How to Set Up a Lean Law Firm

Episode Notes

Transcript

State Bar of Michigan: On Balance Podcast

How to Set Up a Lean Law Firm

09/18/2018

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Intro: Welcome to State Bar of Michigan’s On Balance Podcast, where we talk about practice management and lawyer wellness for a thriving law practice, with your hosts JoAnn Hathaway and Tish Vincent, here on Legal Talk Network.

Take it away ladies.

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JoAnn Hathaway: Hello and welcome to another edition of the State Bar of Michigan’s On Balance Podcast on Legal Talk Network. I am JoAnn Hathaway.

Tish Vincent: And I am Tish Vincent.

JoAnn Hathaway: And we are very pleased to have Larry Port joining us today as our podcast guest to talk about the Lean Law Firm.

So Larry, would you share some information about yourself with our listeners and also describe the book that you have written called ‘The Lean Law Firm’.

Larry Port: Sure. So first of all, it’s great to be on your podcast. I love Michigan, travel through it, went to college nearby, went to school at Northwestern, so I was kind of on Lake Michigan.

In any case, so let me tell you a little bit about myself. I am the CEO of a company called Rocket Matter, and I have an interesting vantage point, because we have practice management software, we have been doing it for 10 years, and from my perspective, I see how thousands of law firms work. And I am not a lawyer, I am a software engineer.

So what ended up happening was is that in the software business, we have adopted a number of methodologies to run a business that have come from all sorts of different sources; some of them have come from software that we have developed ourselves, but some of them have come all the way over from manufacturing, and that’s where like lean came from and some others called agile and so on and so forth. So that’s kind of like where I am coming from, from this.

And so when I am observing these law firms working and we have worked with thousands of them over the years, it’s perplexing to me to see a lot of law firms not operating as efficiently as they should be. Like a lot of times law firms are just completely in survival mode and there’s very little business methodology and very little business conversation around how they should be practicing; there is some, and I commend those who are doing it, but there’s just not as much as there should be and it’s very far behind.

As we talk about in ‘The Lean Law Firm’, it’s kind of like 1911 for the field of law, because that’s like where — that’s like right before Frederick Winslow Taylor wrote Principles of Scientific Management and business became like very measured and scientific about how they started producing things. So like we are back in the days of like full-body swimsuits and boxers who stood funny and huge mustaches and ships that sank on their maiden voyages.

So I think it was right for this conversation and I happened to team up with this brilliant attorney out of South Carolina, who is hopefully taking preparations for the hurricane that’s approaching him, and he runs a law firm using lean principles. And here and there I would find these people that were kind of experimenting with lean, and I will get to what that means in a little bit, but it really seemed like the story needed to be told.

So Dave and I teamed up and we decided to write ‘The Lean Law Firm’, which is really kind of a chapter-by-chapter approach to how you implement some of these techniques inside of a law firm so that you can boost your profitability, your revenue and live a less stressful life.

JoAnn Hathaway: Larry, I think there is a misconception about lean. A lot of people think lean refers to just cost cutting. Can you give us an overview of lean?

Larry Port: Sure. So yeah, people hear lean and they think it’s like, oh okay, I am running a lean firm, I have got my laptop and I have got my desk and that’s it. No fancy chairs or anything like that. But there’s a lot more to it.

So lean is about kind of systems thinking and it’s about seeing your firm as a whole from start to finish how certain things progress.

It’s also about waste reduction. So really being able to analyze how your firm is operating as a whole and trying to optimize certain parts of it.

So lean actually comes from the Toyota Production System. So it was invented by a guy named Taiichi Ohno in Japan, but when American researchers, like business school researchers would go over and take a look at what they were doing, they generalized it into a process called lean.

So lean is really the Toyota Production System but like adapted to people who aren’t making cars, and it has made its way into software, it has made its way into government, medical, healthcare, all that kind of stuff and it really hasn’t made its way into law. So it’s a conversation that really needs to occur, because it’s a very applicable framework that goes to other things.

(00:04:50)

So I will give you a couple of like kind of core ideas to understand how it works. One thing is that lean embraces the idea of constantly improving oneself. So it’s the whole idea of like you have kind of a sense of perfection; in Toyota they call that True North and you are going to constantly strive for perfection, but you are never going to reach it, but you are going to keep on striving anyhow.

If you ever saw the movie Jiro Dreams of Sushi, I don’t know if you have ever seen that movie, but it’s this great documentary about this guy who — he is like 84-years-old, best sushi chef in the world and he is always trying to get better, it kind of really embodies that idea, that you are always going to try and get better.

Another one is like systems thinking in general and we will talk a little bit about that, but being able to see your firm from start to finish; measurement, knowing what you are going to be able to measure and you can’t really improve unless you are measuring. So from a law firm’s perspective, what does that mean, right? So we go into a lot about like what that means, how to measure certain things and so on and so forth and what you really want to be paying attention to.

And the concepts of bottlenecks, where in your firm are things slowing down and what can you do to remove those bottlenecks. And what we are really trying to do is trying to apply a system of thinking about measurement and viewing your law firm as a whole so that you can fine-tune it and in some cases you are not going to be fine-tuning it, you are going to be doing major work to it.

JoAnn Hathaway: So Larry, how did you organize your book and why did you choose to do it that way?

Larry Port: So we wanted to do something kind of fun. So normally, I give a lot of CLEs around the country and usually I try and make mine very interactive and fun, because it’s like kind of hard to absorb this kind of level of information if it’s not fun.

What’s even crazier is that like when I give a CLE now with Dave Maxfield, my coauthor, we have done a number of presentations; we did one at ABA TECHSHOW last year and so on and so forth, I play the straight guy. He is very funny. So it’s kind of this wacky thing.

But when we went to do the book we had this idea where we wanted to have a narrative, because like — in other words, we wanted to have a story in the book, we didn’t just want to have like this text, because look, we are talking about some crazy ideas here. So there’s a great book and one of the books that we revere is called ‘The Goal’ and it’s by this Israeli business kind of thinker; I guess he was a physicist or a chemist and then he became this like business thinker, but he wrote this book called ‘The Goal’ and it is a seminal work on systems thinking and the Theory of Constraints.

And I can get into that a little bit later too, but the whole idea is that this book is written as a story, it’s a novel, but it’s about this guy who is trying to turn around a plant.

So in our book, we have a guy who is trying to turn around the law firm. So we have, each chapter covers a specific subject, but it also has a narrative portion of it, so you follow the story along and the book is laid out over in 12 chapters, so there’s 12 months. So the idea is that law firms can kind of follow along and implement one chapter at a time for like one a month as they go through it.

So we cover basics and going over what lean is. Then we go through systems thinking, KPIs, how you apply lean to marketing, going through standardization, checklist and so on and so forth, meetings; how you do meetings, how you structure your actual visual communication and internal communication inside of a firm, how technology should be leveraged, and setting goals and helping adoption take place in your law firm, because that’s a big thing.

I wanted to make sure that we had a whole section where we talk about persuading people that this is the right way to go, because a lot of times you meet with resistance inside of law firms when new ideas are introduced.

Tish Vincent: You mentioned systems thinking and KPIs, could you say a little bit more about those terms and explain how they can be used to increase revenue production for law firms?

Larry Port: Right. Okay. So the first one I will go for is KPIs because that’s pretty easy. KPIs are Key Performance Indicators. So they are usually numbers that represent the things in a law firm that can relate immediately to profitability. So there are certain things that we encourage that people pay attention to and some of them tie back to the systems thinking part and I will get to those in a second.

But from a high level, there’s marketing KPIs that we go over in our marketing chapter and we explain how to kind of keep your marketing people accountable, what kind of numbers you need to pay attention to, your website views, things like that. But then there is also, are you paying attention to people’s collection rates, are you paying attention to which lawyers in your firm are invoicing? And what we found at Rocket Matter is the firms that do pay attention to those numbers and request those reports from us are the ones that are more successful.

(00:10:02)

So knowing what your Key Performance Indicators are across a variety of disciplines, and we identify in the book which ones we think are most important, most critical, because if you start measuring everything, you are going to go crazy, so you want to really kind of narrow it down to like a core set of KPIs that you want to pay attention to.

Now, systems thinking is really interesting, and the whole idea is that you want to view your firm from start to finish as a system, and the way that you kind of do that is with a tool called Kanban Boards.

Kanban Boards, you can use like a software like Trello and you can model how your cases flow through your law firm. So for example, if you meet with a potential client, you might have a swim lane and it goes from left to right, you might have a swim lane of cases that say like — with a swim lane that’s titled potential clients. Then let’s say if they become an actual client, you move — they are like these — if you can imagine, they are like kind of index cards on a wall and there’s these lines separating vertically into swim lanes, then you would move, from the first column to the second column you would move your prospective client into actual client and then you would have work in progress and then done.

So that’s the basic way you would set things up. So you see everything in terms of, are they on your radar as a potential client, have they become a client, is their case in work in progress and is it finished. And you can take that work in process obviously and tease that out and you can have like discovery phases, pretrial phases, trial phases, but you start to see how your cases themselves travel through your law firm.

And then once you do that, then you can pay attention to other KPIs. So the ones that we always talk about, which is our Income Formula in the book is the throughput rate; how many of your cases cross the finish line in a given time period. Like in the month of September, how many cases did you close?

And that’s really important, because a lot of times what happens in law firms is that they think they need to be bringing in more new clients to increase their revenues. In reality, a lot of times they have an operational problem, because they have some sort of bottleneck in the billing component or the collection component of their law firm and they have clients and cases that are ready to be collected, but for some reason they are not collected and I am sure you know, like law firm collection rates can be like in the 70 percentile or so on and so forth are not getting that much money in for the work that they perform.

So the first thing that we recommend firms do is really look at their caseload as a whole, identify where everything is, and get as much stuff across the finish line as they possibly can.

And then that’s — what’s interesting is and we can go into that is that when you start moving your cases to completion, if that’s your bottleneck and you remove that bottleneck, then another bottleneck will appear somewhere else in your firm. It’s a really fascinating thing that we talk about a lot.

Tish Vincent: Yeah, that does sound extremely fascinating and productive. I mean it sounds like it really could make a difference in the revenue that’s coming in and also in the experience of practicing in that firm, because everything would keep improving, as you describe it.

Larry Port: Well, if I can just pick up on that real quick is that, we hear all these crazy stories and we see it with empirical data at Rocket Matter, where even personal injury firms, they will win the case and they get this triumph, but then they don’t collect on the judgment or they don’t collect on a settlement and you will have like cases that are finished, but they just never cross the finish line and all this potential revenue that the firm could get is just sitting there and they are not getting it.

And that has a huge impact because number one, if they think that they need to spend more money on marketing as opposed to solving that problem, now they are spending a lot more money and they still have the same problems. So it can be a downward spiral if they are not careful.

JoAnn Hathaway: Larry, you had mentioned about collection and are you finding now that lawyers, a lot of them are moving to flat fees and other creative types of billing situations, that that is helpful and is that something that you would recommend as far as revenue collection?

Larry Port: Yes. So in terms of moving away from hourly, I would recommend moving away from hourly, if at all possible, because it limits the amount of income you can generate. I don’t know that as many firms are doing it as we would like to see, especially in the small firm segment. I think in the larger firm segment where you have CFOs and people who have sophisticated financial knowledge and tools at their disposal, they are able to maybe do a lot more creative things in terms of setting up these alternative fees, alternatives to the billable hour.

(00:14:47)

My message to attorneys is that look, once upon a time the contingency fee was an alternative fee arrangement, now it’s standard, it can be done. One of the things we have tried to do with our product, Rocket Matter, is we have tried to give them the analytical tools they need to measure the profitability of cases and allow them to kind of move in this direction.

So we have created like payment plans, recurring billing things so they could invent new fees that they haven’t had before in the reports and analytics to see what their hourly success rate and collections rate should be, but here’s the core idea of why you want to move away from the billable hour, or at least if you have cases that have a ton of uncertainty in them that you maybe go to a phase-based approach, where the phases that are more concrete, you make flat fee based and the phases that are more uncertain, you could make hourly based. You could do kind of these hybrid deals. And the software is out there, it’s not that impossible to be able to do this.

The more you understand the value of your cases, the more you can predict your revenue, and law firms cannot predict the revenue a lot of times because they don’t do the legwork or they don’t have the financial know-how to do that. Enlist the help of a part-time CFO if you need to do that, but I really do believe it’s important.

When you have flat fees or contingent fee matters that are not tied to the billable hour, then you can predict your income by knowing how fast you can move these things through the system; again, going back to the system and we refer to that KPI as cycle time. So cycle time is like how long it takes for a case to move through your law firm. And then if you multiply that by the number of cases that you can finish in a given month, so the number of them times the amount of time it takes you to do that, now you are starting to get — and you have some insight into the case value, now you start really being able to predict your income and you can choose to scale up or scale down your firm that way.

So being tied to the billable hour, they are really kind of like manacles, that if the firm is able to break free of that, even if it’s only partially, they should see their income go up substantially.

JoAnn Hathaway: Now Larry, one of the questions I have that I have been thinking as you have been talking is a larger law firm. Do you find that it’s harder to implement lean in a larger law firm? We see so many little cottage industries, if you will, within each department in the law firms and they have different processes and procedures. Can you speak to that?

Larry Port: Yeah. So it’s interesting, actually I would say that we are getting more inquiries from larger law firms. So when people want clarification on something in the book, Dave and I will get email from people in larger law firms as opposed to smaller law firms. I think you have this issue at this very small end like a lot of people who are true solos, it’s the same age-old issue where a lot of times they are just not able to devote the time to improving themselves and their firms, because it’s a one-man show or a one-woman show and you just don’t have the ability to work on your practice, you are just constantly working in your practice. So the larger law firms tend to think in a more business-oriented fashion about their law firms and we have actually seen more interest from them.

And in terms of being able to roll it out, in terms of the little fiefdoms that you have inside of a large law firm, we haven’t really seen that as a barrier, because a lot of times what we see, even with Rocket Matter, is that maybe one team will adopt a set of tools or a set of practices and if it works for them, great, and it may or may not migrate to the rest of the firm.

JoAnn Hathaway: So if a law firm was interested in getting started with lean, how would you say they should go about that?

Larry Port: Well, the first thing is, is that I would definitely recommend taking a look at our book or listening to our podcast. If you go to leanlawfirmbook.com, Dave and I do mostly weekly podcast, depending on how like lazy or ambitious we are feeling that week. So we have — it’s actually quite a good podcast, so there’s some stuff there, we try and keep it short, around like 15-20 minutes. The book itself is a great help.

There is a specific type of meeting that I would recommend that firms do that I think would be very helpful. And this is not just to incorporate lean practices, but to incorporate any change that they want into their processes, and that’s what we call a retrospective meeting. And so the retrospective meeting is a simple meeting, it’s 30 minutes long, you do start, stop, continue. You conduct this meeting like once a month, at the beginning of the month and you say okay, what is something that we did last month that we should stop doing? Well, I think we should stop doing paper intake forms because we are getting a lot of like bad data in the system when we do things that way. Okay.

What are things that we should start doing that we haven’t been doing? Well, let’s start implementing some lean techniques. Let’s start tracking our KPIs for throughput rate if we can. Okay, let’s do that.

What should we continue doing that we have recently started doing? Well, I like the new plants in the office, let’s get more plants, whatever it is. And it’s not about people, it’s not to complain about people at work, it’s about the processes, it’s about making the firm better.

And when you have a meeting like that that you do once a month, every month, then it makes it real easy to inject new initiatives into the firm.

(00:20:12)

JoAnn Hathaway: Okay, that’s very interesting.

Tish Vincent: Well, it looks like we have come to the end of our show Larry. We would like to thank you for a wonderful program.

Larry Port: Thank you.

JoAnn Hathaway: Thank you. Larry, if our guests would like to follow up with you, where can they find information on the web and how can they reach you?

Larry Port: Okay, so email me directly is the best way and you can email me at [email protected], but I would caution you, if you really want to reach me to also CC [email protected] because our spam filters are like wicked strong here and like everything goes to garbage.

I am also on LinkedIn. I am on Twitter, @larryport is my avatar on Twitter, and LinkedIn, you can just do a search for me and I will be there.

And I engage, so if you reach out to me, be careful what you wish for, I will get back in touch with you.

Tish Vincent: Excellent. Excellent. And how can our listeners find your book and purchase it, share that with us?

Larry Port: Yes, the easiest way is to go to leanlawfirmbook.com and look for it there. It’s also available for sale on the ABA site. I would not recommend buying it on Amazon; it’s marked up by like 200% or 300%.

Tish Vincent: Okay, good information, excellent information.

Larry Port: Well, I am always looking for people to save money and eliminate waste in their law firms, so I don’t want them spending extra money when they don’t have to.

But thank you so much for your time today. I really appreciate being on your show.

Tish Vincent: Thank you Larry. We have really enjoyed the conversation. And we will say goodbye to you now. This has been another edition of the State Bar of Michigan: On Balance Podcast.

JoAnn Hathaway: I am JoAnn Hathaway.

Tish Vincent: And I am Tish Vincent. Until next time, thank you for listening.

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