Column

Planning for Business Cycles and Rhythms

Planning – any planning – is better than doing none at all. For this reason, I encourage lawyers to engage in whatever level of complexity of planning they can muster. If that means spending a lunch hour talking about business goals with your partners, or writing down a few goals on a napkin, so be it. But for those who truly understand the value of focussed planning, I encourage you to go a step further to begin to truly manage your resources and take control of your business operations. You can do this by evolving, over time, the type of planning you do to incorporate business cycles and rhythms.

I consider there to be three stages of planning to be: Inaugural Planning, Analytical Planning, and Pattern Planning. You won’t find these in any text books or white papers: they are my own labels for an evolution I’ve witnessed in many years of working with lawyers and law firms. These levels require graduation from one to the next. It’s impossible for a firm to leapfrog to level three, so it’s important to understand and to hopefully successfully implement the first two levels before attempting the third.

Level One: Inaugural Planning

This refers to the process of starting from scratch and making assumptions, then planning around those assumptions. Firms, practice groups or lawyers who are planning for the first time are in this level. They create goals they believe are aspirational yet achievable. They guess at the type and quantity of action items required to achieve those goals. They do their best at implementing on those actions and they hope for the best. It’s an unscientific yet logical way to start a planning process.

Level Two: Analytical Planning

Analytical planning can only occur when you can work off of the data collected in the previous year. Did you pick the right goals? Were there sufficient action items (and the right action items) to accomplish those goals? How successful were you? Did you miss, meet or exceed your goals? Analytical planning encourages a broader investigation. You might begin to gauge your own strengths and weaknesses. You might start examining who your competitors are, and what their strengths and weaknesses are. This information may lead to a discussion of what your differentiators are. Working from historical data is generally more accurate than working from assumptions and allows you to set more realistic goals and fine-tune action items, time lines and budgets.

Level Three: Pattern Planning

Unlike levels one and two which are either/or propositions, level three or pattern planning can occur simultaneous to level two planning. Pattern planning does what it says: considers the longer-term patterns that are emerging from the data you are collecting. That data includes past planning and results analysis, but also analysis on the changing marketplace, changing consumer needs, changing law firm capabilities, and the natural rhythms that occur in the business. The purpose of finding those patterns is to enable you to make adjustments to mitigate the challenges those patterns create, and to take advantage of any opportunities they create as well. Pattern planning allows a firm to be ruthlessly efficient by being responsive to those shifts. Let’s look at some examples in more detail.

Counter-Cyclical Practices: Business needs occur in cycles that correspond with other cyclical business realities. We see this in the stock market, where the change from a bull to a bear market will have repercussions all the way down the business line. You may notice some business cycles in your own firm. When I worked with the nationals, I noted that security and realization practices were not “up” at the same time, but rather operated as if on opposite ends of a see-saw. The shifts tended to happen in four-year distances. By understanding this, firms can plan for adjusted staffing. For example, one law firm ensured that some of their securities lawyers were also trained in regulatory work which could be done during times when IPO’s were few and far between. Meanwhile they’d cross-train some of their insolvency lawyers into banking and lending so that when insolvency was low, they could re-deploy half of that department into that busier practice area. When the business cycle reversed, they move the lawyers back to their original discipline.

This also helped with marketing expenses, as the firm knew when to ramp up or down marketing for a particular practice area. Once you learn your business cycles and counter-cyclical practices, you can learn the indicators that the business cycle is approaching. You can usually see those indicators about six-months out if you are dutifully monitoring file intake and revenues by practice code.

Alternatively, many firms don’t act until they are re-acting to a shift that is already underway and causing them financial pain. By the time they’ve got a new game plan in place, they can’t hope to make up for their losses. In some instances, they may take so long to react that once they do, the marketplace could already be shifting back.

Sunrise, Sunset Areas: One of the rhythms of business is that certain practice areas may have a lifespan and then be gone, or that new areas of law or industries might arise. I remember a time before environmental law, technology law (and in particular, bio-tech), ADR, class actions and privacy law existed as declared areas of law. Now technology has been replaced by a host of specialty areas. Elder law – which was a thing for a while – is rarely seen anymore. Maritime law is slowly being sucked up as a sub-specialty of insurance law and not its own thing. We need to be vigilant in regularly analysing our practices to determine if our practice areas are sunrise (just starting out and have lots of room for growth), sustainment (will remain as they are for a while), or sunset (slowly or quickly declining).

An annual review is prudent. Examine file intake, value per file, number of clients and value of a practice over time to determine where changes might be occurring. Advanced notice will allow time to regroup and strategize.

Lawyer Aging: Your first-year call will be a mid-level associate in five years and may be a partner in eight. A senior partner may be retired by then. A junior partner may be expected to head their practice group within that same time frame. I encourage firms to do predictive modelling: create a matrix for each practice group that follows the team members over a five or more-year period to show what the composition of the group will look like throughout that evolutionary process. You’ll start to see some holes. You may find that there’s work to be done if your senior rainmakers and credibility kings and queens will be gone and the next level really hasn’t built up a sufficient reputation to take over. Or that the person who will likely become leader is seen as a file-grabbing, team-squashing egomaniac. The pattern from aging is the most predictable of all patterns. Use it to plan for your future.

Political or Economic Rhythms: These can change fairly quickly as a new government is elected, as a catastrophe changes marketplace behaviour, or as new belief systems are adopted by the public. We’ve seen it more viscerally in the States (the tech bubble bursting, the real estate collapse, the fall of the twin towers, the election of Donald Trump) but it exists in Canada as well. The best way to prepare is to ensure that firm leadership is alive to and constantly analysing the potential for shifts resulting from major events. Have a contingency plan in place and be ready to deploy it. We call this “emergency planning”, and it should never be done as the fire breaks out. Consider the “what if’s” well beforehand and have a plan in place just in case.

Strong Management Occurs on Various Levels Simultaneously

Firms that feel they are doing well by having a strategic plan and perhaps a one-year business plan are in a good starting place, but aren’t taking advantage of the tools that are readily available to them to fully manage the firm.

We expect our doctor to help us plan not just for what we want and believe will happen, but also for what might happen. We store money away for retirement, we buy insurance and most of us have a will. In other words, we actively manage our personal lives by thinking about and preparing for what might occur in the future. Yet when it comes to our business, it can be like pulling teeth to get lawyers to plan at level one or two. Very few firms make it to level three, yet they’ll cut staff and tighten their belt in all sorts of ways when things go badly. It would be so less painful to do pattern planning and be able to respond (instead of react, usually too late) to changes to our business assumptions when or before they occur.

Start the discussion!

Leave a Reply

(Your email address will not be published or distributed)