The Client Revolution

Are café owners smarter than lawyers? (Links fixed)

This is a repost of yesterday's post, which was beset by bizarre and crazy problems. The first problem was the accent in the word café. It turns out that a Mac or an iPhone can handle this no problem. But apparently, Windows boxes and BlackBerrys ne parlent pas français bien. Hat tip to the worldly Lance Goddard, author of the fabulous Are You Writing This Down? for figuring this out.

Second, I was able to successfully (and quite easily) embed the CNN video link into the post. Unfortunately, the link doesn't work in the RSS feed of the site, which is how many of you read this.

Here then, otherwise unchanged, is yesterday's post, unaccented and with a new video link. Sorry about the mess!

Are café owners smarter than lawyers?

When it comes to understanding how their customers value their services, the answer is probably "yes."

Over the past week, I've been talking to scads of lawyers — both in-house counsel and law-firm lawyers — about how our employment-law firm killed the billable hour and switched to 100% fixed fees. The question I've been getting most often from both types of lawyers is some form of "How do you set the price?" The law-firm lawyers all worry about getting paid enough when opposing counsel run up the interrogatories and depositions, or when a client unreasonably rejects a settlement and prolongs a case. The problem, I tell them, is that they're focusing on their costs.

But clients don't care about your costs. They only care about the value that the lawyer's service has for them. That value is by definition subjective, and it can be difficult to determine. But it's the only thing that matters. If your price is more than the value the client assigns to your service, then he or she is going to take their business elsewhere. Only if your price is less than or equal to that value will the client agree to do business with you.

"But how do I make money that way?" the lawyers ask.

The answer is: by having a service that is valuable enough to allow you to earn a profit.

One café owner in Ohio has taken this to the ultimate conclusion. Sam Lippert owns the Java Street Café in Kettering, Ohio. His menus have no prices. How does he determine his prices? He asks his customers. He tells the diners to pay whatever they think their meal was worth. Does he make money? Since he switched to a pay-what-you-want system, he says his sales are up 50 to 100 percent on any given day compared to his previous menu-pricing system. Why? Because his customers obviously feel that he provides a service worth paying for. And his prices always match the customers' value — because they set the prices.

So why do lawyers find this so hard?

The John Roberts interview on CNN's "American Morning" is above. Or link to it here. A transcript is here.

Are café owners smarter than lawyers?

When it comes to understanding how their customers value their services, the answer is probably "yes."

Over the past week, I've been talking to scads of lawyers — both in-house counsel and law-firm lawyers — about how our employment-law firm killed the billable hour and switched to 100% fixed fees. The question I've been getting most often from both types of lawyers is some form of "How do you set the price?" The law-firm lawyers all worry about getting paid enough when opposing counsel run up the interrogatories and depositions, or when a client unreasonably rejects a settlement and prolongs a case. The problem, I tell them, is that they're focusing on their costs.

But clients don't care about your costs. They only care about the value that the lawyer's service has for them. That value is by definition subjective, and it can be difficult to determine. But it's the only thing that matters. If your price is more than the value the client assigns to your service, then he or she is going to take their business elsewhere. Only if your price is less than or equal to that value will the client agree to do business with you.

"But how do I make money that way?" the lawyers ask.

The answer is: by having a service that is valuable enough to allow you to earn a profit.

One café owner in Ohio has taken this to the ultimate conclusion. Sam Lippert owns the Java Street Café in Kettering, Ohio. His menus have no prices. How does he determine his prices? He asks his customers. He tells the diners to pay whatever they think their meal was worth. Does he make money? Since he switched to a pay-what-you-want system, he says his sales are up 50 to 100 percent on any given day compared to his previous menu-pricing system. Why? Because his customers obviously feel that he provides a service worth paying for. And his prices always match the customers' value — because they set the prices.

So why do lawyers find this so hard?

The John Roberts interview on CNN's "American Morning" is above. A transcript is here.

What AIG bonuses and BigLaw associate salaries have in common

Like many of you, I almost choked on my pancakes when I read the lead story of The New York Times this morning: “At A.I.G., Huge Bonuses After $170 Billion Bailout.” (Why does the Times put periods in all its abbreviations? It seems a waste of I.N.K.) Turns out that AIG is paying $165,000,000 in bonuses to 400 executives in its financial-products unit. (The Times also forgot that hyphen. Maybe it couldn’t afford it after the superfluous periods.) Where have we heard about that unit before? Oh, yeah: they’re the folks who drove the world’s largest insurer off a cliff by writing trillions of dollars of credit-default swaps, leading to a massive federal-government bailout paid for by you and me. The United States now owns 80% of the company.

Naturally, AIG felt the need to defend the bonuses. First they lawyered up and claimed that the bonuses couldn’t be legally cancelled. As if. (Trust me: good lawyers could get them out of it if they wanted.) Then, in a letter to Treasury Secretary Timothy Geithner, AIG Chairman Edward Liddy sings a different chorus to explain why they needed to pay the bonuses:

We cannot attract and retain the best and the brightest talent to lead and staff the A.I.G. businesses — which are now being operated principally on behalf of American taxpayers — if employees believe their compensation is subject to continued and arbitrary adjustment by the U.S. Treasury.

(I particularly like the line about how we're doing this for you, America.) It seems too obvious to mention that the folks running the show at AIG’s financial-products unit probably weren’t the best or the brightest, given how disastrously they screwed things up. But what struck me the most about Liddy’s wheedling was that I have heard this reasoning before in an industry I know a bit more about.

That’s right: law firms. Time and time again, when the clients of large law firms complain about the $160,000 starting salaries of first-year associates, the law firms sing the same tune as AIG: they need to pay fantastic money to zygote lawyers to attract “the best and the brightest.” And when a firm’s competitors see that, they all march in lockstep. Which is fine, until the economy collapses and the model fails. (See “Expensive associates threatening big-firm model.”)

The bottom line is that companies should pay for value, rather than throwing demented amounts of money at people who aren’t worth it, figuring that the money will never run out. Sooner or later, when you have a broken business model, the money will run out.

Expensive associates threatening big-firm model

In the recent past, large law firms could justify skyrocketing salaries for incoming associates by passing the costs along to their clients. But with the economy in shambles, clients are finally starting to say no. And this has put the economic model of large law firms in grave danger.

So says the Boston Business Journal's excellent Lisa van der Pool in her article, "When the dust settles: Surveying changes to the legal landscape." Writes Lisa:

Change is coming to law firms. In the wake of attorney and staff layoffs in recent weeks, the relentless call among clients to slash billing rates, and the sharpened focus on the ballooning salaries for young associates who begin their highly paid gigs with zero experience handling legal matters, change is inevitable.

Tweaks to the model will likely include smaller summer associate class sizes, flexible hourly billing rates and even lower compensation for young lawyers who are still cutting their teeth and don’t deserve their inflated first-year salaries, according to experts.

These experts then play a dirge for the large law firms' economic model. (OK, truth be told: it's me playing the dirge — but others join in.):

"The law firm model that we’ve been using is not going to keep working,” said Jay Shepherd, founder of Boston-based law firm Shepherd Law Group PC. “(The economy) is going to expedite change in the law firm model. I think without the recession, the change would have taken longer to come. We’re seeing a number of industries where the models don’t work anymore: airlines, recording studios, newspapers — and large law firms.”

While the article focuses on one of the problems — that of insane salaries for inexperienced junior associates — the real problem is more rudimentary. The legacy economic model at traditional law firms is based on cost-plus pricing. The firms charge their clients a price based on the law firms' costs plus a desired profit. Under this system, there is no incentive for the firms to lower their own costs (and by extension, their clients' fees). And this works fine (for the firms, that is), so long as the clients are willing and able to pay. But recessions have a tendency to smoke out one-sided pricing models. (For more on cost-plus pricing, see "Clients of the world, unite!")

Bottom line: High associate salaries are just a symptom of the greater problem. The big issue is not overpaid associates. Nor is it hourly billing versus "alternative billing." It's about law firms' interests being aligned with their clients' interests, which cannot happen under a cost-plus system like hourly billing.

The Revolution is coming. And the recession is speeding it up.

The 100 most niveous words

I was minding my own business, trolling through Twitter (follow me at @jayshep), when I came across a tweet that caught my attention: a list of (purportedly) the 100 most beautiful words in the English language. (Hat tip to @lmaverick and @jordan_law21.)

I was intrigued. I love language and writing, and I was curious to see how someone could come up with the "most beautiful" words. I clicked through to the list, which was on a website called AlphaDictionary. Turns out the list was compiled by a gentleman named Dr. Goodword, a poet and doctor of linguistics whose real name is Robert Beard. Anyway, I checked out his list of beauty.

And was thoroughly disappointed.

The list is a random collection of words, mostly of French or Latin origin, that exude pomposity and stuffiness. (It's not even 100 words long; notwithstanding the title, the list goes to 110.) The list could not be more subjective. It is a tossed salad of words that must appeal on some level to the good doctor: how else to explain the inclusion of both cockle and palimpsest? You will never have any reason to use many of the words in the real world: I doubt you will ever describe a friend as being potamophilous (loving rivers) or foudroyant (dazzling).

Besides being words of limited value (for the most part), they are also all polysyllabic (except for lilt and lithe, two of the words that actually belong there). And that brings me to my point:

Lawyers (and apparently, poets and linguistics Ph.D.'s) seem to think that the more syllables you use, the smarter you sound. They are wrong. As Churchill said, "Broadly speaking, the short words are the best, and the old words best of all." (And by old, he meant words of Anglo-Saxon origin instead of French or Latin.) Forgive me, but I'm going to go with Sir Winston over Dr. Longword.

A good writer (which all lawyers should aspire to be) strives to get his or her message across in as few words and syllables as possible, so as to not waste the reader's time. It's easy to find fancy, French- or Latin-sounding words to decorate your writing like frosting flowers on a cake. (Which are sickly sweet and empty, if you extend the metaphor.)

It's much harder to find the right simple words to express your ideas.

Are simple words more beautiful? Decide for yourself. Compare Dr. Goodword's list with the Oxford English Dictionary's list of the 100 most common words in the English language. In the latter list, the top 44 words are all one syllable, as are 89 of the top 100. Also, the top 25 verbs are all monosyllables. These are the words without which our beautiful language cannot be written. They radiate beauty in their simplicity.

Lawyers: embrace the short, old words. And ignore the "beautiful" words like niveous (which means "snowy"). (Not that you'd ever need to know that.)

Heroes of the Revolution: Dustin Cole

From time to time, we'll give a shout out to a Hero of the Client Revolution — someone who's doing more than their share to advance the cause of client service, whether in legal circles or in some other field. We kick off this feature with a tribute to Dustin Cole, founder and president of Attorneys Master Class, a Florida-based firm devoted to helping lawyers regain control of their practices. Dustin's laser-like focus is on teaching lawyers to "be of value" to their clients — a deceptively simple concept.

Four years ago, I was looking for ways to grow my practice and improve my marketing abilities. I went to Dustin Cole’s seminar at the Massachusetts Bar Association with more than a little skepticism. I mean, this guy's not a lawyer, and his background was in radio and television. What can he teach me?

Was I ever wrong. Instead of a know-it-all consultant looking to prey off lawyers' insecurities, I found a kindred spirit who shared many of the ideas I had about running a law firm like a real business. (Very few law firms do that.) After a one-hour phone-session trial, I decided that my firm would benefit from working with Attorneys MasterClass.

It turned out to be a smart investment. Talk about ROI: in the year after I started working with Dustin, our firm’s revenue increased 26% over the previous year. Over the past four years, our revenue has nearly tripled. More importantly, my coaching sessions with Dustin changed the way I think about marketing and management strategy. Never again will I feel like I am “selling.” Instead, I concentrate on trying to “be of value” to as many people as I can.

Our firm now focuses on what differentiates it from our competition. We’ve learned how to focus our message and align our goals with our clients’. We’ve discovered the nerve to radically change the way we do business, abandoning hourly billing in favor of upfront pricing. We’ve realized the importance of trying to be a “trusted advisor” to our business clients, instead of just another law firm. I’ve learned when to wear my entrepreneur hat, when to wear my manager hat, and when to wear my lawyer hat. I’ve gotten much better at delegating work to the appropriate person.

When my initial coaching plan ended, I immediately signed up for continued regular coaching. Because I’m my own boss, and have been since I was a fourth-year lawyer, I’ve never really had a mentor figure. Until now. Hiring Dustin Cole was the single-best marketing and practice-management decision I’ve made since starting my firm. Any law firm — big or small — will benefit from the advice and guidance that Dustin and Attorneys MasterClass can give.

Lawyers tend to resist taking advice from others. I certainly have. But Dustin Cole understands lawyers, and clients, and being a trusted advisor. As lawyers, we could all use more practice listening.

If you would like to discuss Attorneys MasterClass with me, please feel free to send me an email.