How to Build a Large, Influential Law Firm (Part #3)
Define a Strategy Thesis on “Why” and “How” You Will Win
This series lifts the kimono and exposes the unvarnished details on how we built Sterling Law from scratch to be the largest, most influential family law firm in Wisconsin in less than 3 years.
I hope our story and the lessons help you build your practice or business.
Sterling Law’s Strategy Thesis
Once we did our research and committed to starting a law firm, we had to articulate exactly why we would win.
This is our concise “why” and “how” we would win statement.
We called this our Strategy Thesis:
1. Total addressable market is strong
2. High barrier to entry for new competitors
3. Competitors weak in business fundamentals
4. We excelled at attracting client attention
Thesis #1: Total Addressable Market is Strong
The Total Addressable Market is often called “TAM.” From what I guessed, the TAM for B-to-C legal services in my home state of Wisconsin was around $250 million per year.
It is difficult to get info on private markets dominated by sole practitioners. So, I recognize that my estimates may be way off.
My definition of “B-to-C” is law firms serving individual clients, not businesses.
I calculated that the Wisconsin businesses spent around $750-850 million a year with law firms. We were not going after this market. We intended to focus on the B-to-C market.
I believed that we could capture 5% of the B-to-C Wisconsin market. This, I reasoned, would make us among the biggest firms. That size would be worth the emotional and financial investment.
On the downside, there is not much repeat business in the B-to-C legal world. A small number of people hire a lawyer a few times in their life—while most never hire a lawyer. So, it was a one-and-done world we were entering.
Thesis #2: A High Barrier to Entry for Competitors
A branch of the state government regulates the legal market in each state. To own a law firm, you need a law degree, which entails around seven years of post high school education. The final hurdle is passing the bar exam and being sworn in.
In Wisconsin, there are about 17,000 potential competitors. This is the approximate number of licensed Wisconsin lawyers.
While this is a big number, it is much better than the competitive landscape in my other businesses. In those, we compete against the entire adult population of the United States, approximately 300 million people.
I liked the idea of competing against fewer competitors. A mentor once told me that the “one-eyed man is king in the land of the blind.”
Realistically, we understood that there are only a couple dozen rivals in Wisconsin. The math favored our Thesis.
Warren Buffet famously defined a “Barrier to Entry” as a “Moat.” A Moat comes in a lot of forms. It can be a brand name, a technology, a specialized talent, or a personality. It can be a thousand things.
In our case, our “Moat” is governmental regulation. A Wisconsin law license is the bridge across the moat.
Thesis #3: Competitors Weak in Business Fundamentals
We knew from experience and research that very few law firms had a business plan. I am not referring to a detailed strategic planning with charts and footnotes.
Having a plan is the first step in business. Plans don’t have to be elaborate. The best plans are simple.
Most firms have no plan for their future. Nothing. Not even a post-it note with a goal written down.
For those few firms with a plan, most never look at the plan after they finish it. Around February, the leader puts the plan in a drawer and never looks at it again.
We knew executing a plan week after week would compound into a significant advantage. This is boring and often tedious work.
But, that is what winning businesses do. They boringly execute.
Additionally, what gets measured gets managed. Measuring and tracking is not fun and exciting. It takes work to get data integrity. No one writes about this stuff because it can be so dry.
Most law firm managers do not know their numbers. How many firms can report on their answered calls percentage? How many firms can tell you their collection percentage?
How many can tell you exactly how many leads it takes for them to get a client? Or how much each lead costs in marketing dollars? Do they know where their best clients come from?
Most law practice managers willfully ignore business fundamentals. I can’t imagine a legitimate reason for not trying to operate a strong law firm business.
Yet, poor business practices define most law firms.
There are thousands of podcasts, books, blogs, and coaches that teach a lawyer how to run a firm. Generally, lawyers tend to be excellent lawyers but terrible business managers.
Thesis #4: We Excelled at Attracting Online Attention of Prospective Clients
We understand how to get attention online. Both of my other two businesses trade in digital marketing (DishPromotions.com and RocketClicks.com).
Tony, my partner, is one of the best digital marketers on the planet. He intuitively “gets” how the digital landscape evolves. He is a special talent.
Online marketing is our most significant, hard to duplicate advantage.
Back in 2006, less than 2% of clients came from digital marketing. About 20% of my former firm’s clients came from the various phone books. That was standard.
Now, phone books are on death watch. As best as I could tell in 2014, between 30 to 40% of prospective clients found their attorney based on their online research.
The web is our playground. We knew we could dominate there.
The trends were certainly in our favor. When it comes to big society trends, flow with them. Never fight them.
Accept the tide of humanity and learn to profit within those bounds. Resist the urge to operate how you “wish” things were. Strive to operate with how life actually works.
I struggle here — especially as I have grown older. I want to keep having success using the same tactics that enabled my first wins. That does not work.
Online reviews and other social signals determine your reputation today. These online indicators mean more than word of mouth. The Internet is “word of mouth.”
If we could dominate online, we could win the word of mouth battle. Winning there would give us a disproportionate share of the new client business.
Ten years ago, lawyers had to spend years building up a reputation to win at “word of mouth.” Today, new lawyers can win the battle within months.
We liked our online chances very much. There were, and are, a few competitors who were serious about building an online presence. They seemed to outsource their efforts to one of the big marketing companies, such as AVVO or FindLaw.
I knew that outsourced vendors never would care enough to outperform our team. Those third parties would never want to “win” as bad as we did.
Key Takeaways from Our Strategy Thesis Development:
1) Know exactly “why” and “how” you will win. Don’t think about starting until you have this. If you have already started, pause and take the time to put this “Strategy Thesis” on paper. Make it simple. Less is more. Ours took months to develop, but it has been our strategic North Star since day one. It has given us security, confidence, and a psychological edge.
2) Figure out your revenue opportunity, the Total Addressable Market (TAM). The size of the market is only important relative to your vision. If the TAM is $1 million, and you can capture 30% of that and hit your goals, then attack! Understanding the TAM for your market also guides your investment amount and pace.
3) Build a moat for you business. If you don’t have a moat at the startup (and most businesses won’t), think about the future moat possibilities. Then, as soon as you can, start moving toward creating a moat. Most won’t be legit barriers, but it’s worth the effort. Moats discourage competition and allow you to create more value, thus more revenue. In our case, the government gives us a moat. However, we are simultaneously building moats with (1) online reviews, (2) social media, (3) local search, (4) client-centered culture, and more. As soon as we can, I want to build a smart phone app that will be yet another moat.
4) Craft a simple 12 month plan. Follow that plan every week. Track it for 12 months. Do it and see what glorious things happen. I promise you won’t regret it. I admire Lee Rosen, and he has a great on-topic blog posting here. At Sterling, we plan out about 18 months. That, alone, is an advantage against our non-planning competitors. But, the key is that we track our progress every single week using a system called EOS described in this book.
5) Have or develop a surefire way to get client attention. There are many, many ways to do this. Start with where you are strongest and focus, focus, focus on that. In our case, we are very good at digital marketing. You may stink at digital. No problem, there are 25 other strategies that work very well to attract client attention. The important point is that you stay on your strength through the difficult months when you don’t see a ROI.