The Make or Break of a Business Plan
You’ve been in the game for a while, you’ve witnessed first-hand the growing pains of your industry, and you’ve had a stroke of genius. You’ve decided to launch your own business resolute in the belief that you’re bringing a much-needed solution to the market.
In 2021 alone, 810, 316 new businesses launched. While that’s an impressive figure, it doesn’t reflect the phenomenal difficulty in getting a business off the ground and keeping it afloat. According to research, 20% of small businesses fail in the first year, while approximately 60% of small businesses fail within the first three years.
For the fortunate 40% that make it past the first three years, what’s their secret? For businesses that go the distance, data overwhelmingly points towards one thing: an intimate understanding of the unique value the business provides to their market base.
Rather than scribbling sparks of genius onto paper napkins, successful founders set foundations with a considered business plan. A well-drafted business plan will rely on a deep understanding of your business model, forcing you to interrogate how you deliver value to clients, how you entice them to pay, and how you convert payments into profit. Want to get past the three-year mark? Understand firstly that your first make-or-break hurdle rests with your business plan.
Nice to have, or essential?
Aside from providing pinpoint clarity on your business proposition - and its likelihood to succeed - a business plan is a necessity for a regulated law firm. It’s a document that potential insurers and the SRA review as part of their decision on whether or not to insure or authorise you, so it’s critical you get it right. With only 25% of applications currently being offered insurance terms, there’s no room for error.
How to draft a winning business plan
Your business plan needs to define what your business delivers, how it generates value, and how it converts that value into profit. With that in mind, a business plan will reflect your hypothesis surrounding what your clients want, how they want it, and how your firm can organise to best meet those needs. This is a particularly crucial point when you take note that 42% of startup businesses fail because there is no market need for their services or products.
To get started, you’ll need to prepare a traditional plan, which is a comprehensive description of all the different aspects of your firm, supported by a three-year profit and loss statement and cashflow documents - alongside other supporting documents. However, it’s likely you might find this to be an overwhelming place to start, which is where it can be helpful to start by creating a “lean business plan”. A business model canvas can be useful here and will allow you to clarify your model at a high level before you do a deep dive into it.
Keep in mind the focus of your goal here: articulate the logic of your business and provide evidence that this business can and will deliver value to clients. This will extend across the organisational and financial architecture of your business, alongside costs, revenue, client behaviours and competitor movements.
As you can appreciate this level of insight will take time, but it helps to start with a few questions. It’s also worth paying attention to the main areas of interest for the SRA:
- What work is being done here?
- How much work will be done (in terms of turnover?)
- Who will carry out this work?
- Where will services be provided from? An office or a remote firm?
- What’s the typical client?
- What’s the typical value of the matter?
- And is this expected to be high or low-risk work?
Why legal services complicate things
Done right, your business plan will go a long way towards assuring the SRA that you have a credible business model - but setting that out in concrete terms is easier said than done. As an information industry, legal services can be complex to price, as clients will have many ways to obtain information for free. While we’d like to think we’re not competing against those with a law degree from Google, the reality is that for a lot of early-stage businesses - it’s the first place they will turn to.
How then do you set yourself apart as a newly founded law firm? How do you define, measure, and command your value? What is it that you provide, that your predecessors don’t? Diving deep into creating a quality business plan will ensure you answer these questions - helping you to avoid the market-fit trap of so many failed firms.
In addition to the SRA, you’ll also have insurers to worry about, who will be particularly interested in the credibility of your business and your ability to make this firm a reality. If your business plan fails to thoroughly communicate the case for your firm, your business will fail to fly without the backing of insurers.
Planning to succeed
It takes time to write a business plan, and it takes even longer to create one that’s concise, appealing, and effective. Get it wrong and you’ll fail to win the support of the SRA and insurers. Get it right, however, and you equip your firm with a powerful springboard that propels your business well into the years. I should know, as the founder of a regulated law firm that has jumped through many, many hoops to get to it’s fifth year.
Many great businesses were formed from a stroke of genius, it’s true. But what’s also true is that the firms that weathered the ages did so with an iron-clad business plan that ensured it was a firm with proven purpose. Believe you've stumbled upon the next big thing? Then get planning.
If you want to find out more about writing a killer business plan for your law firm, I give a run through of the key things it needs to include here, including a template plan.