Practice Case #2

Question: Should your law firm purchase a 1-800 telephone number at a price of $100K?

You are a partner in a small law firm specializing in divorce. Your firm decides to use 1-800-DIVORCE as your phone number. You call the number, and you find that its owner, a shoemaker facing an extreme liquidity crisis, is willing to sell you the number right now for $100K. Should you do it? Yes or No? Why?

This is a traditional market-sizing question. The key here is to be systematic, gradually growing from the case level and taking a bottom-up approach to determining the total value of having the designer telephone number. Unless the case question is fairly unambiguous, you probably should ask some clarifying questions. Examples of discrete elements you’ll need to answer include:

• How many potential new divorce cases will a designer phone number generate?
• For what proportion is the phone number itself likely to influence the selection of their attorney?
• What other factors might affect your estimate on the potential?
• How much new revenue and income will this increased demand generate?
• How many cases can the firm handle now?
• How will this new number affect costs and resource requirements at the firm?
• How many lawyers are there in the firm?

For example, you know this is a small law firm. Does that mean 3 lawyers? 20? 100? Obviously, the answer will affect the economic viability of buying the phone number. When you have blanks like this to fill, you have a choice about whether you want to ask your interviewer for additional information or just make assumptions. If you’re going to ask for more information, be careful that your questions are germane to clarifying the major ambiguities, and that you do not spend the first half of the interview asking for data.

Once you have built up the total yearly increase in profit from the number, it is easy to calculate what the number should be worth to you. But remember what was asked: “would you pay $100k for the number?” If you’ve made reasonable assumptions, you should have more than enough fodder to say “yes” or “no.”

Question-Part II: What’s your highest offer for the 1-800 number?

Since you jump too quickly at the $100K offer, the shoemaker says, “Oh, did I say $100k? What I MEANT to say is that I’m going to call 3 divorce law firms and take bids from each of them. Since you called me first, I’ll let you make the first bid. What’s the number WORTH to you?” (Ignore game theory and bidding strategies here-we just want a straight answer as to the number’s worth to your firm.)

This should be easy to tackle based on the thought process for Part I. In this case, you also need to remember that the phone number doesn’t magically disappear at the end of the year. It will be around for the life of the firm, and you will therefore derive benefit from it for years to come. This also means you can amortize your purchase cost over several years.

Your interviewer will be looking for creative thinking as well as how well you use analytical techniques to solve the problem. For example, knowing that the number will continue to provide benefits to the firm is creative. Knowing how to estimate the long-term value of a stream of benefits through a Net Present Value analysis is both creative and analytical. Try to demonstrate both whenever possible.

Answer

Most answers for a 20-lawyer firm turn out to be between $500k and $1.5mm, largely driven by assumptions about the effect of the number on case demand.