Mind Your Business

Why differentiation is your firm's responsibility

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According to the Thomson Reuters 2022 State of U.S. Small Law Firms report, 22% of law firms admit that “differentiating your firm from your competition” is one of the top three goals or priorities for their practices. The report also indicates that 50% of firms find “challenges acquiring new client business” a moderate challenge, and 22% see it as a significant one. At the same time, almost three-quarters of the firms feel that the most competition comes from other law firms of similar size.

The aforementioned suggests that even though most law firms struggle with new business development, in part due to competition, almost 80% of small law firms don’t consider differentiation a top priority.

Undifferentiated business impacts buyers and talent

Law firms are in the market for clients and talent simultaneously. Not only do you have to figure out how to woo clients, but you also have to woo professionals who will do the kind of work that makes wooing clients unnecessary in the future.

From the perspective of both buyers and talent, undifferentiated firms are indistinguishable from one another. Thus, there are only two conditions that matter: price and capacity. Buyers wish to know if you’re instantly available at a lower fee, and talent expects an unfilled job opening with higher pay and lucrative benefits.

Undifferentiated firms are forced to compete for new business by promising to do more for less. “We’re just as good as those other well-known law firms, but cheaper” or “We’re so client-focused that our partners often visit clients over the weekends” is the common denominator for such firms. These same firms have to compete for talent by making promises to treat and pay staff better. However, doing more for less while paying more and treating staff better is an unlikely combo, thus rarely feasible.

Reduced rates, overworked staff, cursory work and overcharged clients are often the result of broken promises. This significantly limits capacity to attract, develop and retain professionals, which leads to decreased competitiveness and results in more price pressures in the future.

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Differentiation as a responsibility

When we think about talent, the most ambitious and talented professionals strive for a career, not a job. The lack of challenge and meaning lead to demoralization and eventually departure, making the firm spend extra money on hiring, onboarding and training replacements.

Differentiated firms are able to offer an alternative path to both most and less ambitious professionals, be it through subject matter specialization, springboard opportunities, vision for the future or unique culture.

Unless the firm benefits from high turnover, it is in its best interest to meet expectations and aspirations of the staff. When met, professionals eagerly reciprocate with enthusiasm and commitment, which has a direct impact on financial performance of the firm. Taking responsibility for your people, acting as if they were actually important to the firm, pays off.

When it comes to clients, one should not lose sight of the fact that any business in the free market serves a purpose. That purpose, defined by management consultant Peter F. Drucker, is to create a customer. In Drucker’s view, a business entity was an “organ of society,” and his following statement underlines the importance of responsibility of such an organ: “The customer is the foundation of a business and keeps it in existence. He alone gives employment. And it is to supply the consumer that society entrusts wealth-producing resources to the business enterprise.”

Society (buyers) have little or no need in yet another organ (law firm) if it offers an indistinguishable set of generic services, already in abundance. Although fierce competition tends to bring down the fees, benefiting the buyer, it also has a potential to topple the industry as any race to the bottom inevitably undermines the quality of work.

Unless clients somehow benefit from shoddy work, it is the firm’s responsibility to not compete in commoditized categories by allocating entrusted resources in a manner that provides a valuable alternative for the buyer.

How to differentiate your law firm

Differentiation is part and parcel of the firm’s positioning: “We do X for Y, and we do it this way.” The goal of differentiation is to become less interchangeable and more of a natural fit to specific work for specific buyers who find your way of doing things more compelling.

The following list portrays some of the options of how to differentiate your practice:

  1. Specialization is one of the most frequently used and easy-to-grasp ideas: “At our firm, we have a special interest in category A or industry B.” This implies subject matter expertise. Saying no to explicitly stated types of clients or work: “We never take (blank) cases because it goes against our (blank).”
  2. Making a list of compelling attributes, identifying the most valued one that isn’t owned by competitors and single-mindedly focusing all marketing efforts on that one attribute. For example: transparency, focused expertise, proactive, reliably fast, efficiency, disagreeableness, seamless integration and responsiveness.
  3. Lifetime guaranteed service is another way to differentiate the firm. Estate planning, personal injury, family law and IP firms, for example, can come up with compelling service offerings where the initial fee is higher, but minor changes, revisions, notices and renewals are free of charge. An annual fee-based checkup could be part of the offering as well.
  4. Becoming a champion for a particular client group, e.g., small business owners in your state, can be a powerful differentiating idea. Conversely, the law firm can decide to work against a common adversary, i.e., institutional bureaucracy that hinders development and prosperity.
  5. Satisfaction guarantee is yet another option. Clients do not have to pay the bill unless they are 100% satisfied with the work. This allows for quick wins and, in the long run, it inevitably elevates the quality.

A path forward

The economic theory taught us that price premium comes from scarcity, thus the more differentiated the firm, the more profitable it can become. Differentiation helps to attract and retain both talent and clients, as it narrows the target market, making the firm more focused.

Many law firms are reluctant to alienate potential buyers by being exclusive; they cast their nets wide to increase the odds of catching more fish, not necessarily better fish or the right kind of fish. In spite of many business precedents (the most famous one is Apple) of the power of saying no, firms still aren’t convinced. It follows that the primary reason why almost 80% of law firms don’t pursue differentiation is lack of courage.

If you ever find your courage to embark on this exciting path, remember that true differentiation isn’t a proclamation of virtues through clever taglines; rather, it is an intrinsic philosophy of “how we do things around here.” It’s not about making a claim, it’s about living the claim.

Sergei N. Freiman is a marketing advisor at awezzom. He works to encourage, support and facilitate competence among experts of professional services firms. He has worked in Europe and the United States, co-founded and managed five businesses, and has 20 years of business development experience. Today he lives in New York City with his wife and teenage son.

Mind Your Business is a series of columns written by lawyers, legal professionals and others within the legal industry. The purpose of these columns is to offer practical guidance for attorneys on how to run their practices, provide information about the latest trends in legal technology and how it can help lawyers work more efficiently, and strategies for building a thriving business.

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This column reflects the opinions of the author and not necessarily the views of the ABA Journal—or the American Bar Association.

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