5 Lessons Law Firms Can Learn from "The Lean Startup"
Most law firm leaders are well-aware that innovating their services will be paramount to remaining competitive and increasing client loyalty. But, there’s no single guide book out there on where to get started, how to invest and prioritize, or how to measure whether what you’re doing is successful.
Those of you who have read The Lean Startup by Eric Ries know that it primarily focuses on product and software development innovation, but there are several methodologies that can be applied to professional services innovation, and lessons on “intrapreneurship” from which law firms looking to start or grow an innovation effort can learn.
1. Portfolio Thinking
Ries explains that, as startups grow, entrepreneurs need to focus on building organizations that balance the needs of existing customers with the challenges of finding new customers to serve, managing existing lines of business, and exploring new business models -- all at the same time. This is what he calls “portfolio thinking,” and what he says is the key to large, established organizations being able to innovate.
One of the key ingredients to portfolio thinking within an established company is the internal startup or innovation team having support from senior management to create true startup-like structures that include:
- Scarce but secure resources - pinching the team’s budget is not a problem, but they need to be assured that, even if the firm goes through a temporary crisis, at least part of their budget will remain secure.
- Independent development authority - autonomy to execute experiments and develop new products without an excessive number of approvals.
- A personal stake in the outcome - if there’s no opportunity for equity or stock options, the bonus system should be transparent, set in advance, and tied to the long-term performance of the innovations.
Portfolio thinking and “nurturing innovation” are particularly challenging for law firms for a few reasons:
Law firms primarily reward high billable hour totals, creating a primary focus on serving the needs of existing customers/clients. Whereas, “exploring new business models” is rarely, if ever, rewarded.
Management is reluctant to put its name on something experimental that might not produce short-term profits for the partnership.
“Non-lawyer” staff are rarely given a personal stake in the outcome of their creations. Even in firms that have an internal bonus system, bonuses are most commonly handed out by senior management on the basis of… no one knows what, a behavior that Ries calls out as a hindrance to innovation. When management fails to clearly communicate objective criteria that will be used for rewarding launching new products or offerings, “teams have little confidence that they will receive any long-term ownership of their innovations,” and so are rarely motivated to take real risks.
2. Build, Measure, Learn
This means exactly what it says. As Ries points out, the fundamental activity of a startup “is to turn ideas into products, measure how customers respond, and then learn whether to pivot or persevere.” Law firm leaders should make clear that the innovation team’s core mandate is to be constantly focused on that feedback loop - if it finds itself using resources for other activities (like backfilling core business functions or helping a persuasive partner save his failing client relationship), the team’s focus is misdirected.
3. Get Out of the Building
This is probably one of the most important lessons that law firms can take away from The Lean Startup method: go talk to your clients - find out what problems they think are worth solving, and test your solutions with them early. In Ries’ words, “no matter how many intermediaries lie between a company and its customers, at the end of the day, customers are breathing, thinking, buying individuals” (and so are clients). Find out what matters to them and what challenges they are trying to tackle, and figure out how your firm can help.
If you are a law firm “intrapreneur,” there is another important takeaway here: avoid the hesitation to spend six-months to a year coming up with the perfect business plan, investing resources and hiring a team, and building solutions before you go talk to clients. Rather, come up with a business plan quickly to secure buy-in from firm leadership, develop minimum-viable-products, and take them out to your clients early to test whether your assumptions about their needs are correct.
4. Validated Learning & Innovation Team Structure
“Validated learning is not after-the-fact rationalization or a good story designed to hide failure. It is a rigorous method for demonstrating progress when one is embedded in the soil of extreme uncertainty in which startups [or internal innovation teams] grow.”
Ries explains that one of the great measures of success for innovation teams, especially early-on, is their ability to demonstrate empirically that they have discovered “valuable truths” about their business prospects. Notice that I didn’t say that they need to demonstrate that they can generate a certain amount of revenue within a certain period of time, but rather that there is value in simply validating, with customers or clients, that there is a demand for innovation and an interest in purchasing or experiencing something better.
Outside of having to report this type of “validated learning”, as well as their successes and failures, the innovation team should be allowed to “build, market, and deploy products or features in the sandbox without prior approval.”
With regard to the structure of the team, Ries says that “whenever possible, the innovation team should be cross-functional and have a clear team leader.” This sounds like a no-brainer, but law firms often fail to make clear who leads the innovation and service delivery function for the firm, or have a tendency to appoint more than one or no clear leader.
5. Entrepreneur is a job, regardless of company size
One more piece of guidance from The Lean Startup that law firms should take to heart is the directive that “Entrepreneur” (or “intrapreneur”) is, and should be, a job title and considered a career path for innovators even inside the most established companies.
It’s easy to take for granted the difficult work involved in finding, testing, developing, and “selling” new ideas in an organization. Particularly in law firms, where short-term profits are prioritized over investing in longer-term scalable, revenue-driving solutions or services. It’s also easy to say “everyone should be innovating.” But, as Ries points out, Entrepreneur is a full-time job, and needs to be treated as such if established companies want to innovate in a way that will have real impact.