From the Valley to the Bar: What Law Firms can Learn from Silicon Valley

Episode Notes

Transcript

The Un-Billable Hour

From the Valley to the Bar: What Law Firms can Learn from Silicon Valley

01/31/2019

[Music]

Intro: Managing your law practice can be challenging. Marketing, time management, attracting clients, and all the things besides the cases that you need to do that aren’t billable. Welcome to this edition of The Un-Billable Hour, the Law Practice Advisory Podcast. This is where you will get the information you need from expert guests and host Christopher Anderson, here on Legal Talk Network.

[Music]

Christopher T. Anderson: Welcome to The Un-Billable Hour, the Law Practice Advisory Podcast helping attorneys achieve more success. We are glad you can listen today on the Legal Talk Network.

And today’s episode, a little bit different, is about business. Now, as everybody knows, I don’t know if you’ve listened to the show before, maybe you haven’t, so you don’t know, but I usually talk about an aspect of law firm business; marketing or sales, sometimes about hiring or firing, sometimes about physical plant and leases.

We’ve done shows on leases and sometimes about your financials, and quite often we do show about mindset. But this time, we’re doing a show with Sarah Schaaf and she’s the CEO of Headnote about business in general, and particularly, in fact, I’ll just say the title, “From the Valley to the Bar: What Law Firms can Learn from Silicon Valley”.

So we’re taking lessons from Silicon Valley and how we can apply them to the business of law. Now, as I said Sarah is the CEO of Headnote, a Neil Squillante of TechnoLawyer. I was trying to figure out how to describe Headnote, but I read a quote from Neil Squillante, I’ll use his, because he described it as well as I can, then we will ask Sarah if we got it anywhere close to right, is a trust-compliant eCheck and credit card payments platform for law firms seeking to get paid faster with less follow-up.

We’ll see if Sarah likes that. Today, like I said we’re going to talk about small law firm business, which is of course what we always talk about, but since it’s the beginning of the year I figured we just zoom out a little bit and look at business a little bit more holistically and what law firm owners as I said can learn from other businesses.

And since this is the top of the show, I’ll remind you that I am your host Christopher Anderson and I am an attorney with a singular passion for helping other lawyers achieve success with their law firm businesses and success as they define it.

In the Un-Billable Hour every month, we explore an area important to help you grow your revenues, get back more of your time and/or get more professional satisfaction from your business. The Un-Billable Hour is dedicated to helping lawyers achieve freedom through their businesses and our guests help you learn more about how to make your law firm business work for you instead of the other way around.

Now, before we get started, I do absolutely want to say a Happy New Year and thank you to our sponsors, Answer 1, Solo Practice University, Scorpion and LAWCLERK.

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And again, today’s episode of the Un-Billable Hour is “From the Valley to the Bar: What Law Firms can learn from Silicon Valley”, and Sarah Schaaf, the CEO of Headnote is my guest and Sarah, welcome to The Un-Billable Hour.

Sarah Schaaf: Thank You Christopher. It’s so nice to be here.

Christopher T. Anderson: Thank you. And I am notoriously deficient on The Un-Billable Hour in my introduction, so I just did a terrible job, kind of on purpose, because I’d like to ask you to kind of fill that out. Tell us a little bit more first of all, did Neil Squillante, it’s not my fault, did Neil Squillante get the description of Headnote, right?

Sarah Schaaf: Neil definitely got the description of Headnote partially right. We are above all else here to make your firm’s system of getting paid easier, compliant and faster. However, one of the things Neil didn’t mention in that description is that we are really passionate about giving firms transparency, data and essentially efficiency in their post invoicing process.

(00:05:04)

Not just getting paid, but also giving more insight and analytics into accounts receivable, helping law with some automation on practices that really should be more efficient within firm operations. So it’s a little bit more, but certainly payments are our first love.

Christopher T. Anderson: Cool. That just brings up, maybe we’ll have you back sometime, because I’d love to do a show about what people don’t understand about the dangers and caustic corrosive nature of accounts receivable in business. I’d love to do an entire show on that.

Sarah Schaaf: Absolutely. That is definitely a passion of mine, probably not a lot of people can say that, but that’s something that that I really love kind of digging into, so any time.

Christopher T. Anderson: All right, so let’s just jump right into the topic here. So we’re talking about, What we can Learn from Silicon Valley, and I think that’s a brilliant topic and I’m glad you’re coming with that, because I think lawyers and law firms for the most part are sitting there going like what the heck are you guys talking about. We’re law and that’s like high tech business happening in this place that we don’t really understand.

But it’s rah-rah and go-go and there’s really nothing between the two that we can learn. So first of all, like as we’re going to talk about it, if you don’t mind just like what are Silicon Valley tech companies, like what are the best practices that we can bring in?

Sarah Schaaf: Yeah absolutely. So I mean I think I have a similar kind of — initially my reaction was similar to kind of what you’re saying, like I am an attorney, I grew up in a family of attorneys, I live and work in Silicon Valley and the last place that I worked as an attorney before I became an entrepreneur and started Headnote was at Google and an in-house role.

And so, when I kind of got into working in-house at Google, I remember kind of having these moments of seeing the intersection of law and some of the processes that we were used to and some of the things that we do kind of differently from other industries and how that was intersecting with some of the best practices that were being utilized at tech companies and how that intersection could actually work and really upgrade some of the things that we’re doing in legal.

And so when it all comes down to it, the things that — tech companies don’t do everything right and there are certain things they do that lawyers should not be doing, right?

Christopher T. Anderson: Right good.

Sarah Schaaf: You have a much different relationship with things like privacy and that is important to have those distinctions. That said, there certainly are things that tech companies do that we should be kind of applying to our industry. Data is the biggest area, respect for data efficiency and kind of quick wins.

So love to kind of get into those as we continue talking, because there’s some really good concrete examples of things we can do at our firms to just be better.

Christopher T. Anderson: Yeah and I think that actually brings a lot of credibility to what we’re going to talk about that you did say that there’s definitely some things that law firms should not learn from Silicon Valley.

Sarah Schaaf: Right.

Christopher T. Anderson: Data breaches, let’s not learn about, learn, let’s learn from that, let’s just not learn how to do that. And like you said privacy, I think there certainly probably a — let’s just say non-bar rules compliant attitude to privacy that’s exists in some Silicon Valley companies that shouldn’t be replicated by law firms.

But yeah, so great data, I think I love that you brought data up, because I think there’s — I don’t know if you’ve ever seen the movie Moneyball.

Sarah Schaaf: Oh yeah.

Christopher T. Anderson: But, it’s great when the guys are sitting around, talking about all we should get him, he’s got good body position or he’s got that look and everything’s by gut.

And I think a lot of law firms and law firm owners still operate their business that way by gut and by anecdotal evidence and not really data dependent.

Sarah Schaaf: Yes.

Christopher T. Anderson: So what kind of data would you like to start talking about, let’s just make this real like, what are some data things that lawyers could learn from that Silicon Valley uses that we don’t do a great job with?

Sarah Schaaf: Absolutely. So my kind of two — there’s a few main areas, but I’ll tell you kind of to frame it, kind of what, some of my experiences were like relating to what you are saying, that’s like instinctual, kind of handshake way of doing business, right, which is very prevalent in legal.

And to be honest, something that we’re seeing kind of the tide is turning, right towards having a more kind of business model within law firms and that’s something I definitely want to get into is like what parts of the handshake business should stay and what should go.

Christopher T. Anderson: Yeah. Yeah.

Sarah Schaaf: Like what part of instinct should stay and should go? I remember when I was practicing and again like I grew up working at my family’s law firms.

My family had two law firms that they owned, we worked there as family businesses and like this is how you would kind of look at marketing budgets in that exact phrase, didn’t really exist. And so it was like we need to get clients. Okay, let’s get a committee together and let’s send some lawyers to a conference. And let’s make sure that we have entertainment expenses, we need to be taking clients out to do this.

(00:10:00)

Sarah Schaaf: The way that we then tracked that and followed up on it and then measure that against not just what we build that client, but what we actually collected and what we got paid and kind of the efficiency of the payment like you need to look at these factors, and instead of just saying like, yeah, let’s send a couple of people to this conference, this budget seems arbitrary and reasonable and then when it comes time to do our accounts receivable and collection work, we’ll get together in a conference room with our spreadsheets and we’ll touch base on it.

That is — that’s not AIDA, that that is that instinctual feeling and that is the part of our practice where we could actually get better and look at what tech companies do, because in tech companies including the tech company that I run, like data is everything.

Like if you do not track and measure your data and really understand ROI, Return on Investment, then missing the data is essentially like wasting the money. And so, when it comes to how we’re finding clients, how we’re keeping clients and retaining clients and then how we’re getting paid by our clients, those are three areas that we could vastly improve with data.

Christopher T. Anderson: Absolutely. So I remember seeing you, you spoke — I remember seeing you because I was am seeing but how you speak at the Law Firm 500 Awards this year back in October in Las Vegas, and there were two data points that you mentioned particularly; CAC, I’m not going to spoil. I’ll let you describe what they are but CAC and LTV, let’s talk about those two, because those are like, I think those go to the heart of what you were talking about tracking that data to inform your marketing, to inform the business. So let’s go over those each at a time. So first of all, CAC, what’s that?

Sarah Schaaf: Absolutely. So in a – I loved speaking at the Law Firm 500, it was such a great time and I did, I mentioned in my speech, that we as a company at Headnote and I know at Google and all tech companies and all and not just tech companies, companies outside of legal are tracking like two huge metrics all the time, and one is CAC, C-A-C, and one is LTV. And so CAC stands for Customer Acquisition Cost, how much did it cost to get a particular customer, right, super important.

And LTV stands for Life Time Value, so that is essentially what kind of value, what is the total amount of money, whether it’s gross or net revenue that I’m going to be getting out of a particular customer, and what you need to do at a tech company or any other kind of company and really at a law firm is think about those marketing dollars, like that’s a CAC. That is your Customer Acquisition Cost and you need to be saying to yourself, okay, our goal is at firm is that our CAC is, it depends — it completely depends on the value of that customer, right?

Is this a case or a customer that’s going to have a long-standing relationship, then I’m going to get more cases from? Is this a one-off, is this something that requires a lot of internal work? We’ve never done a case like this, so it’s like litigation there’s going be a lot or is this like a filing that we’ve done, we do 50 times a week, that we can maybe do a flat fee.

So every firm is going to have a different CAC, but what you need to look at is the economics of your business and say, is it reasonable that I’m going to pay $500 for every new customer I get, or 5000 and then pick what that number should be and then you know how to kind of start positioning your marketing budget and spend.

Christopher T. Anderson: Right. And so just to kind of bring that down like so what you were talking about is if I intend my marketing plan is to get a hundred clients and I spend $10,000 on that marketing plan to get those hundred clients, then my CAC would be a 100 bucks a client, 10,000 divided by a 100 equals a 100, is that how you do it?

Sarah Schaaf: Exactly, exactly, and then you’re going to be looking at the lifetime value of that customer, right and you’re going to have something that you would right expect out of it. You need to be setting a goal for both your CAC and your LTV.

So if you’re saying I want $100 CAC, I’m going to get a hundred clients, I’m going to spend $10,000 and that’s a $100 CAC. I would like to get a $10,000 out of each of those clients, that’s what the firm earns.

Christopher T. Anderson: In revenues because you are talking about gross revenues, yeah.

Sarah Schaaf: In revenue, exactly. And say so that’s my LTV, right. If I know that I’m going to only work with that customer on one case or maybe I know like I actually want to be getting $10,000 out of this customer, because it’s an ongoing relationship, but you take that CAC, right, the money you spent on marketing divided by the number of customers you’ve got, that is your CAC, and you look at it compared to your LTV, and what we say in the Valley, are not companies that use these practices is what’s called an LTV to CAC ratio.

So there is this formula that looks at LTV compared to CAC, right, what is an ideal formula, and in tech companies and every, again company is different, but –

Christopher T. Anderson: I’m going to interrupt you there.

Sarah Schaaf: Yeah please.

(00:14:58)

Christopher T. Anderson: Because what we’re going to do here, I love it. We got a — I never get to do teasers, but we got a teaser, we got a cliffhanger, the LTV-CAC ratio coming up right after we hear from our sponsors.

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[Music]

Christopher T. Anderson: And welcome back to The Un-Billable Hour. We are talking with Sarah Schaaf, the CEO of Headnote. We are talking about what law firms can learn from tech business in Silicon Valley, and when we went to break, we have just gotten finished defining Customer Acquisition Cost, which is on average how much it costs to acquire a customer, usually in a given practice area or perhaps for your whole business. And we also learned about Life Time Value, the amount, the total amount you can expect to get in revenues from servicing the needs of that client.

And Sarah was just about to reveal on the ideal Life Time Value to Client Acquisition Cost or LTV to CAC ratio, and then I interrupted her a little bit rudely. But we got to have our first Un-Billable Hour cliffhanger and so here we are. What is that ratio and what does that mean?

Sarah Schaaf: I’m so happy to be the first Un-Billable Hour cliffhanger, that’s so exciting. So the ideal LTV to CAC ratio or at least like the minimum that you’re really striving for it needs to be 3:1. So what that means is that for whatever I spent on that customer, that CAC, I need to be getting three times back out of that customer so that it makes financial sense as a business.

Christopher T. Anderson: And again, just to be clear that’s three times in revenues?

Sarah Schaaf: Exactly, exactly.

Christopher T. Anderson: Okay.

Sarah Schaaf: So that is essentially, if I’m going to put out of pocket $100 for this customer, I need to make sure that I am bringing in $300 back into my pocket to make this make sense as a business, for this to be a good customer for me.

Christopher T. Anderson: Yeah, and if you think about it like that’s got to be the baseline, because let’s say your average well-run law firm, everybody knows the rule of threes, which of course, we all know, it is not universally applicable, but if we use it where for every dollar you get in one-third to the associates, one-third to the overhead, and one-third to profit.

If you go three to one that means you’re only getting one to profit, so you’re really breaking even.

Sarah Schaaf: Right, right and that’s why I like as companies at which law firms, right, your law firm as a business, it is your company, like LTV of the CAC of three to one, like that really is the lowest that you should be going. Right.

Christopher T. Anderson: Yeah.

Sarah Schaaf: You set your goal. Are we going for five to one, are we going to ten to one, I mean that really comes down to your goals as a firm and how aggressively you want to go after them, but why this is so important and what I think we’re really missing as an industry is that if we aren’t looking at our LTV to CAC ratio and how valuable is this customer to my firm from a business perspective, then we don’t know how to correctly segment those customers and give different amount of firm resources to them such that it makes sense.

And so, you need to be understanding for this is something that I talk about again with what we do at Headnote and we’ll get into how, this is that part of getting a customer and what you get out of them, they’re so closely related, you need to have a lot of understanding data transparency into that post invoicing behavior, because the amount of firm resources for instance, let’s say you have a client that seems — they seem great. They’re a nice person, you like them. The work is interesting. It seems like it all is working out, right.

And then it gets time to get paid and it turns out like yeah, if we look at billables, we billed this customer an LTV of CAC if they pay us 10:1, this is a great customer. But then when you look at the amount that you’re actually getting paid by them, oh, this is only actually like a 5:1, not such as good of a customer and then when we look at the amount of internal firm resources, right, is this a customer always chasing like how many times are we following up with them to get this done, how much of my internal firm resources are going to getting less like so-called great customer, shoot, turns out this customer after we like look at really the weighted cost of what we have to do to actually get the money in the bank.

(00:20:02)

I am only got a 3:1. I’m breaking even. Like this is important to understand, because then, when it’s time to take your marketing dollars and say, okay, time to get more clients, where should we put this CAC, where should we put this Customer Acquisition Cost?

You might say to yourself like actually I don’t want to go find more of that kind of client.

Christopher T. Anderson: Right.

Sarah Schaaf: I can go find more of this other kind of client, different practice area maybe, different geography, whatever your firm is doing that separates your clients, it just totally depends on the data you’re getting, what you’re spending and actually what you get into your bank account, not what you’re billing.

Christopher T. Anderson: Yeah, so I mean, so this is really interesting, so like you can — once you get this sort of broad data, you could slice and dice it and like realize, oh, you know what, if we just go from more customers on the north side of town and fewer ones on the south side of town, our LTV to CAC ratio will go up.

Sarah Schaaf: Exactly.

Christopher T. Anderson: Or if we spend more marketing dollars in — I don’t know really, this practice area, yeah.

Sarah Schaaf: Yeah, I think customer yeah other than a gen like customer, like whatever it is, you might think like, oh yeah, our firm’s bread and butter is that we only do products liability or whatever it is and then as you dig in, it’s like huh, when I look at this, the smaller part of our practice is elder law or trust or whatever it is, but that’s actually where we have a CAC — our LTV is higher and our CAC is lower. We got a 10:1 on our estate and trust business

Christopher T. Anderson: Yeah.

Sarah Schaaf: And we haven’t even really dug into that, and then we are really putting all of our eggs into this products liability side of our practice and we got a 3:1 LTV to CAC, like why are we spinning our wheels going to find one of these customers when like they might not actually be the best customer for our business, yet we’re potentially neglecting or certainly neglecting a market opportunity to find more of these worthwhile customers without that data, like there’s no way to know that. You are going off instinct which is kind of what we started the show with.

Christopher T. Anderson: Yeah, and that just could lead to such — that’s really powerful to really understand how that segments. So let me ask you then what other like smart decision making can be driven by really having a good understanding of this ratio?

Sarah Schaaf: Yeah, yeah, okay. So I mean obviously it’s going to relate to how you are using firm marketing dollars, right? That, that’s like an easy one to understand.

I think the next part is really how you’re going to be allocating firm resources while you’re doing the casework. Again, looking at your firm and you know your firm best, is this the kind of client given right what we’re spending, not only what we’re billing, but what we’re collecting, there’s a difference, like at Headnote, we have many firms that we talked to that say, oh well, billings are up, like we — this was our best year for billings and then we say, well, how’s your collections. They are down.

Like well, that’s an issue, it doesn’t — you’re not going to get any awards for like billing the most hours if the client doesn’t pay. That’s not going to pay the rent, and keep the lights on and you can’t pay associates with billable hours, they need money.

So that is something that I think you can really make better decisions about how you’re going to be allocating firm resources. Is this a kind of case work or customer or whatever it is that we actually can start with their permission of course and informed consent, having more paralegal hours, be doing some of this work if it’s something that we’re doing.

Is this an associate task or a paralegal task? If you actually know that this is something that I could use associate dollars, I could bill this associate onto this practice area or this case or like we get paid 98% of the time, instead of this practice area, we’re only collecting 78% of what we bill.

Then you’re going to know I need to actually be allocating different resources in my firm, right?

Christopher T. Anderson: Right.

Sarah Schaaf: Because your team is the best resource that you have, two different kinds of cases, are where are we putting partner hours and billable rates versus associate rates versus paralegal rates versus non-billable staff.

So I think it’s really going to help you decide how to kind of slice and dice, right, the effort on your team and your resources. And then on that back-end process, so like I think of it in three parts, right, get the client, work with the client, get paid by the client and retain them.

Christopher T. Anderson: Yeah.

Sarah Schaaf: When it comes to that, that back-end part of okay, we need to be allocating firm resources to getting paid, those are generally hopefully non-billable resources. But I’ll be honest, most of the firms that we talk to are using associate and attorney hours to do some of the collection, and tracking.

So are you using — how much of your firm time that could be going towards billing a client? Are we using to chase clients down for payment or to remind them, are there ways we can make that more efficient? Are there ways that we know we can work with clients, right, getting paid in advance by certain practice areas? What can we do to actually reduce the billable staff and non-billable time that we are using kind of post invoicing to get paid?

Christopher T. Anderson: Right.

(00:24:56)

Sarah Schaaf: And then, how are we allocating any budget or firm effort into retaining those customers and to making sure they are happy and they are going to come back.

So like do I want this customer?

Christopher T. Anderson: Right, first of all, do I want them, and yeah, because that’s a whole other marketing effort is the retention marketing.

Sarah Schaaf: Right. Absolutely.

Christopher T. Anderson: It almost sounds like if you think about it that there’s another ratio here that would be really interesting to develop, which would be the lifetime profitability of a customer versus their CAC and LTP to CAC ratio to really understand those segments even better.

Sarah Schaaf: That’s really true. You could even again for legal specific rate, is there something that’s like lifetime billable value versus lifetime collected value, and may be you can actually see like wow, we are really only collecting on less than 70% of what we bill and why is that. Well, they always ask for discounts, they always ask for a payment plan or reduced payment, whatever it is, they take so long to pay that then we offer a discount to collect whatever we can.

But what is the reason that we’re not kind of getting the most bang for our buck out of this customer? Is it something we can remedy or is it something that we know we actually need to find a better customer?

Christopher T. Anderson: Yeah. So we’re talking here with Sarah Schaaf, she’s the CEO of Headnote and we’ve been talking about what law firms can learn from Silicon Valley and so far, we’ve been talking about using the Life Time Value of a client against the Client Acquisition Cost to understand basically the efficiency of our marketing and sales and how it delivers revenue and then profit dollars to the business.

We’re going to take a break here and hear from our sponsors and when we come back, just fair warning, I think we’re done with the heavy math. So for those of you who are just like die-in with the math, we’re going to move on to some other ideas. We’ll probably talk about a little bit of math, but we’ll try not to use the word ratio anymore. We’ll come back and talk a little bit more about other lessons that law firms can learn from tech companies, but first a word from our sponsors.

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Christopher T. Anderson: And we are back with Sarah Schaaf, the CEO of Headnote. We’ve been learning a few lessons about what law firms can learn from Silicon Valley, and we’ve spent a bit of time here on understanding basically the efficiency and effectiveness of marketing and sales and delivering dollars to revenue and profits in the law firm. And I promised we’d come back with less math, I did, I promised no math, but there might be a little bit, but definitely less math.

So let’s start here Sarah, if you don’t mind, one of the things that I think people know, the magazines that are about Silicon Valley are called Fast Company and stuff like that so one of the things that Silicon Valley really prides itself on and the tech companies there, there and other places around the country too, is speed and efficiency, just driving, driving, driving efficiency into the business. What lessons from that aspect of the tech businesses can be applied to law firms?

Sarah Schaaf: Yeah, this one is like a super-important one that is something that we can take as lawyers, right. This doesn’t necessarily mean the way that you’re — you need to be providing high quality casework, right. So like don’t rush the work that you’re doing for the clients obviously, but it’s more related to like ways that you can just really efficiently speed up internal processes, kind of at the core, right?

Christopher T. Anderson: Right.

Sarah Schaaf: Make it part of your infrastructure. And so the best — and really Christopher, it relates to your customer service, right, like if you are providing the fastest kind of operations that benefit your client, they notice that. The number one way that I like to think about this and why it’s so important to law firms is something that we at Headnote, when I do any speaking engagements called Client Amnesia, and this is something that probably a lot of us relate to as lawyers, but maybe also as clients, because I am both, and as a client I have worked with law firms that I will get in touch with them to say, something came up, we need work, can you squeeze it in?

(00:30:02)

And they say yes, and they prioritize and they do whatever it is we need done, problem solved. I feel satisfied, I got value, and I go back to my normal life as a client.

And then like 60 days later, I get the bill and like as soon as I get that bill my brain goes into defensive mode, what is this, why is it so much?

Christopher T. Anderson: What the heck.

Sarah Schaaf: Well, I’m getting screwed.

Christopher T. Anderson: Yeah.

Sarah Schaaf: Like what are these guys doing, why and now I’m going through your invoice with the fine-tooth comb, wait a second, why is this an attorney task, this seems paralegal task to me and why did they spend 2.3 hours on this. I mean I went from 60 days prior this feeling of like pride and partnership and value and satisfaction to feeling like I’m getting duped, like and I’m immediately skeptical and my brain’s initial reaction is, I’m going to ask for discount, like this is ridiculous.

Christopher T. Anderson: Yeah what a huge loss for the firm to have you go through that.

Sarah Schaaf: Exactly. A huge loss for the firm in dollars, right, because they’re probably going to give me a discount. Again, handshake business, right, we, client asks we usually do it, but also it eroded my client satisfaction. I went from being a happy customer to now somebody who’s like feeling like I got — I got a little screwed in this deal.

Now, let’s like pause that, right. Imagine if I were to get that invoice within days of when I literally interrupted my lawyer’s day to say put on whatever you’re doing, I need help on this project. I would have paid it quick and I would have prioritized it, because at that moment, I’m feeling like wow those guys really made me feel like a good client, they prioritized me and they did a great job; like of course, I will pay this bill happily.

And that’s on us as an industry, right and I get because I’ve done it, right. There’s all kinds of lead billing, there’s — we do everything with a fine-tooth comb, we then send it into a pre-bill process. I’m not saying that, that’s something that your firm should cut out, right, you need to do what’s best for your firm. But there must be a way that you could cut that time in half.

Christopher T. Anderson: Yeah.

Sarah Schaaf: Can we start doing weekly pre-bills, right, instead of monthly or whatever the cycle is, and can we figure out a way through the use of software or internal better processes to get the invoice in the client’s hand faster and then make it as easy as possible for them to actually submit payment. Like your client doesn’t want to pay with the check, you don’t want to pay with the check, you don’t want to be stuck behind somebody at a grocery store who pulls out a checkbook.

So this is all the things that we’re doing that slow down our operations that we could learn from tech companies be faster.

Christopher T. Anderson: Or from restaurants, to be serious, like the bill comes when there is still wine on the table. Imagine, I’ve taken some clients out, you — after the first bottle, you wouldn’t sprung for that two hundred dollar bottle of wine, then you get the bill a week later.

Sarah Schaaf: Right and you are like, I don’t want to pay this.

Christopher T. Anderson: Yeah, no this is –

Sarah Schaaf: The wine wasn’t that good.

Christopher T. Anderson: And then, so to your point, it would be, it definitely leads to higher client satisfaction, probably I used to have a saying with folks that clients tend to have the same urgency in paying my bill as I had in getting it to them.

Sarah Schaaf: Exactly.

Christopher T. Anderson: And you probably get bills paid faster which means better cash flow for the firm and we could go into a whole show about speed of payment and how powerful a metric that is for a business.

Sarah Schaaf: Yeah, it is. And I’ll tell you like was you — I mean as most of us know like easier payment, if you make it easier and faster to pay, you collect more. That is just like there’s so much data on this at this point, but the fact is that, that is completely related to that client satisfaction, like clients know whether you make it easy or hard for them to do anything, right.

You want somebody to be answering the phone as soon as they call because no client wants to get firm group voicemail.

Christopher T. Anderson: Yeah.

Sarah Schaaf: Like you also don’t want to have to make your client do anything archaic on the back end. You want to give them that like high-touch customer service and so that is something that I think we overlook as an industry, right, we are so concerned with process and details up until the point that that invoice is created; like the billing, the case work, the documentation and then it like goes off a cliff.

And it’s in a black hole, and we have no data or insight or transparency into like how long did it really take to get this to them, how long did it take them to pay, did they receive it, did they open it, would it help to give them a payment plan, like what is the reason that we’re not actually getting paid on this. And instead, it is this handshake business right like you set that priority of saying thank you for the work, here is within a couple of days or a week, here is your invoice, this has net 30 terms for net 15 and we appreciate your payment, please click here to do so.

That sets that expectation of like this is a business like any other business. We shouldn’t feel guilty about it right, like can you imagine if you went to the doctor right, another highly educated service provider and specialized and said, and they said like oh yeah just pay us whenever.

(00:35:08)

Like just we’ll just send you a bill in like a month or two and like just pay what you can when you can.

Christopher T. Anderson: Which not for nothing, they used to, right, and they’ve gotten smart faster, and when lawyers are catching up, I mean and that’s —

Sarah Schaaf: You can’t get out of that office, you can’t even see the doctor until you pay your co-pay now. I mean I just think that’s — it’s something in this handshake nature of legal and I’m not saying that there aren’t old-school parts of our industry that should never go away, like there’s some really — some of the pillars of our industry are things that we should respect, but there are parts that we can update and we should not feel guilty about running a business.

And truly, it does actually give you more satisfied clients to set that expectation and to make it easier for them to interact with you, and that goes towards all of the ways that you get referrals and having them come back and tell friends or colleagues about your services.

Christopher T. Anderson: Right and so now that we talk about client satisfaction, I just want to mention briefly because I know we’re coming to the end of the show but I wanted to touch base on two more items really quick. One of the measures of client satisfaction that I’ve heard you talk about is Net Promoter Score or NPS score.

Can you just really briefly tell folks what it’s about and then we’ll give them at the end of the show if they want to follow up with you on that away to do that?

Sarah Schaaf: Yeah absolutely. This is another area than I — again from tech companies, right, everyone’s like NPS, like what’s a Net Promoter Score. Every single person listening to this with maybe a few exceptions, you actually participated in a Net Promoter Score, and you didn’t know it.

It happens when you are shopping online or you are on a social media site or you’re doing something online on your phone or computer and a little survey pops up, that says how likely are you to recommend The Un-Billable Hour to a friend or whatever it is, and it says one through ten, and you say 10 or 9 or whatever.

That is that company, they are judging their NPS score, which is how likely are you a user of our product likely to recommend our product or service to another person. That is a Net Promoter Score. The fact that we as lawyers have really rarely heard of this concept until recently, is funny to me, because there’s no other industry that relies on referrals as a source of business than us. I mean that’s how we get business.

Christopher T. Anderson: Yeah.

Sarah Schaaf: So the fact that we don’t actually know what this is and we don’t have a name for it, and we don’t really have a way of measuring it as attorneys, is ironic, because it’s maybe the one data point that if we knew again, we know exactly where to put money into getting more of those clients and keeping them happy, so that they can refer us to more new clients.

Christopher T. Anderson: Yeah, it’s a very forward-looking metric, it really tells you about where your business is headed. During the previous section where we’re talking about the client amnesia, better cash flow and stuff, you again mentioned something, you’ve said a few times during the show, which is a handshake business that the law firms have become a handshake or have been previously handshake business and how that’s becoming outdated.

So I was wondering if you could just talk briefly about like what you mean by that and what aspects of that we should really keep and what we need to update.

Sarah Schaaf: Yeah absolutely. So I think and this is like a loving, I use this as a loving term, because again, like this is a business that I have been working in and growing up and as long as I can remember and I have a lot of respect for lawyers in the legal industry.

But I do know that especially in like this current generation of lawyers, who are now becoming partners, becoming decision-makers, they are used to a more formalized kind of doing business with all of the service providers they work with.

Christopher T. Anderson: Sure.

Sarah Schaaf: Right, there are more internal efficient operations, you get sent a bill, you’re expected to pay all of these things. As lawyers, we have had this attitude that we are there to service our clients as our number one duty. And the part of our relationship that involves us running a business has come secondary.

And so if a client, whatever they need, we do it, like with a handshake, we will be there to support you whatever it is that you need, that is what we’re here to do and to protect you.

All those things should remain and I just think it’s more of this mental shift in, we do have a business to run, it’s not something that we should feel guilty about. Clients understand that they are engaging us for a particular service.

So getting a more formalized process in place, right, the same way that we like relentlessly have clients sign an engagement letter and do a conflict check, like that’s a great part of our business, like a lot of businesses don’t do that. It’s fantastic. We need to be doing those things kind of in different parts of our process without guilt, like asking clients to pay us in a certain term, whether it’s net 15, net 30, net 60.

Set your terms, let them know, this is how we like to get paid, here’s what the schedule is, here’s what we expect from you just like here’s what you expect from us.

(00:40:06)

Christopher T. Anderson: Yeah, yeah and it’s just really got to be done and I got to tell you and I’m sure you run into this too. You talk like that at a trade show, you talk like that in a speech and some folks are going to come up to you and tell you that that’s not what this it is. We don’t do that but I think you’re right, everybody is expecting that from all their other service providers today and they’re expecting law firms to become more like them and speed.

They’re expecting us to become more like them in our ability to meet them technologically where they are and so law firms I think do need to operate more like a business in order — listen, the more we operate like a business, the more we can deliver top-notch services because if we’re waiting on receivables that money comes out of service, it has to.

Sarah Schaaf: And the more efficiently we can do it which means we actually can give our clients better service at a fair price and I don’t want it to mean that I don’t want anyone to think I mean that we need to be cold like above all else, we’re there to protect our clients and make their lives easier, right, that’s what I always thought of lawyers like a lawyer is somebody that when you call them with a problem, they help you feel like they are going to help you take care of it. Right, like that’s the safety you should feel from your lawyer.

This doesn’t mean that if you set net 30 terms that you send them to a collection agent, no, like what it means, what it means is like that is an internal trigger for you, right you as a firm should have some kind of uniformity in your processes that — like okay, this client we have set expectations, this client is 30 days past due, this is now what we do, we reach out to them whoever it is on your firm you make that decision, what’s the cadence, what’s the messaging, right maybe it is a matter of like we need to give them a payment plan, maybe you know you are in a kind of business where this is a client that just had a hard judgment right it’s going to be hard for them to pay these legal bills.

It’s not saying that we need to not be on the same side of the table as our client, it’s just really a matter of framing expectations and then making our internal process and infrastructure mirror those. So that we actually have things in place to track this data, collect it, measure it, analyze it. So I hope it’s not to be any kind of offense to our industry, it’s just a matter of kind of realigning our expectations so that we are in line with what other businesses are doing today.

Christopher T. Anderson: Great. Well I’m going to challenge our listeners, if you guys, if our listeners, the Un-Billable Hour listeners you want to hear more about accounts receivable and how A, the toxicities that you don’t know about and B, how to improve that for your business, go ahead and send it tweet to the Un-Billable Hour or hit us up on Facebook or send an email to [email protected] and we will — if you want it we’ll do it and if you want Sarah to be the guest for that, let us know and we’ll bring her back.

Sarah, are you willing to come back and be the guest?

Sarah Schaaf: Absolutely, I will be so happy to do so.

Christopher T. Anderson: Awesome. Great, listen let’s wrap this up for our folks by giving them three tangible ways, three tangible things that they can do ASAP to actually bring in and implement in their businesses, in their law firm businesses as lessons from Silicon Valley.

Sarah Schaaf: Absolutely, I mean I think the first one is just to start having more understanding and respect for data and how we can be — it’s tracking right, you got to track it but then you also need to analyze it, that’s the part that sometimes we don’t do and that can inform decisions. So just using our data and utilizing it and leveraging it.

Christopher T. Anderson: Yeah so track it, analyze it and act on it, right?

Sarah Schaaf: Exactly, exactly, right it’s easy to track it but you got to keep going. Uniformity and process I think is number two. So like if first we are having more respect for our data, next is that we need to make sure that we are having uniformity across processes at our firms. So that you have essentially a repeatable model so you can understand how to have a client go from intake to payment to reengagement over and over. So if there are parts of your process that seem like they have black holes or lack the uniformity that would make them more efficient, time to get that fixed.

Christopher T. Anderson: Great.

Sarah Schaaf: Number three, last one, is just to be constantly looking at how you can streamline and improve like once we’ve got something in place like this is something that we do at our company and that most tech companies do, is you do retrospectives after a case or after a certain amount of time right and we say what worked, what didn’t work, what can we commit to changing, how can we make this better next time.

So once you’ve got the data tracking and you’re really respecting your data, you’ve looked at your processes and corrected anything that’s not uniform or lacks process then it’s just a matter of keeping that mindful eye to like let’s make sure that we’re checking in on this and figuring out ways that we can always meet striving to make it better.

(00:44:52)

Christopher T. Anderson: Very cool, great, great. So data, using and utilizing data, and tracking, analyzing, measuring it, and acting on it, making sure you have a uniform process in place all the way from marketing to payment, all the way through collections and then finding constant ways to improve by doing retrospectives and understanding what worked, what didn’t work, and what can we actually commit to changing, that’s the third thing.

Sarah thanks so much. This has been a great show.

Sarah Schaaf: Thank you guys so much. Christopher, it’s always fun to chat. I really appreciate it.

Christopher T. Anderson: You bet. And this wraps up our edition of the Un-Billable Hour, the Law Business Advisory podcast. Our guest today has been Sarah Schaaf, she’s the CEO of Headnote.

Sarah before we go can you give folks ways to contact you, website, Twitter address or another way to reach out if they want to learn more about what we’ve been talking about?

Sarah Schaaf: Absolutely. Any time, anyone has questions about what we’ve talked about reach out or want to engage, I love that, [email protected] or go to headnote.com to learn more about us and please reach out anytime.

Christopher T. Anderson: Thank you so much and folks if you want to let us know about that AR episode or anything else about the Un-Billable Hour, our information are on the show notes on the Legal Talk Network.

This is Christopher Anderson and I look forward to seeing you next month with another great guest as we learn more about topics that help us build a law firm business that works for you.

Remember you can subscribe to all the editions of this podcast at legaltalknetwork.com or on iTunes. Thanks for joining us. We will see you again soon.

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Outro: The views expressed by the participants of this program are their own and do not represent the views of, nor are they endorsed by Legal Talk Network, its officers, directors, employees, agents, representatives, shareholders and subsidiaries. None of the content should be considered legal advice. As always, consult a lawyer.

Thanks for listening to The Un-Billable Hour, the Law Practice Advisory Podcast. Join us again for the next edition, right here with Legal Talk Network.

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