By Thomas M. Fafinski. Originally published in WealthCounsel Quarterly.
“If I have seen further it is only by standing on the shoulders of giants.” —Sir Isaac Newton
Does your law firm have a legacy plan? Most law firms are created in the same way that plumbers and electricians start their businesses, but rarely do law firms mature into a business warranting a legacy plan.
Like plumbers and electricians, in-demand and skilled professionals decide to establish their own company, initially doing much of the skilled work themselves. Sometimes they take their customer relationships from a prior employer and sometimes they just create a customer base through advertising, marketing and referrals.
The plumber or electrician buys tools and equipment to leverage their effort and make themselves more productive. With just a few tools, they achieve financial rewards measured by a return in investment. Eventually, the plumber or electrician hires and trains an unskilled worker because they understand the benefits of being able to leverage their own knowledge, talent and skills.
Sooner or later the apprentice becomes so skilled that they start working independently, and the plumber or electrician graduates from owning a job to really becoming an entrepreneur.
With the addition of other skill and talent, they are finally learning and understanding the benefits associated with having someone else performing the skilled labor. It works so well for the entrepreneur, that they decide to hire another unskilled apprentice worker and a skilled worker. They are off to the races now; as time passes, the plumber/electrician becomes an entrepreneur because they are no longer performing any of the labor associated with their craft.
Meanwhile, the lawyer is perfectly willing to hire administrative assistants and other professionals in order to experience some of the benefits of leverage. As it turns out, though, this seems to be more about making the lawyer’s job easier and gaining more independence than it is a real investment in the business of law. All too often, the lawyer’s journey as an entrepreneur ends at this beginning stage, sometimes even before hiring a professional with equal or superior skills. Only a small percentage of law firms will mature beyond this point.
Ironically, the entrepreneur is confronted with business succession and legacy issues and seeks the counsel of lawyers to consider a succession plan. Most of the counsel is somewhat hypocritical because the lawyer, who started their practice in much the same way as a plumber or electrician, has done little with respect to planning for their own business succession.
Why is it that lawyers constantly provide counsel on this important issue of business succession, but rarely embrace the important concepts themselves?
There is a progression of development for a law firm from a legacy planning perspective. Initially, the stage-one law firm is a one-lawyer practice or partnership of solo practitioners who, more or less, own their own jobs. They practice independently while sharing legal strategies and, perhaps, even collaborating on a few clients.
Stage-one law firms embrace technology and the assistance of non-lawyers to carry out important functions of their law firm. Stage-one law firms almost never create a legacy plan because theirs is not a business that can be sustained without their involvement.
Many of these firms will progress to stage two and become a legitimate business.
A stage-two firm has systems in place that touch upon each of the three core functions of a the business of the law firm: (1) production; (2) sales and marketing; and (3) finance and administration.
For the most part, the effort in each of these categories should be equal in terms of effort and importance. Each aspect of the business should have policies and procedures that track performance, permit leverage of time and talent, and generate the opportunity to scale the business of the law firm.
While most stage-one law firms believe that production of legal work product is the most important aspect of the business of the law firm, a stage-two law firm will concede that sales and marketing or finance and administration is at least as important as production. With much hard work, a stage-two law firm will create some repeatable and scalable systems that yield a return unrelated to their personal and individual contribution.
Practicing law in a stage-two firm can be really fun and exciting as there is a real collaboration of peers—not just the founding lawyers. Skilled associates, partners and administrators become far more involved in the business of the law firm.
What keeps this stage-two law firm from being a stage-three law firm? A stage-three law firm will treat each core function of the business of the law firm with equal regard and import. It is at this junction that the firm is no longer dependent upon its founders to be its key contributors, nor that the firm’s identity revolve around their contributions and personalities.
The stage-three law firm has owners that are more investors than individual contributors. Stage-three law firms find practice leaders in each major production area, quite like a manufacturing firm would with respect to different product offerings. Stage-three law firms have a strong administration team, including a managing partner and firm administrator or manager.
Metrics are tracked for financial performance and evaluation of production team members. Trends are analyzed and predictive indicators considered so that the ship can be steered away from glaciers and toward blue-ocean opportunities.
Founders should never be integral to more than one of the core aspects of firm operation to be a stage-two or stage-three law firm.
If they are performing one important function, it should be the aspect of the business of the law firm that they enjoy the most and there needs to be a succession plan for the founder exiting that role. If they are integral to more than one of these three aspects they are, by definition, unable to be just an investor. Very few of these practices will ever mature into a stage-three law firm.
A stage-three practice operates largely without the regular monitoring of its owners. Want to create a legacy with your practice? You have to be a late stage-two or stage-three practice first. How do you accelerate the accumulation of the wisdom necessary to become a stage-two or stage-three law firm?
I built my first stage-two law firm in the late 1990s. Struggling to accelerate real and sustainable growth, I joined a business leader peer/mastermind group in 2002. My peer group consisted of members from a wide variety of industries, including trucking, accounting, finance, banking, management consulting, trades, manufacturing, parts distribution, real estate development, etc.
I cobbled together the skills necessary to create processes and systems so that my law firm became efficient, repeatable and scalable, eventually able to sell my law firm in 2005 at stage two. Thereafter, I worked for the buyer while becoming a facilitator of other peer groups. Eventually, five years after selling my prior law firm, I jointly formed Virtus Law.
Most of the business characteristics of Virtus Law [note the brand that initiates a conversation with our client about the firm being focused on its customers and not its founders] come from the peer groups I have facilitated and participated in. My team has created a brand and ramped revenue up to 7 figures in about 3 years, while not seeking to transfer even one client from my former firm.
We have established key predictive indicators by measuring certain metrics and establishing systems and procedures relating to the three core business operations of our firm—finance and administration, production, sales and marketing. Sounds a lot like a manufacturing company, doesn’t it?
With the help of our peer groups, we have adopted the same philosophies our clients have implemented to create a real business. We have multiple practice leaders, an independent office administrator and a sales and marketing engine that generates 7 figures of legal service sales year after year.
We wanted to take our firm to the stage-three level of being an investable business. As a result, we have layered our non-industry peer group experiences with an industry-only peer group. The power of peer groups is further amplified with an industry niche format. It’s like a peer group on steroids.
Desirous of accelerating our own performance, my partner, Nathan Nelson, and I agreed to facilitate a law firm-only peer group pilot program for WealthCounsel members. The original format had two-day, in-depth quarterly meetings among members who would be competitors if they were nearby geographically. There is an initial lift by addressing some low-hanging fruit, too.
“We had the best month we have ever had last month and I attribute peer groups as a large contributing factor,” says Lora H. of North Carolina.
Thomas F. of Massachusetts explains, “My Peer Group was comprised of several similarly situated but non-competitive estate planning attorneys from across the country who share a common desire to increase the cash flow and improve the efficiency of our offices and ultimately be the best lawyers we can be.
I received actionable feedback from my fellow members as well as from Tom and Nate to help me achieve the goals I have set for my practice, and appreciate the fact that they will hold me accountable to meeting those goals as we go forward. If you are an established estate planning attorney and want to achieve better results for your practice, I strongly recommend you consider the Peer Group solution!”
Each group member either adopted or considered adopting a policy and procedure manual to create leverage and scale. They worked from a common draft that we disseminated and were able to modify language rather than having to reinvent the wheel. Every member shared best practices relating to each function of law firm operations.
Each group established and measured important metrics to benchmark against future performance. Each member identified key predictive indicators of enhanced performance.
Professionally facilitated by Tom Fafinski and Nathan Nelson, both practicing attorneys, the peer groups share best practices and seek assistance with regard to implementation of systems, policies, procedures and service offerings. There is a healthy amount of accountability and support for initiatives they undertake or that are fundamental components of success in private practice.
Many attorneys rapidly shift from one issue to the next without ever developing or otherwise acquiring key systems; the peer group accountability and focus keeps this issue in check.
“My group challenged me to meet new centers of influence. I scheduled a learning session with [those] that I have never presented to. We had over 20 people attend these two sessions and one resulted in a referral of a matter that will [result in fees of] over $50,000. I attribute this matter to my participation in peer groups.
We have had great growth in our business because it has made me accountable to others for commitments I have made and has forced me to leverage my partner and systems,” remarks Keith T. in Montana.
The peer group/mastermind solution provides a forum to address lead nurturing and referral generation systems, client conversion (measure, track and train), scaling production, increasing team leadership, and bolstering other business skills.
You should consider applying the same principles used to develop a legacy plan for your clients to your business.
Make this the time that you turn your attention to the fundamental business practices necessary to be successful. In order to accomplish this, you will need to adopt sound business practices, like sharing best practices, measuring important metrics, identifying key predictive indicators, and creating repeatable processes for leverage and scale.
The power of peer groups accelerates your progress toward establishing a sound legacy plan. If you are a stage-one law firm, take your firm well into stage two. If you are already at stage two, go deeper into stage two and migrate into stage three. If you are a stage-three law firm, hone your efficiency and become even more profitable. To see if you qualify, email tom@virtuslaw.com.