Chapter 6
Obstacle #3: Things Aren't What They Once Were
It Is Harder Than Ever to Sell Expert Services
John Bates and Van O'Steen graduated from the University of Arizona in 1972, eager and ambitious. Within two years the young men would be known to every lawyer in the country and the subject of hushed conversations in courthouse lobbies and over partner dinners. As they walked across the stage on the day of their graduation, however, they had no idea they were about to rock the world of consulting and professional services.
John and Van couldn't wait to get out of law school and effect social change in a world they saw badly in need of legal help. John had been voted outstanding student and gave the commencement address to his class of 1972. Van had graduated cum laude and was an editor on the law journal. Yet instead of cashing in on their honors and going to work for any number of prestigious law firms in Phoenix, they decided to join the Maricopa County Legal Aid Society, where they worked with poor clients. “[We saw] a huge number of people were being turned away [from mainstream law firms] because of lack of financial resources,” said John. It upset them both. It wasn't fair that legal expertise was only available to the rich.
They decided to act on their convictions and start their own independent legal clinic dedicated to serving the poor. John and Van wanted to make sure that people could access legal services at an affordable price. Their clinic would offer cut-rate prices on standard legal fare like no-fault divorces, changes in names, personal bankruptcy, and adoption, with the goal of extending high-quality legal assistance to more people, especially those who could least afford it. They were passionate about their work. “We wanted to change the existing system,” remembers John.
The newly created firm of Bates and O'Steen quickly realized that in addition to challenging what they saw as the injustice inherent in how legal services were provided, they were also fundamentally changing the dominant business model on which law firms were built. Whereas most firms overcharged for routine work to maintain consistent margins across the practice, John and Van envisioned a low-margin, high-volume practice focused on commonplace tasks. But the door didn't swing like they thought it would. “After two years, we concluded that the clinic would not succeed if we did not advertise,” John said. “Because our fees were so low, we needed a greater volume of clients than could be obtained simply by hanging out our shingle and waiting.”
On February 22, 1976, they took out an ad in The Arizona Republic:
The industry reaction was harsh and immediate, a scorching eruption of censure. The idea of advertising, much less listing prices, was unheard of in the legal community. The Arizona State Bar Association sent the two young men a letter informing them that the bar prohibited practicing attorneys from advertising their services and summoning them to a disciplinary hearing.
Bates and O'Steen argued that by banning advertising, the Arizona bar association was violating the First Amendment and the Sherman Antitrust Act. The bar association knew that this was a high-consequence hearing. At the time, no professional services firms advertised or actively solicited business. It was not considered ethical for professionals whose duty was to protect and advance their clients' interests to take action that might call that loyalty in question by doing something so plainly in their own interests as advertising. Similar strictures were in place for CPAs and other professionals.
Change was in the air, though. Already, the courts had decided that pharmacists—who also have a duty to serve—could reasonably advertise drug specials and some saw that as a break in the dam. Legal experts from around the country were watching the Bates v. State Bar of Arizona case to see if the courts would decide if advertising was a kind of commercial free speech that deserved protection.
Drive down the freeway of any large U.S. city, and you know how John and Van fared in court. Peering down from billboards are personal injury attorneys exhorting us to contact them “For a Confidential Case Review.” Says one off the Long Island Expressway, “You Pay Nothing Unless We Get You a Settlement.” In L.A., a family law practice advertisement shouts, “Get the Divorce Outcome You Deserve.” Think Better Call Saul.
While it took some back and forth and a failed appeal, the United States Supreme Court eventually determined that “the disciplinary ruling serves to inhibit the free flow of commercial information and to keep the public in ignorance.” By a narrow five to four decision, the Supreme Court agreed that John Bates and Van O'Steen had a right to advertise and, in so doing, fundamentally changed the way professional services firms go to market.
A Changing Landscape
With this decision, tectonic plates shifted the ground on which consulting and professional services stood. What was once illegal was now commonplace. Then technology began to flatten markets, the speed at which ideas were conceived and spread accelerated, and the number of consultants and professional service providers began to explode, roiling the marketplace for consulting and professional services and making it harder to sell those services. We all feel it. It seems harder to build our practice.
Although repeat business and referrals still provide an important—and often the most important—source of new leads at many firms, they are no longer sufficient by themselves to sustain growth. During the halcyon days of flowing referrals, less competition, and simpler industry dynamics, many professional services firms operated less like a business and more like country clubs. Answer the phone was pretty much all the lead generation they did. Times certainly have changed.
—Mike Schultz, John E. Doerr, and Lee W. Frederiksen, Professional Services Marketing
Specifically, four trends are making the sales of consulting and professional services more difficult:
The End of the Ban on Advertising
First, there is the Bates and O'Steen case. It cannot be overstated how profoundly this decision affected how consulting and professional services go to market. Prior to this ruling, marketing of consulting and professional services took place on the links or over drinks after work. Because the network was closed, it made sure prices stayed relatively high and uniform—a you-scratch-my-back-and-I'll-scratch-yours system. John and Van changed that. Today every accountant, architect, attorney, and web developer has a website, advertises, thinks about marketing and client development, and in general is less bashful about the need to think clearly about the process and costs associated with new client acquisition.
And this takes resources. A website, for example, is now table stakes—a requirement of a new business, not a choice. Marketing efforts have become something of an arms war. Staying afloat in the business means keeping up with what the competition is doing. It's not uncommon to overhear executives discussing the strategies of others in their field. “I heard they're doing a lot of white papers. I think we should as well.” “They had David Cameron speak at their conference. Who should we get?” “You should see how they are all over social media. We don't even have a Twitter account.”
The World is Flat
Technology is flattening markets. The ability to phone, conference, email, collaborate, and browse regardless of where one lives allows companies to not just settle for the best expert in a local market but the best expert anywhere. This is transformative in that the net level of expertise in the world has gone up in proportion to how technology connects us.
This flattening of markets—call it the globalization of expertise—is a wonderful opportunity. Places like Madison, Wisconsin; Burlington, Vermont; Bozeman, Montana; Asheville, North Carolina; Portland, Maine; and Louisville, Kentucky all are home to sole practitioners and boutique firms whose practices are national and global. The number-one accountant for franchisors is in Des Moines, Iowa; the best ESOP attorney for services firms is in Santa Rosa, California; and the top outdoor products e-commerce web developer is in Grand Junction, Colorado. From the client's perspective, it makes no difference. Conference calls are conference calls. Indeed, it can be an advantage when a consultant or professional services provider lives in an expertise cluster because they are proximate to experienced talent and the newest ideas and innovation. For example, Toulouse, France, is known for its aerospace expertise, Copenhagen, Denmark, for its cleantech consultants, and Napa Valley for its wine production knowledge.
But globalization of expertise comes with a challenge. The larger (and noisier) a market, the harder it is for a buyer and seller to find one another.
If you live in a town of five thousand, you know the three realtors that serve the market. You see them at the supermarket, one of them has a kid who plays soccer with your kid, and one of them knows your husband from the town council. You know that one of the three realtors mostly focuses on commercial buildings. If you need to sell your house, you know to whom you should turn. If you have a downtown building you are interested in buying, you know who to go to. In a market like this, information flows efficiently. Buyers and sellers know each other and no barriers stand in the way of them trading with each other. Likewise, buyers of real estate in the market know where all the real estate is listed and can easily access that information.
The real estate market in New York, on the other hand, may be less efficient. A seller of a shopping center in the Bronx, for example, may not know of the best broker for that kind of property. She may know a handful of residential brokers, but they don't have good experience with shopping centers. One of those residential brokers, looking for referral fee, may recommend a commercial broker in Westchester, but that broker's knowledge of buyers in the Bronx may not be the best. It's possible our seller may find the absolute best representative for shopping centers in the Bronx by poking around, but it is equally possible that they do not.
We all feel the effects of this inefficiency. Tom was recently in New York sitting down with the management team of a regionalized IT consultant. This firm had considerable success in a number of cities and was now planting the flag in Manhattan. They rented trendy offices near the Flatiron Building outfitted with advertising agency–like décor, launched a website, and looked forlornly out the window at the skyscrapers. Suddenly, the idea of creating a beachhead for new business in the Big Apple seemed daunting. New York is really big, and it is hard to figure out where to start knocking on doors to build a practice. The group knew there was a niche they could fill, but none of their prospective customers knew they even existed. The complexity brought on by their new market, the very presence of twelve million people, hung around their necks like an anchor.
Firefly Ideas
A Firefly idea is one that lights up the room and then vanishes in an instant—big data, total quality management, IoT. One favorite trick of management consultants is to ask, “What are you doing on the data visualization front?” knowing full well that you are doing nothing, or better yet, have no idea what they are talking about. Your failure to have a cogent answer to their question allows them to do a gap analysis. “Why don't you fill out this questionnaire?” they ask. Then your answers magically metastasize into a project proposal.
Nothing new here, but it turns out that technology is accelerating the rate at which these ideas come and go. Researchers at the University of Louisiana, Lafayette studied sixteen management consulting “fashions” (their word and not ours) and found the average time that these concepts are hot is shrinking. In the 50s, 60s, and 70s, management ideas lasted a decade or more. In the 1990s, they lasted less than three years. Today, management fashions go out of style in twelve or eighteen months at best.
If your ideas are your product and your product's shelf life is growing shorter, your marketing campaigns grow stale at the same rate. That makes it harder to keep your go-to-market materials current (not to mention the work involved in recasting yourself as relevant). Once, you could camp out on a good idea for a career. Now you have to reinvent yourself constantly.
More Players
The high prices and margins associated with expert services—compare a $250/hour HR consultant with a $40/hour assistant human resources professor—have caused the supply of consultants and professional services to go up. Professors are marching into consulting firms and volunteering to enlist in record numbers. Why wouldn't they? The pay is better.
At the same time, businesses are hiring more consultants and professional services providers as their business models shift from manufacturing to services and as they turn to so-called flexible workforces that depend on easily laid off contractors, a trend that has accelerated since Warren Wittreich first noted it in 1966.
“In recent years, there has been a marked increase in the buying of professional services by management. This is true for a broad range of advisory activities, such as financial, economic, public relations, advertising, legal, personnel, research, and many others. By the same token, there has been a marked growth in the firms selling these services.”
—Warren J. Wittreich, “How to Buy/Sell Professional Services,” Harvard Business Review, March/April 1966
The number of attorneys relative to the U.S. population remained steady for nearly one hundred years. Since 1970, however, the number of attorneys in the U.S. has more than tripled as a percentage of the population.
Similarly, the services industry as a whole has taken off over the last seventy-five years—especially when compared to the manufacturing sector. The gap between employment in the manufacturing and services sectors of the economy began to spread in the 1960s. The definition of “services” includes low-skill services like window washing—not just consulting and professional services—but we think it's safe to say the rise in consulting and professional services strongly correlates with that of the service sector as a whole. That means that there are a lot more people competing for your clients.