What is a law firm? The short definition used to be "a building containing people to create profit." Now that the building has become optional, we can see the real essence of a law firm — people creating profit. That's it. So let's examine the relationship between people and profit. To understand this, we need to examine the single key ingredient. It's not management, motivation or money. It's efficiency, and we ask the question: Do efficient lawyers make firms profitable or unprofitable?

Let's start by bursting the idea that professional service firms are different. They're not. In a conventional business, the key to profitability is efficiency. The formula goes like this: "use resources efficiently to satisfy customer demand with minimal wasted effort." Meanwhile law firms have people to keep busy and time-recording targets to meet. Over the years law firms have tried a variety of inefficiencies aimed at boosting profit, such as:

1.     Putting more partners on a matter
2.     Adding research and doc prep time
3.     Leveraging for the sake of it
4.     Creating time entries through internal email

What do these law firm behaviors have in common? Recorded time goes up, value goes down and the client goes elsewhere. This is inevitable. Any recipe which says "use the resources inefficiently and fail to satisfy customer demand" is a formula for failure not profit.

So it turns out that law firms are a conventional business, the basics of economics do apply to them, and the key to profitability is having efficient lawyers. Other lessons will discuss the methods and tools to make lawyers efficient and the need to be transparent about this with clients. But for now, let's all be reminded of what efficiency isn't. You won't excite many clients by touting a new technology. Yes, technology increases efficiency, and yes, clients care about efficiency, but last year's innovation is this year's norm. The efficiency which clients want to see — and which leads to repeat business — is efficient lawyers.