Trust is as vital as any factor in developing successful business relationships – and is at the core of the strategies we pursue in our Profitable Partnerships Programme. In an effort to engender trust earlier in the relationship-building process, many professionals spend huge amounts of time and money trying to establish credibility.
The key to building trust with clients, allies and prospects lies in recognising what leads people to trust us, and in having strategies that help to demonstrate our trustworthiness. Establishing credibility is certainly one element, but just as important are building rapport and demonstrating reliability.
Establishing Credibility
Credibility is all about self-presentation – how professional do we come across; how user-friendly is our website; do we have sufficiently glowing client testimonials? This is all a necessary precondition for building trust, but it is far from sufficient.
Building Rapport
Rapport is quite a different matter, and is far harder to develop than a website. It is a question of empathy and showing that we understand the client’s concerns, asking clarifying questions and engaging with them in a two-way discussion.
Demonstrating Reliability
Of these elements of trust, reliability is the slowest and most difficult to demonstrate. Credibility and rapport are generally established up front, whereas reliability requires that we can show our ability to make and keep promises.
Thus, the key factor in building trust is having a system to keep promises. This could involve directing someone to valuable resources, inviting them to an event, or sending them your client bulletin or newsletter.
The important thing is to recognise the role of trust in business development, and to employ a strategy to build trust as quickly as possible. Fee earners and partners alike who follow this route can reap the benefits.
Monday, 14 June 2010
Friday, 14 May 2010
Value Pricing
Without doubt one of the biggest concerns that comes up in conversation with clients and contacts in the legal world is the fear of having to quote competitive fixed fees, the impact that will have on business – and how to respond. With economic pressures likely to be compounded by the implications of the Legal Services Act, this is an issue that will be with us for some time – and could dominate the management agenda throughout 2010 and beyond. Our experience is that, with the right training and the ability to understand the context of the assignment, solutions can readily be reached.
The Old Approach
The culture of the legal industry epitomises the hourly-billing approach – which places the burden of risk squarely on the shoulders of the client, with a focus on efforts rather than results and little incentive for an efficient approach to case management. Aside from the effect on work-life balance, charging by the hour inevitably leads to price competition – and a ceiling on earnings.
In the legal sector of old, this limit on potential earnings was barely perceptible, as charge-out rates increased year-on-year and firms returned ever healthier looking profit figures. However, this world is gone and the flaw in the system has been fully exposed. Hourly billing leaves only two possibilities for increasing revenues – charge more per hour; or work more hours. When these options are unpalatable to either clients or fee earners, a fundamental shift is necessary.
A New Paradigm?
The shift to pricing by value is not a difficult one to make, but it does not happen overnight. Partners and business developers need to become practiced in when and how to hold the conversation, fully comprehending the process to enable them to clarify the value up front, and creating payment schedules that reflect the value delivered at each stage of delivery.
The benefits, however, will be worthwhile. Demonstrating value, and being remunerated accordingly, helps to develop trust and build a credible reputation, and brings with it invaluable opportunities for cross-selling and soliciting referrals.
The Old Approach
The culture of the legal industry epitomises the hourly-billing approach – which places the burden of risk squarely on the shoulders of the client, with a focus on efforts rather than results and little incentive for an efficient approach to case management. Aside from the effect on work-life balance, charging by the hour inevitably leads to price competition – and a ceiling on earnings.
In the legal sector of old, this limit on potential earnings was barely perceptible, as charge-out rates increased year-on-year and firms returned ever healthier looking profit figures. However, this world is gone and the flaw in the system has been fully exposed. Hourly billing leaves only two possibilities for increasing revenues – charge more per hour; or work more hours. When these options are unpalatable to either clients or fee earners, a fundamental shift is necessary.
A New Paradigm?
The shift to pricing by value is not a difficult one to make, but it does not happen overnight. Partners and business developers need to become practiced in when and how to hold the conversation, fully comprehending the process to enable them to clarify the value up front, and creating payment schedules that reflect the value delivered at each stage of delivery.
The benefits, however, will be worthwhile. Demonstrating value, and being remunerated accordingly, helps to develop trust and build a credible reputation, and brings with it invaluable opportunities for cross-selling and soliciting referrals.
The Business of Relationships
In a hectic business world of networking events, seminars and conferences, a systematic campaign to keep in touch with key contacts is a crucial strategy for maintaining the sustainable business development pipeline.
When it can take 15-20 interactions to turn a relationship into business, and when business roles and relationships are becomingly ever more transient, the danger of forgetting – or being forgotten by – an important contact is an increasingly significant concern.
Cultivating Contacts
Some lawyers will need to keep in touch with many people on a frequent, but perhaps a slightly more impersonal, basis. Others will need to cultivate fewer, deeper relationships with key sources of business. Both have inherent dangers, of being known to many people but trusted by few, or of putting too many eggs in too few baskets, but a successful Keep in Touch strategy will combine the two approaches.
The Broadcast Media
Keeping in touch regularly with a large pool of contacts can be done relatively easily through a generic contact system – such as a newsletter(!). Of course, key personal contacts will also receive this, but it is an ideal way to ‘touch base’ with many people on a regular basis, without the drain on resources (physical and financial) associated with constant networking or generic advertising.
The Personal Touch
Within this larger pool of contacts there will, of course, be the crucial people with whom we have good personal relationships and who are consistent sources of profitable business. These people naturally deserve a more personalised approach, but this should still be monitored systematically so that they are not lost under the mountain of fee-earning work (which will constantly need replacing in any case, if the business development pipeline is to flourish).
Profitable Relationships
Keeping in touch with clients, allies and prospects forms a crucial part of the sustainable business development pipeline – an approach that underpins our Profitable Partnerships Programme, helping partners and key solicitors measurably improve business development and profitability.
When it can take 15-20 interactions to turn a relationship into business, and when business roles and relationships are becomingly ever more transient, the danger of forgetting – or being forgotten by – an important contact is an increasingly significant concern.
Cultivating Contacts
Some lawyers will need to keep in touch with many people on a frequent, but perhaps a slightly more impersonal, basis. Others will need to cultivate fewer, deeper relationships with key sources of business. Both have inherent dangers, of being known to many people but trusted by few, or of putting too many eggs in too few baskets, but a successful Keep in Touch strategy will combine the two approaches.
The Broadcast Media
Keeping in touch regularly with a large pool of contacts can be done relatively easily through a generic contact system – such as a newsletter(!). Of course, key personal contacts will also receive this, but it is an ideal way to ‘touch base’ with many people on a regular basis, without the drain on resources (physical and financial) associated with constant networking or generic advertising.
The Personal Touch
Within this larger pool of contacts there will, of course, be the crucial people with whom we have good personal relationships and who are consistent sources of profitable business. These people naturally deserve a more personalised approach, but this should still be monitored systematically so that they are not lost under the mountain of fee-earning work (which will constantly need replacing in any case, if the business development pipeline is to flourish).
Profitable Relationships
Keeping in touch with clients, allies and prospects forms a crucial part of the sustainable business development pipeline – an approach that underpins our Profitable Partnerships Programme, helping partners and key solicitors measurably improve business development and profitability.
Friday, 16 April 2010
Transforming the Business Development Process
Most fee-earners fail at Business Development because the typical sales process involves a combination of constant networking, fishing for introductions, and some direct marketing. This can be an exhausting and demoralising road to travel, and ultimately leaves an insecure pipeline of often small, one-off invoices – not to mention the high cost of sale and the time this takes away from other fee-earning work.
Repositioning Professional Services
However, you can avoid Business Development failure by changing tactics. The crucial tactic in transforming business development is to position yourself so that clients seek you out, rather than the other way around. This does not happen overnight, but the rewards will be worthwhile. The most important criterion in this strategy is that fellow professionals must be able to identify who your ideal clients are. We outlined five key strategies to this end in Sustainable Business Development Post-Recession.
Soliciting Referrals
Getting referrals from satisfied clients should form a key part of any professional’s business development pipeline. However, many find it difficult to hold the conversation – whether through lack of confidence or simply not finding ‘the right moment’. The timing of the conversation is important, as the perceived value of a service diminishes after the service has been delivered. Therefore, during delivery or immediately after successful completion (over lunch) are favourable times to ask for referrals.
Strategic Allies
Just as professionals can expect to achieve more by operating in a niche market, so the benefits of allying with strategic partners in niche markets can be considerable. There is, of course, the danger of relationships becoming unequal or falling by the wayside. However, when nurtured properly, strategic alliances can bring financial rewards to both sides, as well as the ‘kudos’ of introducing a trusted service provider to a key client and, of course, excellent service for the client.
Approaching Business Development in this way will bring a far lower cost of sale and will help to feed a sustainable pipeline of new instructions. Moreover, this approach will free up more time – for chargeable work; for business management; and, ultimately, for life.
Repositioning Professional Services
However, you can avoid Business Development failure by changing tactics. The crucial tactic in transforming business development is to position yourself so that clients seek you out, rather than the other way around. This does not happen overnight, but the rewards will be worthwhile. The most important criterion in this strategy is that fellow professionals must be able to identify who your ideal clients are. We outlined five key strategies to this end in Sustainable Business Development Post-Recession.
Soliciting Referrals
Getting referrals from satisfied clients should form a key part of any professional’s business development pipeline. However, many find it difficult to hold the conversation – whether through lack of confidence or simply not finding ‘the right moment’. The timing of the conversation is important, as the perceived value of a service diminishes after the service has been delivered. Therefore, during delivery or immediately after successful completion (over lunch) are favourable times to ask for referrals.
Strategic Allies
Just as professionals can expect to achieve more by operating in a niche market, so the benefits of allying with strategic partners in niche markets can be considerable. There is, of course, the danger of relationships becoming unequal or falling by the wayside. However, when nurtured properly, strategic alliances can bring financial rewards to both sides, as well as the ‘kudos’ of introducing a trusted service provider to a key client and, of course, excellent service for the client.
Approaching Business Development in this way will bring a far lower cost of sale and will help to feed a sustainable pipeline of new instructions. Moreover, this approach will free up more time – for chargeable work; for business management; and, ultimately, for life.
Tuesday, 13 April 2010
“We Never Used To Have An Overdraft”
One of the most common complaints we hear from managing partners is ‘we never used to have an overdraft, but . . .’
In recent years, reliance on overdraft funding has become so widespread that many firms now operate on near-permanent facilities, prompting the accusation from some quarters that banks are seen as providers of ‘quasi-equity’. This dependence on bank funding is one of the (numerous) problems that has emerged from the industry’s single-minded focus on Profit per Equity Partner.
Profit is an Opinion . . .
Focusing purely on PEP has led to the booking of ever-increasing amounts of Work in Progress – which would be fine, if all WIP was billed. However, as WIP contributes to profits before the work is billed, there has been no disincentive to prevent firms from increasing WIP (often only to write it down at a later date). By this time, however, the profits have been posted – and, in many cases, distributed to the partners. Furthermore, the generation of WIP creates a tax liability to be paid. In this way, partners have been drawing on unrealised profits, and the only way to fund this and meet tax obligations has been through increased borrowings.
But Cash is a Reality
The flip side of this coin is that equity partners come to expect a certain level of drawings – especially when the firm is achieving stellar levels of profits ‘per equity partner’. The cycle is thus self-perpetuating, and this has an undermining effect on the firm’s cash flow and balance sheet (an issue to which we will return).
Our repeated mantra is that ‘What Gets Measured Gets Better.’ Until firms get off the treadmill of ever-increasing targets for PEP and learn to focus on measuring cash generation, financial management in law firms will be a continuing uphill struggle – and lenders will not become more sympathetic.
In recent years, reliance on overdraft funding has become so widespread that many firms now operate on near-permanent facilities, prompting the accusation from some quarters that banks are seen as providers of ‘quasi-equity’. This dependence on bank funding is one of the (numerous) problems that has emerged from the industry’s single-minded focus on Profit per Equity Partner.
Profit is an Opinion . . .
Focusing purely on PEP has led to the booking of ever-increasing amounts of Work in Progress – which would be fine, if all WIP was billed. However, as WIP contributes to profits before the work is billed, there has been no disincentive to prevent firms from increasing WIP (often only to write it down at a later date). By this time, however, the profits have been posted – and, in many cases, distributed to the partners. Furthermore, the generation of WIP creates a tax liability to be paid. In this way, partners have been drawing on unrealised profits, and the only way to fund this and meet tax obligations has been through increased borrowings.
But Cash is a Reality
The flip side of this coin is that equity partners come to expect a certain level of drawings – especially when the firm is achieving stellar levels of profits ‘per equity partner’. The cycle is thus self-perpetuating, and this has an undermining effect on the firm’s cash flow and balance sheet (an issue to which we will return).
Our repeated mantra is that ‘What Gets Measured Gets Better.’ Until firms get off the treadmill of ever-increasing targets for PEP and learn to focus on measuring cash generation, financial management in law firms will be a continuing uphill struggle – and lenders will not become more sympathetic.
Tuesday, 6 April 2010
“Thinly Capitalized Workers’ Cooperatives”
Back in November of last year, we wrote that the upturn would present significant difficulties for overstretched firms, in terms of working capital and funding requirements (see The Growth Imperative). As far back as May 2009, we commented that surviving the downturn would require a re-prioritisation of cash flow above profits and other traditional measures of success within the sector (see Cash is King in Recession).
So we may perhaps be forgiven for feeling a little smug on reading this piece in the Times a couple of weeks ago, which describes the huge increases in borrowing right at the top end of the market. It seems that even the top firms in the country are still shying away from tough conversations with the partners about the level of capital they have invested in the business – and that, for now, the banks are still prepared to fund firms playing at this level.
Two of the banks have been repeatedly telling us that their lending to the legal profession has increased over the last year – and we have taken that to start with a much greater use of facilities by the good risks.
What is not clear to us is whether this uptake at the top of the market potentially squeezes the amount available to others – or whether there is still plenty of lending capacity for ordinary firms.
An Alternative Approach
For many firms going back to the bank manager for yet more overdraft funding is simply not an option today. As the Times article suggests, firms in this category will find it difficult to fund growth in the recovery, and (perhaps even more pertinently) will be a wholly unattractive prospect to investors when external capital enters the market in the next couple of years. There has to be an alternative approach for the “Thinly Capitalized Workers’ Cooperatives” that make up the majority of the profession.
There is really only one viable alternative approach: become a better managed, financially stronger business.
. As we have written before, since the balance sheet must balance, reducing lock-up will reduce correspondingly the level of debt (or equity) required to fund the firm’s assets. This is no longer just a desirable approach; it is an essential one for any firm hoping to succeed in the next couple of years.
. Partners must learn to recognise that they are business owners – and must behave accordingly. Decisions must be taken by the firm’s management, in the interests of the firm as a whole. The days of partners running their own personal fiefdoms, with ‘their’ clients and ‘their’ staff, are gone in any serious business.
. Business development should be accorded the priority it deserves. Steady income streams will not come from haphazard initiatives, and staff must be given the requisite training to ensure they can manage a sustainable pipeline of regular instructions.
Taking Responsibility
This approach does not remove the necessity for increased contributions from the partners. A well-managed, financially successful business is one in which the owners (i.e. the partners) have a significant stake, and for which they take responsibility. This means that prosperous law firms can no longer afford such thin capital ratios, especially in an increasingly competitive market. It’s high time for tough conversations – as well as a tough approach to financial management and business development.
So we may perhaps be forgiven for feeling a little smug on reading this piece in the Times a couple of weeks ago, which describes the huge increases in borrowing right at the top end of the market. It seems that even the top firms in the country are still shying away from tough conversations with the partners about the level of capital they have invested in the business – and that, for now, the banks are still prepared to fund firms playing at this level.
Two of the banks have been repeatedly telling us that their lending to the legal profession has increased over the last year – and we have taken that to start with a much greater use of facilities by the good risks.
What is not clear to us is whether this uptake at the top of the market potentially squeezes the amount available to others – or whether there is still plenty of lending capacity for ordinary firms.
An Alternative Approach
For many firms going back to the bank manager for yet more overdraft funding is simply not an option today. As the Times article suggests, firms in this category will find it difficult to fund growth in the recovery, and (perhaps even more pertinently) will be a wholly unattractive prospect to investors when external capital enters the market in the next couple of years. There has to be an alternative approach for the “Thinly Capitalized Workers’ Cooperatives” that make up the majority of the profession.
There is really only one viable alternative approach: become a better managed, financially stronger business.
. As we have written before, since the balance sheet must balance, reducing lock-up will reduce correspondingly the level of debt (or equity) required to fund the firm’s assets. This is no longer just a desirable approach; it is an essential one for any firm hoping to succeed in the next couple of years.
. Partners must learn to recognise that they are business owners – and must behave accordingly. Decisions must be taken by the firm’s management, in the interests of the firm as a whole. The days of partners running their own personal fiefdoms, with ‘their’ clients and ‘their’ staff, are gone in any serious business.
. Business development should be accorded the priority it deserves. Steady income streams will not come from haphazard initiatives, and staff must be given the requisite training to ensure they can manage a sustainable pipeline of regular instructions.
Taking Responsibility
This approach does not remove the necessity for increased contributions from the partners. A well-managed, financially successful business is one in which the owners (i.e. the partners) have a significant stake, and for which they take responsibility. This means that prosperous law firms can no longer afford such thin capital ratios, especially in an increasingly competitive market. It’s high time for tough conversations – as well as a tough approach to financial management and business development.
Tuesday, 23 March 2010
Sustainable Business Development Post-Recession
In a tough economic climate, all firms should be focusing on getting more work from existing clients and contacts. This means a strong and clear focus on the firm’s strengths, cross-selling and up-selling, referrals from satisfied clients, and introductions from allies. However, the first stage in a sustainable business development programme is to set the standards and to establish the vision – to ensure that the firm’s client base is developing in line with the business plan.
Setting the Standards
Solicitors are professional people, and they respond well to being treated as such. Imposing ‘targets’ to which they should aspire is unlikely to elicit a sustainable positive response. Setting ‘standards’ together with the team concerned, to which they all agree they will conform, generates engagement and means that underperformers cannot claim unfair treatment.
The approach should be one of ‘what gets measured gets better’. If we measure number of chargeable hours, this is what people will focus on. If we also focus attention on the other factors that really impact on the top and bottom lines – new client take-on; new instructions; referrals; realisation rates; billing; collections – then we will see commensurate improvements in these areas of the business development pipeline.
Establishing the Niche
This is a subject we are covering in greater depth in training course throughout the Spring.
Setting the Standards
Solicitors are professional people, and they respond well to being treated as such. Imposing ‘targets’ to which they should aspire is unlikely to elicit a sustainable positive response. Setting ‘standards’ together with the team concerned, to which they all agree they will conform, generates engagement and means that underperformers cannot claim unfair treatment.
The approach should be one of ‘what gets measured gets better’. If we measure number of chargeable hours, this is what people will focus on. If we also focus attention on the other factors that really impact on the top and bottom lines – new client take-on; new instructions; referrals; realisation rates; billing; collections – then we will see commensurate improvements in these areas of the business development pipeline.
Establishing the Niche
Service professionals can develop a more prominent reputation, and usually charge rates accordingly, when they operate in a ‘niche’ area. Developing a niche takes time, but the rewards will be worthwhile. Therefore, all key fee earners should be asked to identify their own potential niche, clearly in line with the firm’s and the team’s reputation and strategic direction.
In this way, the key people throughout the firm develop a clear vision as to what they plan their client base will look like, and this can form the basis for a ‘gap analysis’, comparing the vision with the current situation – and identifying what resources and training are required to enable achievement of the vision.Sustainable Sources of BusinessClosing the gap between where the firm is, and where it wants to be, involves a systematic programme of training and development in five key areas:
. Repeat work from existing clients
. Introductions
. ‘Keep in Touch’ campaign
. Strategic Alliances
. Collateral
This is a subject we are covering in greater depth in training course throughout the Spring.
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