Why should you bother about new business development? Are new business development, generating new revenue streams, innovation, new service development not just commonly used buzz words? What does this all mean in the context of professional services anyway?
Let’s start with defining what new business development is about. New business development entails proactively developing a new service solution that address the (future) needs of multiple clients and that upon successful implementation results in a new revenue stream for the organization.
That means, that what some call innovation is not necessarily new business development. For example, innovation to a surgeon is what happens in the operating room, when the patient being operated upon cannot be treated using standard protocols. A lawyer considers innovation coming up with a creative way to interpret the law and impress the jury and judge in a trial. An engineer thinks about the creative way to solve a client’s problem, when thinking about innovation. While innovative, none of the above are examples of new business or new service developments, let alone that these innovations are bound to generate new revenue streams.
New business development
New business development entails proactively developing a new service solution that addresses the (future) needs of multiple clients. Upon successful implementation, new business development results in a new revenue stream for the organization.
Proactive, in the sense that the organization does not innovate in reaction to a client’s request. Instead, it proactively scouts for better ways to serve current clients or attract new clients. Not an easy task for professional service organizations, especially not those that work on a project or contract bases.
In addition, the new business solution needs to be somewhat scalable. That is apply to more than a single client. Ideally a new service suits the needs of multiple clients and can be scaled beyond the skillset of the few professionals who were engaged in the development of this new service. Again, not easy for the professional services, where most services are tailored to the individual needs of each client.
New business development challenges
While professionals are good at creating innovative solutions when the client asks for their help, many struggle with new business development. Transforming ideas how to serve their customer better into actual new business opportunities is challenging, because professional service organizations:
- Are too busy with their day-to-day workload
- Have a business model where developing solutions pro-actively is misaligned with the project or contract based business model
- Are very reluctant to make investments in their organization; too many fiefdoms and too few opportunities for a return on investment
- Have limited experience with turning ideas into valued revenue generating new services and too few -if any- success stories that encourage employees to engage in new business development
So why should you, as professional service provider, bother with new business development? A valid question. Let me therefore address some of the arguments I hear often when I teach executives.
“Our clients like us, we are successful, we are extremely profitable, so why change?”
Growth is an imperative for professional service firms, especially those with a partnership or pyramid structure.
In the past decades, whether it is in accounting, healthcare or law, growth has come from mergers and acquisitions. For example, within the Am Law top 100, those who stayed in the top 50 since the ranking started in 1985 mostly did so through mergers and acquisitions. In the same period, the eight large accountancies consolidated into the big four. However, there is a diminishing return of such mergers. After all, they merely represent a shift in market share. Whereas through new business development, the new service offerings enlarge the demand for professional services.
“I have yet to meet a client who asks us to innovate or be more innovative”
Rarely, a client will ask you to be more innovative. At most, to paraphrase Henry Ford, your clients will ask for a faster horse.
Faced with a “faster horse” request, most professionals will make every attempt to make the current horse run faster. After all, that is what the client is asking for. However, to stand out as a professional service provider, your objective should be to define and introduce the car as the solution that addresses this client’s need. That is, go beyond the obvious. Propose next generation types of solutions that elevate your client and your practice to the next level. Clearly developing an “automobile” for the use of just one client does not pay off, nor is such a solution developed overnight. That is why you need a structured approach to new business development. To know when it pays off to address and invest in the future needs of your clients.
By the way, instead of asking you to come with an innovative solution, clients may not say anything and just simply leave. For example, ABA studies show that corporation’s legal counsel may not say they are dissatisfied, they are actively searching for alternatives. As a result, the market for legal advice is currently shrinking. In 2014, 67% of law firms lost work to corporate clients, 24% to technology solutions and 17% to non-law firm providers. Since, the market share of law firms has been declining further. Without the ability to develop high value new services, it will be difficult to capture this market share back.
“If we innovate, our competitors will copy us. Why take the risk? We will wait and see and copy our competitor’s ideas when there is demand.”
Indeed, being at the front line of the technology curve is a challenging endeavor. Yet a strategy that, if executed well, certainly pays off. Whereas 70% of the law firms in the Am Law 50 have remained the same over the past 25 years, and 80% of the top 4 accountant firms have been there for the past 100 years, the turnover of technology companies has been much swifter. Compare the Fortune 500 companies in 1955 to the Fortune 500 in 2014. There are only 61 Companies that appear in both lists. In other words, 88% of the companies from 1955 have either gone bankrupt, merged, or still exist but have fallen from the top Fortune 500 companies (ranked by total revenues). Most of the companies on the Fortune 500 list in 1955 are unrecognizable, forgotten companies today (e.g. Armstrong Rubber, Cone Mills, Hines Lumber, Pacific Vegetable Oil, and Riegel Textile). The few companies that have remained since 1955, among others Boeing, Campbell Soup, General Motors, Kellogg, Proctor and Gamble, Deere, IBM and Whirlpool. These companies have in common that they all have humming innovation engines that drive their sustained success. In other words, companies that survive technology waves and industrial revolutions, have been able to obtain and sustain their leading position by being drivers of innovation, not followers. The same holds for professional service organizations 1.
Debunking some myths
Being a driver and generator of new services is not easy. Yet, if executed diligently, it is very rewarding. Before addressing how to foster new business development in professional service organizations that will enable professionals to generate new revenue streams, it is worthwhile to debunk some common innovation myths 2.
Eureka moments as Newton’s apple and Archimedes’ bath may happen. However, they don’t happen by chance. We tend to forget the years of study and hard work preceded these Eureka moments. A novice, particularly in the professional services, will not be able to come up with indigenous new service solutions. That is not to say that their out of the box ideas cannot be refreshing and should be listen too. It just means that it requires an experienced professional to bring ideas to practice.
The believes and perceptions about innovation and new services are biased toward success. If I ask you to recall the successes of Apple, most people can easy name 3-5 of their big hits. If I ask about some of their multi-million dollar failures, usually I get a resonating silence. Yet innovation success does not come without failures. Since failure has a very negative connotation, and it often not an option for a professional service provider, it is better to rephrase these failed attempts as finding dead ends. As Thomas Edison famously said “ I didn’t fail, I just invented a 1001 ways how not to create a light bulb”
Over the past 40-years great strides have been made in speeding up the development process. It takes now just 1 to 2 years to develop a completely new product like the Android phone. In spite of all this progress, the odds at predicting the success of an innovation endeavor has remained the same. About 1 out of 1000 ideas turn out to be a commercial success 3. These odds are not the results of lack of ideas. It is because humans are awfully bad at predicting the future, and thus have a hard time to predict which ideas will succeed. We are equally bad at separating out the best ideas from mediocre ideas 4. So it is not the case that the best idea always wins. Instead, the process of new business development is a matter of filtering out as quickly as possible which are the least feasible and which are the most promising solutions, without discarding the child with the bathwater. Disregarding unpromising ideas is equally important as fostering promising ones. New service development projects consume precious time and effort. Make thus sure you spend most of these precious resources on the most promising ideas.
Hard work, uncertain and ambiguous, yet very rewarding
To answer the questions stated at the beginning. New business development is a lot of hard work and involves a lot of uncertainty and ambiguity, yet the outcomes are very rewarding: valuable new services, happy clients, revenue growth, happy employees. New business development is not just a buzz word, it is a structured approach for developing new revenue generating services. The future of many professional service organization will depend on their ability to generate such new revenue streams.
When leaving new business development up to chance, the outcomes will be unpredictable at best. Only with the appropriate processes, tools, education and structure the organization can rely on its new service development efforts for new revenue generation. That is, processes that will help to ensure dead ends are identified early and appropriate resources are dedicated to the few promising endeavors that have a high likelihood to succeed.
Organizing for Innovation gladly assists you with building the capabilities needed to generate new revenue streams in today’s ever changing world. Visit our website for more information about our services that will help you build the necessary capabilities, and tools that will provide you with the necessary education support and data analytics. Or reach out to me directly for more information at firstname.lastname@example.org.
Floortje Blindenbach-Driessen, PhD
- Semadeni M, Anderson BS. The Follower’s Dilemma: Innovation and Imitation in the Professional Services Industry. Acad. Manage. J. 2010;53(5):1175-1193.
- Berkun S. The Myths of Innovation. Boston: O’Reilly; 2007.
- Buggie FD. Set the “Fuzzy Front End” in Concrete. Res. Tech. Manage. 2002;45(4):11 14.
- Girotra K, Terwiesch C, Ulrich KT. Idea Generation and the Quality of the Best Idea. Manage.Sci. 2010;56(4):591-605.