Why New Offices Fail? Why They Succeed?By
Greenfield Belser, a Finn Partners Company
June 1, 2004
Stories we've heard too often: The Tokyo office is bleeding cash. Moscow was a nightmare. London looks good on the letterhead but where's the business? Look at the register of law firm offices that were opened and closed in the 1990's and you'll see an August sky of shooting stars. Decisions to open new offices seem to be made for all the wrong reasons-and hard decisions without hard numbers can be incendiary in an executive planning session.
You will learn:
- When it's a good idea to open that new office
- Which questions to ask yourself when considering a new office
- How market research can identify where and when to open an office
In David Letterman style, the reasons we hear most frequently for opening a new office:
1. With ABC as our anchor client, a Chicago office is a lock.
2. Naples is a hot market, and we all like the golf there.
3. We need an office in a cheaper rent district. Clients are complaining about our overhead.
4. We have to be in all the financial centers.
5. It would be easier to recruit if we had an office in Atlanta.
6. XYZ told us that to keep their business we have to open a Cincinnati office.
7. Frank (a rainmaker) will stay with us if we open an office in Aspen.
8. Everybody else is going to _______ (fill in Moscow, London, Tyson's Corner or San Diego, depending on the decade).
9. We've got to be in New York to get a share of major financings.
10. It's time we're seen as a national (or international) firm.
What's really funny about the list is that some of those offices actually turn out to be profitable-though not necessarily for the original reasons.
In fact, most new offices struggle for years, draining firm resources, before finding a way to profit in the new location. And many fail because the reasons for the expansion are not examined and tested until it is too late.
Clearly, opening a new office is no joking matter, nor is it time for guesswork. With the cost of even the most-modest new operation running to seven figures, it pays to ask some hard questions before approving any proposed location.
Expansion is a strategic decision; "where" is a tactical decision
Expansion is a constant topic of discussion. And it should be. Our research, Why Firms Fail? Why Firms Succeed? TM (The American Lawyer, April 2004), shows that having a diverse set of offices and practices is one of the distinguishing features of the most-successful law firms in America.
Those firms have expanded to diversify and balance their practices and as a hedge against recession in any one region or area of the law. They have expanded to gain the size and breadth needed to serve their largest clients. They have positioned themselves to compete in emerging industries and to attract the talent they need to serve those industries.
Their approach to expansion stands out in our research: The most successful firms are more likely to have a written and widely disseminated strategic plan, including an agreed-on vision of the future of the firm and growth of its practices. Not incidentally, they are also firms that hold practice leaders accountable for major decisions like planning new operations and executing on their plans.
In many other firms, however, expansion discussions are opportunistic and isolated-a series of proposals for this location and that one. Each proposal is judged with a gut check, not a reality check. Whichever way those individual decisions go, that approach places the cart before the horse.
Opening a new office, like any major investment, should support the firm's strategic plan. The first question should be:
How can we best accomplish our strategic goals of market diversity, improved client service and growth in profits?
And the answer may not be new offices. Instead, investment in time-saving, service-improving technology may better serve the firm's goals. Lateral acquisition of new practices may be a better way to balance the firm's offerings or increase profitability.
For the most-successful firms in our research, the question is not: Should we open an office in Dodge City?
But rather: Should we open a new office at all? And, if so, which location best meets our objectives?
For example, a leading firm in the Rockies is committed to expansion north and south as part of its offensive and defensive strategies. The goals of any new office must be to better serve its current clients and attract new clients, as well as to hedge against incursion by other firms into its geographic strongholds. With those goals in mind, the firm asks: Which is the better next move: Albuquerque or Cheyenne?
By asking the right questions, firm leaders can set the stage for research that will get the information needed to make the right decision and gain the support of the partnership.
The critical questions:
- Which firms are already serving the proposed market? (What is the supply?)
- How many prospective clients are there? (What is the potential demand?)
- How satisfied are they with their current providers?
- Would it be possible to serve those clients from your existing offices?
- Are there local lawyers you can (or should) recruit?
- Whom should you recruit to deliver comprehensive solutions for those clients?
- Which of your practices are most likely to succeed there?
- Exactly which companies are waiting for you to call?
- Is the market healthy and growing?
- What factors are driving the market? Will they last?
- Which costs (e.g., space rental) raise red flags?
All those questions deserve objective answers. Sentiment isn't good enough. The costs of opening any new office are steep, and the damage an aborted office can do to morale and reputation is even greater.
What to expect from new office research
Objective answers demand objective research: Meticulous searches of business and legal databases. Skillful interviewing of corporate executives and other knowledgeable sources in the region. Astute analysis of financial data from the proposed markets. Experienced judgment that teases out fact from hearsay and rumor.
On the demand side, the results should pinpoint not only the companies in each market, but the dollar potential of each-including the services they need and the decision-makers and gatekeepers for each service.
On the supply side, the results should enable you to define the mix of practice specialists needed, identify lateral-recruiting opportunities and estimate rent and other major overhead costs.
The goal of research is to reduce the risk in decisions about deploying the firm's talent and financial resources. Detailed intelligence leads to informed decisions about which city or state is most likely to fulfill the goals of your strategic plan. It can also point to which side of town the office should be located.
For example, when a national firm determined it needed an office in the Northwestern United States, Seattle seemed the obvious choice. But research proved there were more companies looking for their mix of services in the nearby Kirkland-Redmond-Bellevue area. The study also showed that office space there, just 20 minutes north of Seattle, was significantly less expensive.
Redefining the branch office
You're probably not thinking of the new office as a full-service mirror of your home office. But which practices do you need? Or should it be a practice office at all? In some cases, particularly overseas, a "sales office" staffed by one or two rainmakers may be the best answer. Particularly in the first few years, most work will be referred home anyway.
That's just one example of how research can reshape your assumptions about the market you want to serve and the best way to serve it.
Developments in knowledge management (client extranets, for example) and communications (video-conferencing, particularly) continue to change our notions of time and distance. Indeed, they are providing their own version of what it means to "open a new office." But commitment to technology as a substitute for human interaction will be as costly and risky as the decision to establish a new physical location.
The same questions should prevail. Does the move support your vision of the firm? How many clients and prospective clients are waiting for you to go there?