By Richard Hugo-Hamilton, Executive Chairman, LEAP
A habit is an acquired behaviour pattern regularly followed until it has become almost involuntary; it is a result of repetition.
Over the past 25 years I have visited hundreds of small law firms throughout seven different countries. I have been fortunate enough to speak to the successful, the unsuccessful, the happy and the not so happy! This has seen me uniquely placed to understand what makes for a successful small law firm.
If you are frustrated at the situation in your firm, planning a start-up, or have an entrepreneurial instinct to improve your firm, I believe that implementing these 11 habits will see you succeed.
As is so often the case, it is likely that most of the habits on this list will seem like common sense. But that makes sense! Because these are the very things we tend to take for granted, rather than make our focus.
Included in this Whitepaper are checklists for each habit. Building a successful small law firm requires thought and planning, but above all it requires action. The Checklist is your tool for doing this.
A common lament, usually from non-lawyers but often from lawyers themselves, is that lawyers are poor business people. What is not sufficiently recognised is the entrepreneurial nature of almost every small law firm. To me ‘my firm’ and ‘legal entrepreneur’ are the same thing. The women and men who own and run small law firms don’t have anyone to assist them financially. Many of them start practice as solos or junior partners with very little. They rely entirely on their own skills and determination, not just for success, but for survival. They (that’s you!) are courageous entrepreneurs and in my opinion should be thought about as such.
Just like every other category of small business, a small percentage become large firms, a small percentage go broke, and the ma- jority earn a living out of their firm, usually for many years, but without building a valuable asset. These small law firms provide the bedrock of small business in our societies. Apart from helping clients with the law, they are increasingly having to play the role of alternative dispute resolvers as the role of the church and its influence on values diminishes in our society. Small law firms are increasingly important to maintain the fabric of our civilisation.
It can also seem that regulators pick on small law firms and that small law firms are the firms that bring the profession into disrepute. Given that 89% of all law firms are small law firms (of 1-5 partners), it makes sense that this would be the case. Like all small businesses, they are under-resourced. Many lack training in business or even rudimentary bookkeeping skills. Despite these challenges, most small firm lawyers I have met are genuinely dedicated to the calling of their profession – to help people in need. These under-trained and under-resourced lawyers generally persevere and survive. I am offering these 11 Habits to help small law firms become more successful.
To succeed, you need to find the people in the firm keen on progress (they will be the ones who complain about poor equipment!). Get them on your side.
The evolution of software over the past 30 years has enabled those of us with an interest to develop solutions to help the owners of small law firms become better leaders and build more successful firms. Our software captures and systematises these management lessons so that you don’t have to learn them. Just the act of using the software properly will transform your business building capabilities and your firm.
Introducing change is hard. I think it unrealistic to expect that you could create all these habits in your firm overnight or even simultaneously. But if you make a start and keep working on them, using the 11 Habits Checklist, you will be amazed at how the fortunes of your firm will transform.
Habit One - They decide to be efficientLarge law firms, charging corporations and government by the hour, are rewarded for inefficiency. I once showed a partner in a large firm how document automation could dramatically reduce the amount of time taken to produce a standard commercial lease. His response was ‘why would I want to do that?’.
Successful small law firms, with extremely price sensitive private clients, understand that their very survival depends upon efficiency. Without efficiency it is possible to survive working every night and probably weekends too, but a competitive and impressive law firm needs to be efficient.
I have made a commitment to putting ‘efficiency’ as the number one habit. Despite the importance of the other ten habits, unless the Principal Lawyer in the firm makes a personal commitment to efficiency and is prepared to lead and cajole the others to follow, success cannot really occur. Only a few brilliant lawyers in specialised niches can charge day rates high enough to trump efficiency. This does not apply to the overwhelming majority.
Contrary to arguments that time is better spent lawyering for clients than worrying about efficiencies, from my observations it is impossible to ‘lawyer’ confidently and well in a disorganised and inefficient environment. You also have an inbuilt competitive disadvantage against all the firms who are efficient.
Technology provides tremendous - but often unharnessed - opportunities for you to create the most efficient and successful small law firm in your area.
Most lawyers seem to think that putting effort into compliance and bookkeeping is a good place to start. Consider this: bookkeeping is typically done by one, usually non-billable person in a small firm. Revenue is generated by lawyers. It therefore makes sense to make them as productive as possible and to give them the tools to provide wonderful client service. Start with the lawyers
- Brief your lawyers on your plan and goals
- Select the area where technology can instantly provide the biggest productivity boost for your lawyers
- Identify staff to help with the project (outside consultants will never get as good a result as your own people)
- Find the software needed to have maximum impact
Habit Two - They enjoy practising lawIt is said so often that it barely merits repeating, but you can’t succeed doing what you don’t enjoy. The lawyers running and working in successful small law firms enjoy what they do. They have organised their firms and have made conscious choices about the work they want to do, the clients they enjoy working with and who they prefer to work with. They are not stressed.
From my observations there are five major causes of stress, each of which needs to be managed:
- Practising law in areas outside their area of expertise;
- Setting unrealistic prospects of success in litigious matters;
- Generally disorganised office and client files;
- Not making clear financial arrangements every time instructions are accepted;
- Feeling like they are not building anything of value.
I have also found that these successful small law firm managers recognise the important role small law plays in our communities and tend to be proud of the role they play in upholding the rule of law and helping people when in need. In short, they like the choice they made to go to law school and read law.
- Do law that interests you
- Set realistic expectations, particularly in civil litigation
- Organise your client matters with a good case management system
- Have clear Retainer and Cost Agreements for every matter
- Set aside at least 30 minutes per day to work on business development, people, systems, clients and potential clients
Habit Three - They employ smart people and treat them really wellYour staff will be your biggest single expense other than yourself. It just does not make sense to treat staff badly, and yet in so many firms staff are undervalued and often abused by stressed lawyers. The successful firms I visit all treat their staff well. By this I don’t just mean pay them well (although they frequently do because they are successful and can attract better people), they treat them well in their interactions. Their staff have good chairs, up-to-date equipment and clean work areas. Their staff are cheerful and what is important is the impression this makes because cheerful and motivated staff do better work, will attract new clients and will recommend you to their friends.
Finding the right people is crucial. Successful firms tend to be very discerning in their people choices and don’t hold on to staff out of misplaced loyalty or fear of dealing with underperformance. Unfortunately, sentiment must be put aside if you are building a business. It is obvious when it exists and it drags everyone else down. The leaders of these firms know that every staff member who doesn’t fit in or is underperforming is costing money and probably damaging the firm’s reputation as well.
Perhaps the biggest difference between the successful and unsuccessful is the attitude to staff training. A partner in a firm once said to me that he did not want to spend money on training staff because the investment would be lost once the staff member left. Unfortunately, this attitude is quite common. What a waste of people and their talents.
The more you train your staff the more they can do for you. Most people love being given more responsibility and clearly the more work you can delegate to lower cost lawyers or support staff, the more profitable your firm will be. So many small firms try to operate without trained bookkeeping help. Modern systems mean that very few firms need full time bookkeeping services, and most paralegals are perfectly capable of being trained in basic client accounting. Despite this, firms put their very existence in peril by not arranging even basic bookkeeping training for themselves or their staff.
Providing your staff with the very best tools for them to do their job will ensure they are happy and effective employees. This applies to both hardware and software technologies. You simply cannot attract or keep great young lawyers and other staff unless you provide them with the best tools. Imagine a construction company that still had their builders cut all their materials with hand saws. How successful do you think that construction company would be? Who would want to work for it?
Technology has become so cheap that any firm can afford the best systems. It is overcoming inertia and change that is hard. Your staff are itching to use the best systems because it will make them more valuable to you.
- Organise regular training for your staff
- Recruit the very best people you can find and afford
- Provide a comfortable chair for everyone
- Provide clean work areas
- Encourage staff to take on more responsibility
- Provide the best tools for them to do their job
Habit Four - They have selected the areas of law they like and focus on them
A major cause of stress for lawyers is accepting instructions in areas of law in which they are unfamiliar. It probably also leads to lots of bad advice and bad outcomes for clients.
The successful firms:
- Develop deep expertise in defined areas of law thereby supporting higher professional fees;
- Select areas of law that sit together comfortably, e.g. residential property, estate planning and probate and family law;
- Create a great reputation for that work thereby attracting more work;
- Ensure their marketing is aligned with the services they provide;
- Have research materials available to help in their specialisations;
- Mentor young lawyers (and paralegals), constantly improving the skills of those around them.
The most successful firms during the economic downturn of 2008 were able to slightly change their business by continuing to work in their specialist areas, just in a different way. For example, if they practiced real estate, they focussed on foreclosure work. If they specialised in family law, they acknowledged the increase in divorce rates that comes with economic stress and changed their systems to be more efficient.
It is essential that you think strategically about these choices so that your firm will prosper and grow in both good times and bad. Once chosen, focus all your marketing and training on the selected areas of law. Your reputation will build, and the work will follow.
- Carefully select the areas of law in which you want to practice
- Combine areas of law that mutually support each other
- Cross-sell your services
- Invest in the software, content systems and research materials that enable your staff to do work for you reliably
- Train and delegate as much as possible to junior staff
- Strategize creative ways to insulate your business against a recession by continuing to practice your favourite areas of law
Habit Five - They dedicate time to building the firm as a business
Firstly, it’s important to realize that relying on word of mouth to build a business is not a good strategy. It is essential that you build a reputation, but to build a business you need to take action. It is not enough to think you can get away with a bit of marketing, although you do have to do that. The leaders of successful small law firms all realize that they have to properly package and sell their services.
For many lawyers the word ‘sales’ is an anathema. But this issue must be confronted. You can’t sell anything without understanding sales. If you want more clients and matters, you need to sell your firm.
Successful firms ensure that there is constant alignment between the legal services offered, what their marketing material says, and what they and their staff say when they are actually selling the firm’s services.
It is this alignment and consistency of messaging that builds a powerful reputation. It also quickly makes it much easier for everyone to stay on message.
These firms treat their clients very well. Because they are empowered and happy, clients take notice and will prefer bringing work to your firm.
These leaders pay particular attention to:
- A vision which they share with their staff and clients. There is an aphorism that if you don’t know where you are going then you aren’t guaranteed to get there! Successful firms have a clear vision for what they are building;
- Employment Policies;
- Staff skills and happiness;
- Billing processes (from start to finish);
- Client satisfaction with the quality of service;
They also ‘know their numbers’. They count everything. A good practice management system will help with this, of course, but it’s very much a habit. For example, they will track how many new clients they get per month and what the average client is worth, how many new matters they get per month and what the average matter is worth.
- Have a vision and share it for your firm and all your staff
- Adopt encouraging employment policies and practices
- Understand your cash flow and working capital requirements
- Provide quality service and listen in particular to disgruntled clients
- Have a coherent and consistent marketing plan
Habit Six -They are early adopters of technology
The technology shift to mobility and cloud computing is arguably as far reaching for small law firms as the shift to computers was 30 odd years ago.
Leaders of successful firms are always looking for ways to provide better quality of service more efficiently, and at a lower cost. In this way they stay ahead of their competitors and quickly gather clients from the firms that don’t adopt advanced technology.
These firms focus on:
- Having a single database of information for their firm;
- Having their productivity systems (practice and case management) and legal accounting and trust (client) accounting in one application. It is just too inefficient and expensive to try to bolt applications together from different suppliers;
- Have libraries of highly automated legal forms, letters and agreements to maintain consistency and produce accurate documents quickly without needing special typing skills;
- Record every activity as they go (whether they time record or not) so that they can bill accurately while complying with their legislated record keeping obligations;
- Using a compliant trust (client) accounting system complete with all the features they need. Trust accounting is easy if you have a good system and your staff just use the system! Compliance then becomes a natural consequence of running a firm well;
- Knowing their numbers.
By running their operations on a low-cost, cloud-based system, tech-savvy law firms can use Smartphones and Tablets for mobility and save thousands of dollars otherwise wasted on traditional IT infrastructure and expensive IT support.
In summary, firms that embrace technology early steal a lead from their competitors. Firms that don’t ever embrace technology tend to merge into firms that do - or worse, go broke. I have seen this repeatedly over the years.
Finally, the leaders of these firms don’t compromise with staff resistant to change. If partners, lawyers and staff don’t want to use technology, they replace them.
- Do you have a single database? i.e. one version of the truth?
- Do you have a great library of automated legal forms that you don’t need to keep up to date?
- Can you easily record every attendance with full descriptions on every device?
- Can you reliably bill as soon as you are entitled to, trusting the data you entered when you recorded the activity?
- Does your trust (client) accounting system enable you to comply with regulations and provide your clients with a reliable and safe accounting service?
- Are you running your firm with the best cloud-based mobile technology?
Habit Seven - They confront the challenges of getting paid and solve them
Sadly, these lawyers usually condemn themselves to lives of stress.
The leaders of highly successful firms confront these money challenges head on. To do so:
- They ensure that there is an appropriate Retainer or Engagement/Costs Agreement in place for every matter AND that it is signed. Good systems make this easy;
- Whenever possible they get a deposit from the client, ideally sufficient to cover the next 30 days of work;
- Where appropriate they set monthly payment arrangements from the start of a matter so that bills never get out of hand;
- They make sure that the firm then does precisely what the Retainer Agreement says it will do regarding billing and payment, which may mean ceasing work beyond the scope of the Agreement;
- They immediately provide a revised Retainer/Cost/Engagement Agreement when the scope of work changes;
- They make sure that every activity of every lawyer is contemporaneously recorded into a system so that they can manage their matters properly, bill accurately and comply with their professional obligations. This needs mobility and discipline;
- They bill regularly for small amounts, never letting the debt get out of hand;
- They then make sure that every matter is billed as soon as the firm is legally entitled to bill, and request retainer top-ups if necessary;
- They DON’T operate under the illusion that WIP is income - it needs to be billed. It is amazing how common this problem is, and a major cause of dissension amongst partners;
- They make sure that the same rules apply to every lawyer in the firm, irrespective of seniority;
- Most importantly, they stop work if the client stops paying without making alternative arrangements – for example, to pay by instalments.
The above list seems pretty obvious. Why then do lawyers find it so hard? I think it is because so many of them have poor systems, making the act of billing a personal rather than a necessary firm activity. With good time recording and billing systems, it becomes easier to explain and de-personalise the process, removing the idea of fee earner discretion – clients know that they need to pay, and should simply know how much and when.
There are some astonishing figures on the % of matters proceeding without a signed Retainer in place. With a good system this should be standard using automated templates for each Matter Type recognising all the subtleties of practice in the different areas of law.
- Charge more;
- Get paid faster;
- Have less stress; and
- Have lower working capital requirements because of it.
- Put standard Retainer Agreement arrangements in place for all matters
- Update Retainer Agreements immediately upon any change in the scope of work
- Establish a regime where every task done is accurately recorded on the go
- Organise to bill regularly for small amounts in every matter
- Make sure you bill as soon as you are entitled to
- If you are not paid on time – stop work!
Habit Eight - They have standard processes and procedures in place for all matters
Consider this simple scenario.
A client phones you.
Unfortunately, Scenario 1 is far more common than Scenario 2.
In successful law firms Scenario 2 is standard. Anything less is a failure. And it is possible in or outside the office. These leaders understand that organisational chaos:
- Is inherently inefficient;
- Creates and elevates risk;
- Creates unnecessary stress for lawyers;
- Does NOT impress clients;
- Results in a firm making less money.
There are key things to be organised, some of which I have mentioned previously, but which are so important that they deserve greater attention because it is what successful small law firms do.
- There is only one database of client and matter information for every client and matter. You cannot be efficient if your starting point is always wondering if the data you are looking at is accurate and up to date. This requires a good software solution that combines time recording, document production and management, legal and trust accounting, and billing in one integrated application. If you do just one thing to get organised, do this.
- They have one way of opening a new client file and apply that method to every member of staff and every client file. There are no exceptions.
- All standard documents are electronically organised and easily available. This saves you from searching manila folders for the relevant information.
- All information about a matter can be accessed instantly.
- They can share matter information including documents with clients online.
- They use plain English in all communications, going to great pains to ensure communication is understood.
- They have standard billing procedures that are adhered to religiously.
- Figure out where in your firm negative client interactions are happening
- Fix these issues with good software and procedures
- Make sure your staff are trained, have access to and onboard with these procedures
- Watch the repeat and referral business roll in!
Habit Nine - They make compliance a natural consequence of running a firm well.
There are professional rules relating to:
- How a file is run;
- How the lawyer conducts her/himself;
- Client (trust) money.
These firms ensure that research material is available when needed and guidance (rancour-free mentorship) is available and provided when needed.
They also ensure that performance is routinely reviewed.
They have systems for managing client (trust money) that do not require any complicated bookkeeping knowledge. Just honesty.
In my opinion, the Solicitors Regulatory Authority in the United Kingdom has created a regime that combines discipline and common sense and might be a good model for other jurisdictions to adopt.
Every law firm is required to appoint:
- A Compliance Officer Legal Practice (COLP); and
- A Compliance Officer Financial Affairs.
Successful firms use modern systems and manage their firms diligently. They do not face stressful disciplinary proceedings for failing to comply with ethical or regulatory compliance.
By running the firm well, compliance becomes a natural consequence, not a burden.
- Make sure each staff member has access to research and guidance materials
- Put a staff member in charge of ensuring and reporting on compliance issues
- Conduct random file reviews
- Conduct random client (trust) account checks
- Review compliance reports as a team and take suggestions to improve compliance
Habit Ten - They become experts in customer service
Before I sat down my decision had been made and I was on my way pretty quickly.
On another occasion I went to have a copy of my passport Notarially Certified. I was shepherded into a room and a lawyer (a partner) appeared, did not introduce herself, did not ask me why I was at her firm and the only positive thing she said to me was ‘that will be GBP20.’
You could not make this up!
Needless to say, the habits of successful small law firms are the opposite of these two experiences of mine. The bedrock of customer service is just one thing - communication.
The lawyers running successful small firms effectively embed obsessive customer service throughout the culture of the firm. They are specialists in communication. From the moment the clients walk through the door until the matter (no matter how big or small) is completed, they keep the client fully and repeatedly informed about the progress of the matter. By doing so, they consistently demonstrate how the firm values the client.
It is so well known that referrals from happy existing clients comprise a law firm’s primary referral source. Yet so many lawyers forget this, and overlook customer service. Successful lawyers don’t.
With modern technology it is so much easier to perform all these tasks with quality and frequency.
These lawyers also think about new ways of communicating with clients including self-service portals where clients can book appointments, pay bills and make deposits, view their matter and comment on documents, complete online onboarding forms and make instant recommendations for you.
- Show courtesy in every interaction
- Train the lawyers to be ‘nice’
- Keep in constant contact regarding matter updates
- Maintain constant contact with client newsletters
- Provide innovative ways to collaboratively work on matters online, and interact with the firm using self-service portals
Habit Eleven - They understand their finances
The principals of successful small law firms are different. Without exception, they understand the finances of their firms. If they don’t have a natural aptitude with numbers, they have taken steps to remedy this. The result is that they:
- Understand the economics of the firms; AND
- Understand the economics of a matter.
The most important source of working capital for a small firm is the revenue generated from legal work. With stable working capital you have choices. Without it you have stress and uncertainty about the future. The best firms don’t always charge the highest rates, though some may because of the quality of service they provide. Rather, what they do is:
- Ensure that they have a deposit in place to cover initial fees and disbursements whenever possible;
- Ensure that every activity (in and out of the office) is accurately and contemporaneously recorded eliminating guess work from the activity recording and billing process. A failure to accurately record billable work is the single biggest source of revenue loss in every law firm I have ever encountered);
- Ensure that bills are generated as soon as it is appropriate;
- Ensure that everyone in the firm (without exception, including principals and partners) generates bills using the same system;
- Ensure that bills are actually sent! (Yes. I have seen many generated bills resting peacefully on desks and window sills in offices of lawyers);
- Make it easy for clients to pay using modern online payment methods;
- Follow up debt to ensure it is paid on time.
Maintaining the firm’s charge rates requires a deep understanding of the value of the services being provided and the means of the client base being serviced.
Successful firms take the time to work this out.
It is true in business that no-one has ever saved their way to success, and these firms don’t. But they are obsessive about understanding and maintaining cost control. They are particularly careful about managing disbursements. These costs are so easily incurred, and yet, in the absence of discipline, so easily overlooked when billing. This can risk converting a client cost into a firm expense.
These firms have also moved away from only looking at their financials as historical ‘how did we do last month?’ documents. It is remarkable how many firms still try to run this way.
Successful firms monitor performance daily through automatically generated performance reports. Instead of being historians, they can immediately identify issues regarding lawyer performance and client delinquency as soon as a problem appears and do something about it early. This creates a well-run and financially efficient law firm.
- Understand the finances of the firm
- Understand the profitability of different matter types
- Ensure that every activity is recorded
- Don’t continue working if bills are unpaid
- Be proactive about managing revenue and costs, stop managing history
To summarise, these are the 11 habits of highly successful law firms.
- They are efficient
- They enjoy practising law
- They employ smart people and treat them really well
- They have selected areas of law they like and focus on them
- They dedicate time to building the firm as a business
- They are early adopters of technology
- They confront the challenges of getting paid and solve them
- They have standard processes and procedures in place for all matters
- They make compliance a natural consequence of running a firm well
- They become experts in customer service
- They understand their finances
The injunction though, which we have intentionally repeated throughout this paper, is that you must ACT! Do something. I would enjoy any correspondence on any of the topics raised and even suggestions for additional habits.
About our Guest Blogger
Richard Hugo-Hamman is the Executive Chairman of LEAP Legal Software, the #1 provider of software and integrated legal research materials to small law firms in the world.
LEAP has always been obsessive about garnering user feedback to inform its innovation path. True to this approach Richard has personally visited hundreds of small law firms in Australia, the United Kingdom and the United States. This gives Richard a unique perspective on what makes a successful small law firm.
The 11 Habits of Successful Small Law Firms is a distillation of the insights he has gained from these client visits.