With all the talk of the billable hour being a dying anachronism (which is how it’s described by Above the Law’s Jay Shepherd in a recent post), administrators have begun to examine other business models…and with good reason, opines Shepherd, who claims that timesheets focus on selling the wrong commodity: time.
It’s not your hour the client wants; it’s your ability to use your knowledge and judgment.
Besides, the billable hour is based on a business model that’s a hundred years old. It was launched at the very beginning of the prohibition era “by a tiny Boston firm called Hale and Dorr”.
Shepherd contends that the main reason the billable hour model is no longer up to speed is that, in today’s high-paced day and age, lawyers are not able to put a price tag on the practice of law. As a service, the practice of law is simply not quantifiable.
As an example, he points to the effort involved in his blog writing. If we operate under the billable hour model and we are assuming that it took him three hours to write the blog, this would mean it should—if the post’s author billed “a comfortable $500 an hour”–be worth $1500 to the reader. Is it? He doesn’t think so.
No. What the client values is how efficiently you can resolve his or her dilemma. “Because we’re selling the wrong thing, we’re measuring the wrong thing,” he says.
To further illustrate his point, Shepherd takes us through a couple of other failed business models: the print newspaper and records. These two industries need to re-evaluate what they’re selling, he thinks.
In re: newspapers, the lengendary New York Times recently came out with a revamped online pricing model which still just “sells people paper and ink”. People don’t want paper and ink, it seems. “[T]hey want information, and they want it fast.” It’s not cost-effective to charge less for a paper that includes a digital version than it costs to just outright buy an all-inclusive digital subscription, he quotes tech-blogger John Gruber as saying. “This makes no sense,” Gruber notes.
The same goes for records. From the beginning, customers just wanted to buy music…and this just happened to come packaged in records, first; then in tapes, and then in CD’s. “Napster and Apple…sold…customers what they wanted…” Those companies represented the future of music to the customers.
So what will the future of practicing law look like? What it won’t include is the billable hour, says Shepherd, as, in the process of solving your clients’ problems, you’re in possession of something they don’t have and, for the most part, value highly: the knowledge of law. And that, you can’t see or sell by the hour.
“We sell substantive knowledge—the ‘law’—which we learn in law school and for the bar exam and in legal research,” he explaines.
So when lawyers mistakenly think they are selling activity—thus the time sheet, which easily measures this activity– it doesn’t fly. “We [think we are selling] representation and advocacy and drafting briefs and…wills and doing real-estate closings.
When lawyers are able to focus on what really matters—and this won’t happen until the industry values the knowledge and judgment of their own—only then will they be able to step off the treadmill of billable hours and into the 21st Century and beyond. Without a doubt, “we will be practicing law differently in the future,” says Shepherd.