Over the last 3-4 months I’ve written regularly and consistently about the role of focus in positioning a professional services firm. I’ve advocated rather extensively for a singular focus to firm positioning whenever possible, yet conceded that there are instances where this may be culturally or financially impossible. Now, I thought it might be useful to look at the construct of positioning from the other end of the spectrum — How do you know when a firm’s focus is too broad? I believe there are two simple metrics you could consider if you’re trying to answer this question:
#1 – Billable Staff to Service Offerings
This is a pretty simple metric to calculate — how many associates does your firm have to support the services it brings to the market? Not long ago, I came across a midsize law firm with roughly 70 practicing attorneys that lists approximately 20 high level service offerings on its website. This constitutes a staff:service ratio of 3.5:1. A couple of quick inferences come to mind based on this staffing level:
- Expertise: It’s fairly easy to assume that a few of these services are driving large chunks of revenue while others are not. That said, given the breadth of offerings it’s difficult for me to discern which ones are firm strengths and which are not. As a result, I’m inclined to assume the lowest common denominator for all the services until I’m proved otherwise.
- Stretch: Presumably, the majority of attorneys have expertise across more than one service offering. While this is good from a business perspective because it gives the firm flexibility, it doesn’t feel so good from a prospective client’s perspective. For instance, if I need an IP attorney, I’d prefer to have one that focuses on IP issues all day everyday.
- Depth: Does the firm have sufficient depth to perform all these services? This is very much an extension of the first two issues identified above. What happens if a key attorney leaves? Is a talented, capable lawyer readily available to provide those same services in the near-term?
Presumably, prospective clients of this particular firm may share similar concerns. This is likely especially true for more sophisticated buyers — in house corporate counsel in large corporations. While the optimal staff:service offerings ratio is probably different for every firm based on the service it provides, I tend to believe for a midsize firm (one with revenues ranging from $10M – $100M) an optimal level would be somewhere around 10:1. If your staff:service offerings ratio is less than 5 and you have in excess of $10M in revenue, your firm is probably too broad.
2. Revenue to Practice Areas
Again, this is a very simple metric to calculate — it’s basically a ratio of the firm’s top-line revenue and its high level practice areas. A few months back, I came across an A/E/P firm which had roughly $18M in top-line revenue and 6 broad practice areas. Each practice area was quite distinct and the likelihood that many staff would be capable of operating within multiple practice areas was quite low. This is a firm that is essentially operating and marketing 6 separate $3M businesses under a single brand name. Some similar inferences come to mind based on this revenue:practice area relationship:
- Expertise: Again, presumably one or two practice areas are driving large portions of firm revenue, but which ones are they? Which practice areas are truly strong and which are just at parity with other like-size firms? It’s very difficult to tell, so prospective clients are likely to fall to the lowest common denominator until proven otherwise.
- Memorability: It’s difficult for me to recall all 6 practice areas the firm has to offer. I can distinctly name 2, but the other 4 are completely lost. And, I’ve spent considerably more time studying this firm’s marketing efforts than the typical prospect. Chances are this firm wouldn’t be on my radar screen for 60% of its offer if I was a prospective client because of this breadth and diversity.
While the revenue:practice area relationship is probably unique to any firm, I tend to believe that a meaningful practice area should have at least $10M in revenue to support it within a midsize firm. A firm with $20M in top-line revenue derived from 2 practice areas will likely grow to $30M in top-line revenue much more quickly than that same size firm trying to support 6 practice areas. This is really simple focus and resources. More resources applied against a more narrow area of focus has the ability to create growth faster than the same resources spread across a wider range of expertise.