I recently heard about this theory from the tech world, but I think it has relevance in the legal environment, as well.
When a business first starts, it aims to produce a product or service that its members can feel good about. They want to be proud of what they have created, and the service they give. So, they seek to constantly improve the customer experience. That’s their driver. They’ll even sacrifice some profits if that can result in an improved customer experience.
But at some point, some businesses take customer loyalty for granted, and instead of focusing on them, they focus instead on shareholders. They adjust the business to make it as profitable as possible, regardless of whether those changes actually lower customer value. Inevitably, a competitor more focused on customers enters the marketplace and wins over disgruntled customers from the first business, where shareholder value is now declining.
Too often, I’m called in when law firms are facing a crisis that is usually the result of this change of focus. When I ask what they would like to do to fix the issue, they tell me to focus on increasing shareholder value. But shareholder value is the result of running a business well. You can’t pursue it independently. In other words, you can’t just force up rates for clients, or push hours up and compensation down for non-Partners as a way to increase profits for owners. Fixing a firm on this side of s-itification is more complicated. And like most things in life, taking the time to get the inoculation is far easier than trying to deal with the illness.
So, let’s look at how to avoid s-itification in the first place. You can do it by focusing on not two, but three levels of value simultaneously, although not necessary giving them all the same weighting.
Give the most weight to customer value. There is no business, no product, no service, unless there is a market for it. There have been plenty of business owners who opened their doors with a product or service they were passionate about, but alas there was no one interested in buying. Focus your efforts first and foremost on ensuring you have a product or service that meets and even exceeds marketplace needs. If possible, seek to differentiate your business from your competitors by providing a product or service that is somehow better than that of your competitors. Never stop thinking about your customers’ current and future needs, and constantly make improvements to your value to that marketplace.
After that, give weight to shareholder value. Without people who want to be owners, we would have no business. But do educate your shareholders on how to assess value properly. You want to increase shareholder value, but not necessarily every year. Businesses need initial financial backing, and then ongoing financial support to help the firm through things like a change in the economy, a change to regulation or case law, a change in the competitive landscape, a change in technology capabilities, or a generational shift resulting in retirements, etc. A firm also needs short-term investment to support a change in business strategy. (For example, the addition of a new practice group or territorial expansion through a new satellite office). Businesses can best handle these investment periods when owners are relatively happy with the overall returns, over time. When I meet with my investment advisor, we know that certain companies may have theirs ups and downs, but we look at overall returns over a five- or ten-year period to determine which ones are the best investments. This shows that they make smart decisions, even decisions that might have them suffer lower returns sometimes in order to come back stronger in the long-term. Law firm Partners can tend to be very short-sighted. They want record profits year after year. But strong firms will have peaks and troughs with steady long-term recovery and higher profits. This tells me (and future shareholders of the firm) they know how to weather a storm, how to invest in the future, and how to avoid making greedy, short-term decisions.
Finally, give weight to the value proposition for your lawyers (non-Partners) and staff. While this holds the least weight of the three, it’s often the first and most constant value proposition to monitor. Your firm probably doesn’t need to pay the highest salaries in your region. You probably don’t have to have THE best benefits. You don’t need to have the best culture of any other law firm in your area. But you should pay well for good people: in the top 25%. You should have good benefits. And you should really work on a culture that is not just seen, but experienced as fair, supportive, reasonable, flexible, communicative, team-oriented and maybe even a bit fun. I may believe that marketing is the most critical support role in a firm but I think that HR is a close second. HR is responsible for ensuring the firm demonstrates value to their members. Consistently. Progressively. This, in turn, enables the firm to deliver value to the clients, and ultimately, to shareholders. Members are an important (and sometimes forgotten) piece of the puzzle.
When owners are the only people talking about the firm’s value proposition, the conversation will be slanted toward their own value proposition. This emphasis will ultimately, inevitably lead to lower client and employee value and thus, s-itification. Either invite your senior managers (especially marketing and HR) into the room for such discussions, or assign certain Partners to represent the interests and speak up for those constituencies in the meeting. Additionally, as decisions are being made, take a moment to consider the impact to each of the three groups. And most of all, appreciate that the most successful law firms find a way to balance the needs of these three groups – always starting with the customer. Without lawyers you wouldn’t have a law firm, but without clients you won’t have a business. Start it strong, but then, keep it strong over the long-term.
Heather Gray-Grant is a business strategist, marketing expert and executive coach for law firms, lawyers and administrators. She can be reached at email@example.com