Selling it for more simply means your offering in the marketplace—legal services, I’m assuming—provides clients with better performance in dimensions that are important to them and for which they will willingly pay a premium price. “Selling it for more” goes wrong when you fall afoul of one or more of these traps:
- Irrelevant or imaginary differentiation: Customers actually don’t care about the elements of superiority you’re offering, or they’re not in fact superior.
- Invisible or uneconomic differentiation: Customers don’t think your type of superiority is worth the premium you’re charging, or they can’t tell the difference to begin with.
- Unsustainable differentiation: There are low barriers to entry for others to offer what you are offering, so your service superiority is competed away over time by imitators.
Examples of firms thriving, at least for now, in this area of the imaginary price/performance matrix might include BMW, Giorgio Armani, Ritz-Carlton, Cartier, and Wachtell. Firms that used to occupy this space but are elsewhere altogether these days include Duesenberg, Emilio Pucci, the Bristol Hotel (Paris), and Dewey.
Making it for less means creating, and managing, a cost structure such that you can make money at price levels competitors cannot or will not sustain. I need not forewarn you that pursuing this strategy creates organizational and executional challenges of the highest order, but the reward for crossing to the other side, as it were, can be great. For one thing, most industry structures, and I see no a priori reason Law Land should be exempt, permit only a handful of players to occupy this space on our imaginary matrix, and for another, scale advantages of incumbency can create high walls for would-be entrants to surmount.
Here’s what to avoid:
- Price wars: Brutal price competition can mean that all the cost advantage is captured by customers and no firm in the market can extract value.
- Substitutes: Your price may be less than your peer group of competitors, but not less than substitutes which target customers find perfectly acceptable.
- Confusing cost reduction with lowest cost: Strictly speaking, markets tend to have room for only one true “lowest cost provider” at a time. Don’t make the mistake of assuming that because you have cut your costs as far as you think you can if you want the lights to stay on, that that will make you the lowest-cost supplier.
Examples of firms, or brands, here: Toyota Corolla, Honda Civic, Hyundai Elantra; Old Navy; Ikea; Motel 6. The dead or the walking dead here: Chevy Vega, Ford Pinto, Montgomery Ward, Sears.
Make no mistake: Pursuing one of these strategies to its logical conclusion, and not attempting to muddle through the middle, requires extraordinary discipline. At the high end, zero tolerance for anything short of excellence, and all-enveloping client service—at every single level of the firm and with every point of client interaction, no matter how seemingly trivial. (Every try opening the front door of a Ritz-Carlton for yoursefl? The attending staff will practically break their arms to beat you to it.)
At the low end, rigorous and minute green-eyeshade oversight of expenses, ceaseless business process optimization, and a cold determination to make the techniques you were using yesterday obsolete before someone else does it for you.
I told you I could help you out on this up to a point, and that point has arrived.
What if you can’t or won’t choose between selling it for more or making it for less?
In that case, you will find yourself one of a very large number of members of the awkward in-between space, providing neither the best nor the cheapest.
Your riposte may be that there are many clients, thank-you-very-much, who don’t want to pay for the best but are more discriminating than to settle for the cheapest. I wouldn’t doubt you for a minute on that.
But there is a comparably large number of law firms ready, willing, and able to serve exactly those clients–and in today’s battle for market share environment, they aren’t shy about coming after “your” clients and targeting the same juicy prospects you may have in mind. The pie may be sizable, but how can you make sure you win (at least) your share?
My point is not that there is no “middle market,” my point is that the middle market is an extremely tough place to survive and thrive, precisely because it is so densely populated with law firms which, to many clients, are indistinguishable from yours. When there is a surfeit of firms which all look like perfectly acceptable substitutes for one another to clients, the dynamic that almost inevitably evolves is straightforward, well nigh impossible to resist single-handedly, and gets ugly fast: Price wars.
So, if you have ceded the two most compelling value areas on our imaginary matrix to others, you had better focus as hard as you know how on the clients you do have, or want to have. Shower them with love. Or, as Warren Buffett may or may not have ever said, “You can put all your eggs in one basket. Just watch that basket like a hawk.”
While you make some valid points, I think you’re still looking at the issue from the perspective of the provider (i.e., the law firm in this case), when you posit the choice as a choice “between selling it for more or making it for less.” This doesn’t address the question of whether to make “it” in the first place or, perhaps more saliently, what is “it”? With the appearance of LPOs, e-discovery vendors and other providers of law-related services, the “it” that law firms have provided for years (i.e., an “all in” service to provide to the client everything needed to pursue its law-related goals) has changed dramatically. Some law departments have internal capabilities that take over some of what law firms provided previously while others incorporate providers of law-related services (e.g., information management, e-discovery, court reporting) into the mix and require that the law firms work with those providers.
The definition of “value” must be approached from the client’s perspective. While that will vary from client to client, it can also vary from matter to matter for a single client. You suggest this with your reference to “dimensions that are important to them [the clients].” I prefer the term “value-related qualities” or VRQs to denote those criteria that matter more to the client for the specific engagement and I find that construct more useful, particularly when discussing and (I believe) designing fee structures not premised on how much time is devoted to the work (whether of value in achieving a goal or not). Because VRQs are client-determined, they orient the discussion more accurately, as I described in my article and book.
Steve:
Many thanks for your generous thoughts.
You’re absolutely correct that this article assumes “it” is something the client not only wants to begin with, but wants a law firm to provide in a bundled all-in fashion. I made that assumption–which I probably should have articulated–in the interest of a focused column. The topic of LPO’s, inhouse capabilities, law firms and/or clients near-shoring (see: A&O/Belfast) and off-shoring (see: Clifford Chance/India), simply “doing without,” and all other forms of disaggregation are obviously very large issues in their own right, which I have and will continue to spend time on.
Your second point about unpacking value into its component parts (“VRQ’s”) is a topic worthy of far more discussion, frankly, than I’ve yet given it in the pages of Adam Smith, Esq. Some clients want a sports car, some a limousine, and some a get-me-to-the-station-and-back beater. As do the same clients at different times in different contexts. This I suspect is a dimension of value law firms are institutionally and temperamentally inclined to ignore.
Bruce – Cogent and compelling analysis as always. I see two potential additions:
1. First, you can find a different “it” — In today’s law land, I see that as the NextLaw focus on prevention. Old Law, New Law and Emerging Law all address solving a customer’s legal probloems: the first, but selling hours at differnential costs and the last one but actually addressing legal problems effectively and effiiciently. NextLaw, on the other hand focuses on preventing legal problems from ever arising. Today, NextLaw coexists with the Old, New & Emerging Law provider variants — simply because no matter how good one is at prevention, fires and emergencies still occur — jsut less frequently. So, as NextLaw rises and becomes ascendant, the size of the pie for the other variants shrinks and the competition, particularly in the middle and the “sell for more” segements.
2. I believe it’s posisible to do both. Focus your internal operations in a “do it for less” fashion but utilize customer focus to “sell it for more” The concept here is the “more” is not objectively more, but rather focuses on obtaining and retaining customers at prices lower than what you did charge, but higher than what Hyatt, Axiom or others might. At a minimum, if the seller focuses on quality (fewer defects — not brilliance) and cost control (less rework and redundancy) through process, project, people and knoweldge management , then it can change the business model from the cost plus pursuit of revenue to the focus on increasing profit margins. If Next Law fails take hold, or if customer preference stays for “brands”, then market share can be seized from those in the Old, New & Emerging verticals that are focused solely on “selling it for more” or “doing if for less”. The important thing to remember in the customer focus world of “selling it for more” is to understand what the customer truly wants. In the first, place, the customer doesn’t want the legal problem you’re built to solve, when it arises the customer wants it resolved, and when it’s over, the customer doesn’t to see it — and therefore you, ever again. So, customer focus does not mean focus on the customer (obtaining and retaining) but rather on what the customer itself is focused on (generally speaking delivering stakeholder value).
Things will get really interesting when a legal service business platform emerges that does all three: changes the “it” to prevention; addresses today’s “it” more cost effectively through cost, knoweldge and process leverage; and sells it for more through intense customer focus.
Stay tuned!