Dividing the Pie

One of the thorniest issues in most professional firms is the parceling out of profits amongst the partners or principals. And no single factor is more distracting from the mission of building a powerful, profitable, and reputation-driven firm.

Almost invariably this problem arises when the partners have different perceptions of their respective importance, and in turn this only occurs because the firm does not have a clear central understanding of why it exists.

If the firm exists for the sole purpose of enabling each partner to maximize personal net revenue, trouble is inevitable. By definition, my goals are not your goals. If, on the other hand, the central purpose of the firm is to maximize global profit, the criteria becomes the contribution toward the growth of the whole pie.

Perhaps the most savage aspect of focus on dividing the pie is the tyranny of monthly billing targets. The need to “crack the nut” every month breeds all kinds of soul-destroying, career-wrecking, team-busting evils.

Having to meet monthly billing targets forces you to bill clients at inopportune points, unrelated to actual progress on their matter. It creates an imperative to bill for every nickel and dime to the point you can’t in conscience justify. It puts a wedge in the client-professional relationship. It forces professionals to take on work they neither enjoy nor know how to do, leading to client conflict, professional complaints, and reputational degradation. I could go on, the list is endless.

There must be a thousand formulas for “fair” compensation in a professional firm, and more are invented every day for the simple reason that none of them actually work. That’s because they all focus on dividing a static pie. It’s like trying to put Picasso on a spreadsheet.

The simple answer is in making the pie bigger, juicier, sweeter, and ever-growing, and that in turn comes down to a handful of simple truths.

The first is that the firm that is most renowned for solving actual client problems is the one which will grow the bigger pie. The second is that the firm that is most renowned for solving actual client problems is the one which has the collective of professionals who possess the skills and attributes necessary to do so. The third is that the firm is not encumbered by the flotsam and jetsam which arise by reason of dabbling in areas outside their core competence, and the fourth is that such firms invariably are composed of professionals who just adore what they do.

Is it surprising that the firms who make the most money are those made up of pros who love what they do because they’re doing what they were born to do?

The flag which all such firms fly is called Reputation. When the team is focussed on excellence, on plying the craft they know they were born to do, an expanding reputation is inevitable.

Compare this to the dark and gloomy planet where partners are picking one another’s pockets and scheming to get one more cherry out of the dwindling pie.

It’s kind of obvious, isn’t it?

Does this sound like something we need to talk about?