To succeed, you must fail. It is true. We know this, yet so many of us divert our energy away from activities that might allow us to fail. Personally this might be called a character flaw. Professionally this is, simply stated, deadly. If you do not believe me read any book about innovation, leadership, or better yet entrepreneurship and the start-up culture. In order to remain on top in any business (yes law is a business) an organization must be testing on the micro-level, different services/products, and on the macro-level, more business models. And they must be failing in order to make progress.
The legal profession is not one where failing or experimentation is celebrated or embraced. Precedent and status quo are more meaningful. Can anyone argue with the statement that using a 60 year old business model in the year 2012 may not be the wisest thing to do? How many US law firms have changed their model over the last five or six decades? Contrast that with how many new models we are seeing come out of the start-up world? It is cliché but true – evolve or die.
Evolution in the business world is evident when an organization pivots its direction or strategy. Another example would be when an organization offers a new product/service that represents at least a reasonable amount of potential value to its customers. For example adding a blog to a website, discounting bills, or providing free legal forms (static or generated) is not evolving a business model. These may be complimentary services or “value-adds” (hate that phrase BTW.) Changing a business model alters the revenue paths that the organization creates in a significant way. To use another cliché, IBM moving from a hardware manufacturer to a knowledge provider – that is a model shift.
To be fair, lawyers typically do not have the knowledge framework to negotiate and orchestrate a model experiment let alone an outright change. This is nothing new. Being a lawyer does not make one all-intelligent. That is why antitrust lawyers typically are not drafting last wills and testaments - it is not in their framework of knowledge. So what is the framework of knowledge needed to experiment and change business models? An entrepreneur’s framework. Or better yet, a Start-up mindset. And anyone can be an entrepreneur or start-up – or at least think like one. Even lawyers.
Just glancing into the start-up world one will notice the emphasis on defining the business model. This is much different than a business plan. The plan is a narrative description of aspirations and missions. The model is the actual path to creation of revenue for the organization. The plan is an exercise. The model is executable.
A business model consists of the realities of the organization. Typically a model will consist of:
Customer Segments: Who are your actual customers and who are you targeting?
Value: What problem(s) do you solve for your customer? Why do customers buy from you?
Channels: How do customers buy you? How often do your customers and you directly or indirectly interact?
Relationships: Loyalty – perceived or real? How much does it cost to acquire new customers? How much to keep them? Is the relationship the type that your customers want versus what you want?
Revenue Streams: What are customers willing to pay (can be more or less than you think)? Do the streams match the services offered? Are there any hidden streams?
Key Resources: What are the ingredients used to “make” your product/service (think broadly). What is consumed or transformed in the process? What is original and what is brokered?
Key Activities: When you make something, what are all the tasks and steps necessary to execute? Is the process efficient? How do you train others to “make” things? Quality control?
Partnerships: Do you need anyone else to make your product? Would you be better or worse with or without? How exclusive are your partnerships.
Costs: What are all of your costs (not just labor)? What costs cannot be passed-through? What is the impact of scale and leverage?
Without recognizing and following a business model, most organization will grow stale, die or by virtue of luck and market forces – succeed despite themselves – at least for an initial period.
To create a sustainable model, an organization must build one, test it, measure it, learn from it, and finally reapply the new knowledge to a new version of the model. This is done until it works. In the start-up world we call this Build Measure Learn. Sounds complicated and time consuming and it can be. But it does not HAVE to be. A lawyer can tinker with a model on the back of a napkin going through each of the segments above. While it may not be truly tested this would allow for idea generation and theoretical testing based on the lawyer’s experience and knowledge of the market she participates in. It starts there. It is that simple. If you have to fail, perhaps the safest place is on the back of a napkin. If your idea is good enough to make it off the napkin and onto a white board – you are making progress.