I preach ad nauseum about the importance of understanding your client’s business if you want to provide a service to them. Ultimately, all clients are buying solutions to their business problems, even if those problems are positive, like too much growth. But if you don’t truly understand a client’s business, how can you understand their problems, and if you can’t understand their problems, how can you solve them?
Give me an example, please
A few years ago, a brokerage firm moved from downtown to midtown Birmingham. Management’s motivation for moving was not to save money on real estate (they absolutely did not) or to build more progressive space (again, not the case). Rather, due to the nature of their business (estate planning), the firm had an older clientele for whom downtown was intimidating due to the perceived difficulty in finding parking and the presumed safety risk. In addition, the firm’s employees who might have benefited from a few extra hours in the office were leaving the downtown location early to beat traffic getting home.
This brokerage firm relocated to a more suburban location with abundant free parking closer to its employees’ (and clients’) homes and solved both its problems. Its clients were more comfortable and its associates spent more time in the office producing.
If the firm’s broker had not understood his/her client’s needs, he/she probably would not have gotten this assignment.
If your client is a privately held corporation or partnership, understanding a business is slightly more challenging as you cannot rely on public financials. However, it is still quite doable.
What does understanding a business mean?
It means understanding what the client does, for whom and how they get paid. You also need to understand where a client is in its industry, where it’s going, who its competitors are and what those competitors are up to.
A case study: Law firm edition
Let me use as a law firm as an example to give you an idea of the information I think it is important. This is the information I would gather before a first meeting and the rationale for each piece of information:
Number of attorneys:
How large is this firm? If possible, also determine how many non-attorney employees work at the firm. Many metro areas publish Books of List which detail the number of attorneys at most local law firm offices. Look for a local Book of Lists’ archive to compare the current number of attorneys to past years to determine if the firm is growing or…not.
Number of partners:
How many partners does the firm contain relative to associates. The leverage ratio affects everything from overhead costs to overall profitability. It will also give you an idea of the number of decision makers in a firm as most firms consider every partner a decision maker. Speaking of decisions, how are they made? By an empowered Executive Director and/or C Suite? By a Managing Partner? An executive committee? A board? Overall partner consensus? This is probably the most important item to understand relative to law firms as it will often determine the overall strategy of the firm, the nimbleness of decision making, the progressiveness, et cetera. It will also be a guide as to how you may need to structure your communications with the firm.
Is this a firm with numerous location across a state? A country? The globe? Does the firm operate in a “states’ rights” model where each office makes its own decisions, or is it more centralized? Which locations are growing? Which were opened most recently? What is the number of attorneys in each location?
LLP or PC:
This is a can of worms I have only recently dived into, but what a can it is! For instance, did you know that a PC (because it is a corporation) cannot have a mandatory retirement age for shareholders/partners? This means, on the positive side, mature rainmakers are able to stay in the firm and continue to contribute without any arbitrary age cutoff. On the negative side, it can result in an inadvertent bias toward short term decision making if the majority of the voting members skews closer to retirement, thereby making decisions based on the near future rather than the firm’s long-term destiny. An LLP, on the other hand, can include in its partnership documents an age at which partners must sell back their shares.
Related to entity choice is capital contribution requirement. If you can find out whether “members” are required to buy into the entity and how significant the buy-in is, you can get an excellent understanding of how the firm funds capital investments, i.e. debt versus equity or cash on hand.
Insurance defense? M&A? Energy? Aerospace? Tech? The industry in which a firm practices dictates the type of work, how it is billed, where it is done, whether it is cyclical, the margins, the field of competitors and on and on. I could list variables affected by the area of law practiced for hours. You get the gist. This is important.
Are competitors local, regional, national or global? Why does this firm win the business it wins? When it doesn’t win, who does it lose to and why? Are competitors more aggressive on fees or do they boast more depth of knowledge in specific areas? Understanding the competitive landscape will tell you a lot about where a firm sits and where it is going.
Does the firm recruit a large class of first years out of law school each year? Or does it focus more on lateral recruiting? Out of which law schools does it recruit? Recruiting strategy can have a significant impact on the location of law firm offices as well as the design of the space. Law firms recruiting millennials are likely going to skew more open and collaborative than firms recruiting senior attorneys that are of a generation accustomed to large private offices.
What has the firm been in the news for lately? In what causes is the firm active? What does its C suite look like? How about its website: recently updated or a forgotten project?
The net net.
Yes, I know it takes a good chunk of time to gather this information, but if it makes you more valuable to your client, isn’t it worth the investment? I surveyed law firm clients (i.e. general counsel) and they told me: “Our outside counsel (law firm) needs to learn about us.”
Law firm clients are not alone. All clients wish their service providers understood them better because it saves clients time and adds value and if you aren’t willing to make this investment, your clients will probably find someone who is.