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Post # 947
Assessing Whether You Have an Effective Industry Focus
I received the following query: “How would we know whether we are taking the right steps in shifting some of our firm’s attention to a few client industries?”
Here are a dozen questions, I have often used in workshops to help Executive Committees self-assess whether the key issues that need to be considered are being addressed and what issues may require remedial action:
#1: Does our firm truly understand how much importance our CLIENTS PLACE ON INDUSTRY knowledge?
#2: Does our firm leadership really believe that industry knowledge has a direct and meaningful impact on our overall FINANCIAL PERFORMANCE?
#3: Has our firm made definitive decisions about which SELECTIVE INDUSTRIES TO STRATEGICALLY TARGET and focus on?
#4: Has our firm organized and actively recruited PARTNERS TO join and COMMIT a specific number of non-billable hours to working on ONE chosen industry team?
#5: Does each industry group have a leader (or co-leaders) TRAINED to manage, coach, support and facilitate the group’s initiatives?
#6: Does our firm have any formal programs and budgetary RESOURCES AVAILABLE to develop the industry competence and expertise of the partners?
#7: Does our firm have industry focused RESEARCH PROGRAMS that monitor and identify emerging industry trends?
#8: Has each industry group developed a formal, written STRATEGIC PLAN identifying specific niche opportunities, where they are working to develop a position of dominance?
#9: Has our firm assigned specific MARKETING professionals to SUPPORT each of the industry teams?
#10: Does our firm make an active effort to capture and LEVERAGE the industry specific intellectual KNOWLEDGE gained from client engagements?
#11: Are industry competence and expertise assessed and tied directly to our LATERAL RECRUITMENT efforts in order to build upon the industry group’s market strength?
#12: Does our firm report and ASSESS PERFORMANCE by industry (fees, profitability, growth, partner contribution, partner promotion, compensation decisions, etc.)?
You are welcome to learn more about having an effective industry focus by downloading and reading my newest book (17 Chapters / 290 pages) entitled - "INDUSTRY SPECIALIZATION: Making Competitors Irrelevant"
Your copy may be accessed here with my compliments: https://bit.ly/3KrrXwf
Post # 946
Beware The Zombie Client!
Inflation hit a new 40-year high of 8.6% in May. High inflation has forced the Federal Reserve into what will likely be the fastest series of interest rate hikes in three decades. Expect them to raise interest rates by AT LEAST another 2 percentage points this year. By raising borrowing costs aggressively, they hope to curb inflation. It promises to be an extremely difficult balancing act.
In an earlier post titled The Inflation Tsunami, I warned “Identify those existing clients whose inflation impacted financial position could adversely affect YOUR firm’s business. Not every client is a client worth having. Working capital, the selection of clients and client relationships must be managed far more carefully.”
Law Firms have been riding high on a post-pandemic wave of unprecedented financial success. But today, America’s ZOMBIE Companies have now racked up $1 trillion in debt; aren’t earning enough to cover their interest expenses let alone make a profit; and are at high risk of insolvency or abrupt implosion as these interest rates rise. Zombie companies are at least 10 years old. Think American Airlines and Carnival Cruises, massive companies propped up by name recognition and a friendly lending environment, that were once America’s case studies in success and the most desired of law firm clients.
According to a Bloomberg analysis of financial data from 3,000 of the country’s largest publicly-traded companies, Zombies now account for nearly 20% of those firms (and perhaps your current clients). Their numbers have been increasing for over a decade, fueled by years of ultra-loose monetary policy. Zombie companies get their nickname because of their tendency to limp along, unable to earn enough to dig out from under their obligations, but still with sufficient access to credit to roll over their debts. Soaring inflation coupled with rising interest rates may be just enough to push a wave of Zombies from undead to dead dead!
From an INDUSTRY perspective, one of Thomson Reuter’s analysts identifying areas ripe for growth during a downturn, claimed that Real Estate was an area where firms should focus.” I DISGAREE. The real estate industry had the highest absolute number of zombies. In commercial real estate, April’s 16% decline in sales marked an abrupt turn from March and had a number of economists saying “the speed of that transition is shocking.” Other investors are walking away from large deals already in contract. And as firms fight to acquire Private Equity Industry expertise, deal making has slowed. Exit activity stalled from the 2021 frenzied pace. PE investors face a much more difficult environment moving forward, exemplified by less liquidity and an increased focus on valuation by buyers.
Now:Focus on certain INDUSTRY clients that are profitable and more inflation proof.
Post # 945
Sharing Firm Leadership: NOT For the Faint of Heart.
Interestingly, there is a pronounced trend toward firms adopting a shared leadership model, with perhaps the most recent example being the elite litigation firm of Quinn Emanuel. See Karen Sloan, “Litigation giant Quinn Emanuel beefs up leadership, elevating DC, NY partners,” Reuters, May 13, 2022 (noting that 900+ lawyer firm “has shaken up its leadership model, installing two prominent litigators as co-managing partners and shifting namesake Los Angeles-based founder John Quinn from sole managing partner to the newly created role of chairman.”).
If your firm has potential office, group (e.g. “our Global Litigation Practice”), or firm leadership candidates who would be great in the role but are reluctant to give up any of their client responsibilities, the notion of having co-leaders may be an attractive alternative. But, the reality of what can occur, is a lot more complicated.
Over the years I have been a first-hand witness to numerous incidents where the leadership duo has imploded. The job of leading a law firm may certainly be demanding enough for two professionals; but the acid-test is getting two people to really share the role.
For example, there are certain leadership responsibilities which naturally confer more power than others. Duties that involve the setting of the strategic direction, investment choices, or selecting key professionals could place one leader in a superior position over another leader. Unless the power structures are equitable in these power roles, a firm may find that one of their co-leaders is a Co-Chair in name only. That can create high levels of resentment if pay levels are equal, which creates even more stress in the working relationship. Disagreements will be inevitable. If power struggles come to the fore, chaos can ensue.
My observations and research show that firm leaders who relinquish their practices to assume management responsibility may be in a tough spot when their leadership role comes to its conclusion. In my work over the years with training (First 100 Days Masterclass) new firm leaders, I have found that only about 23 percent of firms have any formal ‘parachute provision’ or other compensation formulas to help them ease out of the leadership roles and back into full-time practice. Thus, following your retirement from leadership, you may find yourself having to work under a new compensation arrangement, contingent on your performance as a full-time practitioner. Meanwhile, having passed your client load off to other partners in the firm, you now lack the traditional hefty book of business that makes you attractive to your, or any other firm.
In this article I provide 7 prescriptive guidelines that I counsel co-leaders to sit down and have a frank discussion about.
Read the entire article at Legal Evolution:
Post # 944
Beware the 2022 INFLATION Tsunami (Part Two)
I authored a post on the ravages of inflation some six months back. Now with inflation at 40-year highs, increasing fears of a LOOMING RECESSION, volatility spikes in the market and a relentless quest for top talent, your firm must take decisive action. So what to do?
Here is what I would strongly recommend:
• Launch an Inflation Action Group comprised of those individuals on your Executive Committee who can understand a Financial Statement and are your best 'numbers geeks' to study what inflation has done in the past and discern the lessons for what you need to do going forward. Their goal is to help everyone transition their thinking to a world where the cost of capital and the cost of doing business are both going up at the same time. There is no more urgent a task for Executive Committees than to get ahead of the dire effects of inflation.
• Have your CFO determine the firm’s cash and competitive position if and when the inflation rate increases to various levels. It is advisable to have some forward-looking financial scenarios. Have the CFO propose various options for how the firm might operate at different levels of inflation.
• Cash management is your keystone to managing in inflationary times. Have your CFO develop a tracking system for where the cash is coming from and where it is going . . . on a daily basis! What is the right level of firm debt, margins, receivables, costs – and billable rates. Your Inflation Group should create a framework of priorities to determine how cash should be allocated.
• Track real data on your clients and their spending. The most important thing is continued cash flow generation. Identify those existing clients whose inflation impacted financial position could adversely affect YOUR firm’s business. Not every client is a client worth having. Research what is happening with your largest clients and what is happening to their customers as well. What is each client’s cash pain point? How are they managing to absorb inflation?
• Working capital, the selection of clients and client relationships must be managed far more carefully. Focus on certain INDUSTRY clients that are more profitable and more inflation proof. Identify what certain clients are willing to pay more for and focus your efforts there. This means focusing on certain segments of your market and withdrawing from others.
• Almost all clients will do their best to extend the terms of payment and in an inflationary period, any payment delay is unacceptable. To protect cash flow and profitability, you will need to revisit any long-term contracts and change those that lock you into situations that could lead to you experiencing a cash shortage.
In the final analysis – Make Harder Decisions Sooner.
How you think about inflation and your PROACTIVE responses, will determine whether your firm thrives in any coming recession, and even gets out ahead of your competition.
Would You Rather Be A Leader or Manager?
In a recent discussion I had with the management group within a particular law firm, I began to say, “as group managers . . .” when I was interrupted mid-sentence and told that the proper title was “group leader.” I’ve noticed this same behavior on a number of occasions as if to suggest that there is some contempt attached to the word “management” and a sense of esteem attached to the term “leadership.”
I was ruminating about this issue when I came across commentary offered by Jim Collins, the best-selling author of Built to Last, Good to Great, and Great by Choice. Jim was commenting on the contributions of Peter Drucker, the late father of modern management . . .
"As Peter Drucker shows, the very best leaders are first and foremost effective managers. Those who seek to lead but fail to manage will become either irrelevant or dangerous, not only to their organizations, but to society."
Drucker belonged to the church of results. Instead of starting with an almost religious belief in a particular category of answers — Drucker began first with the question “what accounts for superior results?” and then derived answers. He started with outputs — the definitions and markers of success — and worked to discover the inputs, not the other way around. The more noble your mission, the more he demanded: what will define superior performance? “Good intentions,” he would seemingly yell without ever raising his voice, “are no excuse for incompetence.”
For my part, I really don't care which label we use as long as the lawyer given the title is prepared to do the job that goes along with the title. Perhaps we should have more firms adopting the title of Group Coordinator or Group Coach. I’ve said to many firm leaders, I think we made a huge mistake in calling our people practice or industry group "leaders.” For one thing, everyone wants to be known as a leader, but too few want to devote the time and really work at doing the job that is required.
And, all too often the concept of leadership is taken to mean being a “role-model.” Or put slightly differently, “I was clearly promoted to this role of leadership because I am such as successful practitioner. So, just do what it is you see me do and you too will be successful”
Don’t we all wish it was only that easy?
Post # 942
Launching A NEW Industry Team.
I received the following question: “At our upcoming Retreat, where we will actually be together, I’m attempting to informally get a small group of about 8 attorneys that all do some work with Aerospace clients, into discussing whether we might actually form an industry group. Any guidance on how I might approach these discussions?”
> I might suggest that you facilitate a discussion by going around the table with each of your colleagues asking the following sequential questions:
• Introduce yourself with some background information on why this particular industry is of PERSONAL INTEREST to you.
• Identify the “depth” of your industry experience by providing EXAMPLES of the sub-industry clients that you have had the opportunity of working with.
• What have each of us LEARNED about working with this industry that others around the table may not know, including any new developments or trends that you see emerging that may affect the players in this industry?
• Identify and discuss what particular industry publications, newsletters and blogs you are each currently subscribing to or “REGULARLY READING” – and which publications are not included that could be regularly reviewed.
• Identify and discuss what particular industry associations and trade groups you are each currently “ACTIVELY INVOLVED” in – and which we are not yet members of but could be, and what potential benefits might accrue from personal involvement.
• What CHALLENGES do you or could you face attempting to develop new business in this industry?
• Who, specifically, is your ideal, TARGETED CLIENT NICHE within this industry if you were to focus some efforts on attempting to build more of a presence?
• What new threat, problem or obstacle are these niche clients facing and what could you DO, or have you done to help them overcome that difficulty?
• How do these industry clients actually make money and what could you DO to help them make even more money?
• What is it that you are UNIQUELY able to offer this industry that is of value, and that these prospects / clients may NOT be able to get from most other firms?
• What is the one thing each of you are DOING that you believe is bringing in the most business?
• Would there be any benefit to us in exploring further conversations together where we could focus our discussions on setting out action plans to have a real market presence in this particular industry?
I will bet that the responses you generate with this last question will help shape what you collectively decide to do next
Women Business Owners and the Industries They Favor.
Something that surprises me is the large amount of attention devoted to diversity accompanied by the small number of law firms that have a Women-Owned Businesses Practice. Meanwhile, accounting firms, like Ernst & Young, helps women-owned businesses with $2M in revenue or above scale quicker, and hosts an executive leadership program that includes year-round education, networking, and events.
The number of women business owners has more than doubled in the last 2 decades. There are now 12m+ female-owned ventures in the US, generating over $1.7 Trillion. This group is also becoming increasingly diverse — 64% of businesses started by women in 2020 were founded by women of color, making entrepreneurship a great engine for economic mobility. Yet the barriers between women and entrepreneurial success continue to limit progress. A recent survey revealed a range of issues facing female business owners, including:
- Establishing their business’s reputation and finding clients
- Getting capital and finding investors
- Maintaining a work-life balance
Despite making up 40% of all business owners, women receive just 7% of VC funding and only 25% of female owners pursue business financing. However, the tides are changing, and female trailblazers have created women-focused VC FUNDS (Halogen Ventures, Glasswing Ventures, Fika Ventures, SoGal Ventures and 112 Capital); NETWORKS (Amber Grant Foundation, Women Startup Lab, Ellevate, WEConnect International) and other resources. For entrepreneurs, IFundWomen with offices across the U.S., is a marketplace that’s raised $2.4M to help women crowdfund their ideas.
Since the percentage of women and minority-owned businesses has been on a steady upswing over the last five years, I’ve noted some of the favored industries for women owned firms – see illustration. As women leaders become more prominent in existing industries, this will also motivate young women to enter emerging micro-niches, such as female technology (FemTech). FemTech companies focus on improving all women's wellbeing. Some Interesting examples include:
• 'Clue' helps over 13M women each month get insights into their reproductive health using its Android and iOS apps. The company raised $31M and gained FDA clearance in the U.S. last year.
• 'Elvie' with offices in New York City, raised $42M to develop women-focused healthtech. The company’s first release was an app-connected Kegel trainer that helps women strengthen the pelvic floor. Its latest is the Elvie Pump, the world’s first silent wearable breast pump.
• 'Carrot' is working to modernize fertility benefits. The company, with offices in New York City and San Francisco, offers a network of 1.9k clinics in over 40 countries for everything from egg freezing, in vitro fertilization (IVF) and adoption, donor, and gestational services.
With 12+m women-owned ventures out there, do you wonder how many your firm might already be serving?
Target The Industries Within The Industry.
If there is one industry that has contributed dramatically to the 2021 fortunes and record setting profitability of some top tier AmLaw 100 firms, it would have to be the Private Equity Industry, which globally has more than $2 trillion in capital ready to invest. At Kirkland, outside of its Chicago base, its offices are almost entirely focused on this one industry.
Others seem to be scrambling to compete, some by laterally recruiting high level talent in this area. For example, DLA Piper recently announced that it is adding a group of nearly 30 PE attorneys in a move that's part of the firm's push to entrench itself as a premier player in the middle market.
How else could one play to win in this industry?
One thing you always need to be doing is monitoring new developments and disruptions occurring in any client industry. For example, what happens when this same PE industry decides that it needs to become more industry specialized going forward? Will this open up new opportunities for competing with any firms now taking a generalist view to serving Private Equity clients?
My research indicates that SPECIALIST private-equity firms are now gathering a larger share of investor wallets in a crowded PE market where differentiation is becoming increasingly important. Funds with “clear areas of expertise” are drawing more investor capital than otherwise might have gone into traditional buyout funds. And what that means is that many PE firms are becoming more focused on specific industries, internally developing more industry expertise, and will be looking for advisory and LEGAL resources who also have that same expertise.
This year, two thirds of PE professionals expect MORE M&A transactions with PE involvement than in 2021, with certain industries perceived as the most attractive. I would identify the following top ten ‘groupings as the more lucrative target markets: #1: Technology, media and software / #2: Pharma and healthcare / #3: Business services and logistics / #4: Infrastructure / #5: Energy and Utilities / #6: Consumer goods and retail / #7: Financial services / #8: Industrial goods and engineering / #9: Building and construction / #10: Chemicals
As but one example, it’s reported that One Rock Capital Partners’ focus on the chemicals and industrial sectors has led to deep deal sourcing as well as relationships with bankers to those sectors and others with knowledge in the evolution of these industries to make finding and evaluating deals a smoother process.
A new BTI report identified 5 tactics driving record breaking profits and growth, telling us that top legal decision makers repeatedly say that a law firm’s understanding of their industry is the biggest differentiator in the legal market today and also one of the largest drivers of premium rates.
“First Among Equals” Nominated for Recognition Award
SUBMITTED by Dennis Kennedy (Center for Law, Technology & Innovation at Michigan State University; independent consulting innovator; citizen of #CreatorEconomy; advisor):
Thinkers50 has just launched a search for those indispensable business books that every manager should have in their library and are looking to ask YOU which books you would include among your all-time greats.
THE CRITERIA: books that have had a lasting influence on the way we think about and practice business and management, and which still have something to teach us today.
Please join me in formally Nominating: First Among Equals: How To Manage A Group of Professionals by Patrick J. McKenna and David H. Maister
Whether you have recently been appointed as a group leader or are a battle-scarred veteran, you know that managing professional people is difficult! In this unique handbook, Patrick J. McKenna and David H. Maister argue that leaders will best enable their people to achieve peak performance not by managing them, not by leading them, but by inspiring them.
Harvard Business School’s Working Knowledge calls it “a timely, easy to read work leavened with action plans and examples.”
Do You Know What Pressures Your Client Faces?
According to a new study conducted by Corporate Board Member, 75% of corporate directors reported they would like their General Counsel to express views on business strategy and actively participate in strategic planning – BUT as one expressed it “In my experience with six boards, it's hard to find a GC who has the breadth to make contributions at a strategic or business level.”
There is a huge difference between the expectations on General Counsel today compared to 10 years ago; and not everybody has evolved such that finding someone who fits the bill can be a challenge. In fact, when board members were asked to rate their satisfaction with their GC across various competencies such as business acumen, EQ, integrity, leadership and communications, strategic perspective ranked low on the list.
As a number of directors expressed it, when it comes to working with the GC, most important in the board’s eyes is for the person to have a good understanding of the purpose, vision and strategy of the company in order to provide counsel that is targeted and specific. “I have, in the past, had situations where GCs tended to a lot of legal provisions, but if they’re not able to relate them to the company in a practical way, you’re left wondering, ‘What do I do with this?’” said a Director on the board of Reinsurance Group of America.
So how can YOU ADD VALUE?
MYCOUNSEL: If you know your client’s business, which means KNOWING the inner workings of their INDUSTRY, perhaps you can help the GC by delivering some strategic and proactive counsel.
According to one Industry Group Leader, this advice should serve as an example:
“It’s critical to see beyond the short-term task list and think more strategically. Clients and potential clients want forward-leaning legal counsel who can see around corners and protect their business interests—it’s that simple.
Your job is not only to do great work for your clients but help them prepare for challenges that aren’t even on their radar. It’s crucial that you spot what’s ahead because when a client brings up an issue that’s become a pain point, you’re already playing catch up. That’s not a position you want to be in. With technology rapidly progressing, clients are seeking legal counsel with experience and long-range vision who can identify pitfalls they may have overlooked. They know your real value is not just in the day-to-day work, but in heading off major headaches and institutional crises—having foresight about regulatory changes long before they’re covered in the news media or announced in a press release.
I now prioritize building an elite team that will flawlessly execute on client work and assess the wider regulatory horizon for percolating problems. My goal is to prevent the hands-on, day-to-day management tasks from obscuring the bigger picture—to see how our work fits into the constellation of moving parts within the client’s industry.”
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