One ought never turn one’s back on a threatened danger and try to run away from it. If you do that, you will double the danger. But if you meet it promptly and without flinching, you will reduce the danger by half. Never run away from anything. Never!

Winston Churchill

 

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The first key to managing the transition of any law firm to a more productive and stable position is the early recognition of a potential problem. A declining market position is almost always indicative of underperformance. The challenge for leadership is to recognize the condition early enough so that decisive action is taken.

This begs the question — What are the most common signs that a firm’s position is beginning to slip? Consider these nine.

1. A sudden unanticipated loss of lawyers – We’re not talking about normal “comings-and-goings” here. The propensity for frequent movement of individuals is the topic for another post. This is about a greater-than-normal degree of movement. During a measured period, the greater the percentage of lawyers lost, or the more prominent those departures, the stronger the signal.

2. The loss of key clients (or increased difficulty in winning new business). Continuity of critical relationships is one of the greatest assets of any firm. While savvy management works hard to avoid the too-many-eggs-in-one-basket syndrome, a portfolio of clients central to success almost always exists. The loss of one or two key clients, or the departure of a large number of clients from any group should set off an alarm.

3. The absence of strategic organic growth. If you are increasingly unable to win the new business targeted in your firm’s strategic plan, take heed. Either the competitive landscape may be shifting in a way that directly impacts your position, or your planning needs some scrutiny. Either is an early warning sign.

4. Increasing turnover in key positions in the firm. I often refer to Jim Collins principle of having the right people on the bus. If you begin to lose significant non-attorney personnel, this can be much more than an inconvenient (and costly) loss of continuity. See Judy Capco’s article on causes of employee turnover.

5. Flattening or declining profits. On one hand, this seems simplistic, if not painfully obvious; on the other, the degree to which profit can, at the same time, be the source of consternation and ignored as a signal of issues is baffling. If profits are flat or declining, it is almost always time for action.

6. Falling revenues. Often declining profit is preceded by shrinking revenue…but not always. Whether profits decline or not, falling revenue is an early reason for concern.

7. A worsening relative debt position. Debt, in and of itself, does not spell trouble. Most law firms rely on debt to some extent to finance growth and manage cash flow. That said, an increase in a firm’s relative debt position should be closely monitored. Absent alignment with strategic moves, this is often a sign of impending decline in market position.

8. Negative external visibility. Many firms receive some degree of bad press; loss of a case, a high-profile departure, or litigation filed against the firm. But leadership must resist the temptation to ignore what can be viewed as uninformed voices. An increase in negative visibility via local, regional or internet distribution channels is an early indicator, and cause for concern.

9. Difficulty in attracting talent. When your firm finds it increasingly difficult to attract lawyers it is either the sign of a declining market position or an increase in the perception that the firm is in decline. And this perception is, itself, an early indicator of decline. If strategic talent believes your firm may be in decline, each day brings increased danger that the perception will become reality.

All well-run firms monitor benchmarks and maintain performance data. The best routinely evaluate performance in critical areas – carefully looking for any sign or signal that the landscape is shifting.

The more comprehensive our list of early warning signs, the more accurate our assessment of existing and future market position. What would you add or take away from our list? Does your firm monitor the early warning signs?