Why Small Law Firms Need Strategic Plans

The key to many successful businesses is that they manage their activities around specific goals determined through some kind of strategic planning process…except for law firms.  For a variety of reasons, over the years law firms have been one of the last professions to adopt what many consider to be standard business processes, including marketing, business analysis, business reporting and yes, strategic plans.  That started to change around twenty years ago when larger law firms brought in staff marketers and began to explore the value of the business tools mentioned above.  But smaller firms (meaning one to 50 lawyers) have been much slower to evolve in this way.

I’ve heard a number of reasons for this, including:

  • We tried strategic planning once with a consultant. It didn’t work;
  • Even if we created a strategic plan, we don’t have the resources we’d need to implement it;
  • Small firms don’t need the same business processes as big law firms – we don’t see the value in the non-billable time it would take to build and implement a strategic plan;
  • Our lawyers are too busy to stop and plan;
  • There are few enough lawyers in the firm that we already know what each other does and where we want to go so we don’t need to talk about it;
  • Our lawyers are all professionals; the last thing they need is a plan telling them how to run their practises;
  • All smaller law firms need to do is good work for good clients, it’s as simple as that;
  • What’s the point in analyzing numbers?  Our lawyers all know where the challenges are and if they could fix them, they would have already.  We’d prefer nobody rock the boat;
  • This firm is about collegiality and just plain talking with each other.    Small firms don’t need planning processes because our lawyers speak with each other all the time.  A more formal planning and accountability processes would ruin the collegial nature of the firm;
  • We’re already doing everything we can possibly think of to manage and market the firm effectively.  We don’t think there’s anything more we could be doing.

Some small law firms have gone against the tide and have in fact adopted some degree of business planning and tracking, but have still stopped short of  strategic planning.   This means that they don’t formally agree on and document annual business goals for the firm as a whole.  They don’t ensure everyone in the firm then helps to work toward achievement of those goals.  They proceed year by year, guided only by a loose understanding of their brand in the marketplace and revenue targets set by their staff accountant, trusting that as long as they continue to put in the hours and do good work for good clients, their business will thrive.

They do this because for many years, they were right.  Lawyers simply needed to practise to make a good living.  But times have changed and it’s simply not as easy to run a thriving law practice anymore.  When legislation changes, a new competitor gains market share, non-lawyers start competing for work traditionally done by lawyers, litigation is down, or a lawyer isn’t able to make their numbers for some reason, recovery in a smaller firm is difficult.  Further, I often receive calls from smaller firms that want to be more relevant within their target market and can’t understand why, after years of working hard within a particular community, if still feels like their competitors are more successful than them.

Their frustration is understandable because these firms haven’t been idle.  They’ve spent money on marketing, staffing and technology; hired lawyers; started new practice areas; paid for major advertising campaigns or new websites; even changed their logo.  But in the absence of an overall strategy, these activities can end up being nothing more than hard costs.  Action without strategy is like shooting at a target in the dark.  You can certainly use all of your bullets, if that’s your measure of success. But if you were hoping to hit a target, you might be disappointed with the results.

Further, small firms are missing out on an opportunity to grab big firm market share. You may have noticed a few of those giants tumbling lately.  Conflicts are crippling opportunity for many of the lawyers in large law firms, and they are getting fed up.  Clients can feel like a number in a large firm, and they are also getting fed up.  Consumers are starting to realize the value in smaller, local firms the way markets are starting to see the value in small local micro-farms instead of massive productivity centres: there’s the perception that smaller firms are more relevant, caring and responsive.  And it’s rare that small firms have to tell a client five times in a year that they are conflicted out of helping them with a legal issue.  There’s never been a better time for small firms to step up, get focussed and grab market share from the larger firms, and a strategic plan is the best possible start toward that goal.

A strategic plan identifies longer term goals for a firm: how big it will be, what practice areas it will have, where it will reside, what its client base will look like, how it will manage itself, how it will differentiate itself in the marketplace, etc.  From this declaration of future goals, a firm would then develop annual business objectives aimed at taking the firm ever closer to accomplishment of the goals in their strategic plan.  Once annual business objectives are set, each practice group and administrative department within the firm would then build their own annual strategy that speaks to how they will contribute toward accomplishment of the firm’s one-year business goals.

Strategic plans (and resulting strategic annual plans) ensure that any activity or purchase undertaken in the coming year is focussed on working toward an intended objective.  This means there is less guess work around what a firm or practice should and shouldn’t do; there is less wastage in funding activities; there is less times spent on useless activities; and there is a filter through which all new opportunities can be run to determine if they might be of value to the practice or firm.  This degree of planning takes some time and investment at the front end, but the savings in time and funding throughout the year can be significant, and the chances of actually accomplishing a firm’s annual business objectives are astronomically improved.

Here are a few of the talking points I provide to lawyers seeking to convince their firms to precede with a strategic plan:

  1. For partners who believe that their firm has a strategy – albeit an informal and undocumented one  – consider this: if you asked five lawyers what the firm strategy was exactly, would they all say the same thing?  Further, could their response easily serve as the strategy of ten of your competitors or does it clearly differentiate your firm?  Don’t assume that everyone within the partnership is on the same page, or that the loose objectives of your firm will work it toward meaningful outcomes.  When it comes to strategic plans, “informal” and “undocumented” generally means “weak” with “no accountability”.   That doesn’t sound like something that will get done, or that will be worth the effort if and when it is implemented. If you want your firm to be “strong and focussed”, you need to start with a strategic plan.
  2. The absence of a strategic plan is a management decision to operate largely by chance.  In the absence of a clear understanding of how you want the firm to evolve, you are allowing it to drift like a boat without a steering wheel.  It’s still on the water and moving, so it feels like it is doing what it’s supposed to.  But you have no control over its direction; it’s going in whichever way the current takes it – perhaps to your intended destination, perhaps to the rocks, or it could even take you around in circles for a few years.  If the argument is that the firm has some very strong lawyers with powerful reputations and great work that are guiding the firm, picture a boat with no steering that now has a motor attached to it.   Ability of a partnership to actually steer the firm has now become even more important. The strategic plan is both your destination guide and your steering ability.
  3. The fastest and most cost-efficient way to get from one point to another is a straight line.  To make one, you need to understand where you are, agree on where you want to go, and decide on a path to get your from here to there.  Writing this down simply ensures that everyone in the firm is aware of and on-side with these three declarations.  Talking about them, agreeing to them and documenting them is a more collegial and respectful way of working together within a partnership than not doing so.  Assumptions lead to misunderstandings and potential disharmony.  Clarity fosters respect and team work. Talk it out, agree to it, write it down.  That’s what a strategic plan does.
  4. The power in a firm lies beyond sharing rent: optimal sustainability and productivity result from strong and different practitioners working together to go after new business,  cross sell existing clients, and train and mentor up and coming lawyers.  The chances of this happening regularly and consistently within a firm are significantly increased with a strategic planning process in place.
  5. The marketplace is shifting constantly.  A strategic plan serves as a roadmap so that as blocks come up, we can see them for what they are, discuss work-arounds, and agree on alternate paths.  This will allow us to be more nimble, flexible and to adjust or recover more quickly.
  6. Many law firms manage themselves by making incorrect assumptions about their business.  They don’t really know exactly how much work they did in a given practice area over a given time period…but this doesn’t stop them from allocating marketing budget to that practice area, hiring new lawyers into it, or otherwise managing without knowing the full picture. I know this because when I go into firms and start crunching the data properly, they are usually shocked to see the real story.  Strategic plans ensure that a firm takes the time to analyze each practice area to identify where it really is, where the firm would like it to go, and how best to support it to get it there.
  7. As a result of the comment above, law firms can support practices that aren’t profitable or of value to the firm in other ways.  Increased competition from within and outside of the legal profession, changes in legislation or shifts in the economy can turn a once profitable practice into a commoditized or obsolete areas.  Yet firms will often continue to support such practices as if they were primary revenue generators.  Further, many practices in a law firm are counter-cyclical. For example, when a securities practice is down, an insolvency practice is up – a shift that happens approximately every four years.  When a firm truly understands the value of a practice including its ups and downs – something that is usually determined through a strategic planning process –  that firm can reallocate resources in advance to ensure the firm is always providing the right amount of support to each area of law at any given time.
  8. Lawyers in smaller firms can fear that a formal strategic planning process (and the resulting annual plans) will take away their autonomy and decrease their personal support from the firm, when actually the reverse is true.  In the absence of governing plans, lawyers must constantly obtain budget permission for marketing initiatives.  In addition to causing micro-management of a firm’s lawyers, this process also makes marketing decisions primarily monetary ones, not strategic.   A planning process usually results in pre-approved funding pockets for various practice groups and client teams so that those practitioners are free to pursue their plans and spend the funds without having to seek permission for each expenditure.  Teams are accountable back to the partnership for successful outcomes, but are not micro-managed throughout the year.  Further, practice areas and client teams are generally requested to submit plans and budgets that cover the needs of their entire team – including those of individual team members such as conference and educations costs, client entertainment costs, community engagement costs, etc.  Practitioners on several teams may have pockets of activity and budget in each of those team plans, ensuring there is plenty of support for their activities.
  9. We intuitively understand that we can likely achieve higher results in teams than as individuals.  Yet most firms have difficulty in tracking and recognizing achievements other than through personal productivity numbers.   When we limit our recognition to individuals, the emphasis on productivity will always occur one lawyer at a time and their emphasis will always be on filling their own time. A strategic planning process creates a better system for logical recognition and reward of team productivity, which better encourages things like cross selling.
  10. And finally, my small law firm clients are amazed at how much they can accomplish in a given year when they have a plan in place.  In working with one of my clients recently, a practice experienced a 25% increase in revenue after only four months of implementing a strategic plan.  This kind of result can’t be guaranteed but in my experience, is not uncommon.

Investments like a strategic plan are usually made on trust, but if they also seem logical (as strategic planning does), it should easier for a partnership to take the leap.  It just makes logical sense that taking the firm through an efficient, tightly facilitated process resulting in a clear direction and game plan would be time well spent, and increase the chances of the firm’s success on any number of levels.

 

By |2019-01-28T09:58:53+00:00August 13th, 2014|Strategic Planning|0 Comments