Article 2:

The Six Simple Reasons Practices Fail

With the current economic downturn, a high level of law firm dissolutions will likely persist. Firms that were able to disguise their vulnerabilities during better economic times now must come to grips with why their practices are struggling, and prepare for the worst.

The silver lining to the current crisis may be the opportunity to identify weaknesses and turn them into assets by emulating the characteristics of successful firms - an effort that will benefit a firm immediately by lowering the risk of failure while providing the long term benefit of more predictable growth and profitability.

Here are the 6 primary reasons practices fail:

• Financial Planning: Poor financial planning and money management
• Technology: Inadequate investment in practice management technology
• Leadership: Lack of effective leadership and consensus building
• Employee Management: Ineffective guidance of staff and associates
• Marketing: Inability to prepare and execute an effective marketing plan
• Customer Service: Problems ensuring client satisfaction, repeat business and referrals

1. Financial Planning
Mismanagement of firm finances is the number one reason firms fail. Successful firms are far more likely to have their financial house in order.

Poor financial planning practices include:

• Excessive borrowing to pay for expansion or to compensate partners
• Shouldering high levels of debt due to insufficient capitalization
• Not addressing chronic productivity problems among partners or staff
• Accepting questionable clients and discounting fees
• Carrying excessive overhead costs incommensurate with receivables
• Not preparing detailed cash flow budgets or projections
• Spending money on luxury items that don't bring in new clients or improve operations
• Not developing metrics to measure the financial impact of operational changes

2. Technology
Inadequate investment in technology has a negative impact on firms on a variety of fronts, including productivity, flexibility, employee morale, firm image, competitiveness and customer service - all critical issues for struggling firms. However the greatest single peril of underutilizing technology is risk, a significant predictor of failure for small firms. Successful firms generally invest wisely in technology to ensure all office activities are streamlined with minimal risk exposure.

Poor technology practices include:

• Being careless with data backup and not using the proper procedures or technology
• Tracking events and deadlines with paper calendars or calendaring software not designed for law firms
• Relying on paper for daily activities, including paper case files, paper notes, paper todo lists and paper time logs
• Not using firm-wide phone messaging software
• Relying on trust accounting software not designed for law firms (these doesn't offer strict safeguards against overdrawing client funds and co-mingling accounts)
• Not using software to concurrently track time while work is performed, thus losing billable hours
• Not using software that quickly and accurately generates deadline, case status, performance and financial reports
• Relying on non-integrated software, paper files or manual process for managing case information
• Performing conflict checks manually or relying on memory
• Lacking integrated practice management software for calendaring, case management, document management, document assembly, conflict checks, billing and accounting

3. Leadership
It is especially true for law firms that flawed leadership greatly increases the likelihood of failure. Conversely, leaders who promote a common purpose, common goals and a shared culture generally preside over successful firms.

Poor leadership practices include:

• Alienating associates and staff with an autocratic style
• Not keeping staff well informed and current
• Not taking the necessary steps to build consensus
• Not embracing or communicating a long term vision
• Not reconciling incompatible goals among partners
• Not communicating strategic plans to all associates and staff
• Not promoting a common purpose and loyalty
• Not establishing a clear and powerful direction for the staff

4. Employee Management
For every associate that is lost, the typical firm loses from $100,000 to $600,000. Firms with high turnover in associates or key staff members are far more likely to fail than firms with a stable and content workforce. Successful firms make a commitment to consistent and skilled employee management and enjoy a high level of staff satisfaction and retention.

Poor employee management practices include:

• Not committing enough time and resources for employee training
• Not spending sufficient time on mentoring and employee development opportunities
• Allowing a culture of inadequate or ill received partner contact
• Enforcing high workloads for staff and associates
• Not offering a healthy balance between work and personal time
• Not conveying appreciation and respect for work performed
• Hiring and retaining unqualified or disruptive employees
• Not diversifying staff or embracing differences

5. Marketing
Running a law practice is above all else a business. Firms that focus too much on practicing law and too little on successfully running and growing their practices have a higher probability of failure. Successful firms exhibit their skills in effective marketing even when they are not actively seeking new clients.

Poor marketing practices include:

• Engaging in sporadic marketing activities without a plan
• Not establishing a brand that builds awareness, loyalty, and trust
• Mishandling qualified prospects with haphazard prospect management
• Not developing an ideal client profile for marketing activities
• Not prioritizing marketing activities and money
• Not differentiating your firm from the competition
• Not taking advantage of the Internet and Web 2.0 networking opportunities
• Abandoning traditional marketing activities, including speaking and publishing

6. Client Service
Clients generally don't express their discontent. They often feel intimidated and avoid complaining directly. Yet dissatisfied clients are often the undoing of a healthy practice as repeat business declines, receivables go down, negative word of mouth swells, referrals fall, and most dangerously, ethics complaints are issued. Yet for successful firms, excellent client service provides a significant competitive edge.

Poor client service practices include:

• Not responding to clients in a timely fashion
• Not updating clients as to case status
• Not setting expectations for fees
• Not listening to client complaints
• Not surveying clients on their experiences and satisfaction levels
• Not interacting with clients sufficiently to gain trust and build rapport
• Allowing client referrals to drop off

Turn this economic downturn into an opportunity to critically evaluate your practice come to terms with what ails you. Transforming your weaknesses into strengths may not be an easy or quick process but it will allow you to sail through financial upheavals that will knock down the less prepared firms - and make you more successful in the long term.