John McDougall: Hi, I’m John McDougall. I’m here today with Chris Hart, the world’s leading expert on what he calls “extraordinary guarantees.”
Chris has been a leading professor at Cornell University, and Harvard Business School, and has at a consulting company in Boston for many years before moving to Canada with his family.
Chris, can you give us a little background on yourself and how you got started in this space?
Chris Hart: Sure. I was teaching at Harvard Business School. I saw, if you can believe it, a promotional material from a service provider.
My specialty was service businesses, at the time. I had launched a course called “Management of Service Businesses.”
I saw, of all things, a pest extermination company that said, “If you don’t believe we’ve totally exterminated your roaches and you weren’t satisfied, we will pay you up to a year’s fees back and will pay for the exterminator of your choice for another year.”
I thought to myself, “Either there’s something very fishy going on here or I need to do some studying and understand what this about.” As it turns out, this was a phenomenal organization.
Other companies couldn’t even compete against them. They used their guarantee as the driver to make themselves so good.
In other words, you have to ask yourself, “If you had a pest extermination firm, what things would you want to make very sure of before you offered a guarantee that said, ‘if for any reason you’re dissatisfied with the service we provide, we’ll refund up to a year’s fees and pay you enough to hire the extermination firm of your choice for another year.'”
Pretty amazing. What started that day has turned into a specialty of mine over the years. Something I call, “extraordinary guarantees,” John.
I worked with firms and industries ranging from motorcycles, to automobiles, to restaurants, to IT consulting, to actually management consulting, it’s a topic that I think is ripe for legal services.
John: No, I would agree. I think that really must play on the…When you’re going to close a deal, or you’re going to sign up and hire someone, there’s always that bit of hesitation before you close the deal and pull the trigger. That must free that up. That must help close deals quicker.
Chris: With any kind of a service, you really don’t know what you’re going to get. You can’t test drive it. The question becomes, how does the service provider ‑‑ in this case, a law firm ‑‑ make tangible to the client what it is that the client can expect?
The answer there is a client service guarantee. Something along the lines of, “We guarantee that as a client of, let’s say McDougall and Hart, you’ll receive cost‑effective legal services delivered in a timely manner. We promise to involve you, communicate with you regularly.
“We can’t guarantee outcomes, but we do guarantee your satisfaction with our service. If we don’t provide service to your satisfaction, either pay us the percentage of our fees that you feel are warranted, don’t pay us, or we’ll work for you without fees until you are satisfied.”
Having said that, that’s a big mouthful, and one can immediately imagine how an attorney trained to discern sources of risk wherever they might exist, and immediately start to think about mitigating them. If you take the equal sign and put a giant slash through it. How could a law firm ever come to grips with what I just said?
John: Right, that’s exactly what I was picturing. Lawyers would be, and myself included…That’s a big task to say, “You know, we’re just going to give you your money back.” Because how do you know that’s fair actually for the attorney, for anyone? Some people might take advantage of that.
Chris: That is the number one objection and answer to the question, why have so few ‑‑ and in this case, there’s only one legal services firm that I know of that has ever offered a guarantee. It’s very similar to the one I just laid out there off the top of my head for us. They had spectacular results ‑‑ I’ll get into that in a second.
The question is, why, if they had spectacular results ‑‑ and this would be so powerful for clients ‑‑ why are they so few? The answer is, number one, “Uh, we can’t guarantee outcome so if it’s a dispute, litigation, and it goes against the client, and the client is upset”?
OK. I understand that. What’s that? Is that 10 percent of your business? Is that 15 percent, 20 percent? What about the other 80 percent? Your other 80 percent ‑‑ you’ve got clients that utilize your services on an ongoing basis. Would you mistreat your accountant? Would you mistreat your personal attorney?
In business, after business, after business, although this is the very first knee‑jerk reaction ‑‑ By the way, the second knee‑jerk reaction is, “We’re not good enough. We’d get killed.”
This first knee‑jerk reaction, it’s vastly overblown. Satisfied clients will not abuse a guarantee. They do not go into a legal services relationship thinking that they’re going to get a guaranteed payout. It just doesn’t happen. The tests that I’ve done in the professional services space, show that ‑‑ No. It’s not going to happen.
You know what, John? Even if it did happen ‑‑ and my research shows that this will happen ‑‑ no more than 1 out of every 500 to every 1000 clients where somebody might try to take advantage ‑‑ so what? They won’t take advantage twice. All we’re talking about when you come down to the practicality of what would the payout be, is, let’s say, one month’s fees, two months’ fees, something like that.
The natural inclination of everyone ‑‑ not just attorneys ‑‑ is to eliminate any possibility of somebody abusing the guarantee. If you do that, you won’t have an extraordinary guarantee. You’ve got an unextraordinary guarantee that’s not worth the paper it’s written on.
Now, I don’t know ‑‑ did that make sense?
John: Yeah, it did. I don’t’ know why I was thinking this, but I was imagining Spock from “Star Trek.” I was thinking would Spock, for example, because he’s very data‑driven, would he sign up for an extraordinary service guarantee.
I was thinking yes, because if you were just looking at the numbers ‑‑ and you’re saying factually from your research, this is a really tiny amount of people would actually sign up to get the guarantee ‑‑ because most people aren’t trying to take advantage of you. That would be a very small portion.
If that equates to whether it’s a couple of months of fees, or whatever it might be, that’s just a very small amount of the population. The amount of deals that you’re going to close so far outweigh that. I would love to see more numbers on that. If you’re looking at it from a data‑driven standpoint, it seems like more of a no‑brainer. But if you’re looking at it emotionally, it seems like a no‑brainer in the other direction.
Chris: If you can believe it, one of the things that is absolutely essential is that if you are a law firm that just has its interest piqued by this idea ‑‑ forget the question of whether you’re actually going to design and implement an extraordinary client service guarantee and offer it to all your clients, which is far, far, far premature to warrant that.
The only thing that I’m trying to communicate right now is the question ‑‑ is this an idea that might really crack the existing mindset and get people to say, “Why wouldn’t we offer a powerful guarantee if it would have so much impact on our clients”?
If, in order to offer it on a client service team by client service team basis, not in an arm‑sweep, across‑the‑board basis, we would ‑‑ just like the extermination company ‑‑ say, “What things would we have to change to minimize, in our mind, the risks that there will be any payouts”? Forget about cheating, cheating just almost doesn’t happen.
Payouts, I found, at good firms can run anywhere from one quarter of one percent up to one‑and‑a‑half percent. But recognize, John ‑‑ and I hope everyone who might be listening recognizes ‑‑ that these are clients who have problems, these aren’t clients who, “Oh, my god. That’s going to cost a lot of money.”
Right now, law firms have fee write downs, fee right offs, for what? For clients who are upset. Far better to get ahead of the curve and say to a client, “You know, you might not feel that we didn’t do the job this month, but you know, there were some things we got a matter out late, and as a result, I’m going to take 25 percent off the dough.”
That’s just what I feel is fair, and that’s consistent with the client service guarantee that I laid out for you. What would the client say, “Oh, no. You don’t have to do that,” but you have to insist. What do you mean I have to insist?
Because the next client that you explain your client service guarantee to says, “Gee, have you ever made a payout”?
“No, John. Actually, we’re so good that we’ve never made a payout.” Bullshit detector goes up, red flag, danger liar in the vicinity, right?
Chris: You have to, and I have a Delta Dental Insurance Company that has done a marvelous job with this. They call their payouts, investments.
Investments in customer loyalty, investments in showing their own organization that we are going to live up to this guarantee in providing an incentive for everyone in the organization to say, “What do we need to change so that we’re not a weak link in the guarantee chain.”
Now, think about it, a medical insurance company offering a guarantee along the lines that I’m talking about, the answer is “Yes.”
Delta Dental North East Maine, Vermont, New Hampshire, they have crushed their competition. They have 80 percent market share, they started out in 1995, with 20 percent market share.
They have a 20 percent price premium over their competition. Other firms can’t even compete, Tom Raffio, who just wrote a book on this with Dave Cowens, interestingly, he is NBA Hall of Fame, Tom attributes it all to the fundamental concept of we either give them what we promised or we don’t want to take their money.
What it is, John, it really is a radically different way of thinking, but once a person gets it, you can see that light bulb go on and all of a sudden, “Wow, maybe this would make sense for us to explore.”
John: I just got back from the Legal Marketing Association Conference in Orlando, which happened last week.
Just like the last year at the Vegas one in 2013, there is just so much talk about the problems in the legal space, the shrinking budgets, the issues with pricing, and customers feeling like they’re tired of some of the traditional pricing or what they view as overpricing.
Some of the talk at the conference was around taking some chances and stepping outside the box because if you don’t, someone else will. Someone else is going to eat your lunch, if you don’t step up to the plate as a law firm in this economy, try and be a little bit different, and I think this is really timely given the state of the legal marketplace.
Chris: I’m biased, of course, but I’m no guarantee seller. In my work with firms over the years, I feel that is at least as important for me to help a firm think through what might a guarantee be, how would it apply to us, and perhaps a guarantee would not work very well for a firm.
It’s crucial that I help a firm figure that out because I’ve got no time in my career to screw around with projects that don’t go anywhere, and I certainly don’t want to see a client do something like that when I, based on my experience, have a pretty good idea that it might not go anywhere.
It could be for any of a variety of reasons. I think you’re right on the money, John. This idea on a model that I developed to predict the power, an extraordinary guarantee would have, the legal services industry scores off the charts.
It has to deal with the client risk, it has to deal with clients who are upset with the current state of affairs, it has to do with the very real gaps in client service.
Firm after firm says, “We are going to offer superb client service, that’s going to be our differentiator,” but they don’t.
John: Everyone else says that, “It’s our team, we have the best attorneys in terms of value proposition.” It’s hard when you’re saying the same thing everyone else is.
Chris: The question is “How can you actually put some traction behind that idea,” but “yes,” if you provided the legal services equivalent of the hotel service that a Marriott or a Four Seasons provides, “My gosh, just imagine. I guess the question would be what would happen to your client loyalty, the expansion of your client service relationships and referrals, if you were able to increase your client satisfaction by 1 point on a 10 point scale, say from 7.8 to 8.8.
The research from people like BTI and many others, I could go into depth on powerful research that’s been done across many industries, the answer is “A lot would happen.” Now, here’s the trick, John.
Can anybody really figure that out, they can’t. They say, “How do we know that we’re going to increase our satisfaction from 7.8 to 8.8. How much is that worth? Are you telling me that we have to take pay cuts to invest in that”? You can just sense where there’s just so many questions that it goes nowhere and nobody brings up the topic again.
If you take a law firm that is at an 8.8, I don’t know that there are very many of them out there, but a firm like that knows what client service is worth, and it will fight to protect its reputation, it wouldn’t dream of letting itself go south.
The challenge here is to envision what would life be like at our firm, if consistently across client service teams, we could increase client satisfaction by a full point on a ten point scale. My modeling that I’d done for one law firm shows that just on fee write down and write off savings, it’s substantial.
John: It sounds like there are multiple facets to the return on investment and benefits from this, it’s not going to cost as much as you would think. In fact, you’re going to have happier clients.
I would think the attorneys are going to be happier actually because they may have to get their act together organizationally, but once they do and they’re an even better functioning firm, it’s a better system I would think. How would you summarize may be a few of the key ROI or benefit points.
Chris: First of all, it’s going to make things run a lot smoother inside the firm. I can say this authoritatively because I have worked with consulting companies with client service teams. Before anything resembling a powerful guarantee is offered to a client, this client service team says, “What would have to change here in order for us to feel that we could deliver on that guarantee and not feel that we’re at risk of making payouts”?
The answer is always “A lot of things.” Rather than seeing a client service team feel like they’d been put under the yoke of curse of whomever and just, “Oh, my gosh. How did this happen.”
If they’re given the support from the partners within the firm, they will get excited because they don’t like working in a situation they’re in, they want it to be different. They can’t imagine being different, but if you give them that room to run, it works, that’s number one.
Number two, clients [inaudible 20:38] difference. If there is no guarantee and client service starts to get better, many times clients don’t really even know it because it’s not attached to anything.
If two months, John, after offering you a client service guarantee I say, “Now, let’s sit down and talk. Let’s see how things have gone,” what are your people saying which is what we decided upon two months ago when we thought we would experiment, we would offer this, and you would help us by telling us how it works, “How is it going, John”?
“Gee, Chris, it’s really going well.” I had some of our people tell me that the timeliness of work has really gotten better, things like that, so you see, this guarantee really does work.
John, you might want to consider a guarantee for your inside counsel services to your clients inside the company. If you’d be interested in that, I’d be happy to help you learn how we’ve been working with this, what we’ve learned, and how we might be able to help you do it. Now, that would be cool.
John: Wow, yeah. That’s a great thought.
Chris: I just did two things there, John. I haven’t talked about expanding the relationship, I haven’t talked about referrals. Those things, I tend not to talk about them because that’s all gravy, only if it’s seen is it believed, if you know what I mean.
What I like to do is let’s focus on the here and now in terms of reducing fee write downs, fee write offs, that sort of things. If we can justify it on that basis, the rest is all just gravy.
John: Yeah, that’s great. I think that’s powerful that you do it that way, but it just really just hit me as you said “referrals,” and I thought to myself, “When people go to refer an attorney or someone to my company, for example, sometimes people get nervous, what if you don’t do a good job, what if you screw up, what if they hate you and then they’re going to hate me.”
Now, isn’t that awesome when you can say, “Hey, how would you like to work with so and so law firm, I really like them but not only that, they have a customer service guarantee, an extraordinary service guarantee, there’s no way you can lose basically.”
Chris: John, it’s a great idea. It’s very easy to think about, it’s not easy to do, and it’s very easy to screw up. If the most senior partners, the most respected partners in a firm don’t get the light bulb to go on in the way that I am hopefully communicating in our podcast here, if that light bulb doesn’t go on, forget it.
If the light bulb goes on, it’s kind of a “Well, go ahead and do it,” it won’t work. Now, we’re getting at how difficult it is for law firms or any other professional service firms to change.
The federation nature of the firm, the independence that’s treasured by the partners, those things work against what we are talking about here which requires team work, requires coordination. I don’t want to misrepresent that this is easy, it’s not, but for a firm that’s tired of the same old “Oh, let’s do this, let’s do that,” the old problems just don’t go away.
For a firm that’s interested in finding a permanent solution, this is a medicine that’s not easy to take, it’s not fun to take, but it works. It works when taken according to the regimen that the doctor prescribes, it works, and it’s powerful.
John: Yeah, I’d love to hear a little bit more in a second about maybe some steps that they can take and how people can contact you.
One last question before that, I was curious if this works better with B to B law firms versus B to C, whether it’s a mesothelioma or a personal injury attorney on the one side, DUI or family law on the other side, employment lawyers, IP intellectual property lawyers, healthcare, energy firms, et cetera, would it work for anyone, basically any type of firm or does it work better for some than others?
Chris: John, I’ve got reservations in my mind that I haven’t worked out and will be worked out over time because I’m targeting. I have decided to target legal services. I think that the opportunity is that great, I don’t know which firms will end up five years from now being regarded as having done this and done it right, no idea.
I know there will be some that will happen. It’s not applicable I suspect in some litigation B to C services. It might be, but I’m not clear on that one.
John: What about some examples of where you think it might work, even one or two examples of types of firms?
Chris: Oh, my gosh. In B to B?
Chris: Just pick, those are professional relationships. Moreover, the volume of sales, the volume of fee is such that if you’re a private customer, John, and you spend $100 with me. If I gave you $200 back because I didn’t do the job, you’d say, “Whoa, wow,” and I’d say, “Oh, my gosh. I’m going to go broke.”
Whereas if we have a B to B relationship, client‑attorney, let’s suppose the fees are 20,000 a month, I could give you $1,000 back, and as an individual, at the client you go “Wow,” that’s quite something.
If I gave you $10,000 back, you’d be, “Oh, my gosh. I can’t imagine, if I die I’m going to heaven.” You see what I mean?
Chris: There could be a far greater impact in a B to B situation, the likelihood of a B to B client being unreasonable is far less. Let’s face it that’s the biggest part of the legal industry. Now, you mentioned mesothelioma, I’m not sure, it’s in essence a guaranteed fee anyway, isn’t it?
John: Right, yeah. You’re only getting paid unless they win the case, so “Yeah.” It seems like B to B is a more natural fit like you said, that would probably have to be well thought out and worked out in the B to C space, but certainly in the B to B world, it makes a ton of sense. Are there any firms, like you said, that are doing this or just a very small handful now?
Chris: Right now, there is a firm called Laner Muchin out of Chicago that has a two hour guarantee on its call back. Now, I wouldn’t call that a comprehensive guarantee. They have found a point of differentiation and that’s what they are doing.
I didn’t work with them. This is a guarantee that they developed on their own, I think they do a nice job with it only Ungaretti and Harris back in 1995 in Chicago, that’s the only law firm to my knowledge that actually came out with a strong, powerful guarantee, the type we’re talking about.
Now, this was in a down economy, and Ungaretti and Harris wanted to make a statement to clients that it was back together with the economy, and their guarantee resulted in a 50 percent increase in fees in year one, they jacked up the number of attorneys from 60 to 95.
Those are pretty impressive numbers.
John: That’s extraordinary. Now, with those numbers, that makes a lot of sense. Any other final thoughts or ways that people might get started to do this or start working with you?
Chris: I’m happy always to talk with potential clients. I don’t get involved with very many of them because I can only work with one perhaps two at a time.
I’m working with one client right now, but like I say I’m always happy to talk about these things with anybody. In closing, I think the way to consider this is to say, “What if unknown major competitor had targeted several of our top clients and was going to offer them a well‑thought‑out, well‑designed, fully researched, and implemented client services guarantee, like Ungaretti and Harris, that they’ve been working on for the last six months.”
If they actually offered that guarantee to our clients, what would we do? That’s the question to think about.
John: Yeah, no that makes sense. I know that tends to pique the interest of attorneys when, and myself included, if our competition is doing something like this, you may not have a choice. It puts things into perspective.
Chris: The client will say, “So, what are you going to do”?
John: Right. [laughs] That’s a great place to leave it, Chris, very powerful. Look forward to talking to you again soon.
Again, this has been John McDougall with Chris Hart.
John: Talking about professional and extraordinary services guarantees for law firms.
Talk to you later, Chris.
Chris: Bye, John.