Characteristics of Winning Small Firms
It was my recent pleasure to attend the annual conference of a group of affiliated small firms that I have known for about 25 years. Every now and then they ask me to look at their financial performance and we discuss a range of contemporary issues.
I haven’t attended for about eight years or so, and the 2018 conference fascinated me. This group is made up of 25 regional, suburban and a couple of city firms, all relatively small. Average net profit per partner is $700,000. Average profit margin is 39.77%. I know that many large firm partners wouldn’t be impressed by this, but don’t forget that these people go home at 5:30 pm (if not before) and usually holiday for about six weeks each year.
This is what all of these firms have in common. It has been developed collaboratively, through their network, for 27 years or so. All of these firms do the following:
They value management
Outside large, national and international firms, where most of the profession live, operational management often takes a back seat. In fact, truth be told many partners don’t see management as ‘real work’, certainly not as important as substantive legal work.
By contrast, all of the successful smaller firms that I encounter have at least one management enthusiast in the partnership. These partners are encouraged to develop their interest, to source and disseminate innovative strategies, and are often delegated the role of managing partner.
I am often asked, “How big do we need to be to afford a general manager or managing partner? Surely we’re too small for that?” I suggest that those asking this question consider the event of a client asking them, “I have this business that turns over a few million and employs 20 of us. Do you think it’s a good idea for it to be managed properly?”
Therefore, if you haven’t yet done so, appoint a partner to the role of managing partner. Note that this is not a promotional position with lofty status. It’s a job. Managing partners should be allocated time to manage without penalty; in a small firm, usually 30% fee relief will do.
Don’t appoint someone to the role because they are the most senior or because their practice has dried up and they have nothing else to do. Pick someone who has an interest in doing the job well – and is actually capable of doing the job well. Invest in their development.
They plan and execute
Good firms are planning regularly. They have a clear vision, widely understood values and a real sense of purpose.
Partners agree on a direction and a number of annual objectives. They may even commit to a five-year strategy. These objectives effectively form the managing partner’s job description.
I recommend that firms of all shapes and sizes share their plans with all staff, measure progress and celebrate success.
They are open to change
I’ve met too many law firm partners who operate with the “That won’t work because…” default position. Good firms are full of partners that don’t do this. Instead, they grab hold of ideas, often half-baked, and work out how they can make them work.
They have invested in systems
Good businesses are organised. Successful firms implement operational systems that are consistently observed throughout the practice: they don’t have individual partners or associates doing things ‘their way’.
Successful small firms invest in centralised precedent and document management, legal project management, integrated client management and billing systems, and workflow optimisation systems. They understand that file velocity (how quickly the job gets done) contributes significantly to profitability and that file volume (number of files per lawyer) does not.
They take away the issue of pay
Highly successful firms are usually generous with salary and staff conditions. Staff don’t sit around feeling undervalued; they put ‘pay’ out of their minds and concentrate on client outcomes.
They are focused on the client experience
Good firms understand the purpose of their existence: constant, incremental improvement to the client experience is at their core. It is central to all that they do.
They pay for advice and listen to it
(Perhaps a little self-serving but nonetheless significant.) Good firms know when to buy advice. Be it big-picture strategy or day-to-day operational advice, management professionals have the benefit of seeing many firms each year, and they usually know what works when.
They tackle one thing at a time
One of the things that I have observed over the years is that the best firms that I have worked with achieved what they have through a sedimentary approach, layer upon layer. They have managed change incrementally, not through a radical re-engineering process.
At every conference that you attend, with each new management book that you read or webinar in which you participate, just pick one thing to implement. Don’t try to do it all or it will become too difficult, and you’ll become another firm held back by ‘failure to implement syndrome’.
They share with like-minded peers
The group of firms that I spent two midweek days with (firms this good don’t meet on weekends: they have lives to live) have all helped each other to develop and grow great businesses. Over the years they have also become close friends.
It’s a great model.
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