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We've long embraced the wisdom of diversifying investments to mitigate risk, a strategy popularized by Nobel Prize-winning economist Harry Markowitz, who advised not to "put all your eggs in one basket."
However, for many lawyers, concentrating efforts on a select group of high-value prospects—effectively placing a couple dozen eggs in a single, carefully chosen basket—is the most effective method to build and sustain a practice.
Focus on Your “Dream Clients”
Let’s begin by discussing the Pareto Principle, another concept you may be familiar with, which is also known as the 80/20 rule. Named after Italian economist Vilfredo Pareto, the principle posits that roughly 80 percent of effects stem from 20 percent of causes; 20 percent of our efforts lead to 80 percent of our results; and 20 percent of inputs create 80 percent of outputs.
The Pareto Principle is a rule of thumb with broad application across industries, disciplines and economies. For instance, when analyzing its software, Microsoft discovered that by correcting 20 percent of the most reported bugs, it could eliminate 80 percent of the related crashes.
You can also observe the 80/20 rule at work in many different ways at a law firm, where a majority of revenue is typically generated from a relatively small number of clients, and a small number of lawyers (the rainmakers) are typically responsible for bringing in a majority of the work at a firm. The numbers may vary a bit from firm to firm, but the principle remains: All actions, investments and relationships do not create equal value; some are disproportionately valuable.
In terms of your practice, it's likely you’ll find, throughout your career, that a small proportion of your clients or referral sources—potentially around 20 percent—generate about 80 percent of your work and revenue.
Recognizing this distribution can transform your strategy, compelling a shift in focus towards nurturing these high-yielding relationships.
Chet Holmes took this exact approach when he began working for a small magazine owned by Charlie Munger, with the task of selling ad space. He received a database of more than two thousand potential advertisers and had the job description to make as many cold calls as possible—to diversify his sales efforts.
However, Holmes did not adhere to the conventional wisdom. He prioritized quality over quantity, which allowed him to allocate his limited time to the most promising opportunities—the 80/20 opportunities. He analyzed the ads in past issues of hundreds of competitor publications and discovered that a mere eight percent of advertisers bought ninety-five percent of the ad space. This insight made Holmes concentrate almost all his sales efforts on this small target market—he called them his “Dream Buyers.”
Holmes refined his strategy by sending personalized mail to each Dream Buyer twice a month, complemented by two monthly phone calls. The initial four months yielded no results, but persistence paid off in the fifth month when Holmes secured a massive deal—a fifteen-page full-color spread for Xerox. This breakthrough was followed by twenty-eight additional agreements with Dream Buyers over the subsequent five months. His strategic and focused efforts led to exponential growth over the following years.
As revenue continued to grow, Munger called Holmes into his office: “Now Chet. In all my years, I've never seen anybody double sales three years in a row. Are you sure we're not lying, cheating, and stealing?”
They weren’t. Holmes was just doing things that don’t scale—picking a relatively small number of high-potential customers to consistently focus on with a customized sales approach.
The lesson here for lawyers is that expanding your practice through business development isn't simply about adding more contacts and clients; it's about continually ascending the value chain.
This involves attracting and serving more profitable clients—Dream Clients—those that allow you to do the work you excel in and provide the highest value in the process. Simultaneously, there's enormous potential to broaden your services with existing ideal clients, particularly as their businesses grow.
Business Development is Extremely Valuable But it Doesn’t Scale
When it comes to building and nurturing important relationships, quality trumps quantity. From our friends to our clients, in life and in work, we simply don’t have the bandwidth—the mental, physical or emotional capacity—to develop large numbers of high-quality relationships, which require personal investments of time and effort of the unscalable variety.
In the 1990s, British anthropologist and researcher Robin Dunbar determined that we are only capable of having a finite number of people in our social sphere—one hundred fifty at most—due to the size of our brains. Beyond that, Dunbar argued, it becomes impossible to manage one’s social network (note that we’re not talking about a social media network here). This theory is known as “Dunbar’s Number.” Dunbar went on to conclude that while we can form approximately one hundred fifty loose relationships, we only have the capacity to form close, meaningful relationships with approximately five individuals.
I would argue that, when it comes to developing business relationships (Dunbar was focused on personal relationships), we can develop more than five—but not that many more. You have to pick and choose. You have to be thoughtful and discerning as to how you invest your time. In general, you have to focus on your most important relationships when it comes to business development. You can’t diversify your efforts too much. If you try to reach, please, and appeal to everyone, you’ll attract no one.
What’s a good place to start? Write down a list of 25-30 current or aspirational contacts—Dream Clients, prospective Dream Clients, or sources of referrals to Dream Clients. Try to reach out to each person on the list in a meaningful way—a way your contact finds valuable—every month. Share insights, make introductions, and extend invitations. This is the hard work of business development. It’s all about staying top of mind and building trust-based relationships over a long period of time.
The ROI of Non-Diversification in Business Development
Warren Buffett once said about investing in companies: "Diversification is protection against ignorance. It makes little sense if you know what you are doing." I think this advice is dangerous for most people—certainly myself—because relatively few of us truly know what we’re doing and can beat the market when investing in a small number of individual companies. But when it comes to investing in relatively few individual relationships through business development? I think it’s superb advice.
Even if you don’t think you know what you’re doing, I bet your instincts are sound. And even if you don’t get it right initially, you’ll learn quickly, and there’s little downside except the risk of rejection. Who cares? Move on.
The key metric when it comes to business development is “stick-to-itiveness.” Keep at it in a methodical way with your most important contacts.
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.