Law Firm Management Beware: Seven Ancillary Business Pitfalls

Some law firms create unique, successful ancillary business models that not only boost the bonus pool, but also attract related legal business. Other firms make assumptions about market need, create management teams around partner free time, and generate little or no revenue. How will your firm find a successful model that fits the your own firm culture?

For the last decade, law firms have been increasingly launching ancillary businesses, which are often referred to as MDPs (Multi-Disciplinary Practices). The key is in the objectives for launching ancillary companies. Reasons for ancillaries may span the spectrum from creating new revenue streams to increasing client retention to solidifying client loyalty or even to showcase a market differentiator. The products or services of law firm ancillaries themselves are diversified. Hundreds of law firms own subsidiary companies or have alternative revenue streams ranging from construction consulting to money management to philanthropic advisors.

Because “success” depends on so many variables including your objectives and goals for ancillaries there is no magic formula for success, but there are several pitfalls to avoid when creating, launching and operating a law firm ancillary no matter the objectives.

• Don't make market assumptions. Build your business plan around solid market research, market need, market trends and market share. Don't assume that just because you have identified a solution to a problem or need, that competition doesn't exist in the market place or that the idea is profitable.
• Don't create a business plan around internal variables. In order for a separate company to become successful, it must operate as an independent company, not just another practice area of the firm. Beyond the obvious components of a strategy, the business plan should include:

Management of the specified profession ' (not partner free time). Who will be responsible of the economics? Ethics? Internal communications? Product/service integrity?

A clear and defined revenue forecast including a list of prospects. Understand up front whether the ancillary's purpose is to make money. Perhaps it is not about the revenue but the value-add to clients. Either way, don't just project number of clients or customers but a qualified list of those clients or customers may be.

A crisp communication message about how the company differentiates and competes in the market place. Communicate why a client or customer should buy the ancillary's product or service. What is marketable about the idea? Is the solution a need or luxury to the market? Who is the market?

Internal referrals don't come automatically. Just because some firm clients fit the target market of ancillary business' demographic, don't expect lawyers to introduce their clients to this service automatically. The attorneys must understand and believe how and why the ancillary business will help their clients. They also must be reassured that the client relationship will not be a risk by introducing the same.

• Marketing is not sales, marketing supports sales. Be sure not to create marketing materials without creating the opportunity for relationship building. A sales or development force must be building relationships with clients and prospects. “Build and they will come” does not apply to law firm ancilliaries.
• Traditional law firm marketing may fall short. With a new product/service, go beyond the law firm marketing comfort level. You may want to use different mediums, visuals, slogans and messages. Understand where the prospects may need to see or hear about their vendors, and place your marketing in those mediums.
• Don't forget to leverage success. Ask the customer or client what is working. How can you add value and continue to meet or exceed their expectations? Even though retention efforts are often overlooked clients, the fact is that referrals and continued business generally account for 80% of a company's new business.
• Don't measure success or failure in the first year. Just like every other start-up in Corporate America, a new business will take 3 to 5 years to build. If the firm isn't willing to invest the time factor perhaps an ancillary isn't the right fit for your firm.

While the blueprint for success will vary from ancillary to ancillary, the blueprint for failure remains the same: Don't run your ancillary business like a law firm. The decision-making process, service model, organizational structure and business development efforts must reflect the needs of the market, not mirror the law firm.

Some law firms create unique, successful ancillary business models that not only boost the bonus pool, but also attract related legal business. Other firms make assumptions about market need, create management teams around partner free time, and generate little or no revenue. How will your firm find a successful model that fits the your own firm culture?

For the last decade, law firms have been increasingly launching ancillary businesses, which are often referred to as MDPs (Multi-Disciplinary Practices). The key is in the objectives for launching ancillary companies. Reasons for ancillaries may span the spectrum from creating new revenue streams to increasing client retention to solidifying client loyalty or even to showcase a market differentiator. The products or services of law firm ancillaries themselves are diversified. Hundreds of law firms own subsidiary companies or have alternative revenue streams ranging from construction consulting to money management to philanthropic advisors.

Because “success” depends on so many variables including your objectives and goals for ancillaries there is no magic formula for success, but there are several pitfalls to avoid when creating, launching and operating a law firm ancillary no matter the objectives.

• Don't make market assumptions. Build your business plan around solid market research, market need, market trends and market share. Don't assume that just because you have identified a solution to a problem or need, that competition doesn't exist in the market place or that the idea is profitable.
• Don't create a business plan around internal variables. In order for a separate company to become successful, it must operate as an independent company, not just another practice area of the firm. Beyond the obvious components of a strategy, the business plan should include:

Management of the specified profession ' (not partner free time). Who will be responsible of the economics? Ethics? Internal communications? Product/service integrity?

A clear and defined revenue forecast including a list of prospects. Understand up front whether the ancillary's purpose is to make money. Perhaps it is not about the revenue but the value-add to clients. Either way, don't just project number of clients or customers but a qualified list of those clients or customers may be.

A crisp communication message about how the company differentiates and competes in the market place. Communicate why a client or customer should buy the ancillary's product or service. What is marketable about the idea? Is the solution a need or luxury to the market? Who is the market?

Internal referrals don't come automatically. Just because some firm clients fit the target market of ancillary business' demographic, don't expect lawyers to introduce their clients to this service automatically. The attorneys must understand and believe how and why the ancillary business will help their clients. They also must be reassured that the client relationship will not be a risk by introducing the same.

• Marketing is not sales, marketing supports sales. Be sure not to create marketing materials without creating the opportunity for relationship building. A sales or development force must be building relationships with clients and prospects. “Build and they will come” does not apply to law firm ancilliaries.
• Traditional law firm marketing may fall short. With a new product/service, go beyond the law firm marketing comfort level. You may want to use different mediums, visuals, slogans and messages. Understand where the prospects may need to see or hear about their vendors, and place your marketing in those mediums.
• Don't forget to leverage success. Ask the customer or client what is working. How can you add value and continue to meet or exceed their expectations? Even though retention efforts are often overlooked clients, the fact is that referrals and continued business generally account for 80% of a company's new business.
• Don't measure success or failure in the first year. Just like every other start-up in Corporate America, a new business will take 3 to 5 years to build. If the firm isn't willing to invest the time factor perhaps an ancillary isn't the right fit for your firm.

While the blueprint for success will vary from ancillary to ancillary, the blueprint for failure remains the same: Don't run your ancillary business like a law firm. The decision-making process, service model, organizational structure and business development efforts must reflect the needs of the market, not mirror the law firm.