The Client Revolution

Hourly billing is dead. Ish.

It just doesn't know it yet. Turns out, a lot of lawyers don't know it yet, either.

New Year's Day marked the second anniversary of The Client Revolution. During the past two years, we've written and read many, many words about the death of the billable hour. And yet, despite the countless posts and articles on blogs and in magazines and newspapers, despite the many seminars and conferences and panel discussions, despite all the talk of the end of hourly billing, it's not dead yet. Not quite.

So what's keeping it alive?

Fear.

Lawyers and law firms fear that if they stop keeping timesheets and stop tracking hours, they will make less money than they do billing hourly. And clients, especially in-house lawyers at larger companies, fear that without reviewing detailed time entries in stupefying legal invoices, they won't know if they're getting ripped off.

Despite this fear, both groups continue to express interest in so-called alternative billing. (See why I hate "alternative billing" — the term, not the concept.) Organizations are holding two-day seminars on all the different types of "alternative fee arrangements" (the faddish term of the moment). The problem is that people leave those seminars shaking their heads and muttering how complicated it all is. And then they go back to billing or being billed by the hour.

What The Client Revolution is all about is that pricing legal services is not at all complicated. It's simple. It can be difficult, I'll give you that. But it is simple. Here is the secret to pricing in a single sentence:

Figure out the value to your client of solving their problem, then set the price as close to that value as you can without going over.

Simple. But hard.

In 2011, the third year of the Client Revolution, I'm going try to make it less hard for lawyers and clients.

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P.S. Over the past two years, we've had over 50,000 pageviews. My sincere thanks to all of you: readers, subscribers, commenters, and supporters. If you don't yet subscribe to The Client Revolution, please sign up now. I've set the price to, uh, free.

It's about the sex

My favorite novel of all time is Herman Wouk's World War II epic The Winds of War. (Actually, the follow-up novel, War and Remembrance, is the same story continued. The two books together are my favorite.) At one point in the story, young Madeline Henry is annoyed to find that her radio-host boss — whom Wouk describes as "oleaginous" — has ordered a prostitute to be sent up to his hotel room. (He hadn't expected Madeline to show up to talk about their radio show.) He has the prostitute wait in another room while Madeline describes her idea for a new program. She is unmollified:

Both hands jammed in her coat pockets, Madeline said, "It's not fair to keep a prostitute waiting. All she has to sell is time."

Now, I don't have any experience with prostitutes, but it's my understanding that their customers aren't buying time; they're buying something else. (Sex, if I'm being too oblique for you.) And the prostitutes charge by the job (at least I think they do), and not by the hour. It's not about the time; it's about the sex.

On a related note, Abraham Lincoln once wrote: “A lawyer's time and advice are his stock in trade.” (This is often misquoted, with "and advice" getting left out.) Smart guy, Lincoln was, but he was half-wrong here. The lawyer's advice (and knowledge) is his or her stock in trade; the lawyer's time is not.

Most lawyers misunderstand this, and actually believe that they are in the business of selling time. But they are not. Clients don't buy time; they buy knowledge. It is the knowledge that they derive value from.

Maybe the second-oldest profession can learn something from the oldest profession.

What do you think? Are your clients paying for time, or are they paying for your knowledge and attention? Sound off in the comments below.

(Disclosure: No one pays me to recommend anything, but if you click through here to buy a book, I may get a minuscule payment from Amazon. Woohoo.)

Two kinds of lawyers

There are only two kinds of lawyers in the world:

Lawyers who price, and lawyers who don't. Everything else is lip service, or window dressing, or sleight of hand.

Lawyers who price work very hard to try to figure out what their client's needs are and what the value is to the client of satisfying those needs. They then come up with a price that is less than or equal to that value, and they tell the client that price before performing the service. The client either accepts that price or does not, and if so, the lawyer does the work at that price. And the price for that service doesn't change. If the needs unforeseeably change, then a new price will be arrived at. But remember: we're talking prices, not estimates.

And that's it. It's that simple. (It may not be easy, but it's simple.)

If you don't do this, then you're the other kind of lawyer: the kind who doesn't price.

Obviously, lawyers who bill their time make up the bulk of this category. Telling a client what your rate is and then giving a vague estimate of the time you think you might spend is not pricing. Not by a long shot. Making adjustments to the bill at the end of the month to put the total amount more in line with the value delivered is not pricing. Tracking your time to try to determine any kind of concept of value is not pricing.

Capped hourly fees are not pricing. Blended rates are not pricing. (They're just a ripoff.) Hybrid fees are not pricing. AFAs ("alternative fee arrangements" — the in-vogue thing to call different alternative billing schemes) are not pricing.

Giving clients a choice between a price and hourly billing isn't pricing. It's a copout, and it tells the client that you don't believe in the value of your services. Tracking your time to see if your "losing money" on priced engagements is the same kind of copout.

Project management is not pricing. Six Sigma is not pricing. Neither is Lean Six Sigma. Or Portly Six Sigma. Or whatever. (And I don't care if you're a black belt, orange belt, or a braided-leather belt with a giant John Deere buckle. It ain't pricing.)

You can go to all the two-day seminars on AFAs you want, but mostly you'll be learning about Not Pricing. Your time would be better spent learning about your client and how they value the solutions to their problems and whether you can make a profit solving their problems for that amount.

That's pricing.

Two lists

People who have made a difference in the world while not billing hourly:

• Albert Einstein
• Jonas Salk
• Galileo Galilei
• Charles Darwin
• Henry Ford
• Steve Jobs
• Bill Gates
• James Madison
• Thomas Jefferson
• George Washington
• Abraham Lincoln
• Franklin Roosevelt
• Winston Churchill
• Lech Walesa
• John Locke
• Adam Smith
• Karl Marx
• Martin Luther King, Jr.
• Florence Nightingale
• Harriet Tubman
• Susan B. Anthony
• Thomas Edison
• Alexander Graham Bell
• Leonardo da Vinci
• George Lucas
• Alfred Hitchcock
• Steven Spielberg
• William Shakespeare
• Leo Tolstoy
• Homer (the original one; not Simpson)
• Walt Disney
• Jane Austen
• Pablo Picasso
• Claude Monet
• Jean Renoir
• Ludwig van Beethoven
• Wolfgang Mozart
• Tim Berners-Lee
• Elvis Presley
• John Lennon and Paul McCartney
• Michael Jackson
• Mother Teresa
• Moses
• Jesus
• Mohammed
• Lao-Tzu

People who have made a difference in the world while billing hourly:

*sounds of crickets chirping*

Note: The first list is arbitrary and in no particular order. Of course I left off many people who made a difference in the world while not billing hourly. Have I forgotten anyone on the second list? Add your thoughts in the comments below.

"Don't take this the wrong way …"

We just finished up a case for some clients: guys wrongly accused of taking trade secrets from their employer in a bid to set up a new competing business. We ended up with a terrific result, getting the lawsuit dismissed and allowing them to continue their careers with no money changing hands. We did it effectively for what turned out to be a very reasonable fixed price.

After it was over, the clients were very appreciative. They thanked us for our work and our results. In an email, one of them expressed more gratitude, and then added this:

Don't take this the wrong way, but I hope I never have to speak to you again professionally.

Huh. Now I know what he meant, and I know that he meant it half tongue-in-cheek. But just half. As good a job as we'd done for him and his colleagues, as much value and caring and support as we had given him, it was — overall — a negative experience for him.

And this wasn't the first time I'd had this expressed to me over my 16-year career. A long-time client would call after a months-long hiatus, and I'd go, "Hey, it's been a long time" and he'd go, "I know. It's been nice." Ouch. Now I know that my client isn't saying that he dislikes talking with me. It's just that he'd rather not have to talk to me.

And this bothers me.

Maybe it's the nature of the work we do: people usually aren't very happy when they need employment-law or business-litigation help.

And yet.

And yet I can't help wondering if there's something we can do — if there's something lawyers can do — to make clients want to deal with them. In the same way that they want to deal with other great businesses.

People love to buy the latest gadgets from Apple. People love to fly Southwest. People love to visit Disney parks, or buy shoes from Zappos.com, or buy groceries from Whole Foods. Is there something we can do to make people love dealing with their lawyers, or is our field fundamentally different from other businesses?

This is an important question, and one that I'm spending a lot of time thinking about. I'll let you know if I find the answer.

What do you think? Can a law firm be like Apple, or are lawyers doomed to being necessary evils? Share your thoughts in the comments below.

Fixing prices Down Under

The Client Revolution isn't just limited to the United States. Lawyers in Canada and the UK are also bridling at the Woodrow Wilson–era business model of timesheets and billable hours. In Australia, there's been a flurry of antitimesheet talk and activity. See Ron Baker's post "Timesheets on the defense Down Under" over at VeraSage Institute for a nice summary, highlighting colleague John Chisholm's great work in the area.

Australia's national legal newspaper, Lawyers Weekly, had a fine special report on the topic, "Once upon a billable hour," by the paper's editor, Angela Priestley.

I spoke with Angela last week. She was interviewing me in advance of my visit next month to Sydney, where I will be presenting at the Australian Law Practice Management Association's annual conference. Angela did a nice job framing the issues and summing up the message that I plan to bring to Oz next month. She paid particular attention to the problem of timesheets, and rightly so. She writes:

Shepherd believes that all areas of law can function without timesheets — even litigation, which he says takes up 75 per cent of his work — and he's adamant that if a firm moves to fixed-price billing it must also remove timesheets to ensure the removal of the billable hour is truly engrained, even if such a firm only uses timesheets for internal purposes.

"Many firms say, 'we'll try fixed prices, but we're going to keep timesheets.' That's a cop out, they are missing the point there," says Shepherd.

That point is that lawyers operate differently when not tied to billable hours. Shepherd believes that by removing timesheets, lawyers can truly concentrate on delivering the best outcome for clients and that in his firm, the moves has contributed to a direct increase in revenue.

"I really don't want my lawyers to be thinking about time," he says. "It's not just an invoicing method, it's a way of thinking about the work that we do. You don't practice the same way when you're not worried about hours. You do things differently, you make different choices."

It's an idea that's fast making its way around the world. Read the rest of Angela's piece here.

Thoughts? Have you heard of lawyers ditching timesheets in other parts of the world? Share in the comments below.

Cooling my heels: $600?

I spent part of Thursday morning at the Suffolk County Courthouse in Boston. Like all courthouses, it's a place where important work is done, but where a staggering amount of time is spent waiting. And that's what I did, for the most part: waited.

You see, I had to go to the courthouse to file an emergency motion to compel, something I rarely do. My task was mainly to get my papers in the hands of the courtroom clerk and get a hearing scheduled on the docket. I didn't want to send someone else — a messenger, a paralegal, even another lawyer — because there was a minute chance that the judge would offer to hear from me on the spot. In the end, she didn't, and the clerk scheduled my hearing for Monday. I accomplished what I needed to do, so it wasn't at all a waste of time.

But if I had been like 99.99% of other American litigators representing companies, I would have billed my client for that hour spent (mostly) waiting. And my client would be lucky that it hadn't been more time, since my office is less than a hundred yards from the courthouse. If I billed hourly, my client would have spent — based on my firm's size, my location, and my personal level of experience — at least $600. That's six hundred dollars for the two minutes it took to have a piece of paper filed in court, plus 58 minutes of leaning against a wall in the corridor.

Someone explain to me how my time — anyone's time — would have been worth $600 to stand around and do nothing for 58 minutes. And don't tell me about the opportunity cost — that my time cooling my heels for one client kept me from doing other work. No client cares about that.

Yes, I delivered value to my client by going to the courthouse, but not $600 worth. Fortunately, my client is paying a fixed price, and doesn't need to worry about how I spend my time.

What do you think? Should clients pay for waiting? How does that benefit them? Where is the value in that? Share your thoughts in the comments below.

Why Verizon FiOS is smarter than I

Or is it "smarter than me?" (Verizon FiOS would know, because it's so smart.) (Actually, according to Grammar Girl, it's both, but "I" is probably better.)

Anywho, here's why Verizon FiOS is so smart. It's currently locked in a grudge match with archrival Comcast over whose TV-and-internet package is better. Most of the commercials by both companies are nasty and forgettable. But the following commercial, which has been in heavy rotation on NESN (the network of the Red Sox), is inspired. Go ahead, it's only 32 seconds. I'll just stand here awkwardly:

... and we're back. Pretty good, huh? What I really like about the ad is that, unlike all the other commercials, it doesn't make subjective claims about being "better." Nor does it get into technobabble about how many more "Mbps" it can deliver. Instead, it focuses on a single, indisputable idea:

That cable was invented in 1948.

Implicit in that fact is that cable is somehow inferior to the modern technology of Verizon's "100 percent fiber optics." And that's a powerful message. (Full disclosure: I'm watching the Red Sox game and transmitting this post on my Verizon FiOS network, on which I'm getting a bitchin' 17 Mbps in download speed. But fear not, FTC: they ain't paying me to write this; I'm paying them.)

So how does that make Verizon smarter than I? Because I should have made this commercial years ago. But I would have changed some of the words. Like:

So why are you still using an antique law firm with an hourly billing model created in 1919 to for your 2010 business?

Then maybe something about hooking your business up to 100% fixed-price lawyering. I gotta work on the tagline.

Big shout out to VeraSage's Ron Baker, whose research uncovered the 1919 origin of law-firm timesheets. See my recent exchange with him on this example of antiquity.

This isn't the first post I've mined from a sporting-event commercial. See "What lawyers can learn from an Office Depot commercial" from this year's Super Bowl.

What do you think? Is this an effective message? Do I watch too much TV? Is it really "than I"? Sound off in the comments below.

Tell me how to do what I want to do

After my recent post decrying lawyers' inability to innovate along with their clients (see "Why I hate 'practicing law'," my friend Ed Wiest (@erwiest) correctly pointed out that this notion was not exactly new. In a comment to the post, Ed included a quote from the legendary J.P. Morgan:

I don't know as I want a lawyer to tell me what I cannot do. I hire him to tell me how to do what I want to do.

That was over a hundred years ago. Yet I'm sure the problem is even worse today. Lawyers, acting out of fear (of being wrong) spend their time issue-spotting and telling clients about the varying risks of a client's course of action. What clients want is what Morgan wanted: help in achieving their goals. Today, many lawyers have no idea of their clients' goals and dreams, and would never consider offering something as unlawyerly as "business advice."

Some even advocate for this. Former lawyer and Inc. Magazine columnist Norm Brodsky is dead-set against lawyers giving business advice:

The attorney's role should be to advise clients of the potential legal consequences of whatever decisions they make. Period. End. I have been known to fire lawyers who insist on arguing with me about business issues.

Read more of Brodsky's misguided comments in his ironically named piece "Norm Brodsky on Finding a Good Lawyer." In his defense, he's probably right that lawyers give bad business advice, but only because they're not trained to do it.

One more thing on the Morgan quote: Ed cites to BrainyQuote for the quote, and wonders whether the lawyer Morgan was referring to was Elihu Root. In fact, it was Elbert Gary — lawyer, judge, and founder of U.S. Steel — whom Morgan admonished when he told the famous banker that he couldn't do something. See this 1927 interview with Time Magazine, which gives the context of the quote. Also see this Yale Book of Quotations entry, which has the quote in a Gary biography.

Thanks for the great quote, Ed!

What do you think? Should lawyers spend more time giving advice on how to achieve clients' business goals, or should they stick with the naysaying? Be like Ed and sound off in the comments below. (Maybe I'll get another post out of it.)

How to increase revenue 43%

Short answer: offer an additional pricing choice. Even a stupid one.

Longer answer: Check out this video. It's almost perfect. It shows how adding a single pricing choice can add 43% to total sales revenue. It's presented by Professor Dan Ariely, a delightful MIT economist. And it's only 114 seconds long.

Why don't you take the 114 seconds to watch it? I'll wait ...

Here's the math on the different options:

With two choices:

68 x $59 = $4,012

32 x $125 = $4,000

Total: $8,012

With three choices, one of which is stupid:

16 x $59 = $ 944

84 x $125 = $10,500

Total: $11,444 (an increase of 43%)

OK. Interesting, huh? Ariely's main point is that customers often aren't very good at knowing their own preferences, and they take cues from outside indicators of value, such as pricing options. By offering a third choice, even a ridiculous one, customers end up perceiving more value in the more-expensive choice. That's why Wendy's sells a triple cheeseburger — not to sell lots of triple cheeseburgers (they don't), but to sell more double cheeseburgers.

The moral of the story is not to offer ridiculous choices; it's to offer choices that lead your customers to find differing amounts of value in the various options — something you can't do if you bill by the hour.

The rest of Ariely's TEDtalk lecture is here. It's great, and it's only 17 minutes long. His book, Predictably Irrational, is here. I confess that I haven't read it yet, but it's definitely on my list.

Big thanks to Ed Kless who highlighted the video last December.

[Update 9/11/10: Ed points out in the comments below the effect this has on profits, given that The Economist's costs don't change. Very cool, Ed.]

What do you think? What kind of options can you offer to help your clients discover their preferences? Share your ideas in the comments below.

Can Inception plant ideas in the minds of lawyers?

Maybe. There are certainly some important lessons for members of the Client Revolution.

First of all, if you haven't seen the movie, do. It's the best movie of the year. It's also the smartest movie of the year — in fact, it's the smartest movie in a long time. You don't walk out of there thinking that you've seen the same thing before; it's a legitimate original.

If you've been in seclusion this summer, here's the general idea: Leonardo DiCaprio plays Dom Cobb, an expert in extracting information from people's dreams. But he's put to the test by a new client who wants him to do something much more difficult: plant an idea in a business rival's dreaming mind. That's "inception." They want their target, Robert Fischer, to break up his late father's business empire.

As Cobb and his team map out their heist, one of them raises a question central to the movie:

COBB

"I will split up my father's empire." Now this is obviously an idea that Robert Fischer will choose to reject — which is why we need to plant it deep in his subconscious. Subconscious is fueled by emotion, right? Not reason. We need a find a way to translate this into an emotional concept.

ARTHUR

How do you translate a business strategy into an emotion?

That's a question that all lawyers should ponder. As lawyers, we're trained to figure out a business strategy — in our case, a legal strategy. But we often forget that clients don't respond to business or legal strategies. Instead, clients — like all human beings — are led by emotion.

You want to become a rainmaker and bring new clients into your firm? Then figure out how to translate a business strategy into an emotion.

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The second lesson for lawyers comes from behind the scenes. Turns out that as successful as the movie has turned out to be — making about $700 million worldwide to date, the most successful heist movie ever — they had trouble getting financing beforehand. According to E! Online, DiCaprio agreed to take less money up front in exchange for receiving "first-dollar gross" pay at the back end. In other words, according to E!, Leo is getting a cut of every ticket sold, and is already looking at a massive payday of more than $50 million.

Most lawyers fear so-called "alternative billing arrangements" (as they call them) — more accurately known as "value pricing" — because they're afraid that they'll end up making less money than they would if they billed hourly. Imagine if Leo had shared this fear and turned down the first-dollar gross arrangement in favor of his usual "billable hours." The actor obviously believed in the movie and in writer-director Christopher Nolan. His faith was richly rewarded.

Lawyers, let me plant this idea into your dreams: If you have faith in your clients and your cases, you might end up doing far better than if you just filled out your timesheet.

What do you think? Like the movie? Think it applies to lawyers? Wish you had gone into acting instead? Share your thoughts in the comments.

[Update 9/11/10: Click here for a link to an amazing article by Sam Adams (no, not that one) on Salon.com: "Everything you wanted to know about 'Inception.'" But do not read it before you see the movie; big-time spoilers abound.]

Why I hate "practicing law"

No, not the career. The phrase.

Why do we say that we "practice" law? It has a connotation that we need to practice before we get any good. "Keep practicing, counselor. You'll get there." (As in "Carnegie Hall," as the old joke goes.)

But my problem with "practicing law" is more serious than that. I think the use of the term subtly affects what we as lawyers think we should be doing. Let's see what my dictionary (the New Oxford American Dictionary, the very best) says:

verb [ trans. ] ( Brit. practise)

1. perform (an activity) or exercise (a skill) repeatedly or regularly in order to improve or maintain one's proficiency : I need to practice my French | [ intrans. ] they were practicing for the Olympics.

2. carry out or perform (a particular activity, method, or custom) habitually or regularly : we still practice some of these rituals today.

Here's where my problem is. "Performing an activity repeatedly or regularly ..." "Carrying out an activity habitually ..." And how about that use of the word rituals?

The way we describe to the world what we do is with these words that connote that we keep doing the same old thing. And that fits in perfectly with the nature of most lawyers. Precedent. Tradition. These are the watchwords of our profession.

But no one else "practices" in the business world. They innovate. Or they go out of business. The same is true for lawyers; we just don't like to talk about it. So we cling to our 1919 business model based on timesheets, like we used to cling to powdered wigs. Like we still cling to fax machines and bike messengers.

We need to stop "practicing" and start innovating, or those rituals we perform will soon become unnecessary and extinct.

What do you think? Agree? Disagree? Think I'm picking nits, or am I on to something serious? Shout out in the comments below.

The Client Revolution Evolution

Hope you've enjoyed your Labor Day weekend. I've spent much of it completing a redesign of The Client Revolution and its sister blog Gruntled Employees. For those of you who read this blog through an RSS reader or email feed, you can take a look at it here.

Much of the changes are cosmetic. The basic blog design has been in place for nearly four years (later this month) at Gruntled, and coming up on two years here. Like many blog designs from 2006, these two became cluttered with too many sidebar elements, internal references, blogrolls, and widgets. Quite frankly, I'd gotten a little tired of looking at it all.

The redesign goes for a much more streamlined and clean look, similar to my firm's website (coincidentally last redesigned in 2006). This should allow the content to take on more prominence than before. Photos and other artwork will become more rare; I usually take too much time hunting down the "perfect" pic. Also, for the first time, the blogs now use real fonts, hosted by TypeKit. This one is called FF Dagny Web Pro, and it's a nice upgrade from Arial and Trebuchet.

Let me know what you think of the new look in the comments below, or give it a "Like" if you do. (Facebook doesn't seem to have a "Meh" button.)

Cosmetics aside, I'm also changing my approach to the posts themselves, trying to focus on more, shorter posts. My tendency is to post longish articles, which naturally take longer to write (and read). Shorter, targeted posts should also make it easier to write with greater frequency, something I've found difficult while running a law firm and raising two kids. Heck, even the ABA Journal gave me a hard time about infequent posts when it named this blog to its Top 100 list. Ouch.

I've started using the simple-but-brilliant Markdown language developed by my favorite Apple blogger, John Gruber of Daring Fireball. It allows me to write nearly everything on the iPad using SimpleNote.

I want to try to get more discussion going, too, so I've disabled the comment-moderation feature. I've heard that removing this barrier will let readers feel more free to share. Of course, I'll still be removing any spam or inappropriate comments, so it shouldn't become too much of a free-for-all.

Lastly, and most importantly, I'm aiming for a more-unified theme in my blogs, my firm's website, my law business, and my nascent consulting practice. They all share the same goal: to make clients' lives easier by reinventing the business of law. Ideally, making these minor social-media changes will help me do a better job of helping you.

OK, this has felt like a fairly self-indulgent post. If you've read to this point, thanks, and sorry. If you're one of the hardy souls who reads both blogs, please ignore the almost-identical post over at Gruntled.

But do tell me what you think of the redesign. I value your feedback, and I thank you for continuing to join this conversation.

What scalpers can teach law firms about discounts

Interesting piece in Tuesday's Boston Globe about how scalpers around Fenway Park are having a tougher season than the injury-riddled Red Sox. In anti–free market Massachusetts, scalping remains mainly illegal (although there are now some licensed resellers who perform the very same service). The Red Sox currently enjoy the longest consecutive-sellout streak in Major League history, at 608 games and counting. But that streak may be in jeopardy, as are the profits of the scalpers outside the oldest Major League ballpark.

Some people blame the economy. Some blame complacence in the Sox fan base after winning the World Series twice in the past decade (after a famous 86-year championship drought). In any event, the Globe article by Robert Mays follows around a few scalpers as they have difficulty selling their tickets for a recent game. Even after the game has started, one scalper is still trying to unload seats at a 200 percent markup. Here's the (ahem) money quote:

Like many of his colleagues, he is having trouble moving the seats. To a casual onlooker, the solution seems simple. Drop the price. But when the idea is brought up, the man in the gray cotton T-shirt quickly shoots it down.

“Let me ask you something,’’ he says. “If you owned a store, and you sold milk, and all your milk was about to go bad, and everyone held out until the last minute to buy your milk, and you dropped the price, what would happen?’’

He doesn’t wait for an answer. He explains that no one would be willing to buy milk at full price. The integrity of the product would be compromised.

(That's my emphasis on the last sentence.)

Law firms are often quick to throw discounts out to clients to get the business. Maybe they figure they can make it up with extra hours later on. But what lawyers tend to forget is that discounting the price of their services compromises the integrity of the product. The discount tells the client that the legal advice or representation is worth less. (Which is why I say that discounting is worthless.)

Price your goods (legal services, illegally resold baseball tickets, etc.) carefully. But don't give in to the easy temptation of discounting. It devalues your goods in more ways than one.

What do you think? Feel like legal services differ from baseball tickets in some fundamental way? Sound off in the comments below.

Seltzer, September baseball, and billable hours

I like seltzer.

No, I mean, I really like seltzer. I go through it like it was water. (But with bubbles.) I throw back about two or three liters of the stuff a day. No flavoring, of course; just plain old water and carbon dioxide.

We used to buy one-liter seltzer bottles by the case. (We wouldn't buy two-liter bottles, because they lose their fizz by the time they're half empty.) But our seltzer tab would quickly add up, even at a wholesale club. Plus you had all those environmentally insensitive plastic bottles you had to recycle. Plus, cases of seltzer are heavy — each bottle weighs a kilogram (that's the weight of a liter of water, FYI), so each case weighs about 26 pounds.

Then we hit upon a solution: we got our own seltzer machine. You get reusable plastic bottles, add filtered water, and use the machine to pump carbon dioxide into the water. The company, Sodastream, then delivers more carbon-dioxide cylinders and picks up your empties. If you like seltzer as much as I do, I recommend this.

But here's something I've noticed about my own soda-pumping behavior. (Finally, a point coming.) As I get to the end of my supply of CO₂, I start to get stingier with my pumps. I prefer my seltzer on the fizzy side, so I usually give it six or seven pumps per bottle. But as I start running out of gas, I'll be more parsimonious with my pumping — I'll try to get away with maybe four or five shorter pumps. I was doing that this past weekend, as I waited for my newly filled cylinders to arrive.

Yesterday, my cylinder replacements showed up, and since then, I've been gassing up like nobody's business.

Now think about that: there's no physical difference between the gas at the beginning of a shipment and the gas at the end of a shipment. It's not any gassier. It costs exactly the same per CO₂ molecule. Yet I use the gas more sparingly when my shipment's running out than I do when I've just gotten a fresh supply. Why?

Another example: There are 162 games in a Major League season. Whether you make the playoffs depends on your won-loss record at the end of the 162-game season. To make the playoffs out of the AL East, my beloved Red Sox probably have to win 97 or 98 games (looking less likely as they suffer yet another injury to a key player). Only the number of wins matters, not when they occur. A win in the first week of April is worth exactly as much as a win in the final week of September. Yet anyone involved in baseball will insist that wins are more important in September. Theoretically, then, players will bear down and try harder to win late in the season.

And what does that have to do with billable hours?

Plenty. What the Last-CO₂-Cylinder Phenomenon and the September-Baseball Phenomenon show us is that scarcity (of gas, of games left in the season) makes us value the scarce thing more, and make us spend the thing more carefully (pump less, try harder to win). A lawyer who bills hours has no scarcity. All the hours are equal, because there is an unlimited supply of them (at least until the client squawks). A young associate never feels like a ballplayer in the fall, or me at the end of my carbon-dioxide supply. She's never going bear down (or pump parsimoniously) because of the scarcity of hours.

On the other hand, for the lawyer using Open Pricing (fixed pricing), all your time is scarce. You always have to bear down. You always have to use your fizz wisely. When you're not billing hourly, it's always September baseball.

What do you think? Not buying that billable hours = fizz? Tell me why in the comments below.

Finding your why

If you have a law firm — or any business for that matter — the 18-minute video below may very well change your life. It has mine. When I first watched it in early May, I was blown away. It had shown up in an Apple-related blog (because part of the video discusses Apple), so I tapped the link and watched it on my iPad. As soon as I finished watching it, I immediately went over to iBooks and found and downloaded the book, which I read over the next few days. Since then, I have spent countless hours trying to figure out my "why." (That's where I've been, if you're wondering.)

The video is from the acclaimed TED (Technology, Entertainment, Design) series of 18-minute talks, and the speaker is marketing consultant Simon Sinek. Since most of my reading covers business books and much of that are marketing books, I was surprised that I never heard of Sinek before. Turns out most people hadn't. But that will change.

Sinek's speech and book are called "Start With Why." His big idea is that successful leaders (actually, he prefers the term "those who lead"), whether in business or politics or any other walk of life, first talk about why they do what they do rather than about what they do or how they do it. His money quote, repeated mantralike throughout the 18 minutes, is "People don't buy what you do; they buy why you do it." To succeed, then, you need to start with your "why." Your purpose. Your central belief.

My why, and the why of this blog and my firm, is "to fix the practice of law through innovation." Knowing this why will make it easier to identify potential clients — namely, innovative companies who believe that dealing with lawyers doesn't have to suck. The how of our firm is what I've spent much of the time here talking about — namely, our firm's innovations in fixed pricing, plain English, and other areas. And the what, of course, is the actual legal service we sell.

Watch the video. As I said, it's just 18 minutes. Then, if it moves you as it moved me, start figuring out your why. Share what you come up with in the comments below.

The magic of fixed pricing

Arthur C. Clarke famously said that "any sufficiently advanced technology technology is indistinguishable from magic." Does this adage — known as Clarke's Third Law — apply to pricing legal services?

Value pricing saves clients money, by eliminating the built-in waste that comes from billable hours. On the other hand, value pricing can easily make professionals more money, by allow for premium pricing, differential pricing, and charging extra for the certainty that fixed prices bring (think fixed-rate mortgages, which have higher rates than adjustable-rate mortgages).

Wait ... what's that? Clients pay less, but professionals make more? Sounds a lot like magic. Maybe you wouldn't consider value pricing to be a technology, but it certainly fits Clarke's definition of magic.

What do you think? Is it magic, or just sleight of hand? Please add your comment below.

Can lawyers learn from Apple's top designer?

In Objectified, Gary Hustwit's fine documentary on product design, famed Apple designer Jonathan Ive talks about the proper role of design: to do something useful, then get out of the way. Specifically, he's talking about the battery indicator on a MacBook Pro, and how it lights up only when needed.

What does this have to do with pricing legal services? Plenty. Here's Ive:

And if you think about it, so many of the products that we're surrounded by, they want you to be very aware of just how clever the solution was.... 

But at some level, I think you're aware of a calm and considered solution that therefore speaks about how you're going to use it, not the terrible struggles that we as designers and engineers had in trying to solve some of the problems.

Now substitute "lawyers" for "designers and engineers." When we bill by the hour, we focus on the time we spend doing the work, and on the work itself. Lawyers think that clients care about the time and the work, but they don't. They care about the results. They care about their problems getting solved. By obsessing (in our bills) on the hours we spent and the work we did, we are doing exactly what Ive is talking about. Instead of focusing on the solution, we are trying to get the clients "to be very aware of just how clever the solution was."

If instead you fix your prices, the focus shifts from the hours "to the calm and considered solution," as opposed to the "terrible struggles" (read "billable hours") we had trying to solve the problem.

Lawyers: Don't you want your clients to be impressed with how easy it was for you to solve their problems, rather than how how hard it was?

Do you agree? Disagree? Can lawyers learn from designers? Sound off in the comments.

By the way, the movie Objectified is available on iTunes.

BTW, this post was written entirely on an iPad 3G. Photo credit: Apple Inc.

Thanks for your business. Now get out!

On my way to and from the commuter train, in the middle of Boston's Financial District, I pass a photo-processing store. It's right next to the buggy-whip market. (I kid.) I mean, seriously: who actually goes to the photo store anymore? I guess it's people who want to take their digital photos and have them blown up and printed out and stuck in a frame. Because I don't think anyone's bringing in their Kodak and walking out with envelopes of snapshots.

To be fair, I went to this very store years ago to have holiday photo cards made up. But now it's much easier to use Apple's iPhoto store or Shutterfly to do this.

But I'm not writing about the photo store to make fun of anachronisms. No, my fun-making is limited to the Microsoft Word–written sign they have stuck in the door:

I've got nothing against posting your hours on the front door of a retail store, although you'd think they would spring for a proper professional sign (and en dashes instead of hyphens). My problem is with the closing time: 5:59.

What the what?

Why one minute to six? Why not six? I can only come up with one reason: they want customers to know that they're serious about closing time. Six o'clock to one person might be 6:03 to another; they don't want people confusing "six" with "about six." By putting the overly precise "5:59" on their sign, they make it clear that they don't mean "about six."

I guess I can understand why it could be a problem for the store personnel. As I said, the store is right on the main pedestrian-traffic route to Boston's South Station, which has a number of commuter trains departing at 6:15. I can imagine that many customers stop there at the end of the workday and linger in the store right at closing time, debating what frame to buy for the picture of their cats. By the time the staff can get the cat lovers out, it's 6:05. Maybe 6:10. This probably gets old for the photo-shop workers (not to be confused with Photoshop workers). So they came up with the 5:59 sign to discourage these lingerers. Can't blame them.

Yeah, I can. Watch me.

Signs like this one drive me crazy. (See "Don't come in from the cold.") This one might as well say, "Stop bothering us, customers. We want to go home." Particularly where this store is part of a completely dying industry, it doesn't make sense to put the convenience of the employees ahead of serving customers. You should be happy if some cat lover is trying to figure out which faux-silver frame to buy: it means you might still have a job tomorrow.

(You know, I thought about going inside just to ask them why they chose 5:59. But I didn't, because who cares what their justification is? It's the impression that the sign creates that matters more.)

Speaking of troubled industries, what kinds of things do law firms do that put the convenience of their employees over the needs of their clients? I can think of a few. Can you? Shout 'em out in the comments.

Competing by raising prices

Good article in Monday's Wall Street Journal about pricing strategy, something most lawyers never think about. The main premise is that most businesses shouldn't be competing on price — that is, by lowering prices. Instead, if you turn out a high-performance product or service, you should be able to charge a premium for that. The article is called, aptly, "Raise Your Prices!" and is written by Harvard Business School professors Frank Cespedes and Benson Shapiro and by consultant Elliot Ross. And despite my natural aversion to Harvard and to titles with exclamation points, it's a good article and one that all lawyers should read. Strangely, it is not (currently) hidden behind Rupert Murdoch's paywall, so you don't need a subscription to read it. (Maybe the Journal failed to take the article's advice.)

There's also an excellent sidebar piece, "Seven Mistakes of Poor Pricers," which briefly describes many of the same objections lawyers give me when I talk about Open Pricing. Read it, and see if any of it sounds familiar to you (such as "Cost-based pricing is easier to explain" and "Everyone else prices it that way").

Here's one of the money quotes (ignore my pun) from the main article on the benefits or pricing based on performance:

By competing on performance instead of price, you shift the battle to where your company's strengths lie—in the ability to deliver unique benefits. So-called performance pricers are adept at three core activities: identifying where they can do a superior job of meeting customers' needs and preferences; shaping their products and their business to dominate these segments; and managing cost and price in those areas to maximize profits.

But wait, you say. I thought all your talk about Open Pricing or fixed fees or value pricing was about saving the clients money? Why now all the talk about raising prices? My clients aren't going to tolerate that!

It's oversimplifying things to say that value pricing is about saving clients money. Instead, and much more importantly, it's about aligning your prices with the value the clients place on your services. Without that alignment, there is enormous waste and client frustration. Plus, the perverse incentives and unintended consequences of hourly billing artificially inflate client costs. So yes, you can raise prices for premium service and still save clients money.

Bottom line: clients will pay for value. If you're constantly discounting your fees, what does that say about the value you provide?

Private-practice lawyers: What do you think? Is there something you're so good at that you can command a premium? And in-house counsel: Are you willing to pay a premium for higher-quality service? Sound off in the comments.