I'm excited to have been invited to chair the forthcoming Growth Strategies for Legal Services conference which is being held on 30th June in London.
Growth is fundamental to longer term, sustainable success for any business in a competitive environment. “If you’re not growing you’re going backwards” is a phrase often heard which, from a business development perspective, carries much weight in a world where relative competitive strength is key to securing, developing and retaining both clients and people.
Incremental cost-base rises are inevitable, even in a low-inflation environment, and in the absence of matching revenue growth can only be paid for through reduced profit. Moreover, in order to compete effectively, firms need to do much more than simply repair and renew their infrastructures – they need to invest in people, technology, premises and infrastructure. This can only done in a way which is not profit eroding through a healthy and rising top-line.
Looked at through the eyes of the client, a firm which is growing can be seen to offer many advantages both practical and psychological. Growth will often be associated with increased resources, wider practice lines, increased geographic footprint and an enhanced approach to service. All of these factors offer tangible benefits to clients, whether by servicing existing work better or providing the potential to support future expansion. At an emotional level, clients enjoy the halo-effect of being associated with a successful firm. It reinforces that they have made a good choice and that their lawyers have a robust position within the legal services market.
Similarly, higher growth will be associated with increased opportunities for staff and having a rising-start brand on one’s CV is a positive outcome. In a market in which the war for talent is intense, being an attractive employer brand, one seen to be going places, has a material impact on the nature of the candidates attracted to the firm. This begets a virtuous circle – better people, providing enhanced service, leading to more satisfied clients more inclined to place more work with the firm, so driving growth further.
The right sort of growth also drives profit per equity partner (“PEP”) in a way which is sustainable. In the low growth period that followed the great recession, we saw firms reducing partner numbers in order to preserve PEP at acceptable levels. This approach cannot be tolerable in the longer term. The nature of any law firm, with very high fixed costs, means that profit is very highly leveraged by top line growth. Once costs are covered any incremental increase in revenue falls straight to the bottom line, significantly increasing the overall profit pool. The converse is also true, until those high fixed costs are covered no profit flows at all.
Having a well-founded strategy is vital to ensure that growth is targeted, profitable and sustainable. This is, however, only part of the equation. The strategy sets out the intellectual case, ensures robust analysis and produces a road map but it is the people who give it effect. This is why culture and performance management are also vital ingredients in the overall recipe for growth.
Taken together they are the three foundation stones of success. Each can create a positive effect on its own but the true synergies are only realised when all are aligned creates a multiplier effect which maximises any firm’s growth potential.
Those businesses which can adapt to this new paradigm, by enhancing both their revenue generation and operating models, may be able to enhance profit as well as investing for the future but others will find themselves simply running faster to stand still or worse still on a slow decline to oblivion.