Bad Math – Undercapitalization || Riches in the Niches?

Episode Notes

Transcript

Conrad Saam:

Hey, Gyi, I think I smell something delicious. What’s cooking, buddy?

Gyi Tsakalakis:

I am making some pulled pork empanadas as an app for my pre-holiday dinner with my family. Conrad. I’m learning a lot about smoking pork. What temperature do you like to smoke your pork at For pulled pork?

Conrad Saam:

Wow. I honestly have no idea, but what you’re sharing with everyone is that you are a planner because this is not a last minute meal. This is a 24 hour experience.

Gyi Tsakalakis:

Yes, this is very rare for me. I would spend this much time and do it, but I actually enjoy doing it And 200 to 2 0 5 is what I like to look at. So other

Conrad Saam:

200 To 2 0 5 for pulled pork. Not only are you a planner, you are a pedantic about details, which probably means you’re a good baker, but

Gyi Tsakalakis:

Love to bake.

Conrad Saam:

All right, there you go. I knew it.

Gyi Tsakalakis:

I make a mean banana bread.

Conrad Saam:

I only make a mean banana bread when we figured out about the bananas, right? It’s actually kind of hard to make a bad banana bread. Let’s be honest. I love you dearly, but that’s not a big accomplishment, dude.

Gyi Tsakalakis:

That’s why I stay in my lane.

Conrad Saam:

All right,

Gyi Tsakalakis:

What else we got going on today? Conrad?

Conrad Saam:

Okay. A lot coming out as has been recently the case a lot coming out from Google. Two major things in the news, big things from Google. We are going to do a segment as we look into 2024 on bad math, and then we’re going to respond to a question about are there riches in the niches? Learn about what you should do, what Gyi and Conrad think you should do with regards to practice area diversification or not.

Gyi Tsakalakis:

And with that, hit the music.

Speaker 3:

Welcome to Lunch Hour Legal Marketing teaching you how to promote market and make fat stacks for your legal practice here on Legal Talk Network.

Conrad Saam:

Welcome to Lunch Hour Legal Marketing. Now I have to tell you that the writeup for the intro to the news section previously talked about, you’re going to get this episode right after Christmas, and we’re going to wish you a merry Christmas with your Yule log and your eggnog. It just felt off. And I know a lot of people are hurting right now, and a lot of this falls on religion and hatred throughout the world. It’s kind of a gloomy way to go into our segment. Gyi, and I would like to wish all of you healthiness, happiness, peace. We hope the world turns into a better place going into 2024. Unless you are on the offensive line of the Alabama crimson tide, we wish you nothing but health and happiness in 2024. Now let’s hit the news. All right, Gyi, so much coming out of Mountain View and Google. Google dropped on us their newest AI Gemini, what can you tell me about Gemini?

Gyi Tsakalakis:

Well, I love how everybody’s going to be eating Crow. All these people that talked about Google doesn’t know anything about AI and open AI is eating Google’s AI for lunch. Google has just, they actually originally planned to delay it, and I think they’re feeling the pressure to get out there. But have you checked this Gemini thing out yet, folks?

Conrad Saam:

It is pretty impressive.

Gyi Tsakalakis:

Go check it out right now. Pause and go check it out. It’s pretty amazing the video that Google put out, which apparently is staged. Check that one out. But you’re seeing a bunch of other AI folks that are now testing it, and I’m just like, wow, go check it

Conrad Saam:

Out. In a not surprising turn of events, the master of technology was able to figure out technology.

Gyi Tsakalakis:

The company that’s been doing AI before any of these other companies existed actually knows something about ai. And also if you’re in the SG experiment, go check that out because you’re starting to see a very different result as they roll Gemini into those results. And not to Byrne all our prognostications. I bet you sge’s in the wild in 24. We’ll talk more about that during the crystal ball episode.

Conrad Saam:

Yeah, I think that is increasingly going to be the case. So Crystal Ball episode, one of our favorites coming up sometime in the future, we’ll be talking a lot about SGE. Maybe it’ll have come out by the time our podcast hits the airwaves on that. The other biggie coming out of Mountain View and this hat tip to our great friend Joanne Hawkins. If you do not have full 24 7 hours listed on your Google My Business profile, you’ll not show up for searches when you are closed. That is a new setting. So at the risk of encouraging you all to go out and spam the crap out of your GMB listings and change your hours to when you want people to call you instead of when you’re actually in the office, if you do want to show up, I would run a 24 7 listing in GMB. Gyi, do you disagree with that?

Gyi Tsakalakis:

No. I mean, we’ve been pinching 24 7 for years, not because of Google, but because people want to call lawyers in off hours for a variety of practice areas. I don’t know. You’re in the major market, major competitive practice area. That’s table stakes 24 hours, in my opinion, table

Conrad Saam:

Stakes. If you are not doing 24 7, you do not exist when you are closed. So make that change right now. And if you don’t know what we’re talking about, wait until seven o’clock tonight, go do a search from your office and see if you don’t exist, and then

Gyi Tsakalakis:

Panic and see if you’re running ads on a closed office.

Conrad Saam:

Yeah. Oh yes. Especially those great local service ads that are going to get your voicemail. That’s a steady way

Gyi Tsakalakis:

To, or just regular Google ads that are showing that you’re closed.

Conrad Saam:

Yeah, that’s right. They do show up when it says closed, doesn’t it? That’s great. It’ll show up

Gyi Tsakalakis:

Because they’re driven by local pac,

Conrad Saam:

Brought to you by Gyi and Conrad, how to turn your Children’s College Fund into a smoldering pile of nothing. Okay, when we come back, we’re going to talk about more bad math and shrinkage,

Gyi Tsakalakis:

And we’re back and we are talking about bad math, particularly as it relates to budgeting and marketing budgets. And hopefully by now, you’ve already got your budget most of the way there, right?

Conrad Saam:

Okay, so think about this. If you guys are sitting there going like, wow, maybe we should have a budget for next year. Get on it, put the eggnog down

Gyi Tsakalakis:

And we’re empathetic, or at least I am because I went to law school. Conrad’s an MBA, so you

Conrad Saam:

Are not empathetic at all. You are the mean one on this. You’re a bad cop. I’m a good cop. That’s transitioned.

Gyi Tsakalakis:

Lawyers aren’t good at math. I said it. I’m sorry, lawyers, I’m a lawyer and a lot of your marketing math is actually a big problem, and we’re going to talk about some of these issues. First, major bad math issue is under capitalization. So let’s talk about that Conrad. How do you typically think about trying to top level decide on how much money to spend on marketing?

Conrad Saam:

So you’ve heard thematically, this come from us many times. I think you need to understand where you want to go. And that’s why we talked about the other day. There was a law firm who got really pissy with my salesperson because we kept asking them where they wanted to go and they felt like it was intrusive. We were asking too much and that we wanted to know too much about their business, and they just really wanted that package. What’s your SEO package, right?

Gyi Tsakalakis:

That’s not even bad math. That’s no math.

Conrad Saam:

That is no math. Well, but you’re right. You need to know, and this is a stupid simplistic metaphor, but how far do you want to drive the car means how much gas you need to put in the car, right? It’s kind of 1 0 1 to,

Gyi Tsakalakis:

I got a follow up question for you. Go. How do you decide

Conrad Saam:

We haven’t even into the first one and you’re getting Gogo Gogo? Well,

Gyi Tsakalakis:

Because as you typically do, you changed the question.

Conrad Saam:

I didn’t. I’m answering it slowly as you

Gyi Tsakalakis:

Typical question. Alright, you finish, you finish, you finish, and then I want to come back. I think at the end of, well, let’s see where it goes. Go

Conrad Saam:

Ahead. I feel like I’m on the stand here. I feel like I’m talking to a lawyer. You

Gyi Tsakalakis:

Are. You’re on the stand.

Conrad Saam:

I Get it.

Gyi Tsakalakis:

I’m cross examining. I’m thinking about hiring you and I’m cross-examining you about how much money I should spend.

Conrad Saam:

This is where you need to start with where do I want to go next year? How aggressively do I want to grow?

Gyi Tsakalakis:

Do you want me to answer that for you?

Conrad Saam:

Yes. Go. Are you going to give me a hypothetical?

Gyi Tsakalakis:

Yep. Okay, go 20%. I want top level 20% growth in the coming year.

Conrad Saam:

Okay, you want to do a top level 20? That’s actually not that much. And I think it also depends on how big you are, but 20% is not super, super aggressive growth.

Gyi Tsakalakis:

Okay? 50%.

Conrad Saam:

50%. Okay, so we’ll use 50% then. Wow, you sound like some of the people that I talked to when they’re talking about, well, I

Gyi Tsakalakis:

Tried to give you the layup at 20. You told me I’m not ambitious enough. So no,

Conrad Saam:

No. Here’s the deal. If you want to grow by 50%, you need to put every single dollar profit into your marketing and you’re probably not going to hit your 50% target.

Gyi Tsakalakis:

Okay, great. I like that. Now, second question here, I like where this is going, Conrad, you’re the expert. What do you need to know from me? Why don’t you tell me where you think I should go based on firms that you’ve seen? What do you think is a realistic growth target for me?

Conrad Saam:

A realistic growth target for you?

Gyi Tsakalakis:

Yeah, I’m a PI firm and I’m in, okay,

Conrad Saam:

So I needed context there because it is very contextual. There are definitely some firms which can double next year without spending a lot of money on marketing depending on their context.

Gyi Tsakalakis:

Alright, give me some questions in the context. Say I’m a pi, I’m in Chicago,

Conrad Saam:

You’re a PI in Chicago and you want to grow as much as possible. Is your business objective to dominate the market?

Gyi Tsakalakis:

Well, no. You tell me. What do you think is realistic for me to, do you think I’m going to dominate the market?

Conrad Saam:

I do not think you’re going to dominate the market in Chicago next year. That is an unrealistic expectation.

Gyi Tsakalakis:

Alright, well let’s say I did a million dollars, we’ll use some round numbers. I did a million dollars last year on PI firm in Chicago. What’s realistic growth for me in this coming year?

Conrad Saam:

So this is difficult because you said pi, and we need to think about whether or not we’re talking about revenue or consultations or clients. That’s a good point. That’s a good, and for those of you who aren’t in pi, I apologize, turn

Gyi Tsakalakis:

Your brain off signed.

Conrad Saam:

So this is really important because when you’re looking at revenue, especially in pi, you’re looking at revenue that does not show up typically in the next 12 months. And so that’s a really,

Gyi Tsakalakis:

Really, and you don’t really even know what it is. That’s

Conrad Saam:

The problem, right? And then from the prognostication perspective, this was a Ben Glass concept in pi, and then we’ll move off of PI specifically. You can have those home runs. And one of the things that I learned from Ben Glass is when they do their own prognostications, they throw out any outliers, anything over six figures in their estimation process because it’s just too, it throws the numbers off too much. So sorry, moving away from personal injury because there’s cashflow issues with this, but I love your read here, Gyi, of we’re actually talking about signups or consultations and so these are more immediate numbers and they’re actually more directly correlated to the effectiveness of your marketing than revenue in many cases.

Gyi Tsakalakis:

So love it. Let’s say you tell me, sorry, I should tell you how many I did last year. Let’s say I did 10 a hundred thousand fees.

Conrad Saam:

10 $100,000 fees. Okay?

Gyi Tsakalakis:

Yeah, just try to keep the math round. I know you’re an MBA, but

Conrad Saam:

See we’ve got 10. See, the reason I’m an MBA is statistically a sample size of 10 is completely useless. You’re not helping all

Gyi Tsakalakis:

Us a better hypothetical. Give us a better

Conrad Saam:

Hypothetical. This is the way I, and it’s interesting, Gyi, and I did this conversation about two years ago, and I think my numbers have evolved over time, but the way I would look about this, Gyi, is if you are an established personal injury firm in the Chicago market and you want to kind of be one of the top three in that market and maintain a market leadership position over kind of a three to five year horizon, you’re spending a minimum of 20% of your revenue on marketing. My old data, and I’m looking at these numbers right here. My old data is you’re spending 10 to 20% to secure that top three in a market position

Gyi Tsakalakis:

And I’m going to save 25th floor.

Conrad Saam:

I think you’re right. I think what has happened is, and you guys can all hate on us for this, but it’s hate the player, hate the game kind of thing. I do think my numbers on this have moved, right? I’ve looked at this for the first time in two years and 10% of your revenue into marketing to be a top three player in that market I don’t think is sufficient at this point in time. I really do think that this has evolved. I think you’re looking at 20% as a floor and I can actually point to a couple clients that kind of fall right in that direction. So on the flip side though, Gyi, and I do think this is relevant. There are certainly those firms that don’t have that ambition and I don’t think there’s anything wrong with this. I think as business owners, you and I, there’s this kind of the Buddha of growth and that’s kind of the obvious answer.

If you’re not growing, you’re dying kind of stuff. And that’s not always the case. My real orientation, here’s like where are you trying to Gogo man, if you’re trying to grow by 50%, if you want to be top three in a market, I’m working with a firm right now, they want to go from their top five in the major city in a market. They want to own the state in three to five years and that is not 20%, that’s probably not even 30% that is full speed ahead as hard as we can and maybe we’ll get there. So there’s lots of different ways. So this is kind of the undercapitalization and I think one of the realities that we’re talking about right now is it is costing more and more to acquire clients as the ability to get in front of clients becomes more and more ubiquitous for people. It is easy to put yourself in front of clients and more lawyers are trying to put themselves in front of clients and therefore the cost of doing so has increased. I think that is very real. I believe budgets are extremely under pressure to increase.

Gyi Tsakalakis:

And for folks that are kind of trying to wrap their heads around, there’s a little exercise for you to do. Go model out marketing budgets for the year based on your last year’s top line revenue. And I would suggest do some of the numbers we’re talking about people throw around the small business administrations like 10 to 12%, you throw that one in there, I’d throw a 6% in there because I know the ABA and some other resources have suggested that solos are spending like 6% or something like that. And then I would go throw 20% and 30% and put that in a spreadsheet and go look at what that total spend would look like for 24 and then make another set of columns. And these columns you’re going to do your multiple on your marketing spend and I would say low end there, four x and you could run it 4, 5, 6, 7, 8, all the way up to 10 and go look at what the return numbers look like and then go project 24 and 25 based on those numbers.

If you do it, if you’re in many of these thresholds, even if you’re getting a five, six x on your marketing dollars, you’re still going to shrink if that’s the primary source of business. Now look as Conrad will point out, you might get 20 x on referrals, you might get a hundred x on some referral stuff, but I would throw those out too. I want to really just zoom in on the marketing budget because at the end of the day, and this is another point that I think is part of this bad math conversation, is don’t run into this attribution myopia. Don’t go so zoomed in where you’re like, I’m just looking at my direct response last touch attribution stuff, zoom out and be like, what did we invest this coming year and what do we expect to get out of that and see if that number is bigger than your revenue was last year because, and a lot of times, especially if even in five six x land, if you’re investing 6% of your revenue, you’re investing in 10% of your revenue, you’re going to see, here’s the easy one, a hundred k, a million dollar firm spending $120,000 in marketing generating $600,000 in new revenue from that marketing budget.

You still are short from the prior year by 400 K.

Conrad Saam:

Yeah, I think the other reality of this is as marketing channels acquiring clients pay-per-click is the most obvious example of this, but so I’ll use that to bash on that as the cost of acquiring through pay-per-click has increased. Your ability to be profitable in that channel is contingent on your efficiency of your organization. How much time are you spending on this, right? And so as the cost for acquisition increases, the margins are decreasing and they could go negative if you haven’t become more efficient at running these matters and converting those that do contact you into clients or at least monetizing those that do contact you. Alright? To sum it up, gh, what I heard you say is stop spending money to shrink your law firm. Don’t be the George Costanza of legal marketing.

Gyi Tsakalakis:

That’s one way to interpret it.

Conrad Saam:

For those of you listening, be happy you were not in our pref Funk conversation about George Stanza. Alright, when we come back, we are going to talk about, this was a great question that came into Gyi riches in the niches how, or as MBAs like to say it in the niches, Rees in the niches. But the question really is how focused or not focused should a law firm or an individual lawyer be in order to maximize revenue and profitability?

Gyi Tsakalakis:

Alright, Dan, we’re back and we have mentioned maximum lawyer and the maximum lawyer Facebook community for some time. If you haven’t checked that out, check it out. Great questions in conversations going on and one that came in recently, we wanted to try to provide some answers. And so the first question is, what’s your formula for determining how many practice areas or niches your firm should undertake to maximize revenue and or profit? Whatever your bottom line is, Conrad got a formula or how do you think about this? How do you approach it?

Conrad Saam:

I like how you called me out for not answering the question earlier in the podcast. I’m going to do the same exact thing. The basic business approach is to be specialized and we’ve talked about the selling the invisible book ad nauseum. People want to hire experts. There’s a reason you don’t go to your general practitioner for your brain surgery. So that is kind of an established concept. So I’m going to take your question and say, when do we kind of move beyond that? And there are great reasons to move beyond that. Some of them can be exogenous. We have an personal injury firm in Florida, thank you Florida legislature who has moved out of personal injury entirely and they have now rebuilt themselves as a family law firm because the economics in Florida just suck. So you have those types of factors, but the way I much more regularly think about this is when have I, it’s not maxed out my market, but when am I at a point where the decreasing returns in my market are very, very real, where it’s going to cost me so much more to get from 80% to 85% than to 90%, it’s going to cost twice as much again.

So at what point in time does that happen? I think that is a very real thing and I think bluntly, a lot of lawyers have trouble modeling like I am big enough. Now another way to solve that is to expand geographically. And so expansion geographically or expansion by geography are very real things. There is that model, Gyi, and I love this model in a secondary or tertiary city of everything, law firm, we can talk about Martinson and Beeson is a great example of everything. Law firm in Huntsville, Alabama. And I bet Morris Lilienthal will punch me in the face if he hears me refer to Huntsville as a tertiary city. But it’s very real. Morrison Beeson has a great reputation. They do a lot of work in the community and everyone likes them. They have a very positive brand affinity. And so people go to them for all sorts of things and that works in that city because each of them is kind of maxed out what they can do within a practice area. So adding practice areas to a firm when you are a big player in a small pond absolutely makes sense. What I don’t think makes sense is trying to dabble in lots of things, especially if you’re small, the smaller you are, the more general you are. Now the general practitioner doctor who is doing brain surgery, obstetrics and occasionally trimming someone’s toenails, right? No one wants that, nobody wants that.

Gyi Tsakalakis:

That was a very excellently articulated answer. So thank you for that. You actually didn’t change the question. I don’t think you did a very nice job. My main issues with this, and you alluded to this, there are two big, big, it depends. First, it depends on what community you’re in because even a Solo, there’s some communities in which you can be the only lawyer in town, right? Everybody just comes to you. It’s the model that you’re talking about where you’re like, you’re just the known lawyer. Those are going to tend to be smaller, less competitive communities by just nature. So the size of the market and where you are matters the size of the firm totally matters, right? And to your point, solos, small firms positioning wins, positioning wins, even in more competitive markets, you want to stand out. I think that’s the priority. This firm is asking the question.

Just for context, it’s a bigger firm. I mean they got offices in multiple states, got, I couldn’t get the number wrong, but over 20 lawyers. And as you pointed out, I think this is really the right approach here is they’ve outgrown the single niche practice. And so then the question is how do you brand that? And gosh, that’s a hard question to answer, but to me, if you’re going to be the lawyer, that’s the be everything type of lawyer and just come to me when you have a life legal issue and you’re thinking of me, tie it to the geography somehow in this case they’re in the heartland. So lean into that heartland theme brand it like we’re the lawyers that know the heartland, we live here, we work here. That kind of stuff I think can work, but that’s becomes very, very challenging, especially when it’s not practicing anymore because you’ve got to figure out what your identity is going to be that’s not related to actually what you do.

Conrad Saam:

And this becomes tactically really problematic with Google because we’ve just taught you for the last three years to spam the crap out of your law firm name.

Gyi Tsakalakis:

Which though brings me to 0.2, which is let the individual practitioners market the practice areas, do all the stuff that we talk about with personal branding and personality and blah, blah, blah. Let the individual lawyers do that and support them in doing that under the firm brand, right? So it’s them with a little firm brand button.

Conrad Saam:

Alright, I’m going to counterpoint that. I think philosophically I like where you’re going with that. I’m going to counterpoint that with two problems. Number one, most of your really good lawyers don’t love the marketing side of this’s true. And it’s beneath them and all that kind of stuff. So many of them, I’m sure we haven’t done the personality profiles of the lawyer, but Myers-Briggs might suggest that the majority of lawyers don’t fall into that. I’m going to drive business here, which is why most of them are lawyers instead of business owners. The second point is another tactical element, which I thought you were going to go to, but you can have practitioner pages in Google My Business and a practitioner page is a page specifically for an individual, not a business, which can be a very good way to actually specialize while you’re within the use of the word specialize to focus while you are in a law firm. The key problem with practitioner pages that I hate is twofold. Number one, it splits your reviews and that becomes very, very problematic and it’s increasingly problematic as review count is so very, very important. And number two, if that practitioner leaves, you’ve just lost that asset. You have not built an asset for the law firm. You have lost the asset and given away while someone has been working for you for that individual. So I agree that’s

Gyi Tsakalakis:

A huge issue.

Conrad Saam:

Huge. It is a huge

Gyi Tsakalakis:

Issue. Huge. And not just with Google business profiles, with brand equity in general, a

Conrad Saam:

Hundred percent. 100% a big issue. And so I just think that most of the time the person does a better job at driving business and personality, especially if you’re going to take that local tech, which I really, really like. Gyi, I love, we are the lawyer from this town. We are the lawyer here. That is who we are. I love that approach. And you can do that as a person. I just find it just so much easier to build that as a person. And what we’re finding, and I believe this to be very true, when people do that, when lawyers do that successfully, they’re not viewed as Joan, the family lawyer. They’re viewed as Joan, the lawyer that I like, right? I like Joan. Yeah,

Gyi Tsakalakis:

I agree. But it’s like we talked about in this example. So I put the question back to you. You’re a big firm. Are you saying don’t brand the firm at all?

Conrad Saam:

I think you brand the firm.

Gyi Tsakalakis:

You’re a 30 lawyer firm,

Conrad Saam:

You are a 30 lawyer firm. So I think, and I am all about squeezing as much as you can out of your marketing. I think it is easier if that 30 lawyer firm is mostly driven by a lawyer owner who does not do a lot of law work, but spends much of his or her time being the face of the firm. And I call just the

Gyi Tsakalakis:

I got you. And then don’t tie it to any particular practice area. Just be the face of the CEO face of the firm and your personality.

Conrad Saam:

And if that person can become loved and adored by your market. I literally, I watched this happen two days ago in a law firm office. I was waiting to meet up with the owner and he was walking out of a consultation and the people that they were talking to said, thank you for doing so much in this community. And I’m not making, this is not bullshit. I promise I’m not just marketing spin here. If you can do that, they will like you as a lawyer, not you as this is a guy who does X, Y, Z. And I think that is so powerful.

Gyi Tsakalakis:

And ideally, that person is a partner.

Conrad Saam:

I think only that person is a partner that does not work otherwise. Otherwise we have another law firm where that was not the case and boom, all of a sudden you’re asking for a spinoff and a new competitor.

Gyi Tsakalakis:

Wisdom from my good friend Conrad Saam. Unfortunately, we are out of wisdom. I mean time and we have to wrap up the episode, but I would like to thank Maximum Lawyer, even though they didn’t do anything except to host amazing community. He’s kissing up. Go check them out again. Well, we got inspired today from the question there, and thank you to the person who asked the question. If you are brand new to Lunch Hour Legal Marketing, please subscribe. Please go check us out. And YouTube and TikTok Conrad does a lot of dancing over there. So if you’re into that kind of thing, tiktoks your spot. It’s not good, but unfortunately must Fiji do. Until next time, and happy New Year and Happy New Year to you, Conrad.

Conrad Saam:

Yeah, happy New Year. I will see you on the first day of the new year.

Gyi Tsakalakis:

Can’t wait for it buddy. Conrad and Gyi saying farewell.

Speaker 3:

Thank you for listening to Lunch Hour Legal Marketing. If you’d like more information about what you heard today, please visit legal talk network.com. Subscribe Via Apple Podcasts and RSS, follow Legal Talk Network on Twitter, Facebook, LinkedIn, and Instagram.

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