In Part 8 in this series, we talked about “Now What?” in terms of three particular approaches you could take that were all, essentially, inward-focused and things you can pretty much control inside the firm’s four walls:
- acknowledge you have competition;
- hire the best professional “C-suite” staff you can find; and
- articulate a non-generic strategy—and begin to execute it.
In this column I’d like to address the external landscape, and specifically its single most critical feature: Clients.
The legendary Peter Drucker used to enjoy stumping MBA students by asking, “What is the one thing every firm has to have?”
Answers typically ranged from “a product” to “cash” to “an idea” to “employees,” but none of these is what Drucker was looking for. The one thing is: Clients.
Sometimes I have to wonder if we’ve gotten the message.
In thinking about the evolution of client service, these are the phases I see.
Phase I: Sell what you make
Firms in Phase I find a comfort zone of things they (as proud and unbending autonomous individuals) enjoy doing, and they assume without, I imagine, really giving it much conscious thought, that since they enjoy it clients will appreciate it, or because they find it interesting clients will too. This approach is neither introspective nor strategic, but it has, as mentioned, the advantage of being comfortable. You could think of the firm’s pitch to a client amounting to this:
“I love trying cases; got a case I could try?”
Simplistic? No, I would argue it’s merely distilling the approach down to its essence.
I’m not implying firms approaching things this way can’t find clients, or satisfy them, but I do believe it’s pretty much serendipitous when that happens. The lawyer may wake up every day hoping to try a case; I assure you no client wakes up with that lawyer in mind just on the off chance they get sued and suddenly need courtroom representation.
It does violence to the word “haphazard” to even describe this as a haphazard approach to business development; it’s a fundamentaly self-indulgent attitude towards the world, which is no approach at all. Here, the lawyer is the Sun at the center of the solar system around which all else revolves.
Phase II: Make what sells
Phase II is a bit more mature and purposeful. In this phase, lawyers and firms try to analyze what services clients are seeking and purchasing, and then attempt to mold their offerings to client demand. No cases for us to try? Well, if you’re looking for a little alternative dispute resolution instead, we can do that for you. The distilled pitch is something like this:
“Just tell us what legal services you need, and we’ll get right on it.”
While this takes the lawyer out of the very center of the picture, and gives the client a bit of breathing room alongside, it’s still passive and reactive. To begin with, what if the client doesn’t know or can’t articulate what they need? Worse, what if your firm really isn’t ideal for what the client wants? In that case “making it” for them might not be doing them any favors.
It also shortcircuits pretty much any thoughtful professional development or strategically guided growth of your firm, if you’re constantly emulating a pinball responding to the latest entreaty from a client.
Phase III: Solve the client’s problem
This phase has several characteristics to commend it:
- It goes straight to the heart of what the client needs professional counsel for;
- It’s agnostic as to exactly which practice area or practitioner, if any, is best suited to the matter at hand;
- And most important by far, it postures the entire offering and engagement around what the client needs, not what you can do.
The distillation of this pitch might be:
“We wonder if XYZ is troubling you; we have some thoughts on that.”
Note what is not said here: It’s not about what the lawyers prefer to do or are in the mood to work on; nor how brilliant, experienced, and highly credentialed they are (though I’m confident they are exceptionally so); nor about how much other clients adore them and sing their praises; nor, finally, is it about the law firm at all. It’s entirely about making the clients life easier, less worrisome, and letting them focus on their business and not this potential legal landmine.
A very wise managing partner, who had studied at the feet of one of the builders of a great New York law firm, once told me that his primary job was making the client look good: “The wins are theirs; the losses are mine.”
If I haven’t been clear, I believe very few firms indeed have achieved Phase III, emulated my friend, or even grasped the reality that with stagnant/declining demand for legal services from traditional law firms, and excess capacity in our sector, we’re now in a battle for market share. In this environment, we have to treat our existing clients like gold because acquiring new clients means stealing them from some other firm where (one can only assume) they’ve been perfectly content heretofore.
Altogether too many of us lack any focus on what the implications of this are. I never want you just to take my word for it, so consider these findings from an ALM Survey released about two weeks ago:
- We’re not serious about measuring client or partner profitability: Just 44% of those questioned said they were hitting their profit targets with individual clients and 46% with individual partners. These are flunking grades.
- We’re not serious about requiring new measures of productivity and client pricing arrangements. Respondents’ “top three” financial measurements included nothing but old school data: Firm revenue (52%), firm profit (44%), PPP (37%), utilization (30%), and operating margins (24%). Where is client satisfaction?
- Actually, ALM also told us how much we care about client satisfaction: A bare majority of firms even deign to track it. Although we all may declare with self-satisfaction that client service is crucial to our competitive advantage, only 56% reported that their firm has a plan in place to measure, track, and build client satisfaction and loyalty.
- And get this, which I found the most shocking finding of all: Four out of five respondents (78%) could not honestly say that their firm leaders were “extremely knowledgeable” about their top 20 clients’ businesses.
I find the last point tantamount to client management misfeasance. Yet consider whether the reality might be even worse than our law firm respondents reported; they might just have an optimistic bias. Here’s an example, from an Inside Counsel survey, of two quite distinct report cards on the “overall service level” of law firms:
|Grade||In-house counsel||Law firm|
Or this: “Outside counsel always or usually understand the business issues.” Agree:
- Clients: 22%
- Law firm partners: 92%
While we’re at it, here’s a roster of “value added” offerings from law firms to clients, and how clients rank the importance of the offerings vs. how law firms perform on them. In a nutshell, we do poorly on the important and we do just fine on the unimportant.
Offerings where clients grade importance more highly than law firms’ performance (all listed in order of importance):
- Seminars at the client’s office
- Regular service review meetings
- Seminars at the law firm’s office
And offerings where clients grade the law firms’ performance more highly than importance:
- One on one lunches
- Pitching proactively for new work
- Corporate hospitality
- Seeing a firm’s name in the press
See a pattern emerging?
We have another problem with client management in a market-share-battle environment, and this problem stems from our own culture and psychology. Namely, it’s more glorious to win a new client than it is to patiently nurture and grow the relationship with an existing client. Yet the data is utterly consistent that existing clients are more profitable than new clients, and that a stable roster of clients can lead to greater continuity internally in the firm in terms of professional development, “handoffs” from one generation to the next, and control over your own destiny.
Now, it may simply be intrinsic to human nature that laurels go to those involved in new client “wins”—it’s exciting and newsworthy and the adrenalin and angst that surround any big pitch can ripple far and wide within the firm. Many people probably participate in the pitch, and far more are aware it’s going on. Maintaining strong relations with an established client is, simply, less interesting, and certainly not worthy of tallying on a scorecard. Indeed, beyond those working directly with the client, few are probably even aware that anything’s going on with the old client at all.
But do we have to encourage new client “origination” so feverishly? With little comparative recognition for building solid, profitable, long-term relationships? (Yes, we’re talking about compensation here; I don’t mean to be oblique.) In other words, do we need to structurally and affirmatively reinforce what are already—I would argue—shortsighted habits of mind?
We know at least one other thing about client “stickiness.” A few years ago Redwood Analytics conducted a study of client attrition across four AmLaw 50 firms over time. The measure of “attrition” could not have been simpler. XYZ was deemed a client during the year if the firm billed them any amount whatsoever; XYZ was not a client if they were not billed at all.
Using that unsubtle approach, Redwood determined that the average client attrition rate (in terms of revenue lost) was about 1%/month. Now 1%/month may not sound like so much until you realize it’s one-quarter of your revenue every two years.
How to stem that attrition?
Here’s the interesting finding:
- The more partners the client interacted with; and
- The more practice groups the client called upon
the less likely they were to fall off the radar.
Stated differently, partners (or practice groups) that “hoard” clients for fear of exposing them to other lawyers in the firm are increasing the odds the client will be out the door. Now do you understand why the dreaded “cross-selling” is every marketer’s recommendation?
If you want to get serious about an ongoing, structured, consistent approach to enhanced client management, there are some simple, nonthreatening, “Business Development 101” programs out there. We won’t get into the weeds on them here and now, but just to take the mystery out of it, the fundamental pieces are:
- Know your client’s business
- Know your own firm’s capabilities
- Create formal client teams (not ad hoc assemblages for pitches, etc.)
- Have the teams create annual plans, with strategies, action items, quantifiable goals, and evaluative criteria
- They don’t need to be long or elaborate—in fact they should be short and concise—but they need to exist, they need to be clear, and there needs to be accountability for realizing their objectives
- Formalize and institutionalize client feedback
- Deliver “added value” (see above) that clients actually care about. And finally:
- Give meaningful recognition to smart and effective client management at compensation time.
And a final reminder: Why do you want (“need” isn’t an exaggeration) to do this?
To avoid becoming an endangered species. Recall the answer to Peter Drucker’s question.
If that’s not motivation enough, good luck.