Industry leader on how professional services firms must change
Traditional law and accounting firms need to take a hard look at their business models and ways of pricing, or they risk getting left behind. The man who brought the term NewLaw to the world and has researched and written extensively on the subject gives five pieces of advice.
It is both an exciting and a foreboding time to be in professional services. The industry is in the midst of major upheavals, says Dr George Beaton, co-founder of Beaton Research + Consulting who made famous the now-ubiquitous term NewLaw.
Firms that tailor their services to clients’ evolving needs, embrace technology and reform their work practices will pull ahead of the pack, Beaton says. Those who fail to evolve, or don’t evolve fast enough, will languish.
Beaton argues professional services firms that provide specialist business support to other businesses – such as accountants, lawyers and conveyancers – once enjoyed a certain mystique surrounding their skills and knowledge, but those days are gone.
“The asymmetry between lawyers’ and accountants’ knowledge and that of their clients’ is reduced, and so people are able to exercise more informed choice,” Beaton says.
His research shows a range of slow-burning changes are converging and creeping up on the industry. Software and digital providers such as Xero and LawPath are empowering business owners to do their own bookkeeping or download legal documents – services that were once the exclusive domain of professionals.
Deregulation of the ownership of professional services firms is bringing the market discipline of private equity or the stock market to the industry. This is spawning new, disruptive business models. There are now fewer barriers for competitors to start firms, and technology is enabling small firms to look and behave in ways that are bigger than they actually are.
At the same time, there is evidence businesses are not perceiving or using the full value available from the traditional services provided by law and accounting firms. A UK study found around ten per cent of small businesses access legal or accounting services that cannot help them at all, and only 13 per cent thought legal services were cost-effective. In Australia, the Small Business Development Corporation reports that businesses tend not to seek professional legal advice until they are already in legal trouble.
Rising competition is forcing established players to find ways of distinguishing themselves, Beaton says. “They are trying to add value to their services,” he says. “They are seeking to diversify away from the traditional, narrowly defined service and they are becoming more broad-based business advisers.”
Here Beaton shares his five key pieces of advice for professional services firms to survive and thrive in response to change.
Deeply understand what your clients need
For professional services firms serious about staying ahead of the curve, a good place to start is intimately understanding each client’s business, the industry they operate in and the changes affecting that industry. This will allow them to better target the advice they give.
“If your clients’ circumstances are changing, you need to be really close to them,” Beaton says. “There is some empirical evidence to show that accountants who are close to their clients – by way of frequency and richness of contact – have clients who are more successful in terms of growth and profitability.”
Know what drives your clients’ perception of value
More than ever, businesses are looking at what they pay professional services firms and questioning what they get in return. Two-dimensional advice on what businesses can and can’t do is often no longer enough.
“Many lawyers or accountants focus on the features,” Beaton says. “‘This is what the tax ruling says’ and ‘This is what you can, and can’t do’.”
Professional services firms can go above and beyond by making valuable contributions in the three key drivers of SME success: growth, profitability and risk.
“Price becomes secondary in that situation because my business is growing and what I pay you – my accountant and my lawyer – is a relatively small fraction of the gains that I’m making,” Beaton says.
Specialise and tailor your offering
Consider the vast differences between a business that is a swimming pool builder, a beauty parlour, a medical practice and a motor mechanic chain. It may be worth specialising in certain business types or industries to provider a richer service that is differentiated from the competition, Beaton says.
“These are very, very different businesses when you think of things like the regulatory environment, capital requirements or frequency of customer purchase,” Beaton says. “Make sure what you offer them, and how you charge them, are tailored.”
For example, a firm might specialise in micro-businesses with employing only a few people, finding ways to deal with them efficiently and cost-effectively. Another might build a reputation for helping family business succession.
“Unless you stand for something, you stand for nothing,” Beaton says. “Build a reputation for being very good at something.”
Reduce fixed costs and consider freelancers
Staff salaries and office occupancy costs such as rent, workstations and IT eat a large chunk out of revenue, and having high fixed costs reduce a company’s ability to ride out volatility.
“In a much less predictable world, the income of [professional services] firms goes up and down more than it did in the past,” Beaton says. “If you have high fixed costs and your income drops, your personal income falls too, even through, the floor.”
Professional services firms could instead become like mini Ubers, Beaton says, taking a percentage of the fee they charge to the client for the freelance lawyers or accountants they use.
“A big opportunity here is to use freelancers,” Beaton says. “With the attitude particularly of millennials, they want and are quite happy to hold two or three jobs, and they are capable of doing it.
“But the systems to merit that – to recruit, retain and quality-control these people – are poles apart from the traditional way of doing resourcing a professional service. It’s a whole new world – and it’s already here.”
Technology can help you serve clients better, faster and cheaper
Beaton believes the impact of technology as a substitute, not a complement, for lawyers’ and accountants’ services will be more dramatic than many realise.
Standalone automated legal services are starting to appear. Lex Machina, for example, mines litigation data and delivers insights from millions of pages of litigation evidence, while AI-driven automation software Kim allows knowledge workers to create their own tailored virtual assistants.
A new wave of businesses known as NewLaw firms are not only employing flexible working arrangements for their staff, they are using software solutions to streamline every aspect of their workflow, facilitate easy communication between teams and clients, and show greater transparency in fees.
The same trends are true in accountancy which, in many ways, is ahead of legal services.
Beaton says practice management apps and SaaS platforms are allowing smaller firms to extend their reach and depth of services, and larger firms should pick up the pace in adopting the various solutions available.
“Many of the bigger firms are saying ‘Wow, look what the small fry are doing’,” Beaton says. “Adoption [from the big firms] could be a lot faster.”
Driving change in the industry: new NAB Professional Services Awards launch
NAB research finds that owners of small and medium enterprises feel at a loss on how to judge quality and value when choosing professional service providers.
In response, the NAB Professional Services Awards are being launched as a crucial step in empowering businesses and individuals with information that will help them choose the services that are right for them.
The primary driver of change in a supply chain is availability of credible information and transparency. The NAB Professional Services Awards will showcase the best medium to small Australian law, accounting, conveyancing and bookkeeping firms with annual revenue under $30 million.
They are the only professional services awards that are judged by clients, and are therefore a unique and highly credible contribution to the advancement of the industry.
The holiday season shopping flurry can offer some small businesses the opportunity to prosper… and others a time to take stock for the new year. Both call for careful preparation – particularly in the current environment. NAB Executive Small Business Ana Marinkovic shares her top tips.