This is no doubt a debate you’ve already encountered. Historically companies were rewarded based on current and historical profitability, on the assumption that it acted as a useful forecast for the future.
Then everything changed.
Investors realised that the real money was in those tech firms building platforms that were almost infinitely scalable, so as long as these companies could attract and retain an ever-expanding community of users, the money would follow.
But what about professional service firms whose revenue was directly linked to human hours? Surely that human dependency would mean this model based on scalability was of little to no relevance?
Well, for a while, yes.
But in recent years even professional service sectors have come to realise that every company is now a technology company, and the development of scalable IP is not only beneficial for growth, but actually critical for productisation and differentiation.
And consequently, the rules that have applied to tech companies for decades, now appear to very much apply to professional service firms.
An example of this within the legal market can be seen with Farewill; a company specialising in wills that had just one performance metric for their first 18 months – the % of customers that left a personal message in their will. They knew that if they were able to transform a frustrating administrative process into a profoundly moving and emotional experience, they would not only attract an endless supply of new customers, but utterly turn the market on its head. That’s exactly what they did, and they are now writing one in ten wills in the UK – vastly more than any other provider.
Now imagine, for a moment, the Wills & Probate Partner of a traditional law firm walking into the quarterly board meeting and proposing that for the next 18 months they were going to park all commercial metrics and replace them instead with a northstar that reflected nothing but the customer experience, in the belief that with customer satisfaction would come referrals, with referrals would come growth and with growth would come (eventually) profitability.
By the end of that meeting, the partner would do well to still be employed. The notion of forgoing short term profitability for long term growth, or focusing performance metrics on anything other than annual profitability, is anathema to the average law firm. As it is for the average accounting firm for that matter.
To be clear, this is not to suggest that every firm should follow the Farewill model. It really depends on your aspirations. And who’s to say that there’s anything wrong with doing excellent work on a small scale and making a healthy profit. Sometimes I feel the economy would be a healthier place if the propaganda of growth was challenged more than it is.
However, understanding where your firm sits on this spectrum is essential, as that decision will drive everything. From how you build your product and manage your communications to the way you report on success and set your strategic goals, this question of growth vs profitability is perhaps the ultimate dilemma facing professional service firms this decade.
Along this spectrum I always place one other goal, right in the middle. That’s brand. You see it is possible to be profitable whilst strengthening your brand, and likewise, growth and brand reach almost always go hand in hand, but there are compromises, too. The most profitable thing you can do in any quarter is to put your brand development on ice and direct the money into your bank account, while taking growth to the absolute extreme almost always undermines the average customer experience.
So the question is, where on the spectrum will your firm sit?
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