Two Step's Private Company Equity Management Blog

For years now, law firms have struggled with the all-important question: How exactly does better legal service lead to a better bottom line?

Lawyers historically have been less concerned with "customer service" in the traditional business sense and more focused on billable hours. To some degree, there was a delicate balance between a firm's goal to bill a client more hours and the client's goal to be billed fewer hours. Minimal attention was paid to the customer experience and client satisfaction (other than perhaps delivering fantastic catered lunches in palacious conference rooms).

However, the market has tightened tremendously in the economic downturn. Companies use fewer law firms each year, and as a result, they're being highly selective of who they work with. In light of this, law firms are now honing in on how exceptional client service can translate directly into more profitable legal operations.

The better legal service/better bottom line question was recently examined by Michael Rynowecer of The BTI Consulting Group in a webinar called World-Class Client Feedback: Driving Revenue in a Down Market. Although the session was focused specifically on the client feedback loop, it also articulated - based on BTI's annual research surveying over 1,400 law firm clients - how client satisfaction leads to higher billable rates, increased revenue growth, and even lower business development costs.

This compelling webinar presented the case that out of 505 law firms relied on by Fortune 1000 companies, only 42 firms (or 8.3%) possess what has been described as "client allegiance" or client loyalty. This means that their clients would go back to them for more work and recommend that firm enthusiastically to their peers. Keep in mind that most clients are using 11 law firms for their work - so if you can get more of that work, it really matters.

To boot, BTI's research shows that firms with client allegiance charge a 20% higher billable rate ($409/hour v. $342/hour) and grow 35% faster than other firms (13.4% v. 9.9%). Would that appeal to most law firms? Would the partners at your firm like to charge a 20% premium per hour and grow 35% faster? Absolutely. So, how do you get there?

According to BTI, client satisfaction is the key prerequisite for enjoying these client allegiance benefits. The two key measures that BTI uses to rate client satisfaction are whether the client would:

1. Recommend a firm over other firms; and
2. Rate a firm as providing superior service.

What can a firm do to increase its clients' satisfaction? Well, BTI identifies 4 firm attributes (out of 17) that strongly correlate to favorable client relationships. These are:

1. Demonstrating client focus;
2. Understanding the client's business in-depth;
3. Demonstrating a genuine commitment to help; and
4. Providing more value for every dollar.

The webinar then presented various feedback methods firms can use to determine if they have these characteristics, or if they must take steps to put themselves in a better position.

At Two Step Software, our customers tell us that having immediate access to client information and documents can have a direct impact on 3 of these 4 attributes: client focus, commitment to help, and value for the dollar. When clients experience first-hand a firm that has instant access to entity and ownership records--and are therefore more productive, can make better decisions, and reduce the risk of error--they know they are getting more value for each billable hour. When a law firm has done the legwork to maintain accurate corporate records for its clients, it shows that they are committed to helping clients achieve their goals.

Scott Glickson, a Two Step customer and Co-Chair of the Technology and Business Department at McGuireWoods LLP, sums up his experience nicely: "I can't tell you the number of emails we receive where people request documents and we email the documents right back to them — a copy of their stockholder agreement, a charter, whatever it is — and the number of emails we receive back that just say, 'Wow!' One word — that's it, just 'wow!' — because it's so fast."

So, how does BTI suggest you get started with improving your bottom line? Begin by asking three simple questions:

• How does our firm compare to other firms?
• How do our rates compare with other firms?
• How does our number of client recommendations compare to other firms?

After that, look at the following four financial metrics and evaluate whether the trend at your firm is heading in the right direction:

• Total revenue by client for major clients
• Net effective rate per client
• Net effective rate by practice group
• Client retention rate for top 25-50 clients

If you want to learn more about how greater client satisfaction can lead to premium billable rates and increased revenue growth, check out BTI's research and presentations. If you want to make it a reality, take a look at Corporate Focus to discover how this powerful tool has already improved the client satisfaction scorecards at many firms.

Earlier this year, one of our law firm customers, Andrews Kurth, LLP, came up with the novel idea of adding a fixed-fee "Start-Up Organization Package" to its legal service offerings. According to Alan Bickerstaff, a partner in the firm's technology and emerging companies group, the package provides a comprehensive set of legal services designed for "young entrepreneurs who want to start a new company, typically technology-related." The complete set of services is described at www.andrewskurth.com/startup.

At Two Step, we were pleased to see that some of the services listed in the start-up package relate directly to Corporate Focus - such as tracking entity records, ownership administration, preparation of capitalization tables, and online minute books. In fact, one section of the description notes:

Capitalization Matters

• Entry of all initial capitalization data and corporate records into capitalization tracking software and corporate records database.
• Software provides the capability on an ongoing basis to:
• Track all stock and option issuances and cancellations
• Maintain copies of corporate records and minute books
• Produce a wide variety of capitalization reports
• Provide start-ups access to their capitalization and corporate records via the Internet

The list even mentions direct client access to online corporate records, which seems to be offered by an increasing number of firms today.

Fixed-Fee Package for Start-Ups Offers Capitalization Tracking

If a law firm is to provide such an expansive set of legal services for a fixed fee, they must possess a high degree of confidence in their ability to work efficiently. The key to this confidence is having a centralized, secure platform for managing entity and ownership records, online minute books, and capitalization tables. Such a system ensures not only that all information is accurate and up-to-date, but also that no time is wasted searching for it.

While Andrews Kurth has certainly broken new ground, many other firms are testing the waters in a similar fashion and exploring ways in which they can serve their corporate clients better.

So, is this the dawn of a new trend for law firms serving the emerging company and technology start-up marketplace? It certainly makes sense; after all, this is one of the most important and profitable client segments for any firm, since start-up clients lead to financing, merger and acquisition, and public offering work down the road. As a partner at one of our law firm customers recently said, the broader you cast your net in the start-up sea, the more likely you are to find exciting clients who need high-value transactional work.

Scott Glickson from McGuireWoods, LLP (another client of ours) puts it best: "Corporate Focus streamlines activities so that we create a more favorable impression with the client, which leads to more business, more referrals, and more value all around ... We all have access to the same information, and we can access it at the same time."

As law firms increase their use of productivity tools such as Corporate Focus they are better positioned to offer cost-effective legal services to start-ups that are cash-strapped and trying to prepare for their first round of venture financing. If firms serve them well in the early years, these budding companies are destined to become satisfied clients who will one day require more sophisticated and profitable legal services.

Watch an online demonstration of Corporate Focus if you'd like to learn more about how to make your firm more productive.

Remember that recent GE Medical Records TV advertisement in which a doctor asks his patient, "I wonder if you've ever been checked for cortical spreading depression?" - and then the camera pans out to a team of doctors sitting in the audience, who start confidently shouting out details from the patient's medical history?

Imagine if you had a team like that which could readily supply the answers to all of your entity and ownership questions for every client you work with. When I saw that GE commercial, it made me immediately think of how some of Two Step's law firm customers are enhancing their level of service by utilizing electronic entity and ownership records. Click here to see the GE video.

Perhaps you're on the phone with a client and you need to know whether the company is a Delaware or a Massachusetts corporation. An attorney suddenly yells out: "They're a Delaware S-corp. filed on March 10th, 2007!" Or, if you've ever filed the amendment to the charter to increase the authorized common stock for the growing stock option plan. Imagine a paralegal shouting: "Yes! We increased the common stock pool from 400,000 to 1 million shares on June 2nd, 2008!"

Maybe you're dealing with a complex calculation, such as how many shares are held by a key employee who the company is considering terminating. A young associate does the math in a split second and yells out: "He currently holds 376,286 shares of common stock on an as-converted basis, including shares that have not yet vested, which represents 3.78% of the company on a fully-diluted basis!"

Apply the same scenario to any number of common questions that you're faced with each day, and think about how much more productive you could be. Wouldn't it be great if there was a team of lawyers and paralegals who scurried around looking for the answers you need to satisfy your clients' inquiries or prepare that critical document - and those answers were fast, accurate and free?

Well, that's the reality of electronic entity and ownership records. With Corporate Focus, leading law firms of every size are practicing client-focused legal service and delivering it in ways that increase their bottom line.

For example, Christopher Howard at Pierce Atwood, LLP loves how Corporate Focus allows Pierce Atwood attorneys to access important client information at a moment's notice. As he explains in this user story: "I think the power of Corporate Focus emerges when you're at a critical juncture and you have access to all your corporate records in one place—rather than having to pull out a series of paper records or spreadsheets. The productivity piece really becomes clear when you don't have associates scrambling around trying to reconcile records or find what they need."

Just imagine a day when your clients' entity and ownership records are in one secure place, easily accessed by every attorney, paralegal and even selected clients. And the answers you seek are available to you instantly - much like the doctor in the GE commercial. You could provide your clients with significantly faster response time and lower their legal bills, all leading to increased satisfaction and more business for your firm. In other words, everybody wins.

The fact is that electronic entity and ownership records are already here, and the future of legal efficiency is now. Shouldn't you be a part of it? 

Watch an online demonstration of Corporate Focus if you'd like to learn more.

In my previous blog post, I answered the question, "Should You Add New Web Tools to Your Stock Plan Administration Toolkit?" with a resounding "yes!".

So right about now you're probably asking, "Well, Jeremy, what are these web tools, exactly?" Luckily, I've got some great answers for you. Listed below are just a few of the powerful tools you can leverage to streamline your stock plan administration work.

1. Tools for Communicating with Your Employees
   I bet that most people reading this are still using regular old email to send out notices to their employees. With the latest web tools, you can create engaging, interactive newsletters that your employees are more likely to read. Here are two of my top picks:
1. Vertical Response - This is an email creation tool that allows you to create stylish templates from which to send emails to your employees. Not only that, but you can set it up to tell you precisely how many of your employees are actually reading your emails.
2. Vizu - When you want to know what your employees think about a change to their stock plan, create a short poll for them. Vizu is a free tool that allows you to do this easily. You can then embed the poll on your portal page or include it in an email.
2. Tools for Training Your Employees
   Every new employee needs to be trained on how your stock plan works, and every existing employee needs to be educated on changes to your stock plan. This is typically done by having either one-on-one trainings or a group meeting to go over the changes. These types of physical meetings are useful, but what do you do for people who miss them - or for those who work remotely? These two tools offer great solutions:
1. GoToMeeting - This application allows you to set up an online or "virtual" meeting with an employee in a remote location. You can share your computer screen with that person to go over the details of the stock plan. An alternative to this tool is Skype, which also works very well.
2. Jing - This free tool is made by Camtasia and allows you to record video and audio from your computer screen, which can then be shared with your employees via your portal or email. If you need advanced video editing, you can always pay for their Camtasia tool.
3. Networking Tools
   These web tools allow you to network on the web. I know one stock plan administrator who used these tools to land his current job - and he couldn't have done it without them.
1. LinkedIn - If you haven't already done so, I strongly recommend joining LinkedIn. On LinkedIn, you can post an electronic resume and connect with other LinkedIn members in the industry. After you have your LinkedIn account, take some time to explore the LinkedIn groups that interest you. You can use these to read through questions that others post, as well as post your own questions for the community at large. After you join, feel free to connect with me.
2. Equity Compensation Experts - This site was created by Dan Walter of Performensation and grew out of a LinkedIn Group. There are currently 1,000 members, and it's a great resource for any stock plan administrator.

The above is only a sampling of the cutting-edge web tools that can make a stock plan administrator's life easier. For more examples, you can check out the slides from our recent GEO presentation on our Web Tools in Stock Plans page. If you have any tools to add, please leave them in the comments.

Of course, if you need a web-based tool to track your stock and option records, check out the 4-minute demo of Equity Focus.