Is Revenue Growth the Right Goal?
Clio’s 2019 Legal Trends Report introduced their Law Firm Maturity Model, an interesting framework for evaluating a current state of your firm and how it might improve. Maturity models in general can be an effective tool for reinforcing strengths, illuminating shortcomings, and suggesting opportunities for improvement. But I wonder whether that the Clio model focuses too heavily on revenue growth instead of the business fundamentals and strategies that are needed to drive that growth.
Clio’s isn’t the first attempt at such a framework for small firms (see, e.g. the Lawyerist Small Firm Scorecard & associated pathways), and I think it will be interesting to see how Clio builds out tools and training to help firms advance along possible paths to maturity (in Clio’s parlance, becoming a “thriving” firm.)
My concern with the Law Firm Maturity Model—one that applies to other elements of the Legal Trends Report as well—is its potentially one-dimensional focus on revenue growth as the key metric. Don’t get me wrong, revenue growth is a beautiful thing. But revenue is a lagging indicator, and revenue targets are easy to miss if you’re focused only on the money and not on the fundamentals that underpin a successful practice.
The Clio report suggests that those fundamentals lie across four different data points: utilization, realization, collection, and rates. Those are interesting metrics, but to my mind they’re still too far down in the weeds. They too are lagging indicators, and low scores in the first three areas are symptoms of either ineffective strategy, inadequate implementation of a potentially-effective strategy, or both. (I’ll ignore rates for now as more an indication of the market than the lawyer, echoing the Clio Report on p. 17).
It isn’t lost on me that Clio makes software tools that purport to help in each of these areas. And in my experience those tools are excellent—no quibble there. Tools, however, are not enough without effective strategies and processes for those tools to enable.
As I’ve said before, overall improvement requires an examination of people, processes, and tools, roughly in that order. I also firmly believe that when a business isn’t performing as well as expected (which the Clio data indicates is true for a whole lot of law firms), it is usually because the owners/managers aren’t paying enough attention to their higher domains of activity.
Recall my earlier discussion of Mission | Goals | Strategies | Tactics. As shown in the graphic below, I prefer to represent them as having equal weight (as opposed to the pyramids or inverted pyramids you often see). The connectors on the left side of the graphic are chains, which are meant to illustrate that the Goals must hang from the Mission. That is to say that a good mission statement for your firm should suggest several things you can measure to let you know whether you are making progress towards that mission.
The Strategies then hang from the Goals; those are the programs you’ll run or the experiments you’ll try to get your firm to meet your numbers. And the Tactics—the day to day activities you and your team will engage in—hang from the Strategies.
On the right are pillars, meant to illustrate that your Tactics should support your Strategies, your Strategies should support your Goals, and your Goals should support your Mission.
Where does revenue fit in? For most of my clients, I encourage them to have revenue targets, but not necessarily to have those targets be express goals for the practice. As I said, revenue is a lagging indicator and I like managers to focus on more actionable metrics.
To build a straw-person, let’s assume a law firm with a mission to “Ensure that every citizen of the tri-state area has a robust estate plan that they feel confident will protect their assets and ensure care for their loved ones.” (Note that mission statements should be aspirational—that you might never fully achieve your mission is acceptable when the world will be better for your attempt.)
Hanging a goal off of that mission to “generate $1.2M in top-line revenue in 2020” is a bit incongruous. Sure it would be nice (for a certain sized firm), but your revenues don’t have anything to do with improving the lives of tri-state citizens.
Instead, I prefer to articulate goals that naturally flow from the mission (ideally using the SMART-goal framework). One might be to “grow the number of estate plans we deliver to tri-state residents each month from 10 to 15 by the end of 2020.” Or maybe to “Improve our customer confidence scores by 10% by the end of June” (assuming you measure such a thing). Both of these relate directly to the mission above, and also suggest possible strategies that will hang from them.
They also, not coincidentally, should lead to revenue growth (perhaps even profit growth). More estate plans should yield more money, and better customer confidence should improve referrals and other marketing efforts.
You might try several different strategies to meet the first goal: You could add resources to your team in the form of paralegals, associates, or contract attorneys. You could improve the rate at which you deliver estate plans through workflow & process improvements. Or maybe you already have excess capacity so you want to improve your business development to make sure your team has demand for the additional work.
And your tactics, of course, will vary depending on what strategy you decide to experiment with. What’s useful about this structure from a tactical level is less about determining what tactics to include so much as recognizing which ones to exclude. If you make the strategic choice to focus on workflow improvement, then you have to resist the urge to tinker with your website SEO.
(I can’t tell you how often I see law firms whose attempts at growth are all over the place because they lack either a defined strategy or the fortitude to stick to a particular strategic choice. Back when I was working with the amazing folks from StartHereHQ we coined a verb for this: Stop Tacticing! Seriously; formulate a strategy, write it down, and show it to someone who will hold you accountable to it.)
The other key to this structure of nested goals, strategies, and tactics is building a feedback loop to determine whether your strategies are working to achieve your goals (which, in turn, will help you progress on your mission). The Lean Startup approach is to break those measurements cycles into manageable chunks that yield maximum information (a Minimum Viable Product). I suggest running small experiments of no longer than a few months (ideally a few weeks) and being vigilant about measuring progress or lack thereof.
I’m continuing to dive into the Legal Trends Report so look for more commentary from me in the next few weeks. Be sure to sign up for my newsletter to see new posts as they go up. Or, if you want to discuss your own mission, goals, or, strategies, be sure to book a discovery session with me.