate governance approach. Whilst this is not a ‘one size fits all’ solution, the challenges of succession and exit loom large in many firms’ thoughts. Preparing a firm for growth plays a key role in this. Law firms must identify what their requirements are and determine the most effective strategy to achieve these requirements and objectives. The average age of an equity partner in many firms is now exceeding 60 years and many of these firms do not have a succession or exit strategy. How many partners a firm should have in the future, and how to differentiate between ownership and management, are just two of the questions that need to be asked. The lack of access to working capital, particularly from the banks and other lenders, has posed a huge challenge to law firms planning for the future and future growth. Many firms are carrying large overdraft or loan facilities. This, coupled with the changes to legal aid and the slowdown of payments from the Legal Service Commission (LSC), means it is difficult for many firms to see any future.

There has been a rapid rise in the number of firms discussing merging to cope with the changing legal market, and in particular with the cost of complying with outcomes-focused regulation (OFR). However, it is very important for firms to ensure that this is the most effective process for growth. This report will provide law firms with a comprehensive understanding of the different growth mechanisms available to them and will help in determining the most effective strategy for a firm. The impact of new entrants – and the services the competition are offering clients – needs to be addressed. Recognising the growth of fixed prices, and variable delivery mechanisms and how that impacts on clients, should be a part of every firm’s strategy if they wish to compete in the new commoditised world. Failing to recognise what new services are being offered in the marketplace will be a fatal error in any firm’s strategy for growth. This report reviews pricing strategies for different law firm departments which will serve in helping a firm to decide whether some of the services currently being offered will remain profitable. For example, it may be that a conveyancing department currently offering a fixed price service is losing money on each file being opened. How can a firm ensure future profitability if departments are unprofitable in delivering a fixed price service? Should value pricing as part of the firm’s strategy be considered?

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Executive summary

To address the issue of law firm funding the report also reviews the options regarding raising working capital and whether an alternative business structure could be part of a firm’s future strategy. One of the final topics which is addressed in relation to law firm growth relates to the firm’s people and HR strategy. It is essential that new skills are brought into the profession – those management skills so sadly lacking in many practices – and this report discusses how best to bring these essential skills into each organisation. The report also provides guidance on how hiring strategies will change depending on the services the firm chooses to offer and how technology can impact on the skill base of firm staff. Utilising workflows will allow for a de-skilling of each department and will allow firms to recruit the correct level of skill required for each task – which should also become part of a firm’s future strategy. No law firm growth strategy would be complete without considering the firm’s clients – both current and future clients. This report therefore reviews how to maintain independence as a practice and outlines how close client care will ensure clients themselves will look after the firm in the future. Finding ways to engage with future clients by triaging legal services and delivering a cradle to grave solution will ensure that the firm’s future growth strategies come to fruition.

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About the author VIV WILLIAMS is chief executive officer of 360 Legal Group, and is a consultant to law firms on management, practice development, and marketing. Viv is also non-executive chairman of software specialists Ochresoft Technologies Ltd. During a career spanning 20 years in marketing, and as managing director of two floated Plc companies, Viv has been able to provide practical management insight for all businesses, including professional services firms. Combining this with his time working at Hammonds and Charter & Law Group, assisting solicitors and accountants to improve their management systems and marketing and increase profitability, Viv cultivated the necessary experience to become managing partner at the 2020 Lawyers Group (now 360 Legal Group) in 2003, offering law firms marketing, management, and strategy skills, as well as innovative ideas to transform their law practices into successful businesses. Viv has written numerous articles for the legal press and writes a monthly blog for the Law Society Gazette, as well as being the key note speaker at numerous conferences and seminars. Viv firmly believes that now is the time for law firms to grasp the challenges and opportunities presented by the Legal Services Act and alternative business structures, as well as by the pressure of the continuing credit crisis. 360 Legal Group provides solutions to those law firms which are prepared to rise to the current challenges and become the modern firms of the future. It provides change management support and advises law firms which are looking to buy, sell, or merge their practices. For more information about the 360 Legal Group, visit www.360legalgroup.co.uk. Viv can be contacted at [email protected].

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