The economic downturn has caused many businesses to reconsider the viability of their strategic direction.  This is especially true for law firms that primarily deal with business clients and are impacted by both the global decline in business transactions and clients’ overall desire to reduce costs by using less legal services.  For many law firms, having a valid plan for their success and profitability is the basis that holds together the partnership.  In such a situation, having an alternative direction in advance of need may be the factor that ensures survival.

There is an old story about the difference between a recession and a depression:  when your neighbor is out of work, it is a recession; when you are out of work, it’s a depression.  The same is true for law firms as we see firms in different parts of the country and with different practices reacting very differently to the economy.  Firms that never enjoyed the highly leveraged capital markets practices that have collapsed are barely affected, while major transactional firms in the largest cities are seeing their profits decline by as much as 30 percent.   But even the firms that are doing well and coming off of record years are concerned because much of their strategic direction was aimed at patterning themselves after the high leverage, high hourly rates of the industry leading law firms.  If that strategy isn’t going to work, a lot of partners are asking the same question of their leaders – “What is Plan B?”

What’s wrong with Plan A?
For many law firms there may be nothing wrong with their strategy.  If the firms are focusing themselves on practices, industries and geographic markets that have been unaffected by the recession, the answer may certainly be to do more of the same.  Even for firms that have focused their future on creating or expanding transactional dominance, their strategy may make sense for the long term, even if it does not appear to be thriving in the current economy.   But, at the same time, there are firms for which the past quarter felt like they tumbled down a mountainside while locked in a port-a-potty.  For them, life doesn’t get much worse than this and the future’s not looking all that much brighter.  They’ve had the wind knocked out of them and can’t quite recall what their strategy was.

The obvious answer is that a firm must take a deep breath and reconsider the conditions and assumptions on which their strategic plan is based.  If, by and large, those assumptions and conditions are still appropriate then odds are their strategy still makes sense and, more importantly, will probably work.  On the other hand, if your strategy is built, for example, on positive assumptions about U.S. auto manufacturers or certain bank holding companies, you may want to reconsider your options.

Now, it is only fair to note that for a significant number of law firms none of this makes any difference.  These are firms that have never really sat down to determine a strategy or have created a strategic plan that looks like a giant “to do” list filled with internal issues that have nothing to do with the manner in which the firm competes in the marketplace for legal services.  But for firms that have gone through a thoughtful process of evaluating their future, being able to shift their strategy without going back to the drawing board and completely recreating that process is a valuable benefit.  It makes good sense during a strategic planning initiative to ask the question, “What happens if our plan doesn’t work?”  It could be argued that having a Plan B demonstrates a lack of confidence and commitment in the primary strategy.  In reality, it is in the nature of lawyers to hope for the best, but prepare for the worst.

The real value of having an alternate plan, however, may be almost entirely subjective.  Law firm partnerships are very fragile.  In most firms partners operate highly independently, have very little contributed capital and are unburdened by contractual limitations on their ability to move to a different law firm.  Having partners who are footloose and fancy free is not good when a firm is undergoing an economic challenge.  There are all sorts of reasons that partners change law firms ranging from personality disputes to the inability to get the resources or staffing they want.   But in times of adversity, moving from one law firm to another becomes much more risky so all these motivations go out the window and there is one dominating theme to partners’ mobility:  their confidence in their current firm’s future prosperity compared to competitors.  Simply stated, in difficult times, having a clear strategy and having a predetermined alternative strategy is the most effective glue a firm can have to keep itself together.

Creating Plan B
But creating a good alternative strategy is hard.  There are some things we have learned from firms with alternative plans:
1. The alternative can’t be a secret plan.  It has to be a completely transparent optional plan including the thought process on why it is believed that Plan B will work if the primary plan did not.  The best way to create this openness is candor as to the weaknesses and possible points of failure with the original plan.
2. The temptation is to simply water down the current direction and make Plan B kind of look like Plan A-lite.   In truth, the best alternative strategies are those that are completely different from the firm’s primary strategy.  That is, if the primary strategy is not viable, it is most likely because the conditions under which it was created have changed.  Therefore, to be effective, Plan B must be based on a completely different and, perhaps, opposite set of assumptions.
3. Plan B cannot compete with the primary strategic direction.  There may be partners who like the alternative plan better than the primary and they will attempt to pursue it together with the primary.  The argument will be that the firm is able “to walk and chew gum at the same time.”  Unfortunately, firms can’t handle competing strategies and the result of trying to do two conflicting things simultaneously will be that nothing is accomplished and both strategies will fail.

Case Study:  A mid-sized 95 lawyer Midwestern firm created a strategy to undercut market pricing.  Much of the transactional work and sophisticated litigation for major businesses in their city had been lost to law firms in New York and Chicago.  Most of the larger local firms were either focusing down-market on more mid-sized local clients or attempting to establish international positions.  Their efforts to compete for large client work mainly involved promoting their involvement in the local community and their Chicago level quality at a slightly lower price.
The mid-sized firm believed that they had quality that could compete with any of the large firms but recognized that their lack of depth would make it hard to compete for the broadest range of work.  So their plan was to focus on what large clients would view as non-critical matters with pricing set at 60 percent of the rates charged by the larger firms.   Their hope was that by deeply discounting work, they could skim some work, at least on an experimental basis.  They believed that, given enough volume, their strong work ethic and low overhead would allow them to perform profitably at the lower prices.  At the same time, the firm realized this would take a mindset change by clients and accomplishing that could be difficult.  They knew that the profitability and multi-office overhead of the larger firms would prohibit their competing on price, but they feared that general counsels would not be willing to take the risk, even with relatively unimportant matters.  They needed a plan B.
As a part of the original strategic planning process the firm decided that if they had not attracted a reasonable volume of work from their targeted clients within the first year, they would recast themselves.   One of their strengths was commercial real estate, especially involving some specific forms of mixed use developments.  Plan B developed into the firm becoming a boutique firm doing transactions and litigation for specific types of developers on a national basis.  They would probably become smaller and some practices would not fit but they openly presented the alternate strategy to the partnership together with the primary plan.  Both were approved.  The jury is still out on whether Plan A will succeed.