Mark Powers & Shawn McNalis
Many of you toy with the idea of adding another practice area. Perhaps business in one of your current practice areas has dropped off due to the economy and you wonder what you can add to fill the gap. It’s an innovation worth pondering. Let us give you three reasons to consider this for your firm, both now and for the future.
In the short run, this strategy could lead to increased revenues and replace income lost due to the economic downturn. Of course, the time it takes to implement depends on how long it would take to either learn the new practice area yourself — or acquire the new practice area by bringing on an attorney with the requisite expertise. There’s an upfront investment of either time or money to be considered, but if a great enough need exists among your clients, it could pay for itself after a very short time.
Complementary practice areas that can serve existing clients across a broader spectrum of services opens the door to increased profitability for this reason: once the initial cost of acquiring the client is past, additional services to that client are much more profitable. Practice areas that serve too diverse a group of clients are unable to take advantage of the benefits of cross-selling, which means marketing is costlier on a per case basis.
What you may not realize is the significant benefit this cross-selling strategy can deliver even further down the road if you have a firm that can be packaged as an asset and one day sold or profitably transitioned to a successor. One of the most important questions asked in the valuation process is this: does the firm have clients who return with recurring or additional work on an ongoing basis?
If the answer is yes, the value of the firm automatically increases. What buyer, or successor for that matter, would not want clients who return to the firm on a reliable basis for additional work?
To test whether or not adding services or practice areas to your core practice areas will work, ask yourself if the services you are considering closely relate to the needs of your current and past clients – those with whom you’ve already established a relationship. Ask yourself if they have issues and problems with which you could help if you had the proper training. Weigh how long it would take to acquire the training and how much it would cost. Also, consider importing the skills by adding another attorney.
An innovation like this is worth pondering, not only for the short term, but the future value of your firm. If you start early enough, you can create a firm with very desirable attributes. A firm that serves its clients very well and at the same time attracts a future buyer. You could be sitting on a gold mine – make it your business to find out.
Keep this in mind when and if you consider adding another practice area to your firm.
Believe it or not, some innovations are too innovative. Before you pursue the next big thing, ask these two questions to determine whether your core business will embrace or reject the new product or service Does the new innovation conflict with your fundamental business model? If so, stop. Undermining your business model for the sake of a new innovation wastes money and valuable management time.
Is the new innovation closely related to the five dimensions of diversification? These dimensions are: customer, distribution channel, product/service, geography, and competency. If the new product or service is closely related to many or most of these dimensions, then pursuing it will be less risky.