Are Macs Viable In Law Firms?

I love technology.  It is exceedingly difficult for me to not purchase the latest gadget, and eventually I succumb regardless of my intention.  Therefore, I own both a Mac and PC even though I have no practical use for a Macintosh.  But they are now using Intel chips!  And Windows can get so irritating – can’t I just use a computer and it work as intended?

Well, that was my intention in purchasing the Mac.  I heard all the great things from Mac folks.  They are a die-hard group that nearly died before Steve Jobs came back to the company and did an incredible imitation of Bill Gates – except to cool people rather than geeks.  That is, if you find a guy wearing a black mock turtleneck cool.

The question for me, however, wasn’t whether I was going to learn how to run Mac applications – they were way too expensive for me – it was whether I could run Windows inside of OSX, Mac’s operating system.  So, my first foray into the Mac world was definitely through the lens of someone wanting to keep his desktop, but just access it through another operating system.  A thoroughly weak reason to purchase a computer (which ended up being a 15 inch MacBook Pro).  However, shortly after blowing a few hundred on a few virtual machine apps (Parallels Desktop and VMWare Fusion) and feeling my lap burn from the intense heat generated from running both applications, I realized I was wasting my time.  This is a Mac.  Don’t run Windows on it unless you have to.

From that point I set out to learn how to use it on its terms.  In many ways it reminded me of the old OS/2 Warp look and feel, but definitely mature and full of features.  But can it run my office?

The simple answer is no.  I know of no legal software vendor who is actively developing Macintosh native applications – at least any that write to a database.  So in my view, the debate is dead in the water until Apple or a software developer on that platform begins to cater to attorneys.  There are some tempting technologies that may make platform irrelevant – for example, cloud computing – but these are still emerging technologies and last I checked law firms were not cutting edge in utilizing technology.  Cloud computing is a newer model where a vendor sells a web application that is hosted on their end but accessible on any compliant web browser.  This simplifies roll out, training, and administration.  It also holds confidential business information off-site.  In my world that won’t do.  There are ways to host web applications locally but you’d best find a good consultant or an in-house developer or you will be nickel-and-dimed to death by vendors.

I use mine primarily to manipulate images, video and other intensive artistic endeavours that PCs are getting better at doing but are far behind Apple in perfecting.  In a legal environment that pretty much limits its usefulness to marketing, website development etc.

I know of some firms who have attorneys who just like the look and feel of the Mac keyboard and the superior touch pad (that allows you to scroll by using two fingers, for example).  Still, the key to them is connectivity to a Windows environment.  Windows Terminal Services allows just about any platform to connect to a server and run applications as if you were sitting at your desk using Windows.  This allows anyone with a prior propensity to use a Mac the ability to use it at work.  But this technology has been around for a while.

The bottom line, in my opinion, is that whatever platform your end users prefer, the back end is still going to be Windows.  With the relatively stable Windows XP and the coming Windows 7 (which, like every other version of Windows, incorporates some of the best ideas from Apple into it), the only reason I see at this time to use a Mac is to just want to use a Mac.  Administratively and for the end user, there are complexities you must overcome that are on top of what other Windows users already face (unless you run the entire network through terminal services).  

Therefore, I see no reason for using Macs in the law firm unless you just want to be cool.  And I mean the figuratively, because if you run either of the virtual machine applications listed above on a MacBook, your desk/lap/whatever the laptop sits on will be searingly hot.

If your firm uses Macs and your experience differs from mine, please feel free to share your experiences in the comments section.

Are Law Firms Ready For Rate Deflation?

After hitting 5% in July of 2008, inflation has dropped rapidly and is now in negative territory (annualized) for the first time in 54 years.  This creates tremendous spending opportunities but there are many risks.  One of the risks to law firms is a deflating billable rate.  With deflation hitting most aspects of the economy (food and energy being notable exceptions that at least in the latter case isn’t expected to deflate for a while and in fact may be the next credit “bubble” if, err, I mean when cap and trade is passed), it is only a matter of time when clients will either request more discounts or a reduced rate – and if clients don’t ask, other attorneys will offer lower rates to lure new clientele.  Many businesses will be working from much tighter margins while the cost of doing business, including defending lawsuits, won’t lower with their margins.  Something will have to give – either longer A/R outstanding or reduced rates.

It may not come.  But there is reason to believe it will.  Attorneys from large law firms who have been laid off are finding themselves entering the mid-firm market and some enterprising ones will start their own firms, determine a model that maximizes profit, and “Wal-Mart” some out of business while still raking in incredible profits.  All it takes is better efficiency in serving clients (and, in my view, an unprofessional but very business-like approach to targeting and accepting clients).  The relationship you have with your clients puts you at an advantage right now.  However, in forecasting models you should prepare for a fight for your business based on  rate.    

If you are faced with reducing rates to keep clients, efficiency is key to making up the lost revenue.    Don’t rely on volume alone as it can fool you into thinking you are in a better financial position than you are.  You may end up hiring excessive numbers of attorneys, especially as the costs of attorneys goes down (another inevitability that is already happening – salary reduction for new associates).  If you are still making minimal margins because you are too busy to implement efficient processes and you get undercut by someone willing to lower their rates, your firm will be in for a rather intense correction.

Even assuming rates don’t increase, there is a high probability that any planned rate increases will be difficult to implement.  Firms have been contracting for several months and most have already cut costs as low as they can.  A reduction in rate is an unplanned occurrence that can place even more pressure on firms to reduce costs.

From the firms I have consulted, most are still unwilling to invest in efficiency – rather, they are placing more emphasis on productivity and staff reductions.  There are a few firms who are changing their model to streamline processes – those who invest in better procedures will not only be in a better position to absorb rate stagnation (or deflation) but will be in a better position to increase profitability later this year when the economic numbers start to improve.  The test will be whether they retain earnings, a concept that is anathema to many firms.

Please note that due to the activism of the Federal Government to re-inflate the credit markets, there are arguably two possible results:  massive inflation or another asset bubble (which will lead to a result similar to what we are experiencing now).  Either way, the pattern of erratic markets is not likely to end anytime soon and with trillions being poured into the economy, money may get loose for a while – smart firms will invest in their firms (take advantage of the deflation) and set aside sufficient amounts to take short hits on revenue rather than make distributions (in case of a rapid spike in inflation or another asset bubble).  We are in for a long period of uncertainty.  Universal health care, carbon emission taxes, and of course the obvious tax increases to pay for the action taken already and to sustain the new entitlements.

Law firms will not be needed less (and in fact in some areas they will be needed more) but they are not immune to shifts to the economy.  There will be areas of rate inflation but your firm may not be one of the beneficiaries.  Some areas of law that have flourished for decades will suffer greatly and some boutique firms will cease to exist entirely.

Prepare for it.  If your firm flourishes and all the doom and gloom above doesn’t come to fruition, great.  Your bottom line thanks me for helping you have such a strong equitable position during your time of saving – go buy a new touch screen whiteboard or make a distribution so you can pay for all those projects at home.  If the firm struggles, however, you may avoid having to make decisions that are not only uncomfortable but can lead to a fracturing of the firm.

All Bets Off – Massive Deflation And Fed Still Lowers Rates

All the ingredients are coming together for protracted, painful and seriously impaired economic conditions.  As stated in an earlier post,  a deflationary crash is characterized in part by a persistent, sustained, deep, general decline in people’s desire and ability to lend and borrow.   It appears we are in the midst of one.  Consumer prices, after a record decline in October, set another record in November, pushing inflation down to 1.07%.  After a year that saw inflation hitting almost 6% in July, this is a painful indicator of things to come.  In spite of OPEC’s threat to drastically cut production, oil prices are still relatively low.

Worse, the Federal Reserve appears to be acting counter-intuitively by lowering interest rates to “zero to .25%“, leading to speculation that once our economy does rebound, hyperinflation will be the next crisis.  It doesn’t help that our government continues to spend money it doesn’t have.

On top of all this, President-Elect Obama announced that his “stimulus plan” will be somewhere between $600 billion and $1 trillion.  The spending spree never ends.

The time to voluntarily liquidate assets has passed.  Foreclosures dipped in November, but few expect that trend to be anything but temporary in spite of Fanny Mae’s Christmas gift to renters of homes in foreclosure proceedings.  Best to hold on to assets and try to keep as much cash on hand as possible.

We can hope that the aggressive moves by the Federal Government will prevent another depression, but it sure seems like we are about to embark on the same policies of the Roosevelt administration that arguably kept the country in a depression for an entire decade.  One of the proponents of further governmental intervention is oddly a scholar of the Great Depression.  Fed Chairman Ben Bernanke believes that the cause of the Great Depression was the lack of action by the Hoover administration to stop banks from failing and by keeping interest rates too high.  In Bernanke’s mind, it was Hoover’s inaction that caused the depression, not Roosevelt’s activism.

There are (at least)  two arguments as to what caused the Great Depression.  One argument postulated by Irving Fisher and furthered by Bernanke states that debt deflation caused the Great Depression and, in at least Bernanke’s case, government inaction during the 3 1/2 years between the stock market crash of 1929 and the swearing in of Franklin Roosevelt caused productivity to become depressed and unable to recover in spite of FDR’s programs for an entire decade.

Fisher was not exactly on target with his arguments in his lifetime (from wikipedia):

The stock market crash of 1929 and the subsequent Great Depression cost Fisher much of his personal wealth and academic reputation. He famously predicted, a few days before the Stock Market Crash of 1929, “Stock prices have reached what looks like a permanently high plateau.” Irving Fisher stated on October 21st that the market was “only shaking out of the lunatic fringe” and went on to explain why he felt the prices still had not caught up with their real value and should go much higher. On Wednesday, October 23rd, he announced in a banker’s meeting “security values in most instances were not inflated.” For months after the Crash, he continued to assure investors that a recovery was just around the corner.

Once the Great Depression was unavoidable to notice, he theorized that debt deflation was a major cause – debt deflation that could have been avoided (according to some) had the Hoover administration taken more aggressive steps to intercede.

The other argument is that it wasn’t Hoover’s inaction that led to the Depression but the Smoot-Hawley Act of 1930, which raised tariffs on goods sold to trading partners and led reciprocal action, skyrocketing unemployment and global isolationism.   Those who would argue this would point that both low interest rates and ample liquidity were available in 1930, but that due to economic uncertainty, few wanted to borrow and take risks.  Further, FDR prevented the economy from pulling itself out of the depression by overly taxing the population (specifically the producers) and redistributing wealth using a “trickle-up” philosophy of using government to employ the people.  Even with FDR’s policies, unemployment was still over 19% in 1938.

You can argue both arguments are right and wrong.  It is plausible that at least having a Federal Reserve that would have released funds to troubled banks could have avoided the panic that led to over 9,000 banks failing in the 1930′s.  However, there is ample evidence that government intervention did more to exacerbate the Depression than remedy it.  The primary force that led us back to economic expansion was the Second World War.

Unfortunately for Bernanke, debt deflation is intensifying in spite of his actions to improve liquidity.  What may come from all these measures, however, could spur the same depressed conditions that he is trying so hard to avoid.  If liquidity does improve, even moderately, inflation will be a large concern.  The question will then be whether it would be better to allow inflation to run amok or to raise interest rates and threaten the improving economy.

One thing I feel relatively certain in predicting:  so long as the government intervenes in the economy, there will not be a lot of certainty in the markets, which will result in further volatility.  And, it doesn’t appear the government is planning on taking its hands out of the economy anytime soon.

False Sense Of Security Still Prevalent Among Law Firms

In spite of overwhelming evidence that the booming economy enjoyed practically uninterrupted for the past 20 years has ended, at least for the near term, many law firms are still optimistic of their 2009 prospects.  I beg to differ.  I believe 2009 will start a strong shift in the make-up of many law firms due to the lack of any planning for the economic conditions.

Who can blame attorneys for being optimistic?  Regardless of the economy since at least the early 1980′s, lawyers have enjoyed consistently increased business and profits.  This has led to a complacency and a denial of the economic conditions that are facing the country.

Law firms aren’t alone.  In fact, the “big three” auto makers (Ford perhaps excepted) are acting out of a similar denial as they attempt to scare Congress and the President into paying for their internal problems.  Who didn’t see the failure of GM coming?  Was no one noticing the extravagant pensions being offered to the employees?  Did anyone who dared notice believe the ever slimming margins would cover the ever growing benefits?   Not likely.  As the Legislative and Executive branches delve deeper into the phantom pockets of our tax base, a  nice summary of the fallacy of “avoiding acting like Herbert Hoover” has been inked in an opinion piece by Todd J. Zywicki in the Wall Street Journal.

Law firms, though not nearly in the long-term slide as the domestic auto industry, is more sensitive to this economic downturn than many attorneys would like to admit.  Many firms have been spoiled by margins that exceed 50% without spending more than a passing glance at the indicators that led them to such bounty.  The issue isn’t so much a drop-off in business, though some firms who specialize in areas that are in the midst of collapse will certainly feel the pain.  Rather, the issue is how firms will retain good talent, retain their expected incomes and avoid layoffs of associates.

These are regular issues for most industries but are foreign to the mid-size law firm.  Many firms pride themselves in their “family” atmosphere, which includes the bratty sibling rivalries that are tolerated when times are good.  Salary incongruousness may seem a bothersome itch when profits are high, but once the deadwood becomes heavy the scratching becomes intolerable.  Some may panic to find their balance sheet showing a loss without ever seeing it coming.  Drastic change is put into place – at a time no worse to prepare.  No more is it wise to visit a market when hungry than to suggest change while in the midst of a spiral.

Yet our economy has afforded all of us time to prepare.  It was suggested by many (myself included as far back as March) that our economy was in for some hard times.  Firms with the foresight and gumption to plan and hold timekeepers accountable for providing not only quality service to their clients but ensuring prompt billing and payment for the betterment of the long term financial health of the firm are in a position now to profit over the firms who were complacent.

It’s not too late, however.  Many firms are just now seeing the first bumps in the road.  It is my opinion that the economic downturn is just now really beginning to hit middle America.  The massive layoffs (over 533,000 in November) are an indicator that the many months of body blows caused by the collapse of the credit and housing markets (not so unlike what happened in the late 1920′s, speaking of Herbert Hoover) are finally taking its toll.  The question now is, where is the bottom?

No one knows.  That is a troubling concern that should make you want to hug every dollar your firm receives and not let go of it.  In times such as these, power goes to those who hold cash.  This may change if our government attempts to over-spend its way out of our economic downturn (thereby devaluing the dollar, leading possibly to hyperinflation combined with stagnant productivity – a prescription for the “d” word), but as of right now, many believe that the economy should rebound sometime in 2010.

In my opinion, firms need to pay more attention to the profitability of each fee earner and place more emphasis on marketing activities and their key profit drivers.  Please feel free to email me (by clicking here) if you would like some ideas on how to not only retain your current income, but increase profits during an economic downturn.

Panacea Bill Passes; Bush Cautions “It’s No Panacea”

The Emergency Economic Stabilization Act of 2008 is now law.  The markets responded by losing over 350 points (taking into consideration where the DOW was at the time of the vote).

President Bush, after signing the bill, cautioned that it will “‘take some time’ for the measure to have its ‘full impact’ on the economy, and that the task of buying up troubled financial assets in the wake of the mortgage meltdown ‘cannot be accomplished overnight.’”.