Column: The Midwest Report – ‘Tis the Season


Column: The Midwest Report –  ‘Tis the Season

By: Dan Scott

No, this is not a Holiday Season article. I didn’t write this in December.

The first quarter is that time of year when many partners legitimately ask themselves if they’re in the right firm (As a head hunter it’s obvious why I think that this is a good idea). They’ve just received their year-end distribution and may be thinking about the lost opportunities that occurred last year, or how much of their revenue went to things they didn’t need.

And it’s not always about how much that year-end distribution was, it’s about business models, clients and relationships. Sometimes they’re in the wrong place. And I’m not referring to ‘bad management’. The last recession was pretty effective at weeding out unsuccessful firms. It’s about whether their firm’s structure is right for them.

In two decades I have yet to see the ‘perfect’ model for every practice and practitioner. Because of this, I think it’s a healthy thing to take a step back from time to time and ask yourself if you’re in the right place.

Size matters. Different sized firms lend themselves to different practices and clients. Larger firms are able to offer a broader range of services and give the ability to expand client relationships; but they also tend to have higher fixed costs and are less efficient.

Smaller firms are better able to control their costs and put a higher percentage of the billable dollar in the partner’s pockets, but it’s harder to help clients with additional services they may require that are beyond your personal expertise.

By the way, in the markets I tend to work in, I define ‘smaller’ firms as those with 50 lawyers or less. ‘Larger’ more full service firms tend to be more than 150 attorneys.

I’m working with a number of partners as I write this article that have asked me to help them find a new home. Some are looking at larger firms, some smaller. Those that are looking for smaller firms are doing so because their practices are relatively self-contained. As they look around their current firm, they have realized that they are surrounded by a lot of really great lawyers who aren’t doing anything for them, i.e. their clients have no need for their services. Reducing overhead will increase their profit percentage.

Other partners I’m working with are looking for larger firms because their clients need a broader range of services than their current firm can provide. They’ll have a larger practice simply by moving to a more full-service environment.

Let me back up a moment and give you some insight into how most head hunters work. I make two kinds of contacts on a daily basis:

The first type of is reaching out to individuals (and groups) to see if they’re interested in looking at my client firms. It’s a targeted search where my client has asked me to find practitioners that fit a particular description in terms of skills and clients. They believe that they as a firm will be more successful with that person or group, and that a new partner or group will benefit as a result of joining them. We call this recruiting.

The second type of call (which is what this article is about) is on behalf of a specific individual or group that has asked me to help them find a new home. I reach out to Group Leaders, Managing Partners and CEO’s on a pre-approved, confidential basis to see if they may be interested in the person(s) I’m working with. The description includes relevant information (skills, types of clients, etc.), but not biographical details so as to maintain confidentiality at the point of first contact. In that way they are able to find a place where they will be more successful than their current firm. We call this marketing.

I usually suggest that partners who are considering being marketed ask themselves these questions:

  • Do you have the ability to bring in work that is in your area of expertise, but lack the capacity to staff it? I refer to this as ‘pushing work down’.
  • Do your clients need services that are outside your area of expertise? Do they rely on you to direct them to those services? I refer to this as ‘pushing work to the side’.

These are examples of people who might benefit from being in a larger firm.

On the flip side:

  • Is your practice relatively self-contained? Are you are surrounded by partners with expertise that your clients are unlikely to ever need?
  • Would you be able to bring in more work in your personal expertise if you had more flexibility in terms of rates?

These are examples of people who might benefit from being in a smaller firm.

Now, the question of billing rates come up often when moving to a larger firm. A concern for a partner moving to a larger firm is whether that new firm will raise their rates to the point where they lose clients.

Interestingly though, I do have some larger firm clients that understand this and changed their systems to recognize revenue instead of rates and hours. Partners are given target revenues for billing and originations and freedom as to how to meet those goals.

But that, and a system of shared originations, are for next month’s article.