11/11/11

Where’s the Farm?

Greg and Jordan make good points in their comments to my post on the shrinking bet-the-farm (BTF) segment of legal services. These beg the question: what exactly is bet-the-farm work in the legal market today? Traditionally this would have been work where the law firm names the rates and puts in whatever amount of hours it takes – per Greg’s comment.
To explore this idea, I share another insight gained from the COLPM Futures Conference. Back in April of this year I presented a Case Study on the evolution of pricing in the patent disputes market. I threatened to do a post on this several times, but hey – I’m lazy. The short version of that Case Study is that A) When prices shift from rates to fees, they drop. And B) At the same time the classic three-tier pricing model appears. Tier One is BTF top-of-the-market pricing with no or little price sensitivity. Tier Two is the middle of the market, where value and price matter. Tier Three is the ‘nuisance’ layer of the market, where price is the driving factor.
The related insight gained at COLPM along this line was that of more explicitly using risk to classify work. High risk = BTF. The loss of patent protection for a core product patent to a competitor is high risk. In the middle are moderate risk items, such as patents that provide some differentiation to the client, but are bundled in with other technologies. The risk at this level is more in volume of matters than one-off issues. Therefore, value and pricing become a volume-based exercise. This is my Law Factory segment. The market cares about this layer quite a bit, but is not going to pay premium pricing to address it. So we see risk in various forms helping define our market segments. And realistically, there is not much work with BTF levels of risk.
It is my view that most clients do not explicitly include aspects like risk when they weigh value. A theme I always use in discussing fees between clients and lawyers is: Communication. Conversations between lawyers and clients are the opportunities to make these issues explicit. The problem is that not many actively engage in these conversations. Clients are willing to express frustration, but are not aware the real answer lies in collaboration
Which brings us back to our question: What is BTF work today?
Here’s the problem: The definition is murky at best these days. The market is focused on defining work that can be moved away from BTF to Tier Two. This leaves BTF in a no-man’s land. My assessment of all this is that BTF is shrinking at best and may even be on hiatus. With clients not actively and explicitly defining this, we can only fall-back to the traditional name-your-rate and bill-your-time definition. And I challenge firms to create a list of clients in this classic segment. Hint: You may only need one hand for this task.
I go back to one of my overarching themes for fees and pricing – and that’s The Conversation. Clients and lawyers need to have open, honest conversations about fees and pricing. Absent these conversations, law firms will be paid at Tier Two pricing for BTF work and clients will pay BTF prices for Law Factory types of work.
Oh what interesting times we live in.

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