Backbone for Big Law
As someone who has spent over a decade in law firm business development, I can think of no better industry that should adopt Negotiating with Backbone. While lawyers are fantastic at negotiating on behalf of their clients, they abhor negotiating on their own behalf. The results: discounted fees and declining realization. A decade ago, realization hovered in the 90th percentile, and now 80% is more commonplace with some law firm clients at 50-60% realization.
This is not a surprise, given the pressures on the industry:
- Increased competition among law firms due to clients pitting them against one another
- RFPs are more commonplace
- Procurement is increasingly involved
- Nontraditional and cheaper alternatives are entering the market
- Knowledge management and innovation are accelerating efficiencies
- Savvy clients are using alternative fee arrangements (AFAs) to drive price and realization down
- The billable rate, while not dead, is an incredibly shrinking share of the pie
So what’s big law supposed to do? My wholehearted recommendation would be to get some Backbone!
To me, it’s amazing that we don’t arm our lawyers with the basic tools, training, and strategies to help them defend price. Negotiating with Backbone provides sellers (yes, lawyers are selling) with the right toolkit.
A solid implementation of Backbone for Big Law contains the following elements:
Negotiation training – Lawyers need to improve their ability to negotiate for themselves. The best negotiating position starts with a solid understanding the sales situation. This is important training in terms of qualifying the opportunity and the situation in order to understand our points of (or lack of ) leverage. Successful negotiations require building confidence based on the situational assessment and our ability to tradeoff price for value.
Simply lowering our price without getting anything in return is bad business – and something we would not do for our clients but too often do for ourselves.
Big deal desk – Every law firm follows the Pareto principle, also known as the 80/20 rule, that 80% of revenue and profit comes from 20% of the clients. Understanding this principle is key to ensuring the 20% of clients responsible for 80% of the revenue are receiving the right support during their regular negotiation cycle, and the right support after the sale to ensure that law firms remain disciplined and apply what was agreed to in the arrangement. This keeps your Relationship Buyers happy, and allows your Value Buyers to assess their ROI. The goal here is preventing scope creep, and staying accountable for the value that was promised, is the value delivered.
Good Give-Gets: AFA uses and structure – With the diminishing use of the billable hour, partners need to become adept at using AFAs. AFAs are excellent tools to negotiate how they pay (options) versus what they pay (price). Most people are more comfortable discussing ‘the how’ than they are discussing the what. Using AFA structures as Give-Gets help partners to turn value on and off for their clients.
When used correctly, AFAs allow the partner to understand what is important to the client, about the transaction or the litigation, and come up with a fee structure that reflects those priorities. This is a classic win-win, and the law firm’s bottom line is directly impacted as the client’s most important needs are addressed. An classic example here is time or outcome. If a client needs a certain outcome or a completion on a certain timeline, it makes sense to align incentives around ability to meet that outcome or timeline.
Standard policies – Lawyers, especially partners, need policies to help them. Limited authority over discounting, write-offs and write-downs provide partners a legitimate way to combat the pressure of a discount request. Importantly, it gives partners an opportunity to pause and delay the answer to learn more about why the client is asking for the relief.
Measurement and management – Unless we track it, we won’t know how well we are doing. It is important to set up the appropriate systems to ensure that the firm monitors realization at as many levels as possible – firm, practice, client and partner. By understanding these benchmarks, we can more easily address outliers and drive improvements to our top and bottom line.
Today, this is the easiest way to increase revenue and profits per partner; in fact when lawyers have Backbone, I’ve seen improvement in realization from 2-4% and we know that is all profit. Law firms that fail to get some Backbone are likely dooming their next generation partners.