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. Eventually, when the apprentice becomes so skilled that they start working independently, the plumber or electrician graduate from owning a job to really becoming an entrepreneur. Up until now, the plumber/electrician has just owned their own job. Now, however, 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 he/she decides to hire another unskilled apprentice worker and a skilled worker. They are off to the races now, eventually, the plumber/electrician becomes an entrepreneur because he/she is 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 and 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 his/her practice in much the same way a plumber or electrician, has done little with respect to their own business succession. Why is it that lawyers constantly provide counsel on this important issue of business succession but rarely have embraced 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 about one lawyer law firm 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 operate important functions of their law firm. Stage one law firms do not ever create a legacy plan because there is not a business that perpetuates 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. The three areas, broadly speaking are: (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 3 law firm? A stage 3 law firm will treat each core function of the business of the law firm with equal regard and import. The founders of the law firm do not require that they are the key contributors or that the law firm revolve around their contributions and personality. The stage 3 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 aspect they are, by definition, unable to be just an investor. Only a few of these practices will ever mature to become a stage three law firm, which is a totally independent practice. 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 or mastermind group in 2002. My peer group consisted of a wide variety of industries, i.e. 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 that 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, measure certain metrics, establish systems and procedures relating to the 3 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 3 level of being an investable business. As a result, we have layered our non-industry peer group experiences with an industry only peer or mastermind 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, we agreed to facilitate a pilot program for law firm only peer groups for WealthCounsel members. This format has 2 day in depth quarterly meetings between members who would be competitors but for their geographic location. 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 they modified language rather than re-creating the wheel. Every member shared best practices relating to each function of law firm operations.
Each group established and measured important metrics to bench mark 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 group shares best practices, seeks assistance with regard to implementation of systems, policies, procedures and service offerings. There is a healthy amount of accountability and support for initiatives you 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 2 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.” Keith T. of Montana. “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.”
The peer group/master mind solution provides a forum to address lead nurturing and referral generation systems, address client conversion (measure, track and train), make production scale, increase team leadership, and bolster other business skills.
You should consider applying the same principles used to develop a legacy plan for your clients.
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, measure important metrics, identify key predictive indicators, create repeatable processes for leverage and scale. The peer group or mastermind solution helps establish the sound business practices necessary to migrate your practice from job to business to investment. The power of peer groups accelerate 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 email@example.com.