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According to the internet (dubious, I know), Albert Einstein once said, "Compound interest is the eighth wonder of the world. He who understands it, earns it... he who doesn't... pays it." This principle doesn’t just apply to finances. The universal law of compounding applies everywhere, including in your legal practice. Achieving small, incremental gains, consistently over time, can yield enormous results.
Time accelerates returns. And so the question becomes: What are the assets you own, or can build, that will compound in your favor? How can you continue to invest to expand the effectiveness and returns of your past efforts?
The Time Variable
Notice I said “time” accelerates returns. That’s probably the most important variable to keep in mind when it comes to compounding.
There’s a famous thought experiment, “The Magic Penny,” that asks: “Would you rather have $1 million today, or a penny that doubles in value for 30 days?” Many people intuitively opt for the $1 million, because they don’t realize the doubling penny, thanks to the exponential power of compounding, grows to more than $10 million after 30 days.
But here’s the thing: After 20 days, the doubling penny is only worth a bit more than $20,000. Time makes all the difference. You have to keep investing to realize the maximum potential. The biggest gains come with time.
Which brings us to Charlie Munger’s “first rule of compounding”: “Never interrupt it unnecessarily.”
Compounding and Your Legal Practice
Many lawyers engage in a scattershot approach to business development and marketing. They dabble in lots of different areas, try to communicate to many disparate audiences, constantly shift tactics, relentlessly network to meet new people, and, as a result, spread themselves thin. This is the “more is more” approach.
Like a day trader in financial markets who chases hot new investing trends and is constantly re-allocating capital, a lawyer who is attracted to novelty and is always shifting strategies will never experience the gains from compounding. Less is more is the way.
To truly leverage the power of compounding, it’s critical to focus on key assets that can deliver increasing returns over time. Here are a few examples:
1. Your Niche and Expertise: As Warren Buffett has shown, sticking to a specific approach to long-term investing and letting your knowledge compound over time can yield significant returns. Similarly, a niche-focused lawyer who, for example, is focused on a particular industry, can leverage their deepening iexpertise and immersion on one domain to spot opportunities, create high-value content, and offer distinctive services.
2. Your Relationships with Existing Clients: The more you invest in these relationships, the more they can compound in value. As clients grow to trust and rely on your services, they're more likely to seek your counsel for additional matters and refer you to others. Think of each client as an investment that can grow and pay dividends over time. Resist the allure of "shiny new client syndrome" and seize the opportunities that are right in front of you.
3. Your Content: Each piece of content you create for a specific audience is an investment that can keep paying returns. Thanks to the leverage of the internet, an article written today can continue to attract readers and generate leads years into the future.
And the most exciting part about all of this? Each of these areas, and others, interact and amplify each other, just like compound interest. As you invest in one, it strengthens the others, creating a powerful, compounding effect that accelerates your marketing and business development returns over time. In other words, the whole can become greater than the sum of its parts—as long as you stay focused and give time the opportunity to work its magic.
It’s About Less, Not More
The less is more approach is particularly important int today’s marketplace in which buyers of goods and services are increasingly looking for specialization. They want to know that the product or service they’re buying is specifically geared toward addressing the challenge they face.
Positioning yourself as an expert in a narrow domain who can solve specific problems for specific clients requires less not more. In particular, it requires careful discernment and a tight, disciplined focus on one’s greatest strengths. In other words, it’s not about what can be added to one’s professional portfolio, but rather about what can be taken away.
For most lawyers, a good place to start is with these three questions:
What type of work do I like to do?
What type of work am I really good at?
What opportunities exist in the marketplace? That is, are people buying what I’d like to sell?
Think of these questions in terms of a Venn diagram with three overlapping circles. One circle represents your interests, another your experience and expertise, and the third represents market opportunities. Your sweet spot, your ideal target market, lies in the area where these three circles intersect. Find the overlap and you’ll be in good shape when it comes to carving out an interesting, profitable niche. And once you’ve established your niche, keep investing in it and wait for the compouding.
Beware the “Clarity Paradox”
Be careful, though—just because you have strong focus now doesn’t mean you always will. Don’t fall victim to the “clarity paradox.”
In his excellent book, Essentialism: The Disciplined Pursuit of Less, Greg McKeown discusses the danger of the clarity paradox, which he explains has four phases:
Phase 1: When we really have clarity of purpose, it leads to success.
Phase 2: When we have success, it leads to more options and opportunities.
Phase 3: When we have increased options and opportunities, it leads to diffused efforts.
Phase 4: Diffused efforts undermine the very clarity that led to our success in the first place.
McKeown has summed up his point as follows: “Curiously, and overstating the point in order to make it, success is a catalyst for failure.” In other words, lawyers must stay vigilant so as not to become victims of their own success.
The more success you have—the more your focused efforts compound—the more opportunities will come your way. Some of these will be beneficial (ideal clients, marketing opportunities in your niche) but others will be mere distractions. Unless you are careful, disciplined and discerning, you can get derailed by the clarity paradox. Remain committed. Keep investing. Remember the first rule of compounding: Don’t interrupt it.
Heed the words of Warren Buffett: “The difference between successful people and really successful people is that really successful people say 'no' to almost everything.” Every day, you must renew your commitment and battle distractions—in all forms—to stay on course.
The temptation to veer, to try new things, and to chase shiny objects is high when you don’t have traction in business development. But, as McKeown reminds us, it can be just as high when you do.
Jay Harrington is president of our agency, a published author, and nationally-recognized expert in thought-leadership marketing.
From strategic planning to writing, podcasting, video marketing, and design, Jay and his team help lawyers and law firms turn expertise into thought leadership, and thought leadership into new business. Get in touch to learn more about the consulting and coaching services we provide. You can reach Jay at jay@hcommunications.biz.