Feature

posted 15 Dec 2005 in Volume 8 Issue 7

Liberating the legal business model

Many smaller law firms are facing tough times ahead as a recent government white paper promises further changes in the legal landscape. But Withy King Solicitors has implemented an innovative customer-focused business model that puts it ahead of the game in embracing the changes ahead.

By Martin Powell, managing partner, Withy King

In the 1990s, when Withy King Solicitors had one office in Bath, it was too small to make an impression on the wider regional map, let alone nationally. But the firm was as big as its immediate marketplace in Bath required. It was recognised, however, that strategic growth would enable us to invest in a broader infrastructure to support our lawyers so that they could deliver world-class customer care.

I have a passionate belief in strategic merger and acquisition as a highly effective means of growth, provided the firm’s culture, which focuses on a ‘can do’ attitude, is not compromised. In 2002, we acquired Swindon firm Quinney Jagger and then, in 2004, leading specialist racing and bloodstock practice, Chalk Smith Brooks.

These acquisitions not only widened our geographical spread, but in the case of Chalk Smith Brooks, positioned us as a leading player in an established and loyal market. The latter also provided new business opportunities, not only with your expected jockeys, trainers and owners, but also large landowners and businesses. As such, the work naturally dovetailed with other practice areas including agriculture, commercial property, employment and personal injury.

Fragmentation

While focusing on organic growth, I am also continuously looking for new alliances and opportunities for the firm.

In this endeavour, I have taken advantage of the fragmented state of the legal profession. In looking back over the past 25 years, delivery of general legal services was the preserve of high-street firms in towns and cities across the country. People lived and bought locally, often staying with the same firm for generations. With a far more transient population, the evolution of the internet and the growth of global markets, the small firm partnership serving local communities has become much less relevant. The burden on small general practices to provide effective finance, IT, HR, marketing, operations and risk-management support to lawyers is becoming so prohibitive that such practices will have to fundamentally change in order to survive and remain profitable. This shift within the industry could see partnership structures wane in the future and corporate structures prevail, as the world of commerce steps in to bolster the industry.

Withy King has already begun to move in this direction through our positioning as a professional-services business rather than just a firm of solicitors. We have taken the bold step of creating businesses with separate identities, under the Withy King umbrella, which have emerged as a result of customer need or internal specialisms and skills. We currently have four separately branded businesses:

Withy King Solicitors – a full-service firm that acts for both businesses and individuals across a range of commercial, private client and litigation matters;
Complete – shop-front locations delivering fast and efficient legal services and products, such as wills and conveyancing;
Accrue – investment-management and stock-broking ‘boutique’ retail services;
Flamesoft – provider of network-integration services, web design, software products and business-improvement consultancy.

This fragmentation of business offerings is based on our commitment to making them more focused and transparent for clients and those from different backgrounds who deliver the services. This business model works in synergy with the recently published white paper1 on the future of the legal industry, which stresses the need to make obtaining legal advice much easier for the public and to improve the consumer’s experience of the legal profession.

Buy-in

I have always found that in any major firm-wide change, particularly in the case of mergers and acquisitions, the key is to keep things simple and communication transparent. One of the advantages of having a lawyer as managing partner is that the knowledge and experience gained over a number of years is invaluable in understanding not only the marketplace in which the firm operates, but also the requirements and psychological profile of the partners and staff, who are the key stakeholders. When I set about taking steps to make the vision for the firm a reality, I worked very hard, with the support of my team, to infuse all the partners with enthusiasm for what the firm could be. This was absolutely critical to our success.

You cannot drive a business forward if you have individual mavericks pulling the firm in different directions. Buy-in is an emotional response and from that springboard, everything else will follow.

Our growth strategy means that partners must constantly invest in staff, marketing and other support services, which can be a difficult pill to swallow. Partners, therefore, must be allowed a voice in setting the strategy. And, thereafter, the firm needs a management team to deliver it within a collegiate atmosphere. Incidentally, this is a key reason why profitability benchmark comparisons between firms can be misleading. The statistics do not reveal the strategies of the individual firms in terms of investment for future growth.

Core values and business models

There are many business models in existence and evaluation tools to help you devise a strategy for growth; the skill is selecting one that you can practically implement and to ensure that it suits the culture of your organisation. Key areas that Withy King focused on were structure, strategy, style, staff, skills, systems and, most importantly, shared values, which the whole firm would subscribe to. The latter drives everything. However good a lawyer may be, if they cannot work within the firm’s core values they should not, and must not, be allowed to stay – for their benefit and

for the good of the firm. This requires strong leadership and management, and is where the HR function truly comes into its own in acting as a conduit to identify those lawyers who work outside the firm’s value system.

Branding

Understanding what clients want is crucial in the delivery of professional services. Withy King has developed two branded legal-services businesses to meet the challenge: Withy King Solicitors and Complete.

Withy King will continue to deliver legal solutions to clients that perceive that their needs are complex and that are prepared to pay for a professional service. Complete, however, strips down legal work to offer straightforward, cost-effective product solutions from a retail outlet.

Clients perceive that high-value commercial or private-client services, such as estate planning and ancillary relief disputes within divorce, require a level of expertise that they are prepared to pay for. There are other transactions, such as moving house or making a will, that through the eyes of the client do not require such legal capability and are, therefore, price sensitive.

An examination of the clients using Complete is very revealing. Individuals with very valuable properties or business interests can often be found in the shop on a Saturday morning; which proves that the way the public buy professional services is changing.

No firm should be all things to all people and focusing the two brands on the different requirements and perceptions of clients has proved a successful strategy at a time when professional-service firms struggle to find a point of differentiation.

Managing the brand

Although Withy King Solicitors has a relationship with its peripheral brands, it is critical to remember that the firm itself will always be the first priority as it is the largest part of the business and has the infrastructure to support entrepreneurial activity.

In managing brands, as with all aspects of its business, short lines of authority, with accountability and delegation of responsibility, are important in letting managers take the initiative in growing different aspects of the business. Withy King encourages an entrepreneurial culture with supportive, non-intrusive management.

With brands such as Accrue and Flamesoft, which are non-core businesses, we have ensured that they have separate existences and their own business models and strategies, which, in these two cases, stockbrokers and IT professionals can relate to. Conversely, both sides need to understand that when they work together they can be seen to be offering powerful added-value services to each other’s clients.

Structures for growth

With the growth of the firm it was essential that the stakeholders, particularly partners, were on board with the vision and long-term commitment to investment. We needed to remodel the partnership agreement across the firm to recognise the value of goodwill on a year-to-year basis.

This would encourage partners to stay for the longer term and provide them with a return on their investment over the period. In larger firms, where profits may be perceived to be very high, dividing a partner’s remuneration into work done and investment for the future is probably unnecessary. For a smaller firm seeking to grow, however, it becomes critical in retaining the right partners. Following Clementi, the assumption that a lawyer must seek owner/manager status as a partner will be challenged. The usual corporate model that separates ownership and management will present a real alternative.

In terms of running the business, a corporate-style management team has been appointed and partner meetings reduced to an AGM where overall direction is set. A further meeting, post year end, is also held to report on financial performance.

Partners ceding authority to a management team who drive the business forward is not easy to achieve, but essential if a firm is to grow and be successful. The cornerstone once again is communication. We have developed processes, throughout the organisation, to capture feedback from all teams on key matters or decisions of the management board. This enables the board to act on information from across the firm, right down to the comments of the reception team who are equally as important as the partners; it’s just that they do a different job. It is no good partners taking the stance that because they are qualified they have an innate right to control the management of the business because they are the only people who understand clients. However, they, and their financial investment, must be respected. Partner involvement in setting the strategy for the business is paramount, but they must then respect the chosen business structure, the advantages it brings and leave it to the chosen management team to implement. And, of course, they must have the power to remove that team.

The acquisition challenge

No two deals are ever the same, but each has a common starting point. Withy King never acquires another practice where its own culture or partnership structures could be jeopardised. As much as 80 per cent of time spent talking to a potential firm is focused firmly on the culture and the necessity for a shared vision. Once both parties are satisfied that they are in absolute agreement on this, it becomes relatively easy to structure a financial deal, integrate the two firms and deliver an investment programme.

The reasons for a merger might involve geographical expansion, securing expertise in a particular niche market or procuring entry to a vertical market, as in the case of our acquisition of Chalk Smith Brooks, which specialises in providing services to the racing and bloodstock industry.

As a practice becomes larger, not only do the lawyers and the teams need to increase their levels of expertise, but also the support departments need to do likewise to meet the demand of the business.

Also, as a firm grows, its ability to recruit quality lawyers and support staff is enhanced. Many smaller practices find the issue of recruitment a particular problem and one that is becoming almost impossible to address, unless the firm has true niche expertise.

Our experiences in marketing, business development and CRM initiatives can also be used to make in-roads into new markets introduced through acquisition. For example, Withy King has used a business-development programme known as ‘Rainmaking’, which two years ago delivered £350,000 of additional revenue in five months for its commercial team. This programme is now being rolled out across the whole firm as team working, collaborative marketing and sales strategies become more important.

The future and the consumer

With the purchase of two more retail outlets in Swindon and Trowbridge in early 2006, an office in London to serve individuals working within large corporates and commercial, and private clients within the Withy King brand, our retail business, Complete, is moving inexorably towards hive-off. Thereafter, the vehicle will be readily able to form quasi-franchise alliances with other firms, secure investment from private individuals or consider an AIM flotation.

Responding to the recent government white paper on the future of the legal industry is taxing the minds of the profession. I personally believe this movement, which stresses the need to shift the focus of the regulatory framework from lawyers to consumers and sweep away restrictive practices, represents a huge business opportunity for the profession. The success of Complete has shown this to be true through demand for its shop-front offering and delivery of packaged legal services.

The government is right to champion the cause of the consumer. The reality is that although there are some excellent customer-focused lawyers across the country, the general public perception of the legal profession is poor. And perception is reality.

The legal landscape is changing and for lawyers the biggest issue is the fragmented state of the profession. Those firms that focus on their expertise in niche markets or work together and find new innovative structures will survive and prosper.

The future need not be bleak for small and medium-sized practices if they focus on delivering services the public are prepared to pay for. What is certain, though, is that they will have to change. They may need to focus on developing niche expertise or bolting themselves on to a practice that can offer a greater range of services and an effective management and support infrastructure, but they can survive if they embrace progress.

Martin Powell is managing partner at Withy King Solicitors. He can be contacted at martin.powell@withyking.co.uk