The business model of the new economy is one characterised by talent and services on demand, automation, and a magical user experience. At least, that’s how futurist and veteran of the technology game, Tim O’Reilly, put it in his latest bestseller, WTF: What’s The Future and Why It’s Up To Us.
Unlike technology companies that are more predisposed to living these values, law firms predominantly and almost exclusively rely on people to create and deliver value to their clients. Scale is still dependent upon headcount rather than technology, as is typical at today’s Silicon Valley titans.
Having left the world of professional services in 2013 to pursue entrepreneurship, I’ve since established and overseen the development of my own boutique firm.
I’ve been vocal about our team’s approach to getting stuff done, best summarised in my Harvard Business Review article, The Case for the 6-Hour Workday.
Recently though, it got me thinking; just how much more efficient are we than the top end of town firms?
I put together the revenue and employee numbers of top and mid-tier firms firms in my space, captured below, giving you an indication of how employee efficient each company is.
Out of interest, I also added some mid-tier firms from our geographic market to the mix, based on numbers derived from GrowJo.
At Collective Campus, we currently generate $433,000 per employee, almost triple the big four ‘accounting’ firms, five times Accenture and CapGemini, and about 50% more than the mid-tier law firms presented.
Only pure play management consulting firms like McKinsey and Boston Consulting Group come close.
Interestingly, if you consider the fact that the average employee at the above-mentioned firms works about 50-60 hours per week, versus our 25-30, their effective employee efficiency relative to ours would be about half of what’s reported above.
And we’re not resting on our laurels. With some luck, a process-automation project we’ve got under way and a subtle but significant strategy shift could see us propel our employee efficiency to well beyond $500,000.
Upon reflecting on my time at large professional services firms, and how we do things differently at Collective Campus, the following efficiency drivers became apparent.
While at EY, I watched countless six-figure earning colleagues painstakingly labor over perfecting Powerpoint proposals for days, if not weeks, only for the prospective engagement to go to a competitor. Auditors carrying folders of client receipts and bank statements were everywhere; automation tools not so much.
At Collective Campus:
We leverage machine learning to automate the development of our proposals. We’ll then spend 10 to 30 minutes customising them and they’re out the door.
If anything is a repeatable process, we’ll attempt to automate it. We automate along the entire value chain; product, sales, marketing, customer service, delivery, finance and operations. Proposal development, content development and distribution, prospect qualification, you name it, part of - if not the entire - process has been automated.
You’re not getting paid six-figures to do expense reports.
Sadly, thousands of well-educated, well heeled lawyers at large firms find themselves doing exactly that, often having to navigate finicky spreadsheets for the privilege before handing off the report to another department for eventual processing.
At Collective Campus, if we can’t be automate it, then we’ll try to outsource it - so long as it’s not mission-critical and aligned with our strengths. I’ve personally outsourced about 30 hours of work that I once performed myself. It’s now being shipped offshore for no more than US$10 per hour, with an acceptable to no compromise in quality.
The Pareto principle is trumpeted by many professional services firms, yet too many find it difficult to say no to work, and often ‘loss lead’, or take on low margin work in order to “build the relationship”. Sometimes it leads to more work, and more often than not it doesn’t. It also sets an expectation of pricing in the client’s mind that may not be sustainable. Not only that, but if such a client is a pain to work with, not only do they pinch your margins, but they’ll also pinch your workforce’s morale too.
The 80/20 principle suggests not just that 80% of your revenue comes from 20% of your clients, but that 64% of your revenue comes from 4% of your clients. By focusing on this principle and creating offerings that the 20% or 4% would be willing to pay much more for than the rest of your customers, you can become more revenue efficient and spare your workforce the pain of dealing with difficult customers for tiny margins.
Perry Marshall put forward the case of gate attendance at professional sports stadiums to illustrate this point beautifully in his book 80/20 Sales and Marketing. While you might get 20,000 people to pay $20 each for a ticket, pocketing $400,000 in the process, there will also be 1,000 or so people collectively paying for and/or occupying 200 corporate boxes, which at $5,000 per box bring in $1 million - these are your high value customers.
Large firms tend to engage in long-term engagements, where the effective daily rate of work decreases significantly.
For example, whilst a firm might be able to charge $10,000 for a one day workshop, they will find it much more difficult to charge such a day-rate for a 100-day consulting engagement. Instead, they will probably end up charging an effective daily rate of about $1,000 - $1,500, which comes at a major blow to employee efficiency.
Again, at Collective Campus we focus on value, and oftentimes this is manifest in shorter term gigs, which in turn, frees our people up to do more high value gigs in less time, rather than less low value gigs in more time.
For example, I’d rather have two employees run twenty $10,000 workshops in a single month ($200,000) than commit to a 20-day consulting engagement at $1,500 a day each ($60,000). The former earns more than three times more income.
It requires an ability to avoid temptation, and say “no” to work that isn’t high value.
Whenever you’re getting paid by the hour, as many large firms are, there is a perverse incentive to book in as many hours as possible - regardless of the value being delivered.
In our case, by optimising for shorter term projects, it forces us to apply 80/20, or 64/4 (four percent of clients can generate 64 percent of income), and deliver the most amount of value in the least amount of time, whilst satisfying client needs, and keeping our employee efficiency healthy.
Building on the last point, we believe in the value of our work at Collective Campus.
If a client wants to pay rock bottom prices, we’ll direct them to our competitors. You’re in business for the value you deliver, not merely to recover your costs.
I saw armies of consultants - all on high five to low six-figures - sitting on “the bench” for weeks on end while I was at EY and KPMG. This meant that they had no real work to do, and were twiddling their thumbs like sitting ducks waiting for a job to pop up - which sometimes did, but often didn’t align with their interests, strengths or career aspirations - but they’d have to do it anyway.
We don’t have a bench at Collective Campus; everyone is on the court. This brings me to my next point.
Instead of employing an army of consultants with the hope that we will be able to keep them utilised all of the time, we have a core team plus an extended network of on-demand, high quality consultants and facilitators we have a relationship with that we can engage should we need to deliver work that is outside the core team’s capacity.
This means we’re also engaging people who want to work on these engagements and whose skills are truly aligned so that they can do a stellar job. This means that they truly show up, and are more fulfilled, positive and engaged as a result - which benefits the client and reflects positively on our brand and relationship with our clients.
Compare this with the graduate or second year consultant who’s picked off the bench to deliver a gig they’ve never done before for a company in an industry they know nothing about - a hallmark of many a top-tier firm.
I lost count of the number of multi-hour meetings I sat in while I was working at top-tier consulting where 10 or more people were present. In most cases, only two or three people were truly required, and the meeting could’ve been handled in 30 minutes.
The cost of such meetings was astronomical.
Essentially, a 10-person, 2-hour meeting is a 20-hour meeting in terms of the cost to the organization, and when you consider hourly billing rates, the true cost of such meeting to an organization can be well upwards of $5,000, if not $10,000 depending on who is present.
The worst bit? Many meetings achieved nothing and subsequent meetings had to be called to recap the lack of what was discussed at the previous meeting, and again attempt to align on next steps. Oh, and let’s not forget the dreaded meeting to prepare for a meeting.
At Collective Campus:
Building on the 80/20 principle highlighted earlier, at Collective Campus we prioritise whatever we’re doing, whether it’s a project, strategy, marketing campaign, sales tactic, customer segment we’re targeting, and so on.
Similarly, at an individual level the team prioritises their time with a simple value / cost calculation, so that they focus on high value activities, and not just shallow level work that often tricks our primitive brains into satisfying our need to feel important or busy, but come the end of the day leaves us with nothing to show for all that busyness.
As such, we’ve turned off all push-notifications on our phones and desktops, we use email as it was intended to be used (not as a real-time back and forth communication mechanism), and don’t care one iota about getting to inbox zero, which is usually an indication that you’re great at misallocating your own time in favour of other people’s priorities.
Because we focus on value, prioritise effectively, have few meetings, and ignore the pull of email or notifications, we’ve got more time to get into flow. When we’re in flow, we’re up to 500% more effective than when we’re engaged in shallow level tasks.
Importantly, unlike in most traditional firms, we have no expectations of immediate response internally, nor do we set such client expectations. This means that we can intentionally carve out windows of time that can be several hours long for deep work, instead of being at the mercy of constant interruption and switching costs (it can take us about 23 minutes to get back to the task at hand after an interruption according to a study from University of California, Irvine).
High performers stop working when sufficient value is delivered.
Most people stop much later, engaging in all sorts of residual work.
Instead of reformatting that Powerpoint proposal for the 17th time, we apply Parkinson’s law to give ourselves short but reasonable windows of time to get a task done. This forces us to focus value creation and frees us up to move on to other high value activities.
By enforcing shorter windows of time to get things done, it acts as a trigger to get us into flow - no different to being in High School, having procrastinated on your term paper for weeks, and finding yourself with 12 hours to hand it in - suddenly you find yourself in the zone.
At Collective Campus, we don’t just set and forget on our value chain (kind of like that streaming service that keeps debiting your credit card without you’re knowing it despite not using said service anymore). Short feedback loops are absolutely critical to adapting in a timely manner, performing at an optimal level and not wasting resources.
We’ve defined key metrics to measure what matters. This extends to how different aspects of our business, our strategy and our people are performing. We reflect regularly on what we should do more of, less of, start and stop doing.
In order to avoid spreading ourselves thin and ensure we can stay focused, whenever we add a ‘start doing’, we attempt to balance it out with a ‘stop doing’. Likewise with a ‘do more’ and a ‘do less’. One in, one out.
Rather than waste resources by jumping to conclusions and over-investing in something, or sitting idly by in a state of analysis paralysis, this helps us to do, learn, and adapt, with a degree of confidence and control.
Is our model scalable? I think so. But it’s a question we probably won’t ever get the answer to because we’re intentional about defining what is ‘enough’ and not getting sucked into a ‘growth at all costs’ mentality.
The larger an organization becomes, the more processes and systems it introduces that ultimately serve to inhibit its way of working and its culture.
Once a ‘growth at all costs’ mindset starts to compromise our values or enjoyment of work and life, then you’ve pushed too far.
It’s not unreasonable to foresee greater fragmentation in professional services going forward, as more boutique firms embody these principles to deliver high value work to clients at a lower cost, thanks to a lower cost base. This might become more pronounced as the sheen associated with stamps of approval from top tier firms wears off as generations shift.
If nothing else; this is a way more fun, rewarding and sustainable way to run and work in a law firm or professional services firm.
Steve Glaveski is a Harvard Business Review contributor on all things high-performance at work. He is the author of Employee to Entrepreneur (Wiley, 2019), and co-founder of Collective Campus, the boutique consultancy behind FutureLaw Academy that has generated millions of dollars selling discretionary services to many of the biggest organizations in the world - without the benefit of an established brand,pre-existing relationships, a corporate card, or a large team. Steve previously consulted to the likes of King & Wood Mallesons, Mills Oakley, and Cornwalls, and worked in consulting for EY and KPMG.