It’s cold and sunny today in Brighton, where I live.
What came to my mind was the saying: “the best time to fix the roof is when the sun is shining” and how this applies to professional service firms.
Speaking recently to an EMEA summit of lawyers and accountants, it was clear that commercially things have never been so good. Since Covid in Europe the level of opportunity and the volume of business they enjoyed was being widely experienced.
The biggest issue was not getting work. It was resourcing it. There were not enough high quality candidates able to get up to speed quickly, while others were being poached by the very biggest firms. What’s more, expectations of potential new recruits were higher, not just in terms of salary, but also in every aspect of their employment. So: workloads are high, but so is income. The sun was shining pretty brightly.
This is an experience we hear across the marketplace. However, stormclouds are gathering.
It’s clear our economies are either in recession or in danger of entering it. The real danger to firms is that they do a handbrake turn, panicking about the potential loss of business because they didn’t fix the roof while times were good. Our message is: there is still time.
Time to fix the roof
The big hole in the roof is often this: too many high cost, low margin transactional clients, won easily in a professional services boom; and too few broad-based multi-service line clients who consider them trusted partners.
What this means is that for the margin they generate in the sunny days their cost base is fine. However, if there is a downturn, they could easily slip into loss on many of their accounts through price competition, lack of loyalty among clients and the end of a specific transaction won as a supplier. The other old adage – when the tide is out you see who is wearing any swimming trunks – becomes all too real.
Here’s the problem. What’s been happening for too long in this upturn is a belief that winning and adding volume is what counts – increased activity being the most important driver – rather than working out what their highest value proposition is that results in high levels of satisfaction for their clients. Building deep relationships gets crowded out by the desire to close deals.
At the same time, firms are adding to their cost base with more expensive resources who are demanding better packages, and perhaps exhibit less of commitment to working long hours or commitment to long term careers.
Here’s how to fix the roof. As an alternative and more reliable strategy, a number of foresighted firms are looking at how they use the time they have to invest in their best relationships. They are defining a strategic narrative that focusses them on high value propositions, which enable them and their Clients to establish shared objectives and long term relationships.
Clients get what they want – broad-based expert support from an organisation they trust. Firms get what they need – a predictable supply of revenues at good commercial margins that allow them to attract the right staff and grow their business.
Critically, as clients also face downturns and rapid change, they turn to partners they trust, not suppliers they chose to do a specific job.
At the same time as helping the Firm focus on new client relationships, it allows them to enter into a new conversation with their current low margin client base. This conversation revolves around whether or not the value proposition of the Firm fits the needs of these clients. Where it does, it creates a basis for a change in relationship and higher fees. Where it doesn’t it means the Firm can exit the relationship.
A more secure structure
The benefits to firms is obvious. Not only do they shift their focus on to accounts where they know they can deliver good value, they can also take resources from accounts where they are making low profits and redeploy into higher margin accounts. This saves the time and costs of chasing scarce resources in the market, and keeps their cost base under control.
Furthermore, employees engaged in higher margin, more valuable work, tend to be better engaged and less likely to leave the business, while also delivering better quality work to the client.
Be the Firm clients choose in a downturn
In summary, its perhaps worth asking whether there is a hole in the roof in your firm? If you see a downturn coming, it’s an urgent task to focus on high value, high trust relationships with your best clients, and build a partnership mentality into your partners and associates. This gives you the best chance to ensure your cost and client base is in shape to withstand it, or perhaps even take advantage of it. Consider re-engineering your narrative and value proposition so that you become the go-to Firm and the ones your best clients choose to turn to as they look for trusted partners in a fast changing environment.
Does this resonate? If so, let’s have an open discussion about what this might mean for your business and what to do about it.
