Overcoming revenue growth challenges by looking backward
Darryl Cross discusses how law firms can find the right path forward by combining precedent-based thinking with innovative application.
The foundation of the legal industry is based on the doctrine of judicial precedent. Its rigidity provides consistency and fairness that allow the law to be evenly applied and not subject to wild oscillations based on the current political, economic or social climate. However, there is a difference between using the principle of stare decisis to develop a legal strategy for a client versus a business strategy for a law firm.
It’s easy to talk about moving ahead and assembling the resources to enjoy greater business success. But client demands, combined with the accelerating speed of technical innovation, have left little room to plan for future growth at the proper pace. The legal profession is no exception to this phenomenon.
Lawyers keep running on the hamster wheel of billing as many hours as possible, and business professionals keep adding technology to deal with the volume. Meanwhile, clients increasingly push back on law firm charges due to the declining value of business as usual.
It is possible to overcome these revenue growth challenges using precedent-based thinking combined with innovative application. After all, law firms’ skills in discovery, due diligence and making a persuasive argument are well established. What they have done before is the source of their expertise. How they proactively apply it in the future in new ways will be the change that is required.
Ironically, the best path forward begins by looking backward.
Do More of What You Do Best
A firm’s confidential financial, human resources and document management databases are the primary strategic assets that every law firm possesses but often underutilizes. Your time and billing records will tell you exactly the types of clients who like to pay you, how often and how much. With an accurate view of costs for specific types of engagements, the prospects of gaining the work that’s most profitable improve. This insight should serve as a road map for future business.
This wealth of information should be easily accessed by every lawyer at your firm to make predictive recommendations on what to do next for the client as well as the firm. Obviously, proper protections need to be in place to protect confidentiality. However, the information collected during the intake, conflict and billing process is invaluable.
One of the biggest mistakes many firms make is creating a business development wish list or strategy plan that’s not based on proven success. The billing record sets a precedent for where a firm should be devoting time. However, this is just a place to start. The next step is to use it in new ways.
Focus on Client Retention
The Pareto Principle is well known as the 80-20 rule, which highlights how 80% of revenue typically comes from 20% of clients. Some research suggests that at law firms, a Super Pareto Principle is in effect when it comes to profits: 10% of clients are responsible for 90% of all law firm profits. Moreover, the Harvard Business Review has written that acquiring a new customer is anywhere from five to 25 times more costly than retaining an existing one.
This makes a convincing argument that law firms can look backward to choose where to focus their money, time and attention. Firms may work with thousands of clients, but only a few will make or break their year. While law firms have been experimenting with key client teams for over 15 years, only a few firms have begun to make them operational. By carefully choosing the right clients through precedent and parameters, teams of lawyers can focus on the needs of the client even when the billing meter is not running.
Lawyers appreciate focus—they immerse themselves in one case at a time, cultivating their expertise in a matter. Why not apply the same emphasis to business development? Too many options are paralyzing, but drilling deep is natural for lawyers. It’s intuitive for them to grow revenue that way. Let legal professionals dive into one client, one business and one industry and build around that, as opposed to trying to learn about a thousand opportunities and never going very deep on any of them.
This key client list also serves as a blueprint for forming industry or sector teams for acquiring new clients. The existing clients and the engagement DNA of the firm narrow the focus.
Scale With Technology
No matter how talented, there is a limit to the number of hours individuals can bill and what they can know about a client. Technology allows anyone to tap into previously siloed law firm resources and experiences, connecting legal professionals with the data from their work product to be repurposed in new ways.
For example, innovations such as artificial intelligence allow new insights to surface at a faster rate than people can gain these insights. Collaboration tools such as client relationship management software allow lawyers to form teams of experts to address client issues holistically. Additionally, when you combine AI with well-functioning, diverse teams of lawyers, the effect is exponential.
Build an Innovative Culture
Once growth opportunities are defined, you can direct business development efforts to build a forward-looking culture at the firm. Whether this is to grow or win clients, attract lateral partners or build networks to maximize profitability, it requires looking out the window to the future rather than looking in a mirror to revisit the past.
In such a culture, dedicated business development specialists help lawyers generate more of the work the law firm thrives on. Lawyers continue to use precedent when researching the law, but they understand its limits when planning how to help their clients. Law firm leaders monitor and manage the most important opportunities for the firm to grow and make investments accordingly.
If this sounds like a great deal of effort, it is. Law firms are content-generation machines. External information about clients, prospects and the market is limitless. A partner’s ability to process all of it is finite. It is tempting to look backward because it is comforting. However, the view is getting smaller and smaller as we move away from it faster than ever before. Technology that combines precedent-based data with today’s external content offers an opportunity to look forward. Adding relationship intelligence to show exactly who knows whom gives firms the ability to move forward.
Looking backward is not how most clients plan for their future, so it is important that law firms use their ingrained precedent-based thinking judiciously. Past success will help you find the way forward by concentrating on what your firm does best, and that is where innovation truly begins.
Darryl Cross is the practice group leader for professional service firm leaders and partners at Intapp.