Business Litigation--Settlement is Inevitable

My friend Vickie Pynchon wrote this great post for Forbes.com titled "A Heart to Heart with Your Business Laywer."   In short, she explains to business litigants that, since you will end up settling, you should try to figure out how to settle with the least cost and overall grief from the outset.  This will require you to look your opponent in the eye and have a conversation with her and come to a business agreement.

As a former big ticket IP litigator, I can say I agree 100 % with Vickie.  Litigators got to litigate.  That's their business model.  They need litigation to survive like they need food, clothing and shelter.  Few entrepreneurs or corporations are in the business of litigation, however.  This means litigation is a deviation from their chosen business model and decision makers must figure out how to end it before it weakens their ability to sustain their companies.  In order to do this most effectively and efficiently, the litigants must sit down together early in the process, a time when it is most difficult to do so.  Typically, and this is Vicky's overall point, people are loathe to do so before they have bled time, money and resources into a futile business litigation where settlement is required.  While it takes a lot of guts to face one's opponent early on, if settlement is the inevitable outcome, why not go ahead and get it over with and get on with your respective businesses?

Maximizing Exit Value: A Short Primer

This short presentation on how to think about exit value will be helpful to entrepreneurs who are looking to sell their business to someone else in the future.  The key to maximizing exit value is to get others to think your venture is worth as much as you do.  A few tips and tricks are set out in the presentation, and the Lean Legal Team of Michael / Hutter can let you in on a whole bunch more.

The Fixed Cost Problem of Law Firms and How Clients Can Avoid It

"The Fixed Cost Problem"

In a previous post, I posited why we are now seeing some US law firms modify their processes using Lean Six Sigma or other, less formal processes, in recent years. In this post, I will demonstrate why I believe that clients seeking business advice should engage lawyers who can provide service to allow avoidance of "the fixed cost problem," which exists at law firms as much, or more than, at other types of business.  Lawyers who live lean can provide high quality legal services without needing to reinvent themselves by going lean.

Large law firms feeling push-back from clients over high legal fees have become increasingly adept at offering "alternative fees."  These lawyers are able to do this more confidently because they have learned in recent years how to squeeze efficiencies out of their legal practice models.  However, regardless of the discounts from prevailing hourly rates clients are able to obtain from these law firms, the fixed costs associated with establishing and maintaining a large law firm business means that even the "alternative" fee arrangements charged by these law firms must always be sufficient to provide the desired profit level only after the fixed costs have been exceeded.  Clients must question whether their issues merit payment of fixed costs that pay for things  that may not, in fact, add to the quality of their legal service.  If these fixed costs sustain people, technology and amenities that do not directly add to the quality of the legal services for which a client has engaged the attorney, they should be considered as "waste" as applied to the client.

Law Firms as a Business: A Broken Model Ripe for Lean Process Innovation

Ephraim Michael and I were able to grab the "LeanLegalTeam.com" url, which I found a bit surprising because we are not the only lawyers who are actively touting the benefits of legal practice the lean way.  For example, the US mega-firm of Seyfarth Shaw has a practice group it calls "Seyfarth Lean," which got a nice write up in the New York Times last year.  There is also a Canadian consulting firm, Gimbal Canada, with a business model of helping lawyers become more efficient by applying Lean Six Sigma to their practices. These, and likely others, examples demonstrate that their is a burgeoning movement by lawyers to transform the traditional practice model, a model that is undeniably broken.

There are striking parallels between application of Lean Six Sigma principles between traditional law firm models and manufacturing, the latter of which served as point of adoption for building efficiencies into existing business infrastructures.  Much like corporations, law firms originated as a way to centralize resources and build efficiencies into a validated business model.  In the case of law firms, clients needed legal services, but it was expensive to practice alone.  Lawyers joined practice groups to share not only expensive law books needed for access to cases setting out precedent, but also to join with partners having highly sought after specialties (e.g., tax law, patent  law), that allowed them to provide "full service" to clients.  In time, clients came to rely on the law firm as a mark of quality legal services in that lawyers in a prestigious law firm provided reflective credibility to the apparent legal skills of lawyer in the same firm.

Over the years, however, the business model morphed from providing legal services to being a law firm which, in turn, made client the customers who provided the profits that made high salaries and nice offices possible for successful lawyers.  Support of this model required the hiring of more associates and staff to allow scaling of the revenue stream and this, of course, caused even more expense that had to be recouped from client billings.  Business people would understand this as increasing the lawyers' fixed costs.

Lean Legal Practice Means Never Having to Write a New Agreement from Scratch

We'll start the Lean Legal Blog by letting you in on a big secret:  I haven't drafted a document from scratch for years.  Why should I?  My files are full of solid agreements that previous clients paid me handsomely to prepare.  And, if I don't have a document needed for a particular issue, I just ask the Great Google to find me an assortment from which to choose.  Many agreements emanating from the law firms of large public companies are placed online in public securities filings and others are available online for review, cutting and pasting for no apparent reason.  For more focused searching, I can review a growing list of businesses where experts--lawyers or otherwise--post their forms online for people to use.  Some of these like WhichDraft charge per download, but others like Docracy provide documents free for the taking.

When learning the ropes of legal practice, business lawyers like Ephraim Michael and myself spent 1000's of hours as young lawyers preparing agreements for clients--often badly at first--but always expensively.  Today, I am an experienced lawyer in the areas needed by my business clients and I don't add value for clients by demonstrating to them my skills in agreement composition. In fact, I feel that at a minimum, I am being wasteful if I give them a newly created document.  Often when I am reviewing the work product and bills of other law firms, I wonder if the attorneys realized that they were stealing from the client, because that's what it looked like when you see $1000's in fees for drafting from scratch a standard commercial agreement that is widely available for free on the Internet.