What a great business model!

Hat tip to Stephanie West Allen for alerting me to the March 3rd article in the Atlanta Business Chronicle, “Firm won’t bill for first-year lawyers.”

This story truly inspired me. I think we could see a general price deflation across all sectors of the economy if only business were enlightened enough to follow the lead of the law firm business model. Imagine the Utopia:

  • Airfares would decrease for all planes flew by first-year pilots
  • Your morning ritual at Fourbucks could decrease to $3
  • Banks could reduce interest rates and other charges for all their first-year tellers
  • Four and Five Star restaurants would become much more affordable because of first-year chefs, sommeliers, waiters, etc.
  • Sticker prices on automobiles would decline due to first-year factory workers
  • Home prices would decline to account for newbie contractors

I could go on and on, but you get the point.

By the way, this idea of not charging for first-years is not new. Richard Reed wrote about this in his ABA books from the 1980s and 1990s.

Does anybody else see the idiocy in this??? Especially for an intellectual capital firm full of highly educated knowledge workers.

When will firm leaders see the lunacy in the business model of “we sell time?” This is the kind of nonsense you get when you have the wrong theory of value.

There’s simply no way to correctly implement the wrong idea.


  1. Greg Lambert says:

    Hi Ron,

    I love this “idea” of not billing for the first year associate, and think that there is great prospects in making new attorneys take a one-year transition into the firm before turning them loose on the client’s work and bill. However, I think this story is much more “spin” than reality. Out of the 60 associates, and some 15 offices, there are only 4 first-year associates in a total of 4 offices (Spartanburg, Atlanta, Washington DC, and Orlando).

    With the amount of write-offs for first years, and the fact that most don’t even get their bar results until almost the end of the year, there isn’t as much “loss” to the firm as it might seem.

    However, this type of press can push this issue into the conversation of other firms and I’m betting we’ll see a few more test the waters of this by playing the shell game of reducing the number of first years, and then doing a full-court press of “Hey! Look how much we are saving you by not charging you for new associate work!!”

    Just my pesimistic view….

    -Greg Lambert
    Houston, TX

  2. Hi Greg,

    Thanks for your comment, and I think you’re probably right about spin vs. reality. As I wrote, this is not a new idea, it’s been done before, then quietly faded away.

    However, I don’t share your enthusiasm for this idea (unless you were being sarcastic?). The problem is the billable hour model, which means firms aren’t “pricing,” they are “billing”–that is, pricing in arrears by the hour.

    As a client, if you give me a fixed price BEFORE the work begins, I really don’t care how you achieve the results, be it with first years or veterans, or any combination thereof. I simply won’t care. If firms utilized priced-led costing and project management, they could easily do this.

    Clients care about output, results and value, not inputs, costs and activities, hence the problem of this idea–it forces the client to think about things they don’t value.

    This is not to say a firm couldn’t have different prices for different levels of firm members, as some of our Fellows think the airplane metaphor allows for. For example, you can fly in the Boeing 777 (that is, deal with a partner), or you can have a regional jet, with a different price point. I’ve seen this strategy work successfully, though I have misgivings about its logic.

    But to say across the board that we are not charging for first years, I think, is a huge mistake, and it only reflects the insanity of pricing by the hour. No other business does this. My hotel room is being cleaned at the moment, and I could care less how long the maid has worked here, or the manager, the valet, bellman, etc.

    Senior Fellow Paul O’Byrne sent me a comment on this issue this morning that I will post next. It, too, contains an interesting way to look at this issue.

    It’s an important topic, and we should continue the debate. All I’m saying is firms that embrace this are putting lipstick on the pig and not dealing with the cause–the lunacy of “billing by the hour.”

  3. Oh! That wasn’t the line I expected Our Leader to take.

    We VeraSagers often have to defend ourselves from accusations of just being interested in jacking up prices or even encouraging gouging. Pricing according to value means just that, so if your first-year professionals, aka trainees, aren’t delivering much value then the price should reflect that. Clients have for too long paid for firms’ training and they understandably resent it.

    But, given we believe firms often deliver superb value and hourly billing cannot capture it, we need to look again at what value we do create. In fact, why are first-years perceived as delivering no value? Are they not bright – able to learn and apply what they’ve learned – and keen? Does the firm not have proven systems to funnel its Intellectual Capital through its people at their differing skill levels? Does it not know exactly what the client wants and needs?

    One of the serendipitous things about value pricing for our firm has been the way we have looked critically – perhaps for the first time – at what we do that doesn’t add value, at least at a price we would like. So we either worked out how to do it a lot slicker or we found someone else to do it and either managed them or let them deal direct with the client as the client chose. This made it clear to the client that we meant it that we had their best interests at heart and would make sure the right team did the right work. Helpfully, clients saw this as us being higher up the value curve and pay accordingly.

    Clients shouldn’t be charged too much for low-value work, nor too little for high-value. But being open about the skill levels of the team makes for a healthier, open relationship.

    As professional knowledge firms we really should think more about all this. Edward deBono came up with a great piece of lateral thinking when looking at trainee London Cab drivers. They’re easy to identify because they spend about two years zipping round London streets on scooters with a clipboard attached to the handlebars, noting and memorising streets, hotels, big offices, etc. “Doing the knowledge” they call it, before they submit to a notoriously difficult test to allow them to be licensed. All the while, London has insufficient cabs. deBono’s clever idea was to have these trainees drive cabs but marked as being learners and charging a reduced rate. I’d jump in such a cab because I know where I am going and could give directions if needed.

    Of course, if this type of thinking were applied to firms, it might mean that the traditional complaint of partners that clients insist on seeing only them might disappear?

  4. Obviously the law firm’s clients made a very pointed statement about time spent not driving value. I’d be interested in understanding the thought process in developing the response they did. At what level does it end? With the second year? Third or fourth year? New partner? How about bankruptcy.

    It ends with the ultimate recognition that value is not a function of time spent, at any level not just for first year associates.

    Even more significantly to me was the underlying recognition that a time sheet environment wouldn’t support knowledge sharing, and so they eliminated it for the first year group so they could learn! I guess after one year as an attorney, learning isn’t important any more? Or maybe you just learn everything you need to know from on-the-job training!

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