One of the most challenging decisions to make as a business owner is to decide on what strategy to implement that will maximise your growth, but do it in a sustainable way. And more importantly, what actions NOT to implement. For a professional services firm, like a law firm, the principals are traditionally chargeable hours focussed and strategy is often something that happens when you get an hour spare, which rarely happens, does it? Even if you do have an hour, most firms don’t have a simple framework to test their strategy. If you haven’t read Good to Great by Jim Collins, you should. In my view, this is the best business book I’ve read in the last 10 years. In his book, Collins identifies a number of similar characteristics of amazing companies, one of which he calls the Hedgehog concept. Fundamentally, these companies new the key 3 components of every core strategy, and if the strategy didn’t contain all 3 elements, they didn’t do it. The analogy Collins makes is that of a hedgehog and a fox. Long story short, the fox want’s to eat the hedgehog and tries lots of different ways to outsmart it. The hedgehog knows that all it needs to do is to roll in a ball so its spikes stick out and it will survive. So this is all it does. Fox businesses are those that aren’t crystal clear on what they are about, and the hedgehog are the ones that are. The fox business may be profitable, but their activities aren’t sustainable long term. They constantly try new things because they are the latest and greatest, and seem like a good idea to make money, but are more hit and miss than sustainable. A hedgehog business knows what works and sticks to it.
The 3 key components of the hedgehog concept framework are:
- We are passionate about……
- We must be the best in the world at…..
- ……drives our economic engine
If you can complete these 3 statements and use them as a framework for determining whether a strategy is a fox or a hedgehog strategy, you are well on your way to building a robust framework for assessing your strategies.
In the work that I have done with professional service firms, be it law firms, town planners, environmental planners, accountants, financial planners, there are overriding themes for elements 2 and 3.
With regard to passion, this is an incredibly personal statement. People are passionate about so many things. Yes,in fact some people are passionate about the law, others are passionate about the environment. What you are passionate about is what drives you. If all you did in your business all day every day was what you are passionate about, think about how that would feel. What impact would that have on your team and your clients?
But for “best in the world” and “economic engine” the common statements for professional service firms are along the lines of:
We must be the best in the world at managing relationships.
Average net profit per client drives our economic engine.
Professionals have a trusted relationship with their clients. The better the relationship, the greater the trust, the more opportunities present themselves. Value pricing guru, Alan Weiss, says that if you are not in a relationship with your clients, you are a commodity. Commodities are easily traded, relationships aren’t. Let’s take a reality check. You can’t be the best lawyer, engineer, accountant or adviser in the world. You might like to think you are but there is always someone who knows more. I’m not saying you can’t strive to be better, but this concept is about what you need to ensure you focus on, that key ingredient that maximises the opportunity for success. Some reasons given for lack of growth in firms (or are they excuses) are:
- “we can’t find the right people”
- “the market is tough”
- “everyone is price sensitive”
Rubbish. If you focus on managing relationships with your team and your clients, the opportunities flow in, people want to be part of your business, and price is doesn’t become an issue. Focus on relationships and strive to be the best in the world at them, after all, isn’t this why we exist?
When assessing the financial impact of a strategy, you want to increase profit by improving your gross margin (revenue minus fee earner labour) and reduce or maintain your fixed costs (rent, IT, equipment, non-fee earner labour). As a starting point with any revenue strategy, start with your existing clients first. If you apply the revenue growth formula (number of clients x transactions frequency x average sale x margin) you can drive an improvement in profitability and cash flow, usually without additional fee-earners and additional fixed overhead.
Are you a fox or a hedgehog?