15 Questions for Achievable Growth

First, understand your firm.

by Bruce W. Marcus
Professional Services Marketing 3.0

In building a growth plan for your firm, perspective is important.

Objectives, clearly defined as they should be, should not be overwhelming. Nor should they be adhered to slavishly. It’s often enough to know what you want to do, why you want to do it, and how you plan to get it done.

Objectives should be consistent with a firm’s comfort level, and should certainly be ethically acceptable to both the firm and the profession practiced by the firm.

Instead, It must have clear objectives that are flexible enough to accommodate the dynamic nature of the market. It must focus on specific aspects of a practice, predicated on the distinctive needs of each aspect of the prospective clientele. For example, a marketing program to attract high asset individuals is different from one to attract corporations. A program to attract real estate developers is different than one to attract builders.

Practically, a firm’s growth plan should be in two parts – near-term and long-term. Near-term should be no longer than two or three years. Beyond that, there are too many variables in the economy, in law, in regulations, etc. to be valid – even with the flexibility that should be part of any plan. Longer than that, it becomes a wish list – not to be ignored, but seen for what it is – a long-term goal. The short-term goal, on the other hand, should be action-oriented, with an action plan for each goal, including who does it. Continue reading

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What the Collapse of Dewey & LeBoeuf Says about the Future of the Professions

Anachronism as a way of life?

by Bruce W. Marcus

Does the implosion of Dewey & LeBoeuf foretell the future of the law firm and practice as we have known it for generations (and possibly the accounting firm as well)?

Does it expose the need for – and possibly the inevitability of — substantial change in the roots and essence of the practice of law — its governance, its business models, and most significantly – its sources of capital?

Is the cause for Dewey’s failure endemic to the legal profession itself? Or is Dewey just a one-off bad situation for one firm?

To what extent did traditional firm structures and business model allow for mismanagement, excessive debt, and greed … and the destruction of Dewey, and ultimately, other firms? Is it these problems that are causing the rash of not only firm failures, but the rash of mergers throughout the profession?

A corollary question might be why, after generations of the traditional models for law firm management, business models, and practices, do we now see the growth of new firm structures, new sources of capital, new concentration on value, new emphasis on client relations, and most significantly, on frank promotional marketing?

While, by now, we have a picture of how the Dewey disaster happened (give or take a fact or opinion or two), to make sense of it, and its path to bankruptcy, we need to understand the role of evolution in the ultimate development of the current and future practice. Where, for example, does Dewey stand in relation to the modern innovative firms that are beginning to spring up – that are succeeding with new practice models that are far removed from the practices of the past? How much does Dewey’s practice model account for its disaster, and what does that tell us about the future of the tradition law practice business model?

The downfall of Dewey and so many other firms has its roots in Bates v. State Bar of Arizona (U.S. Supreme Court, 1977), which in essence struck down the traditional prohibitions against advertising, and by extension, other forms of standard promotional marketing techniques. Competition started the evolution toward today’s modern firm – and to the firm of the future. As one firm adapted to the changing dynamic needs of the time, another firm, facing the need to compete, adopted those changes and went a step farther. The pressure to compete has been the driving force for the firm that’s still evolving.

As firms began to compete in earnest, many learned that the traditional law firm business model didn’t readily lend itself to strong competitive practices. It inhibited innovation and made timely decision making difficult. It’s financial structure, which limited capitalization primarily to partner contribution, is cumbersome and inadequate. In too many firms, its management structure is primitive. Certainly, it rarely makes full use of the skills and talents of people below partnership level.

In the decades since then, new firm structures, business models and practices have evolved to meet competitive needs. (See Professional Services Marketing 3.0) Focus on client needs, rather than on the needs of the firm, began to increase. There began to be new awareness of the role of productivity in better and increased profitability and practice development. Integrating marketing structures with practice structures began in earnest. Supporting the evolution, technology accelerates change by substantially improving competitive productivity. The fee structure started to change from hourly billing to value billing and is increasingly growing as a general practice, and focus on the concept of value is increasing as well. The-two tier structure to better use associates and their talent increased. And ultimately, a better understanding of 21st century competition, and the role of each partner and associate in competing for clients, has been growing and changing.

A clear view of the Dewey implosion shows that despite this evolution, and despite the profound changes in commerce, in technology, in society, Dewey was a consummate anachronism.

In Dewey’s case most of this evolution seems to have passed them by. And according to experts, Dewey is not unique in this.

We may not know everything about the Dewey meltdown at this point, but what we do know is indictment enough. We know, for example, that the problem arose for at least the following reasons…

  • A flawed partnership structure and mismanagement
  • Excessive debt
  • Greed, and apparent failure to focus on its market, and to concentrate instead on partner compensation and reward – which appears to have been inequitable at best.
  • Failure to evolve to meet contemporary needs to change to accommodate to 21st Century practices

How has each of these factors contributed to Dewey’s failure? What does each tell us about the future of the profession? What should firms do now to stay relevant to its present and future clientele? Let’s examine each element.

Partnership Structure And Business Model

I’ve often said that the partnership structure of law firms was antique – an anachronism – cumbersome at best — and most significantly, not consistent with the needs of the late 20th Century and the 21st Century. It places too much managerial power in the hands of too few partners, few of whom are trained in the kind of management that today’s practice needs. Compensation tends to be inequitable, and the top-down pyramid structure creates a class system based on factors other than legal talent. It too frequently inhibits timely decision making. It is anti-competitive, in that it makes marketing decisions, which may have to be approved by many partners, cumbersome. In too many firms, the focus is on growth at any cost to bolster a firm built on the traditional model, and is often achieved by acquisition rather than by practice development. In fact, it raises the question about the efficacy of the giant firm. Managing a thousand lawyers, each of whom thinks of him or herself as entrepreneurial, is not the same as managing a company of a thousand factory workers, particularly if each lawyer in a large firm tends to be entrepreneurial. The concept of David Maister’s one firm-firm is too quickly lost.

The drive for growth inevitably compensates the business producer over the client service practitioners – in Dewey’s case, profoundly out of proportion to client needs. It diminishes productivity and inhibits profitability.

The world of commerce has changed substantially, and so too, has the environment in which professional firms must function. Yet despite these and other significant changes in commerce, society, and technology, the world of professional services has changed too little – frozen in structures and patterns still rooted in the early 20th century and back.

It is, then, a new world – one that’s beyond the experience of a great many senior lawyers and accountants.

Nor do the schools help. Law and accounting schools, as well as many state bar associations, are seething fountains of anachronism, teaching students to be 1940 lawyers and accountants and then sending them out to practice in a 21st Century world. Confidence in current legal education is waning, and respect for many of the bar associations is diminishing.

That mergers and consolidations, as well as firm failures,are rife – a sign of poor management and inadequate capitalization. Failure of firms as large as Dewey, as well as smaller firms, signal poor management of both the partnership and capital, the ability to compete in an increasingly competitive environment, and in meeting capital needs for growth. They magnify the failure to understand how to compete in a highly competitive environment

If greed there is, then it’s the old practices in a new world that breeds it. That their leadership seem to have been too concerned with their own profits and compensation apparently took the focus away from addressing the changing market, which probably put the focus on internal growth rather than addressing the needs of the marketplace.

The frank competition that started the evolution to a new professional firm paradigm, has demanded new and unfamiliar behavior in the once staid and formal professions. But evolution is a slow process, and so, to a large degree, many firms are not functioning well, competitively,

While there is obviously a picture of extreme rot at the heart of the Dewey disaster, a longer view of the details indicate that the reasons for the implosion indicate potential disaster that goes far deeper than just one firm.

Excessive Debt

Look at what happened at Dewey. Says Bruce MacEwen, the noted lawyer, economist, and journalist who as Adam Smith, Esq., writes one of the most cogent and elegant of the online law journals.

“The story begins, temporally and thematically, with the tale of debt,” he writes. “The most comprehensive accounts have converged on these totals:

  • 2010 bond issue, privately placed with insurance companies, $145-million coming due in tranches from 2013 to 2020. The largest purchasers were Hartford ($45M), the British firm Aviva ($35M), and the Dutch AEGON ($25M), accounting for $100 of the $145M. Bloomberg reports the bonds are trading at 60 cents on the dollar.
  • A revolving credit line of $100M, on which Dewey has drawn down about $75M

“Soft” indebtedness, including:

  • Unfunded pension obligations to former and current partners, which could easily total $100M
  • Promised or guaranteed compensation to about 100 lateral and incumbent partners, which is now years in arrears (back of the envelope: $1M/year unpaid x 100 partners x 2 years = $200M–this figure could be wildly off but I haven’t seen any estimates whatsoever elsewhere)
  • Note that the compensation was promised and payable without regard to the individual’s or the firm’s overall performance, and that such guarantees are, to be charitable, ill-advised for laterals and unheard-of for incumbents.
  • A law firm’s typical lease obligations on everything from AAA office space to computers, furnishings, and fixtures.

If any of you out there believe priority and security don’t matter because the firm will be able to satisfy all the claims against it, I’ll be peeking inside your medicine cabinet while you’re out snapping up those $0.60/$1.00 bonds.

So I estimate the total liabilities at not less than $220M hard and easily that much or more in soft obligations.”

Greed

To this sorry picture there is the smell of the pure greed of a handful of the firm’s leaders.

Says Jordan Furlong, another leading law practice blogger and a principal of Edge International, “I’m less inclined to blame unsound management and more likely to blame a central cohort of leaders who seem to have lost touch both with reality and with their duties to hundreds of their partners, associates and staff. At the same time, where were the rank-and-file partners paying attention to and protecting their equity ownership? I don’t see any heroes in this mess.

“The thing is,” says Furlong, “I don’t think this structure is all that unique among large firms. A ‘partnership’ — an increasingly useless word in big firms — of hundreds or even thousands of lawyers, in dozens of locations, with unequal earning power, political clout and marketplace influence, simply can’t be managed without a de jure or de facto inner circle that runs the show with a huge degree of autonomy and not much oversight. The question is: how many other large firms’ inner circles have made Dewey’s mistakes, including over-committing to free agents, cutting favorable deals, and keeping the whole thing secret? I’d like to believe that no other firm in the AmLaw 100 went this badly off-course. But I’m not sure that’s realistic.”

Says Jordan Furlong, “It seems naive to think that this sort of disaster couldn’t bring down other firms in the foreseeable future.”

Greed can exist anywhere in the professions, but the ground for it must be fertile for it to thrive.

The Future

What, then, does the Dewey failure tell us about the future of the professions and their structure and practices? How radically will firms have to change to be competitive in the future?

It suggests that…

  • Giant firms may be too big to manage.
  •  The boutique firm may be the wave of the future.
  •  The current partnership structure is inadequate to the needs of law firms to function in a dynamic economic, regulatory, and social world.
  • In periods of rapid firm growth and consolidation, firms can’t continue to be financed primarily by partner contribution and debt.

Without trying to answer these questions with sheer prognostication, which is impossible, the past and the evolutionary process suggest that new business models are emerging.

They’re likely to be characterized by…

  • New rules that permit outside investors, and possibly the public ownership of law and accounting firms
  •  New rules that allow non-lawyer/non-CPA governance. The trend towards professional management of firms has already begin, with many firms employing professional managers – non-lawyers with experience in management and its practice
  • Independent boards of directors, who can bring a variety of management experience to a firm
  • Substantial and pragmatic changes in the role of state bar associations
  • A universal acceptance of the role of marketing and practice development as integral to the success and competitive success in the profession
  •  The growth of value as a professional firm discipline, for both better billing practices and firm performance. That’s value to the client, not just to the firm
  • Not to be overlooked is the role of technology, which is itself constantly evolving. It’s use as a competitive tool is increasing, and there are now relatively few firms that are not using technology to great advantage. An example is the growth of the mobile office. There are now very few technology-illiterate lawyers.
  •  Greater role of public education, as an integral part of marketing
  •  A possibility that’s been shot down in the past is melding the two professions, in large part because of the disparity in practice and temperament. But like everything else, when it proves to be advantageous to both professions, it can happen.

Is there a way to anticipate these changes? Several possibilities…

  • Follow trends – trends in law firm actions, in the industries and clienteles served by the professions, in regulatory environment, and in social activities Learn to read them
  • Develop competitive intelligence procedures to keep competitive
  • Examine your own management skills, assess them, and consider hiring professional managers as operating managers
  • Learn to accept marketing as a management tool, and improve your understanding of the marketing process, and marketers as well
  • Learn to understand the process of change, to both keep your firm relevant and responsive to the changing needs of your marketplace. Learn to manage change, which should not be done arbitrarily, but as each change can be justified for management and competitive purposes
  • Reexamine the skills of associates, particularly those that might otherwise not possess partnership skills. Compensate their skills appropriately, and not on arbitrary factors, such as longevity.
  • Be active in your local bar association, and lobby to modernize the profession’s activities

Is the Dewey disaster an impelling force for change in the profession? To a degree, yes. It would be hard to look at the factors described here and not see at least a warning – an alert to the shortcomings of the traditional firm in the 21st Century.

The evolution of the future firm, like the evolution of human beings, is a slow process. But it’s happening. Now.

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Inhibitions to Change

by Bruce W. Marcus

I’m puzzled by the accounting or law firm that continues to function today as it did many decades ago – in so many areas, as if the world continues to be as it was decades ago.

At the same time, in the midst of all that’s changing in the professional world, I’m surprised that change in the marketing process for professional services is evolving so slowly. There are indeed exceptions, in which a handful of firms have extensive programs that are innovative, and very large staffs to execute them. These few firms have specialists in such activities as business development, media relations, and so forth. But considering the vast number of firms, their number is a small percentage of the professions.

There are many reasons for this, not the least of which is the amorphous nature of professional services management and marketing education. The quality of academic and firm marketing education in this field is dismal and retrogressive. The relationship between the marketers and the accountants or lawyers is too often built on mutual misunderstanding. And perhaps it’s because accounting and law firm marketing is so subsumed by a firm’s professionals with too little understanding of the process, that too many marketers are either unwilling to risk innovation or else are incapable of it.

Perhaps, too, the external factors that require new vision for professionals and their marketers are happening too fast, and are overwhelming both. And perhaps the traditions and stringent (and sometimes anachronistic) ethical requirements of accounting inhibit innovation.

Still, there are techniques to keep professionals relevant to the changing needs of the clients, and to keep marketing functional and successful beyond the mundane. For example, consider that while the ultimate aim of marketing professional services may be to get clients, growing a successful firm is a function of keeping a firm relevant to the changing needs of the clientele. Obviously then, the marketer must understand that environment, which then becomes the canvas upon which the marketing program is painted.

This is certainly true in professional services marketing, where recycling old ideas instead of bothering to come up with new ones is a too common practice, and where the failure of professionals to fully grasp the reality of the crucial role that marketing plays in a practice tends to suppress innovation in so many firms.

It’s certainly true in the professions, which are too often inhibited by antiquated traditions, irrational views of ethics in the 21st century, the anachronistic thinking of state and local bar and accounting societies, and a mentality of “We have always lived in the castle.”

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My Address in Space

by Bruce W. Marcus

If you ask me where I live, I tell you that I live on the corner of X and Y streets. It was there yesterday, it’s there today, and will be there tomorrow. But I live on a planet in space that’s constantly in motion, as are the other planets in our orbit. My address in space, then, is always in relation to the other planets in orbit, and therefore, constantly changing.

This dynamic between planets in motion exists between ideas and events as well, and is a major factor in the evolutionary process of change.

This is how the evolutionary process works to create change:

Competition leads to…

  • Responsiveness to the marketplace, which leads to…
  • Professional marketers, who are affected by…
  • Changing needs of clients (usually in their response to changing economic and social conditions, such as new laws and globalization)…
  • Which is enhanced by new technology, and…
  • Changing relationships between professionals and the marketers, which leads to…
  • Adapting firm structures to better serve both market and firm needs, which leads to…
  • New kinds of law and accounting firms, which are more reactive to continuously changing economic and social environments and changing client needs.

This is the process. Because of the dynamics of events, most of which were unpredictable, the dynamic seems to have a life of its own. There are so many elements involved that are themselves constantly changing that were unforeseeable, that (to borrow a phrase from Adam Smith), there seems to be an invisible hand at work. However, as we shall see further on, there are techniques to put oneself in rhythm with the process. In fact, it’s possible to use the process for more effective planning.

Here’s what actually happened:

  1. The Bates decision struck down the Canons of Ethics and Code of Professional Conduct that prohibited frank marketing – the mandates against frank promotional activities.
  2. This engendered a concept only vaguely understood by professionals at the time called competition. The problem at the time was that unlike the commercial world, there was neither history nor tradition in the commonly used marketing techniques. That meant a few years of groping – of trying to find our way to market within the profound limits of the legal and accounting professions, and of learning the differences between marketing a product and marketing a professional service. This is the phase that I call Professional Services Marketing 1.0.
  3. But a few firms – both legal and accounting – took the first steps in the competitive battle. Significantly, as others saw that there might be merit in the process, they followed with their own versions of marketing – versions that were relevant to their own markets and their own skills. Thus, the beginnings of the evolutionary process that produced not only change, but irreversible change. At the same time, the economic and social landscape began to change — specifically, globalization, technology, new laws and regulations.
  4. Professional services marketing began to settle in as a definable discipline. This accomplished the following:
    1. The market for professional services increased public awareness of the value of the professions, which then increased demands for more sophisticated legal and accounting services. Despite protestations by old-timers that, as one lawyer put it, Bates destroyed the profession, Bates, in fact, enhanced it, in large measure because marketing educated the market, and in part because one of the ways marketers use to sell its services is to develop new services and new client-oriented techniques in both law and accounting. This second phase in the evolution, in which marketing became more sophisticated, I call Marketing 2.0. That is the phase we are in now – but is still evolving.
    2. At the same time, new technology began altering communication between the professional and the media, internally within the firm, and more significantly, between the professionals and the client.
    3. As clients became more sophisticated, they demanded more and better service, which began the process of finding ways to increase productivity. Thus began the more intensive use of technology (developing the mobile office, for example).
    4. This led to the emergence of new kinds of law and accounting firms, ranging from corporate-like structures to two-tier firms, to outsourcing (both domestically and abroad), to firms with democratic governance styles. Most significantly, firms that had traditionally been centered on their practice became focused on – and driven by — client needs. An example is the development of the dynamic client service team, so meticulously designed by lawyer/marketer Iris Jones, first at Akin Gump and again at Chadbourne & Parke LLP
    5. The competitive process increased the need for more capital than could be supplied by the partners, which is why the subject of public sale of stock is now being floated. It possibly accounts, as well, for the recent rash of professional firm mergers.

In the early days following Bates, and subsequently well into the current era, the most inhibiting factor impeding effective marketing was the disconnect between the lawyer or the accountant, and the professional marketer. Aside from the lack of marketing tradition in the professions, the professionals showed little understanding of the marketing process and the marketers themselves. Traditionally, there had been little hospitality in the law firm toward the non-lawyer and in the accounting firm for the non-accountant. This, despite the fact that no other trade or industry demands so much of its members’ participation in the marketing effort as does the law and accounting. There are several reasons for this:

  1. There is the long-standing tradition that opposes any promotional effort by professionals as undignified, and generally deleterious and demeaning to professional integrity and authority.
  2. The education and professionalism of the lawyer and the accountant is extensive and intense. There is usually undergraduate school, graduate school and professional school, followed by apprenticeship, certification, and a long climb to the partnership. Most marketers may have college degrees, and experience in the several disciplines of marketing, but no qualification or apprenticeship to match that of the lawyer or accountant.
  3. The anachronistic attempts by state and national bar and accounting societies and associations to protect the integrity of their respective professions. In too many cases, their strictures have failed to take into account the new needs of the professions to compete effectively, using modern techniques. In virtually every case in which the professionals have won rights the societies and the associations have opposed, none of the resulting changes have adversely affected the integrity of the professions.
  4. The personality and focus on imagination of the marketer tends to be very different than for the lawyer or accountant. The professional disciplines are too disparate to allow for easy accommodation.
  5. This has led to a new relationship between marketers and the professionals they serve, and the emergence of the lawyer/marketer and the accountant/marketer. It’s a new partnership in which each member of the team brings skill and experience to the table.
  6. This is producing a new sophistication to bear on the competitive environment.
  7. It is a driving force in developing new kinds of firms.

The evolving firm is a structure in which:

  1. The client, not the firm, is at the core of the practice.
  2. The concept of value now centers on value to the client – not the firm.
  3. Focus within the firm is on talent, rather than the traditional top-down governance structure.
  4. The legendary management consultant Peter Drucker’s concept that the purpose of a company is to create a customer is now infiltrating the professional firm.
  5. Technology is now important for more than improving productivity internally, but for improving the ability to serve the client – to the point of further changing the nature of the firm itself, and enhancing the ability to compete.

Where heretofore knowledge management was a process of gathering and retrieving facts, the emphasis now shifts to turning facts into information targeted to enhancing client service, improving marketing, and keeping a firm relevant to the changing needs of its clientele. New kinds of responsibilities, such as knowledge management, business development, value management, and client retention specialists, are increasingly found in firms – often as specialties. Client service teams, once merely a collection of the firm’s professionals patched together to serve clients, are now more sophisticated and better organized to wrap clients in a blanket of genuine full service. Client development – the actual selling function – is now considered as distinct from the marketing function, which is the process of developing name recognition, defining skills, and enhancing reputation – all of which are a foundation for the selling function.

These are things that are happening today. Are they universal? No. They are trends – steps in the evolutionary process that ultimately produces change in professional practice and firms, in a delicate balance that not only better serves the client and the firms, but also maintains the traditional concept of professionalism and integrity. And as the late scientist Stephan Jay Gould said, evolution is not a straight line, nor does it happen all at once or universally.

This new phase is creating the foundation of Professional Services Marketing 3.0.

I contend that any professional in that cycle who doesn’t react to its dynamics will fall behind those who do.

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Evolution and Entropy: Two Flavors of Change

by Bruce W. Marcus

We live in a dynamic world, in which constant motion of events and social and economic structures continually alter the state of many activities and circumstances. For example, the advent of the personal computer in 1981 changed the way trade and commerce were done.

This altered the nature of financial structures, industrial practices and communications. But it also gave rise to new laws and new needs in accounting and finance. It created a new business environment that affected all participants in the cycles.

It’s an ongoing cycle that generates new problems and needs in many disciplines, including law and accounting. New financial instruments, new laws and regulations, new technology that accelerates the pace of doing business, growing internationalism, the expanding body of knowledge in so many areas and the rapidity with which it can be organized and retrieved, new demands from client – all substantially change the demands upon lawyers and accountants, and therefore, the structures and practices that professionals must adapt to stay abreast of their own clients.

I think that in order to understand change, you have to start by recognizing that change is an evolutionary process, the result of which is that some thing or things are different than they had hitherto been.

It’s important to recognize as well the dynamic of today’s society, in which events are impacted – sometimes randomly – by other events that are themselves impacted by unforeseeable events, and so on – all of which makes it impossible to accurately and consistently forecast.

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What, Exactly, Is “Change?”

by Bruce W. Marcus

In the context of professional services practice and marketing, change is alteration of a process, practice, or condition that varies from the past.

First, for all the talk about change, and all the writing and talking and handwringing about change, it becomes clear that too many professionals see change as an event, finite, an end in itself. In fact, change is not an event that’s arbitrarily made to happen, but a process — the result of which is that something changes. Most often, and with rare exceptions, that process leads to an evolution, and sometimes, even revolution (such as professional firm advertising, long forbidden – now common).

Second, change is inevitable. It’s going to happen, whether we like it or not. Why? Because the events that contribute to change are too many to control or resist. They come from too many sources, motivated by too many external and unpredictable factors. We can learn to accommodate to the courses of action that portend change, but we cannot control it. In fact, as state bar and accounting associations are discovering, some change can’t even be impeded by fiat or legislation. They keep trying, though.

Third, change, in the professions and in marketing professional services, isn’t often deliberately made – it evolves slowly in response to external stimuli. Except for a few visionaries – like Ron Baker of the VeraSage Institute and an early proponent of value billing, Shepherd Law Group’s Jay Shepherd, Exemplar Law Partner’s Christopher Marston, Axiom Legal’s Mark Harris, and Valorem’s Patrick Lamb, who anticipated the future in areas such as billing structures and firm governance – for most professionals change most often comes in response to changing needs of the marketplace, which demand new practices and new structures to serve those needs.

Electronic media, for example, wasn’t invented to change the practice of  law or accounting – but it served to instigate change in those professions. And not overnight, either. It certainly was a response to the need to compete in an increasingly competitive market.

Social media began as just that – social. But it evolved into a competitive tool by virtue of its easy ability to communicate to large numbers of people, as well as to individuals, which makes it a natural instrument of change. It was useful because it circumvented the rigors of external control of the message, which happens in the print media, and has a broader and more immediate reach than does the traditional media.

Opportunity, then, precipitates change. Social media, new kid on the block as it was, significantly changed marketing from the seller shouting down to the prospective consumer, to a two-way conversation between the seller and the consumer. The impact of that change is still evolving.

Another example of change is value pricing, which has been touted for decades, and is only now emerging as a viable practice. Firm governance, and the traditional top-down firm management that’s long been the tradition in professional firms, is slowly, slowly emerging in new forms that better serve a practice’s ability to help clients. The concept of value now becomes a major issue, which undoubtedly will result in further change, as firms struggle to define it. And if you can’t define it, how do you bill for it?

Client service teams are emerging to replace the eat-what-you-kill culture, in which each individual in a firm is his or her own entrepreneur. On the horizon today is the corporately owned or public professional firm.

I point this out, not to carp, but to wonder, and to consider, how this process can be dealt with competitively, and whether there is an initiative that can be taken to stay ahead of the curve.

There are two main areas in which change is imminent in the professions – firm structures and practices that allow a firm to better serve the needs of its clients, and marketing that’s consistent with the clients’ changing economic environment. Both are necessary for competitive reasons, both are imminent in order to keep a firm relevant to the dynamic changes in the world of both commerce and society.

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Today, Every Lawyer and CPA Is a Marketer, Too

by Bruce W. Marcus

At a VeraSage conference not too long ago Ron Baker addressed the question of why no top 100 firms have switched to value billing. But the answer is not difficult to discern. “There are decades of culture,” he says, “around the culture of time sheets.”

They are literally at the center of all financial reporting in the firm, and there is too much investment in time sheets and related financial systems for senior management to move in different directions. “It’s human nature to remain on the shores of the familiar,” he says. As for the future, he is optimistic, as am I.

Much of my thinking about finding ways to use successful product marketing techniques and business practices came from Peter Drucker, who said, “If you think of yourself as a marketing company that fills the channels of marketing you open with the products you make, you have vast expansion opportunities.”

Thus, many years ago, when I was with a major public relations firm, Ruder & Finn, and Bissell Carpet Sweeper was my client, we realized that they were missing an opportunity to thrive in a new marketing-oriented environment. “Right now,” we agreed, “you are just a manufacturing company. You make carpet sweepers. You call in your sales force and say, ‘yesterday we made X number of carpet sweepers. Today you have to sell X number of carpet sweepers’.”

I said, “You have a great sales force. Ask them to come back with ideas of what their customers want and would buy if you could manufacture them.” Company president Mel Bissell agreed, and thus was born the Bissell ShampooMaster, followed by several other products. He hired a detergent chemist from Dow, and his shop foreman designed the machine. And thus began a whole line of home cleaning products. Bissell, once just a manufacturer, became a marketing company.

Today a new generation and a new approach to marketing professional services is evolving to specifically meet the needs of clients.

While all selling must ultimately be done by the accountant or the lawyer, the practice of practice development, incorporating as it may the traditional tools of marketing, will be done by an accountant, a lawyer, or a business-development professional who is totally immersed in the practice, and has the skills and knowledge to reshape aspects of the practice — how it is presented and how it delivers its services — to better meet the needs of the contemporary client.

I know that an increasing number of successful firms today are doing pretty much what I’ve described here. Some of the best marketers are accountants and lawyers. Some of the worst are, too. But the marketing profession is defined by its best – not its worst.

Under Professional Services Marketing 3.0, practice development executives will have business, not just marketing, backgrounds. Marketing mechanics will be done by lower level practitioners, while the strategies will be formulated by the Professional Services Marketing 3.0 specialists – the marketing partners.

What has changed here is a new kind of professional services marketing, in response to new market needs, and the need to compete under these new circumstances. What is changing as well is a new kind of partnership between the professionals and those who market their services. That’s Professional Services Marketing 3.0.

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What a Lawyer Learned from a CPA

by Bruce W. Marcus

Outstanding examples of the new kind of law firms and accounting firms arising with Professional Services Marketing 3.0 are Shepherd Law Group, Valorem Law Group, Exemplar Law Partners, Seiler CPAs, and Axiom Legal.

They have in common a drive to remake the law and accounting firm business models to better and more economically serve clients. Their focus is on putting the client, rather than the practice and the firm, at the core of their business model.

Ronald Baker, founder of the consulting firm and think tank VeraSage, was a pioneer and early advocate of value pricing (which is most often at the core of the contemporary firm), including considerable original thinking on the definition of the concept of value to a client, for both law and accounting firms. He started his career as a junior accountant in the former Big Eight accounting firm, Peat, Marwick Mitchell (as did I, a decade or more earlier, and in a different capacity) , and has been a driving force in persuading firms to consider value pricing. Where it’s used most successfully, it’s based on his models, which are then further adapted firm by firm.

The contemporary law firm is epitomized in the Boston-based Shepherd Law Group, both in concept and in practice. Specializing in employment law and litigation, it was started some 13 years ago by Jay Shepherd. About eight years ago, functioning on value-based principles delineated by Ron Baker, Shepherd abandoned the hourly billing format to develop a workable system of ascertaining the value of his service to his client and billing accordingly.

Value pricing, says Shepherd, is more than just a replacement of the anachronistic hourly billing system – it’s a manifestation of understanding the meaning of value – but value to the client, before the considerations of the firm. The result is not only satisfied clients, but increased profit for the firm. At the same time, says Shepherd, value pricing impels the firm to avoid unnecessary processes – to be more efficient.

The Shepherd Law Group is a small firm, but they are leading specialists in employment law and litigation. While it’s been said that a litigation practice is difficult to price by value rather than by billable hours, Shepherd has clearly demonstrated how it can be done, particularly where a firm’s expertise supplies the knowledge and experience. He is the firm’s owner, with no other partners, and functions with a small staff of specialists. This form of operating, he says, is a paradigm that breaks a mold, and that functions particularly well.

Interestingly, Shepherd disdains the term “alternate billing”, particularly because it assumes that the other alternative is the billable hour The problem with the billable hour, he and others have pointed out, is that if there’s any value in hourly billing, it’s to the firm, not the client. To perform a service to clients with no value to clients is to be anti-competitive – particularly with today’s sophisticated clients.

Shepherd’s use of value pricing is so effective that he has established a subsidiary operation, called PreFix, to both teach other firms how to do it and to consult to, and advise, law and accounting firms on specific pricing problems. His 14 points of how to determine a value price are widely known, and increasingly used by other firms, both in the United States and abroad.

Those points are…
1. I analyze the client.
2. I assess the importance of the situation.
3. I assess the urgency of the situation.
4. I pay attention to what my competitors charge.
5. I consider the relative values of each possible outcome.
6. I figure out how hard it would be for the client to get better service elsewhere.
7. I determine how important my firm’s expertise is to the likelihood of a successful outcome (in other words, is this going to be easier because of our particular skills, or could any monkey on the internet find the answers.
8. I consider what we charged other clients in the past for similar work.
9. I consider whether those charges were heavy or light in retrospect.
10. I consider the likelihood of getting more work from this client.
11. I assess how much work we’ve done for this client already.
12. I wonder how important getting this particular job is to our firm (if it isn’t, I might raise the price).
13. I decide whether to do a single price for the whole gig, or how to break up the job into mini-gigs with separate prices.
14. Then I say, “This is our price.”

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Six Quick Reasons Why Law Firms and CPA Firms Will Never Be The Same

by Bruce W. Marcus

It’s not difficult to understand in this economic environment why the word change looms so large in professional services dialogue.

The nature of the professions, rooted as they are in history and tradition, can be fairly rigid, and resistant to innovation. But the times seem to have accelerated the need for new ideas and structures to cope with new economic and social problems and opportunities.

The accounting profession, even as we know it today, is practically pre-historic, and is now so bound by traditions, rules, regulations, and laws, that any suggestion of serious structural change is seen as a virtual assault on the professions. The codification of law firms and the legal profession go back about as far, and are just as resistant to innovation. In both cases, the rigidity in the professions is designed to maintain integrity and probity, as well as efficiency in firm governance. If the nature of products allows for constant and rapid change to match changing tastes and fashions, the nature of professional services requires a measure of uniformity and predictability.

But now, there are cracks appearing in the wall. The potential for conflict between the ethical rules and their protection of integrity, and the need for successful competitive marketing, can be intense.

Still, some things in the professions are different now than they were about a decade ago.

  1. We now have, for example, an increasing number of firms replacing hourly billing with value billing.
  2. We now have social media and we have bounding changes in  technology.
  3. Firm governance is beginning to resemble corporate structure, and indeed,
  4. There is talk of firms going public (which I predicted about two decades ago when it became clear that the growth of the professions would require infusion of more capital than could be supplied by the partnership. This is the kind of situation that begins an evolutionary process.)
  5. Where once associates who seemed not to be partner material were let go, now they are being kept for their specific talents and experience – the so-called two-tier firm.
  6. The accounting profession, recognizing the growth of globalization, is now seriously considering international accounting standards. (I helped run a vast international conference in England on the subject some two decades ago, and wrote a book on it with Columbia University’s John Burton. And they’re just beginning to act on it?)

The changes in professional firm practices seem to be coming fast, giving rise to Professional Services Marketing 3.0.

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Applying Peter Drucker’s Wisdom: Every Company Is a Marketing Company

by Bruce W. Marcus

Cravens & Cravens, a former client of mine, is a two-person father and son accounting firm in a small town in Southern Illinois, with growth ambitions, and a keen understanding of the role of marketing in its practice. Their one advantage was an exceptional knowledge of small and medium size business. We marketed the firm by focusing on that capability by featuring the rolling forecast and the firm’s business acumen, rather than on the traditional small accounting firm services. It’s been a very successful concept and campaign, made possible by the two partners’ willingness to reach beyond traditional accounting practice techniques.

At a VeraSage conference not too long ago Ron Baker addressed the question of why no top 100 firms have switched to value billing. But the answer is not difficult to discern. “There are decades of culture,” he says, “around the culture of time sheets.”

They are literally at the center of all financial reporting in the firm, and there is too much investment in time sheets and related financial systems for senior management to move in different directions. “It’s human nature to remain on the shores of the familiar,” he says. As for the future, he is optimistic, as am I.

Much of my thinking about finding ways to use successful product marketing techniques and business practices came from Peter Drucker, who said, “If you think of yourself as a marketing company that fills the channels of marketing you open with the products you make, you have vast expansion opportunities.”

Thus, many years ago, when I was with a major public relations firm, Ruder & Finn, and Bissell Carpet Sweeper was my client, we realized that they were missing an opportunity to thrive in a new marketing-oriented environment. “Right now,” we agreed, “you are just a manufacturing company. You make carpet sweepers. You call in your sales force and say, ‘yesterday we made X number of carpet sweepers. Today you have to sell X number of carpet sweepers’.”

I said, “You have a great sales force. Ask them to come back with ideas of what their customers want and would buy if you could manufacture them.” Company president Mel Bissell agreed, and thus was born the Bissell ShampooMaster, followed by several other products. He hired a detergent chemist from Dow, and his shop foreman designed the machine. And thus began a whole line of home cleaning products. Bissell, once just a manufacturer, became a marketing company.

Today a new generation and a new approach to marketing professional services is evolving to specifically meet the needs of clients.

While all selling must ultimately be done by the accountant, the practice of practice development, incorporating as it may the traditional tools of marketing, will be done by an accountant, or a business-development professional who is totally immersed in the practice, and has the skills and knowledge to reshape aspects of the practice — how it is presented and how it delivers its services — to better meet the needs of the contemporary client.

I know that an increasing number of successful accounting firms today are doing pretty much what I’ve described here. Some of the best marketers are accountants. Some of the worst are, too. But the marketing profession is defined by its best – not its worst.
Under Professional Services Marketing 3.0, practice development executives will have business, not just marketing, backgrounds. Marketing mechanics will be done by lower level practitioners, while the strategies will be formulated by the Professional Services Marketing 3.0 specialists – the accounting/marketing partners.

What has changed here is a new kind of professional services marketing, in response to new market needs, and the need to compete under these new circumstances. What is changing as well is a new kind of partnership between the professionals and those who market their services. That’s Professional Services Marketing 3.0.

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