My friend, Julie Penner was kind enough to give me a copy of Pela:  Anytown Graffiti the other day.  I really like it.  The New York-based band describes themselves as a "Rock and Roll" band, but that’s somewhat limiting.

They’ve got the excitement and energy of the Killers, but with a more acoustic and soft touch than some of the Killer’s over-produced offerings.  While both Rolling Stone and their own web site compare them to the Pixies, Springsteen and Coldplay, I think they are a little more heavy and songwriting intensive than these groups. 

Anyway, check ‘em out.  It’s a good, unique, fresh sound that it’s different to be different.  It’s just different and good. 

In my continuing series of Law Firm 2.0, I have decided to take a crack at creating a completely new law firm model. This definitely falls under the “hard category” for change. Before I launch into actual ideas, let me start by stating my basic assumption on what is wrong with the current model.

Law firms throw money at their internal business problems instead of fixing the root issues and then pass these increased costs onto their clients.

I don’t want to get into a “lawyers make too much money” discussion. It’s not for me to judge. I don’t think lawyers are any greedier than anyone else in the business world. So while I am upset with the state of affairs of legal fees, I’m not going to say that I think there is mal intent from the industry in general.

In my opinion, there are a few core issues that need to be addressed in order of importance:

1. Associate retention and hiring;
2. Outdated cost structures;
3. Practice area compensation parity; and
4. Outsourcing.

I’m sure there are others that I’m completely unaware of, as I was never on the management committee of a law firm, but these are good ones to start with. I’ll write about each one in a separate post.

Of all the costs issues, I think that associate retention and hiring has to be the biggest factor. I’ll admit that I’ve racked my brain on how to “fix” this – and I have some ideas – but I’m not so naïve to think that this is an easy fix. First, let’s take a quick look back into history.

If you remember from my first post, first-year associate salaries have risen approximately 132% over the past ten years. Is this a case of law firm partners feeling generous and handing out large paychecks and making their clients pay for it?

No.

This is the reaction of law firms that were bleeding associates in the late 1990’s and trying to throw money at the problem. As the retention issue continues to be a major problem today, the response is still the same (also my favorite Bob Seger song). The firms attempt to buy loyalty. Couple this with a nuclear arms race of first-year salaries from the biggest of the big firms, and you’ve got yourself a real problem.

I’ve held a belief for a long time that the technology age materially and adversely affected the lives of all lawyers, but especially associates. The advent of email and cell phones increased client expectations on an exponential scale – more than other businesses that don’t deal with multiples of clients. Not only were client expectations in general greater, but the responsibility level of associates skyrocketed, as they now had ways of directly communicating with clients that they did not before. Associates who were once protected from direct client contact were suddenly on the front lines when an email was sent. Their cell phone numbers were given to their clients. This was not only incredibly stressful, but also given the inherent inefficiencies with associates this made for unbelievably long hours. I was one of these associates. Take this with the explosion of start-up company growth, the IPO bubble and the like; the late 1990’s were tough times to be an associate.

So what happened? Simple, associates started leaving. Lawyers were jumping in droves to start-up companies as business development professionals, in-house counsel and other positions. To many, the paycheck just wasn’t worth it. As more associates left, it was an ugly spiral as the remaining associates’ lives were even worse.

So with a definitive move that will be remembered by every lawyer, Gunderson Dettmer led the charge by increasing first-year salaries to $125,000. It was a bold move and one believed to attempt to stem the outflow of associates to their startup clients. From what I have heard, the idea was to show lawyers that they could stay at a law firm and make a great salary. One did not have to leave for the allure of stock options. Other firms matched the Gunderson salaries and salaries at every level followed suit. For a while, the hole in the hull was plugged. While the job still was tough, we at least were making some serious cash.

As with any change, inevitably the “what have you done for me lately” effect sets in. Lawyers match their lifestyle to their salary, housing prices continue to rise in the Silicon Valley and not too long afterwards the money isn’t on top of mind. And the new salaries had to be paid for. Billable hour requirements were increased across the board.

Also and most importantly, with the dramatically increased costs, clients’ attitudes changed. I believe that clients consciously or subconsciously believed that their lawyers were no longer their “partners,” rather they were now a very expensive service provider and given the new hourly billings rates that were in effect, they “owned” their lawyers. “Hell, if I am paying that much per hour I can call my lawyer any time of the day, any day during the week!”

This last point cannot be overstated. This “I own you” versus “you are my partner” attitude has impacted all lawyers, not just associates at firms. In my opinion, it’s a direct result of the increased billings. And what happens when associates are unhappy at work? The law firms throw more money at them, they demand more billable hours and they are “owned even more” by their clients. This is really dangerous cycle. Higher salary = worse work life.

Despite the promise of greater compensation, I see more and more senior associates and junior partners leaving law firms to go in house and make much less. The dream of being a partner at a firm just isn’t what it used to be. When speaking to folks that have left or are contemplating leaving (note: there isn’t a week that goes by that I don’t have at least a half dozen conversations with a disgruntled lawyers looking to leave), their gripes NEVER include compensation. The gripes always about quality of life, client demands, missing their children, lack of transparency in the partnership, long commutes, etc. They aren’t leaving for startup business development job, because few want to hire lawyers these days. They are going in-house and making much, much less money.

So what can a law firm do? How about in a business that charges by the hour, start paying salaries by the hour? Let lawyers determine how much they want to work and how much they want to make. Each lawyer would essentially budget hours that they want to work the following year so that law firms would be able to manage capacity. Clearly there would be an agreed upon variance and other details, but I can’t reconcile how an hourly charging business can continue with the current model.

If you read between the lines, what will eventually happen with my proposal is that associates will figure out what their revenue per dollar charged is. Efficient firms will be able to give a transparent cut to their associates and still provide generous compensation to their partners. Inefficient firms will suffer. Firms will begin to compete on revenue per hour to associates, amount of hours worked, quality and style of practice and quality of life, not meaningless first-year salary statistics that have nothing to do with the long-term contentment of their new hires. There will be other factors in future posts that I believe will also positively impact associate retention issues.

Many smaller fir
ms have essentially adopted parts of this model. I realize that many of the larger firms with fancy offices and large cost structures can’t imagine running a firm this way, but I’ll address ways to change these cost structures in my next post.

(P.S. Check out this Vault report on associate satisfaction and you’ll notice very few of the typical venture lawyer firms)

For those of you not familiar with the Foundry Group, we collectively author a blog about our investment themes, our portfolio companies and what we think differentiates us from other venture capitalists.

Today’s post on the Foundry Group blog is titled "There is no "I" in Foundry," which describes our team approach to running Foundry and contrasts that with the more typical venture firm.  We have a philosophy at Foundry that we are stronger and more successful investors as a group rather than as individuals.

I hope that you enjoy the post and keep reading our blog.

Yes, you read the title correctly. The five of us employ an executive coach and we love her. Who is she and what does she do?

Her name is Nancy Raulston and she is the founder of perspective2. What she does is facilitate human capital and executive team development in ways that we aren’t qualified to do. No, this isn’t “sit on the couch and tell me about your mother,” rather she has taken the time to get to know each of us and has been a tremendous asset in helping us explore our strengths and weaknesses as a team and as individuals.

We decided to use her when Ryan and I moved to Colorado two years ago to help start Foundry Group. While we had all worked together for 6 years then, we had never worked in the same office and we thought that a good 360 degree management review would be a helpful exercise.

She interviewed each us, folks in the industry and our staff about us and came up with a detailed analysis of each of us including how we fit together as a team. Which of us likes detail? Which one of loathes the small stuff? Which one of us doesn’t like to be the first to speak in a meeting? It wasn’t that anything was so surprising in that it changed our opinions of one another, rather when it was clear who was more and less comfortable with certain things. And with this knowledge we were able to help and encourage each of us to be better-rounded.

Since then, we’ve invited Nancy back on a regular basis to help monitor and tune our development. For a guy from Michigan who is generally leery about similar professions, I’ve become more and more impressed the more that we work with Nancy. I can confidently say that each of us has explored areas that we once shied away from and in so have become an even better functioning team. I think it is important to note that we didn’t have an “issue” that was the catalyst for working with Nancy, rather we thought we’d give it a shot while everything was great and see what the value proposition was. We’ve been very happy. I’d encourage anyone to give her a try.

I’ve dealt a lot with the Roland Corporation through the years.  I’ve bought a dozen keyboards, and half a dozen drums sets from them over the years.  They’ve always been one of my favorite companies, both on the product and support side of the house.

That was until yesterday, however.

While practicing for our gig, my ride cymbal on my TD-20S kit died.  Not good.  Especially given the gig is tomorrow.

Undaunted, I happily call Roland – surely they could help me out.  I’ve sent plenty of repair items to them before and it’s always been a pleasure dealing with them.

No luck.

Not only was I told that I had to send in my ride cymbal and wait for them to diagnose the problem and then send me out a new cymbal, I was told there was "nothing they could do in such an urgent case." 

I countered that if my name was Omar Hakim (one of their sponsored artists) that I bet they could help me out and the support rep said "yes, but you aren’t Omar Hakim."

While a true statement, when you sell "Pro line gear" (as Roland calls their products), you have to have pro line service to go along.  Presumably people buying expensive drum sets aren’t hacks, have gigs and have issues.  To not be able to rely on them to help their customers out is pretty sad.  I guess that I just can’t play an electronic kit and count on it for performances.

I think I’m going back to acoustic drums.  I’ve had to specially order and overnight ship a ride cymbal, buying from a local store for an outrageous amount of money.  Even better, Roland is making the store (and thus me) pay a $100 rush shipping surcharge.  Roland, you’ve lost me.

I love Boulder.  It’s a very unique place.  Today was a perfect example why:

In case you haven’t been spammed by Ryan and I yet via email, Facebook or blogs, let me be the first to tell you that our band, Soul Patch is playing this Saturday, June 21st at Redfish Brewhouse at 9:30pm.  It’s a rare event, as the band is from San Francisco, Redwood City, Burbank and Boulder.  It’s also our album release party.

Anyway, I’ve been playing drums for the first time in a long while and my wrist has been killing me.  Even after 20 minutes of playing, it’s hot, swollen and slow.  I’m getting old, yes, but also have had wrist problems for years.

I was having lunch today at the Kitchen with a fellow musician and friend and I mentioned that my wrist was giving me trouble.  Suddenly, the woman next to me says "I can fix your wrist."

Being in Boulder, I quickly looked to her hands to see if she was passing out "herbs," but there was no hand movement and I was confused.

I asked her how and she said "give me your wrist."  I asked her is she was a doctors and she said that she was a "healer." 

Now being from Detroit with a father who is a M.D., my first thought was "Dad told me about people like you, and…," but I decided to give her a try.

Within 10 minutes, my wrist felt great and if my incessant tapping of my knife on the table was any indication, I’m back on track for my gig. 

Her name was "Osha."  Osha, thank you.  Gotta love Boulder.

If you haven’t seen it, this is really funny.  Imagine if meeting friends / reconnecting with your past in real life was just like Facebook.  Classic.

The last post in my series of Law Firm 2.0 had to deal with specific efficiencies that I think can be gained in the process of doing deals. This all assumed that the current model of the law firm does not change. Today, I tackle the first of several posts dealing with changing the actual way law firms do business.

Of all the comments I made in my original post about “Why Start-up Lawyers Frustrate Me” the one that seemed to strike the biggest chord was:

“Eventually, venture-backed companies are going to have to move away from the traditional law firms that service them these days.”

I really believe that this is the case if things don’t change and it’s not new news. It’s already happened. Most of the companies that I work with have a name brand firm, but also have another outside counsel, part or full-time in-house counsel and a range of other legal providers that they cobble together to create a legal services matrix. No longer is it the case where the full-service firm is providing 100% (or close) of the legal advice to their clients. Maybe this is all part of the plan in divesting away from particular service areas that are less profitable, but it’s much different from 10 years ago where one firm provided “cradle to grave” counsel.

And I’ll tell you, as a VC, it’s frustrating to have several legal providers for one company. I find that the partner showing up for the board meeting doesn’t always have a good grasp of what’s going on company-wide, as the company and its other legal eagles haven’t kept him / her in the loop because they don’t want the meter running. I find many more disconnects, work quality problems and certainly more frustrations at both the board and company level. So while I understand from a cash expenditure view why this is happening, the company is definitely worse off from a service level when the legal function doesn’t fall under one umbrella.

Specialties like small-ticket litigation, employment law, licensing, and IP are more often farmed out to lower cost providers. And instead of one, competent partner at a law firm monitoring everything and really driving value, you have an executive at the company (usually the CFO or COO if there is no GC) trying to manage something they aren’t qualified to do.

Let me make this clear: I would much prefer to have one, good law firm doing all of the work for each of my companies. It’s just no longer financially feasible at many firms.

What to do? The aggregate billings need to come down. I’m going to sound like a Reagan democrat, but raising billing rates in face of losing billable hours of your clients is not a long-term way to be successful.

I think that different legal specialties have different inherent rates that they can charge given perceptions of value (right or wrongly, I make no judgment here). For instance, it may be the case that a top notch litigator is worth more than an employment lawyer based on both quantity of excellent professionals and the view of how much the issues is worth to the entrepreneur. I certainly have my stacking order of what I’m willing to pay for certain services based on my perception of value and my own experience (or lack thereof) in certain areas.

If I’m a law firm, I view this splintering of my client’s loyalty as a massive threat and attempt to grab back territory. Although, ironically, I had one piece of hate mail that said all of these fee problems were “the fault of the VC or start-up that hires the big firm when they should have hired a firm with lower rates.” This came from a partner claiming to be a start-up lawyer from a big law firm. Clearly he doesn’t think of splintering as an issue and is happy to see his clients go elsewhere.

So how does the billing model change? It’s not an easy answer. It might mean certain practice areas subsidizing others; it might mean more discounts; it might mean hourly billable reductions and REAL billable stratifications between practice groups; or it might mean fixed-fee pricing models for certain services. The possibilities are extensive, but realize that in long run, clients are going to use their lawyers as little as possible and that is not a good thing for the firms and frankly not a good thing for our companies or my business either. I realize that this doesn’t fall into the easy category but it’s inevitable. I think a decade ago start-ups saw their law firm as a “partner” whereas today they have several different legal “service providers” in large extent to this splintering. To quote a multi-time entrepreneur in response to my original post:

“I do know this: If I wasn’t paying $500 an hour for the advice, I’d ask for a lot more of it, and I’d count the lawyer as more of a partner in my business than a hideously expensive last resort ‘check’ to keep us from getting nuked when dealing with a big company or a litigious partner.”

I can already read the posts to this blog: “Jason, basically you are advocating a transfer of wealth away from attorneys to your firms.” I’m actually not. As you’ll see in future posts, what I’m going to advocate is law firms get “religion” on margins and it can be a win / win situation. Stay tuned. I’m not so unrealistic to think that firms can just charge less and all will be fine, but from a customer-focused standpoint this must happen at some point. And I think that point is soon.

Music discovery has never been more difficult for me. First of all, I have less time than I’ve ever had to listen to new music, whether it’s going to concerts, listening to the radio (satellite or terrestrial) or simply browsing the inventory at Amazon, CDBaby or iTunes.

And frankly, even if I had copious amounts of time, I’m not sure that more time listening to these sources would help me out. Why? Well terrestrial radio is just too much talk, too many commercials and still only plays the mainstream hits – even the supposed indie channels don’t seem to take any real chances.

As a longtime listener to XM radio, it’s “better” than terrestrial radio in that the mix to chatter to music is good, but the music library feels small to me. Perhaps this is because of lawsuits from the record labels trying to extract additional fees from XM that regular terrestrial stations don’t pay. Either way, I find very few new artists on XM.

So what’s one to do? To me there is one excellent and simple way: Pandora. The Music Genome Project is the basis of the technology which analyzes an artist (or song) that you like and discovers other new music that is similar. All along the way, you get to rate particular music tracks and the system really learns what you like.

Okay, you’ve used affinity systems before. They suck. You may even have been an early Pandora user (as I was) and you may have found it hit or miss. Well, they’ve nailed it now. It really, really works. They’ve licensed a ton of more content and categorized many more songs. And being a lifelong musician I’d have to admit that I agree with upwards of 80-90% of their selections. The best part however, is the content they are categorizing isn’t the mainstream junk that one normally hears on the other channels. Pandora has become a very simple and powerful platform in my musical life: I input tunes and artists I already love and it spits out even more tunes and artists that I love that I’ve never heard of. It just works. Two of the three music recommendations on my music tab were discovered through the site.

Thank you Pandora. Keep it going guys.

Sent to me by a friend today, perhaps the oddest cover of Sweet Home Alabama that one could ever see. Nothing like the Red Army Choir rocking the house.