The Productization of Legal Services

Volume 40 Number 4

By

About the Author

Dennis Kennedy is a legal technology author and information technology lawyer. He is a co-host of the Kennedy-Mighell Report podcast on the Legal Talk Network and his blog can be found at denniskennedy.com/blog

Law Practice Magazine | July/August 2014 | The Annual Big Ideas IssueLawyers tend to be unwilling to look to other professions or industries to find ways to improve their practices and work. We might call this approach “law practice exceptionalism,” the belief that nearly every aspect of the practice of law is unique and must be considered in isolation from what we see elsewhere. We all have heard or said, “But law is different. Really.”

As a result, lawyers have been reluctant to adopt approaches that have proven successful in other industries—project management techniques, business process strategies and much more. However, the inflexibility goes much further than that. Many lawyers refuse to even consider anything that comes from outside the profession. The common question is too often, “How many other law firms do x?” rather than, “How successful has x been elsewhere?”

Even though I am tempted to say that my Big Idea is simply for lawyers to look at and consider approaches that have been successful in other professions and industries, that’s not my approach. Instead, I want to focus on one example—that is, turning services into products or, if you will, the “productization of services.”

Consider these examples:

  • Ernst & Young creates and publishes a popular (as I write this, in the top 100 among taxation books on Amazon) and affordable ($24.95) annual tax guide for the public.
  • Attorney Larry Katzenstein creates and sells a widely used software program called Tiger Tables that computes actuarial factors for tax calculations and planning.
  • A prominent technology company sought out a law firm to create a document assembly application for standard agreements that the company would license on an annual subscription basis.
  • A law firm produces training videos on legal topics for sale to the public.
  • A law firm packages research information updated on an annual basis as a subscription offering.

At the heart of each example is adapting a service or set of services traditionally done by time-based billing for a single or limited number of clients into an “information product” that can be licensed or sold to a much larger audience than the client base. The result is a new revenue stream that can be added on to the traditional services model. In other professions, this approach is often referred to as “making money while you sleep.”

THE BILLABLE HOURS EQUATION

There has been much discussion of the billable hour and its impact on the legal professional in recent years. I do not want to recap that, but I do want to focus on one impact of a billable hour approach and how it can function as a “cap” on revenue. In simplest terms, a billable hour approach means that income = rate charged x hours worked (and collectible). Do the math. For income to increase, either the rate has to increase or the hours have to increase.

In 2014 it’s fair to say that the profession has probably hit the maximum of hours we can expect people to work. Even if it hasn’t, it’s difficult for most lawyers to add significantly to the number of hours worked and collectible. The pressure on keeping lawyer rates the same or decreasing them is well documented.

Conceptually, at least, the billable hours approach sets a kind of cap on what lawyers who only bill by the hour can earn, where the variables at play (rates and time) do not seem to have much room to move upward. Even the traditional leverage system has come under strain as corporate clients demand that junior associates not work on their matters and that meetings between firm lawyers not be billed on the basis of each lawyer attending. Because many firms have already done a lot of cost cutting, lawyers are feeling a sense of being squeezed.

EXPLORING OTHER REVENUE STREAMS

The situation is ripe for considering other approaches to income production. If we look outside the legal profession to other information-oriented professions and businesses, we find income techniques based on royalty, subscription and other income streams.

Like others, the legal profession creates much information of value. Lawyers, however, tend to lock up the value of the information they create. Many lawyers create information that could be repurposed and sold in different ways, if it were approached in a different fashion. In the examples above, information commonly held for internal use was repurposed and turned into a product that could be sold or licensed. In addition, these types of products—think of an employment discrimination training video that is sold to the public, for example—might even work as marketing efforts for traditional legal services, resulting in the odd scenario where potential clients are actually paying for you to market to them.

By this point you have either put on your law practice exceptionalism glasses and are ready to flip to the next article or you might be willing consider some alternate revenue possibilities. Let’s talk about getting started with productization of services. I suggest a nine-step process.

  1. Survey the Landscape. A ton of information is out there—articles, books, blog posts, podcasts and more—about creating and selling information products in other professions. You can even find some information on other product efforts lawyers are making. The point of this step is to make yourself aware of the wide variety of approaches and the relative success of different products. While you might note certain ideas that appeal to you, you do not want to limit yourself at this point.
  2. Inventory Information Assets. Next, inventory what you have already created or might plan to create. Not everyone wants to or is able to write a book, but you might have CLE presentations that could be turned into videos, checklists that could be turned into mobile applications or other information you deliver on a regular basis to clients or internally that might be adapted to products. In the examples listed above, I see the product categories of books and publishing, software and applications, training, subscriptions and information packages. These are good starting points, but you might find others.
  3. Identify Potential Products. I suggest starting to narrow your ideas only after completing the first two steps. If you start immediately with one idea from the outset (“let’s sell a book”), it could get knocked down with all kinds of criticism (“needs client approval,” “costs too much to print,” “too many pages” or “not enough pages”) when another approach (“let’s experiment with producing and selling one training video”) might be a much better idea. I’m not necessarily an advocate of holding brainstorming sessions, but I do think putting together a generous list of ideas is the best way to go.
  4. Research the Market. Products are sold in different ways and to different audiences from services. It might be that your product idea would make the most sense if sold to other lawyers when you originally thought that you would sell it to the public. There are many methods to do market research. In fact, some market researchers have created products out of their services to help you with that. At a minimum, talk to some people you trust in the target audience about your ideas and also talk to people in the production business for the type of product you are considering and others who have tried to sell similar products.
  5. Determine Who and How. You need to consider many issues in moving from idea to product and then from product to sold good. In the billable hours context, it’s obvious that time spent on creating products takes away from time billable to a client. There will be questions of staffing, distribution and customer support. What happens if the product is really successful? What would have to change? What happens if the product flops?
  6. Take a Portfolio Approach. A maxim I often heard when I was growing up was “Don’t put all your eggs in one basket.” That’s the essence of diversification and a portfolio approach to risk. I intentionally use the unwieldy term “productization” in this article to emphasize creating a process of product development rather than thinking in terms of only creating a single product. I suggest trying a number of different ideas, testing products in different areas and with different target markets, and diversifying your offerings to spread your risk across a range of offerings. This portfolio approach works in investing generally and applies to this area as well. You might also vary launch dates and experiment with different suppliers and producers.
  7. Prepare Your Pricing. Lawyers tend to want to put a high price on products, which is in part a legacy of hourly billing rates and the time involved. Give some thought to audience and sales, and consider carefully the impact on sales of the $24.95 cost for Ernst & Young’s tax guide. It’s easy to imagine a large number of people buying that guide at that price year after year. Compare similar types of offerings from other professions or industries. Pricing, of course, might reflect on your firm’s brand, and that will also have to be taken into account, but I don’t think the price of the Ernst & Young book negatively affects its brand.
  8. Launch. You will only be able to judge how well these experiments work by seeing what happens after you launch them. You will learn about sales, production, distribution, staffing, support and much more only when you get out into the real world. By putting a number of products into the pipeline, you can start to get better at launching each new one.
  9. Iterate. Think process. From time to time, but on a regular basis, start this nine-step process over, incorporating what you have learned from previous efforts and new ideas being tried by others.

OTHER ISSUES TO CONSIDER

Big ideas, of course, generate lots of small implementation issues and other questions that cannot be ignored. These issues and questions might halt the process but, in most cases, thinking through them can help improve your offerings and address small questions before they become thorny problems. Here are a few questions for you to keep in mind.

  • Ethical Issues. The question of the propriety of repurposing content created for and paid for by one client is an obvious one. Some products might raise unauthorized practice of law or even advertising issues. Obtaining outside investment from nonlawyers could raise other types of questions. Some firms might explore whether to create a separate business entity for products.
  • Compensation and Revenue Sharing. How will lawyers who create products be compensated? How will product revenue flow into partner distributions? There are many questions and many possible answers. Address them early in the process.
  • Intellectual Property. Who owns intellectual property rights in products? In the case of partners, does your partnership agreement cover intellectual property ownership?
  • Exit. Exits from firms can raise huge issues. What happens with a product and the revenue when the creator of the product leaves a firm? Who will be allowed to continue the product? Should there be a formula for compensation in place in advance? What happens if a product becomes wildly successful after the creator leaves a firm? Addressing as many of these issues as you can in advance is obviously in your best interest.

CONCLUDING THOUGHTS

Productization is a major trend in professions other than law. Is law so unique that the same approaches will not apply? My Big Idea is that the same kinds of ideas will apply in the legal profession, and that there are already many opportunities to try. The prudent approach is to create new revenue streams to supplement and even enhance traditional services, rather than trying to squeeze more profit out of a time-based service business model. Consider carefully the examples at the beginning of this article.

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