In my last blog post, I expressed concern about a serious conundrum: so many legal firms forego organic growth to pursue lateral hires … even when the results and success rate for lateral acquisitions remain poor. Half of all laterals turn out to be failures, and an additional group falls short of meeting expectations. When you factor in the hard costs of bringing a lateral on board (sometimes north of $200K), plus the soft opportunity costs of acquisition, the bottom line impact can be staggering.
When discussing lateral strategies, I often find that firms fixate on short-term revenue gains without any self-awareness of how they should be growing. What firm isn’t attracted by a hot lateral with a big book of business that holds the promise of propelling revenues higher? Unfortunately, the attraction overshadows considerations about whether or not these new opportunities fit within the strategic vision and direction of the firm. In fact, you could ask if the firm even has a strategic perspective against which opportunities of any kind are evaluated.
It should all start with self-diagnosis right at the very beginning. Most firms have access to data through time and billing systems, complemented with business intelligence capabilities; but many are not relying on data to appropriately identify their profitable areas. Identification of those high value areas – where your reputation and track record mesh with opportunities – should be the foundation of a growth strategy. Knowing what makes the firm tick as well as what differentiates you from competitors are essential insights before discussions about lateral acquisitions occur. The process is intensive and ongoing; it is also the key element in why firms fail in their lateral strategies before the first call is made.
Sadly, the “shiny object” syndrome tends to overcome even a solid data-backed strategy. The allure of a book of business – estimated by outside parties, supported by the word of a potential lateral, and rarely validated by hard data – still trumps an earnest self-diagnosis attempt. Revenue is difficult to top.
That’s disconcerting for a couple of reasons. Many times, the revenues are not necessarily profitable (which is a topic for a later blog). And, knee-jerk reactions to potential revenue can cause you to take on work (and a lateral) that does not fit with the firm’s strategy. Remove revenue from the equation for a bit and ask the tough question. If the lateral and the book of business do not support what drives the firm’s profitability, or fit in with the cornerstones of the firm’s culture and strategy, why would you even think about approaching the individual?
Until firms spend more time up front defining their strategy and understanding their areas of profitable growth, lateral acquisitions will continue to struggle. High expectations are difficult to maintain when they run head first into culture clashes, real profitability calculations, or an unsupported strategic direction. If laterals are the way you want to go, it’s time to give them a reasonable chance for success. Do your due diligence, vet them to the nth degree, and make certain they’re a good fit so the integration, outcomes and long-term returns meet everyone’s expectations.