¶ Enhancing Law Firms With Data
Thank you so much today for joining us , brooke . For some background , brooke Lively is the founder and CEO of Cathedral Capital , so she helps law firms position themselves to exit . She's an expert in growth management , creative problem solving and profitability strategy , as well as the best selling author of Exit on Top .
Sell your law Firm to the Right Person at the Right Time for the Right Price . So , brooke , you have an impressive background . Can you tell me a little bit about your background and your journey to get to the founder and CEO of your own CFA company ?
Yeah , so it was by accident . Kelly I mean really , as a lot of it is you probably took the same path . This was not what you expected in grad school . This is not what I expected in grad school . You know , I went through grad school . I got all the credentials I was supposed to get .
I was working for a hedge fund , oh , and so you know you talk about data , I do data , and my father , who's an attorney , shed his partners every seven to 10 years , and he actually lost the woman who ran his firm in his last partner split . And so he said I need your help to spin up a new firm .
And the hedge fund didn't care where I was when I was analysting . So I did it from his office a few days a week and from the fund's office a few days a week and eventually quit working at the hedge fund and spun up his firm into a seven-figure firm within about a year and just kept running it .
And then I hired someone to help with sales and marketing . He only worked with attorneys , and his clients came to me and said can you do for us what you're doing for your family ? And that was when I realized that lawyers don't run their firms based on the numbers . They run them on gut instinct and that causes a lot of anxiety and , frankly , lost profit .
And that's why I started a CFO company because as a CFO , just like an attorney can read a brief of a case and see what's going on , cfo can read the financials and see what's happening within a firm and know where they need to go , investigate and know and see where the problems are . So that's why I do what I do .
Yeah , well , that's fascinating . Yeah , I feel like very similarly . I , in my journey , I went to graduate school for something completely different as well , so I want to get back to . You mentioned that most firms operate on gut feeling and how it's important to use hard data to remove gut feeling from these decision-making processes .
Can you elaborate on how you coach your clients to implement analytics and how do you sort of get them to change their approach using data-driven decision-making processes versus just their gut feeling ?
Well , okay , let's look at what a decision looks like when it's made on gut instinct . First of all , let's be really honest . Attorneys' gut instincts are really pretty good and that's the annoying thing Like if they were wrong all the stinking time . It would be so much easier . But they're really . I mean , they're kind of good . But here's the problem .
They make the decision at three in the afternoon and then they go home and they're eating dinner with their family and they're like wait , was that right , should I have done the other thing ? And they make that decision all over again during dinner , so they're not really focused on dinner .
And then they wake up at 3 am and they go through the whole thing again and then they make the decision again in the shower and then they make the decision again in the middle of a deposition and then they make the decision again and again , and again , and so you're making however many decisions however many times during the day and it splits your focus .
So how attentive are you really during that deposition ? If you're also wondering if the decision you made yesterday was the right one or not , every attorney I know says things like well , let's get a little bit more information . And I get that .
You guys are taught to not make a decision until you know what every possible outcome is , and while we will never know what every possible outcome is in running your business , our goal when we work with our clients is to say , okay , here's the issue , we've gone in , we've pulled the data . This is what the data says . We have three options A , b and C .
In our experience , c is the best option . What do you want to do ? It's very clear . It's laid out . You know what your three options are .
You've got someone who's been through this before saying this is the best thing to do and it's based on empirical data and it's based on your data that we've gotten out of your systems , not somebody else's systems , because I know that your practice is different from everybody else's practice . I get that .
I know that your practice is different from everybody else's practice . I get that . So let's look at your practice and your numbers and your cases and make a decision that's right for you . Does that make sense , kelly ?
Yeah , that does . That makes a ton of sense . So to continue on from that , so , given the integration of technology in various other sectors and I know law is starting to adopt technology and be more data driven how does technology influence evaluation of a law firm ? Are there any particular technologies or innovations that significantly enhance a firm's value ?
So there are two ways to answer that . The first is the more technology you have , the more you use that technology . Are you using at least 80% of your practice management system , of your CRM , of your marketing ? Whatever you're using for marketing , are you really using that ? Are all of those different systems integrated ?
If you're using them , it will increase the value of your firm because you can prove out everything you're claiming . You can absolutely say I have this many incoming leads , this is my conversion rate , this is my average case value . All of those things that you are claiming about your firm . You can say here's the data .
If you are not using that kind of technology , we're back to . I think . My gut says I'm guessing , and let me tell you I'm guessing is not as valuable as here's the data . The other way that technology can increase the value of your firm is in your systems and processes . How are you leveraging AI ?
How are you leveraging technology to get the work done for you ? I mean , ai is out there . It is coming to the legal industry . It can do so much . Now it's a little scary . Please , god , do not use chat GPT . Let's use the legal design software so that we're protecting your information , that you know . What can we automate ?
That will mean we can do more with fewer people , so we can do more for less cost , because that's going to improve the profit margin on your firm , which ultimately is what really matters when we're talking about the valuation . The higher your profit margin , the higher the valuation of your firm .
Yeah , that makes sense . How do you , given this emergence of AI , like you mentioned , how do you advise your clients to position themselves based on this Like ? Are there strategies that firms should consider to remain competitive or ahead of these trends ?
I think that really depends upon the type of firm that you are . If you are a flat fee firm , you need to go whole hog into this and you need to be using it as much as possible Because for you , the less you touch a case , the less human intervention . The less time you spend , the more profitable that case will be for you .
Faster you can move it through right . So in contingency and flat fee leverage , the crud out of AI and flat fee leverage , the crud out of AI . Hourly billing firms are a little bit different because if you transfer everything to AI , poof , there go your billable hours . Right , not really ethical to bill for hours that you're no longer doing .
So that's kind of a weird thing and I've gotten a lot of pushback from hourly attorneys going I don't want to use AI because all my billable hours will disappear . Here's the thing your clients are going to expect you to use AI . They're going to expect to see something happening in their bills because you're using AI .
And if you are in an hourly firm where you have a relationship with your clients , where it's ongoing , I think you really need to have a conversation with them and you need to say things like here's what we're doing . We're bringing AI in . It is enabling us to do more in less time . We are raising our rates slightly .
Ultimately , it's going to be better for you Because overall you're going to pay less , but per hour you're going to pay a little bit more . But you know , really talk to them about this is how we're going to leverage this ultimately better for you and talk to them about it . This is a relationship . This is give and take .
This is talking to them and saying we got to make this work for everybody and we want you to win , but you can't win at the expense of us . So I do think everybody needs to use it and I think you need to be aware of what your clients are going to expect .
Yeah , yeah . So can you share some success stories or examples where you were successfully able to sort of help implement these processes into these firms Are ?
you talking about AI or ?
AI , because you mentioned that sometimes you have some clients that are a little resistant to it , particularly in the billable hours department .
Yeah , I got to tell you . So I guess it was last summer and I'm going to throw my brother under the bus here , because my brother and his firm I use as a guinea pig a lot right , because I can , and he's a great sport about it . And so when all the AI started hitting , I'm like , okay , jonathan , we got to try out all this AI .
And he was like , really , because I've got trial and I've got this and I've got that , and I'm like , uh-huh , I need you . So we went and I sifted through , I tried all I did the research and we chose one that one of his friends actually subscribed to . And so he called one of his friends and his friends sent him some research that it had done .
And my brother's like , well , it wasn't very helpful . And I took a look at it and I was like , well , he put a bad prompt in and even I could tell that I was like he didn't make it specific to Texas , which is why you got cases from Illinois . So , yeah , not very helpful , it was a bad prompt .
And we got on the phone and my brother's a litigator and we were talking about what it could do and my brother was bored and he was like whatever , so not interesting , great , it could do that . He's like , but can it draft ? And the guy's like that's coming out in the next six weeks .
Jonathan's like , can it do interrogatories coming out in the next six weeks . I was like , oh wait , hold on .
That company has recently been bought by , I think , thompson Reuters , so if you can get in at the moment they've got a wait list that , if you can get in , it really can start to do the things that a first year law student I mean a first year attorney could do , and I love that .
It really will take a lot of the grunt work off of paralegals , off of your young lawyers . My concern is how are we going to train our young attorneys ? Because we're really going to have to think about that . An experienced attorney and Dr Kelly , you know this because you do it too when you go in .
Everything you do you do based on data , but I guarantee you that when you're looking at a case , you're also running scenarios in your mind , right ? Yes , always , always . So does every attorney , whether they realize it or not . When a client comes in , they're just going 90 miles a minute , running through all the different potential scenarios .
And they can do that because they have done all this research for so many years . When we give young attorneys these tools that do the research for them and spit out the answer . How are we going to teach them to do that in the moment , unconscious analysis that allows them to be such an amazing counselor to their client ?
That's what I think is solved . Yeah , what are some of the strategies you use to train these attorneys ?
Hey dude , I'm the CFO . My job is to point out the issues , not solve them all . All right , all right , and I'm going to pass that one off to somebody else .
And so you mentioned that it's especially important for young attorneys to start to adopt this technology . What about the older , more experienced attorneys ? Have you found differences in technology adoption or willingness to sort of integrate AI at that level ? Ai at that ?
level . Well , I mean , I think in general , I think in the population at large , we tend to see higher adoption rates in technology in younger people . I think that historically , the legal industry has not been a first adopter in anything . I mean kicking and screaming to adopt computers , right , and I think this could be game changing .
I think it really could change how we operate and I think the more we use technology , the more information and data we have access to , the easier it is for us to pinpoint where the pain points or the constriction points are in a firm
¶ Increasing Profitability Through Technology Adoption
. So part of what we do as a CFO is we go in and we look at the data . Where's the problem ? Where's the sticking point ? Where's the issue ? Where is that place where we are losing money or not making money ? Where is the money getting caught ?
And the more things that are running through your practice management system , your CRM , the easier it is for us to see that . And when we can see it , we can fix it . Hard to see it on paper .
So those firms that are paperless , the firms that keep everything in their practice management systems , we can say oh , look on average in a personal injury case , let's say it's a car accident and I'm totally making these numbers up , Dr Kelly . Right , so you know it should .
Only we should make an offer or we should send out a settlement package to the insurance company and we should hear back in 32 days and we should have an offer back . You know it's been 37 days . There's an issue ? Mm-hmm , Mm-hmm , Because we can see it . It's the data . We know when to move a case . You know it's been 37 days .
There's an issue , because we can see it . It's the data . We know when to move a case . We know when there's an issue because , again , time is money . In all types of law , whether it's flat fee , contingency or hourly time is money , yeah , yeah , Always .
So , in terms of increasing profitability , making data more visible and making decision making or having your decisions being made on hard data , do you typically just do you only work with law firms , or have you worked with the type of firms that finance , like litigation , finance experts , right , the firms that finance potential lawsuits , and how can you see the
adoption of technology improving those sorts of systems ?
Oh my gosh . So , yes , we work with litigation finance firms because our firms need financing , right , Right , and they love it . The financing firms love it when we work with law firms . The law firms love it when we're involved because we can talk to the financing firms and we speak the same language . Basically it's a win-win situation .
But the more data we have , the easier it is for those financing firms to be able to look at the caseload and make a determination about their ability to lend lend . We haven't seen any case or any situation where there was less data and it came out more favorably for the law firm . It is always the more data we have the better .
So you know , we build models that we give to the financing firms that show them you know average case value , how things pay out and all of that , so that they can look at it and they can value the inventory really quickly and really easily , because we hand it to them basically valued .
So here it is and they're like oh look , it's a whole payout schedule , Like , you're welcome , we did your job . So , yeah , the data is so important there . It also speeds up the process because the financing firm doesn't have to figure it out .
Yeah , yeah , that's great to know . Do you have any advice for our listeners about valuation and increasing your valuation before you exit ? I think it's this .
People think about exiting when they want to get out and that is , at a minimum , five years too late . It takes at least three to five years . If you're a personal injury , it takes even longer . But let's stick with at least three to five years to get your firm ready to sell . But I want to look at it slightly differently .
Okay , a firm that is an attractive acquisition , a firm that somebody wants to buy , is actually the firm that you want to own because it throws off a lot of cash , it has happy clients and happy employees and it doesn't take a lot of effort from the owner .
So it frees the owner up to do what it is that they love to do , whether that's being in court or spending time with their family or running another business . Whatever it is , it gives them the time to pursue that passion . So why wouldn't you go ahead and do that now ? So that's part of yeah , do it now . Figure it out now . Why would you wait ?
Why would you run a less profitable firm that is harder to run ? Now , go ahead and fix it .
Yeah , well , that's great advice . Don't wait . You know AI has just been integrated within the last year . How do I know that this is like going to be correct ? I mean , at least when I review the work of my associates , I know that it's coming from like a person , and so there's just so much resistance .
How do I know I'm not going to end up like that attorney in New York who turned in the brief to the court and had fake cases . Oh my gosh . So you know this the human brain has a problem with if you're told it's right , it has a hard time finding what's wrong , right Confirmation , bias at work .
There you go .
Thank you , see , you've got this , you've got the words . And then the other thing is you have a hard time finding what's missing , right . And so when I'm having these conversations with my brother , he's like but as attorneys , that's what we're trained to do .
I'm like , oh BS , yeah , you're going to find it harder to do that with AI than you would with a young associate . Because , you're going to go in with the assumption of a young associates wrong .
Yeah , yeah , but there's just yeah , it's . I feel like it's kind of an uphill battle at this point , but you're absolutely right . I was a jury consultant for many , many years in the past and it's just yeah , law is like the last , the last place to adopt technology . Like it really is . Like I remember even like oh , how long ago was it ?
Like five , 10 years ago , we were still bringing banker boxes to court papers , we were using surveys in mock trial paper surveys and like even that they were . We had integrated iPads at one point to the process , the survey process and attorneys were so suspicious Like it's just , it's a whole thing .
I can remember and this was probably 10 years ago I had hauled all my banker boxes into court . I was doing receiverships and so I had hauled all my banker boxes into court . I was doing receiverships and so I had hauled all my banker boxes into court .
And which totally cracks me up , because you know , if you have all the banker boxes , you don't have to go through security . They just say , okay , go around . So I'm there and I had to present the court with a bill , and so , you know , I go back into chambers and I'm like okay , I'm just going to email you this bill from my phone .
And they're like wait a minute , you can do that . Yeah , they're like don't you need to go to the office ? And blah , blah . I was like , no , I can give you an up to the moment bill . And they were like mind blown , because I had software in the cloud and I can run it from my phone and they were like and that was so incredible .
And now lots of people do that . But you know , they , they couldn't imagine that kind of thing . And I think that as we keep moving on in technology , if we keep moving , if we adopt , if we use it , we're going to find how easy it is to do things , that we don't need the bankers boxes , we just need wifi . All of that is easily accessible .
It's no more .
Here's the document . Yeah , yeah , do you feel like it trickles up , though , like this is something that we , we struggle with too ? Right , the younger associates and the paralegals are all about this , but you know they're not necessarily the decision makers when it comes to integrating technology , or , you know , paying the bills to integrate anything .
I think my father's a really interesting study on this . Yeah , like 15 years ago he wanted to go paperless , which 15 years ago that was a big deal . That was a big deal . So we ran two parallel systems . We had the paperless system and we had the files right and everything was run in tandem . We had both .
And he would still yell down the hallway for someone to go get a document . So I'm like , go find this file , I need to look at this . And I'm like you know , you can just pull it up on your computer . He's like , oh no , I need the , I need filing and file . I'm like , why did we go through ?
I mean , can I tell you how many interns and law clerks I had scanning back documents to get ? this , done so anyway so then there was this one day where he figured out oh look , I just pull it up on my screen and it's so much faster and I can pull up anything while I'm talking to a client and have it right there in front of me .
And it was life changing . And he , like , comes out of his office and announces did you know that you can pull up any document ? And we're like , yeah , really fascinating , we'll try that , yeah . So , yes , I think that . Will the older generation adopt as quickly ? No , will they adopt ? Yes , will they adopt as fully ? Probably not .
But the more the younger generation adopts , the more it comes into the firm and the more we can find those people who see the potential and the more we can explain to those older partners the potential for it and put a dollar value on it . So , yeah , we're going to bring this in .
It's going to cost , however , much to bring it in , but here's what we're going to see and , by the way , it's not going to affect you because , like , don't make them change . Yeah , yeah , this is what's going to happen , this is what the benefit is . I think you'll see it and I think it will eventually filter up .
Yeah , yeah , well , hopefully .
Yeah , there's so much value in it . There's so much yeah , yeah , even .
Yeah , I mean , I feel like it's just the most . Yeah , ai has changed things so much . I'm just like shocked . More firms don't just automatize so many different things . It's just so easy .
Yet you have to do it in the right venue . If you're doing it in chat GPT , you're just asking for trouble , and I know firms that are doing medical summaries in chat GPT . Oh no , what are you doing ? Can you stop doing that ? And can you please stop going to conferences and standing up on stage and advising people to do that ?
Do you have trouble explaining how AI or how these systems work ? I feel like that's also sort of the struggle , right , Like why can't I just use ChatGPT it's AI . Why can't I just go in and input all my documents through that ?
Because you kind of have to know how to do this right , you have to know how to prompt .
You have to know .
Client , like because you kind of have to know right now , you have to know client confidentiality . I am really good . I had a client one time say you know , bro , you can make everything a binary decision . It's either a or b .
And I'm like , yes , yes , I can , and I can bring almost every decision down to you can either keep your license or lose your license . Yeah , and it's the same with AI . You can either do it this way and keep your license or you can put it in chat , gpt and lose it . Right , what do you want to do ?
Yeah , see , framing it that way is very compelling .
And if you don't listen to me , I'll email it to you so that it's discoverable .
Yeah , yeah . Well , Brooke , I don't . I don't want to keep you . I know you're super busy , but thank you so much for joining us . You're clearly an expert in your field and it was great to hear from you .
Well , you're sweet , I'm just . I'm passionate about this . I'm passionate about attorneys . I'm passionate about them being able to do what they love , and every attorney is different .
There are some people , like my brother , that just want to be in a courtroom , and I've got I've got a client in Louisiana like that and he just wants to be in the courtroom and fighting for those clients .
And then I've got other clients who just want to help their clients , but they don't want to do it from the courtroom , they want to do it by growing their firm and having the type of attorneys that will do it . So I've got a client out in Seattle .
He does mainly , you know , car accident , personal injury type things and you know he pays his people in such a way and incentivizes people so that it's all about the client . Like , if he doesn't stop cutting his fees , it's just going to make me nuts , but it's all about the clients and he wants to help as many people as he can help . And that's amazing .
He doesn't do it from the courtroom , he does it from his office and he does it by driving his marketing so that he can help more people . That's awesome . He doesn't do it from the courtroom , he does it from his office and he does it by driving his marketing so that he can help more people . That's awesome . I love helping him build that firm .
I love helping build his firm because it allows them to use their talents in a way that allows them to really shine . So how do we build this firm that lets them do what they do best , and do it profitably ? Because , you know , all the attorneys we work with are smart enough to figure out the financial side of all this . They can do it .
They made it through law school . They're not dummies . They can figure this out
¶ Outsourcing Expertise for Efficiency
. But is that the highest and best use of their time ? Generally , no . It is not worth it for them to basically go back and get an MBA . Let someone like us come in and figure that out . Let someone like you , kelly , go in and figure out the jury part of it . Could they figure it out ?
Yeah , if they studied enough , if they basically got a PhD in quant , whatever I don't even know what your PhD is in Could they do it ? Yeah , is that a good use of their time ? No , bring those experts in . Let those people make that difference so that you can do what you do best .
Right , right , it's a partnership .
Yeah , there's no reason to bang your head against the wall . There's no reason at all . Yeah , yeah .
Well , this is really great , Brooke . Thanks so much . All right , thanks , kelly . Yeah , have a great rest of the day .
You too .