Habit 3 – Understand the economics
If commerciality is about the delivery of advice that helps clients’ profitability, then numbers are a key metric. However, many professionals (especially lawyers) can be uncomfortable with finance.
It is more than just being able to read the profit and loss of the transaction or the business. Increasingly, there is a need to understand the financial implications of the advice being given. It is also important to be able to look at issues in terms of both quantum and probability.
“In my twenty-five years of doing this I have two lawyers who can add up which means it’s difficult for them to be commercial. They will delineate between that which is a commercial point and that which is a legal point and there shouldn’t be that delineation. I’m not paying £1,000/h for someone else to not just advise, but to make a decision.” Dr. Robert Easton, Managing Director, Carlyle Europe Technology
A couple of examples…
- Take M&A. Many lawyers don’t really understand how the company is valued and the impact of cost or revenue synergies on the price. As a consequence they are unable to link the due diligence they undertake with the price. They are rarely able to quantify quantum vs probability to provide a number that can then be used in price negotiations.
- Most marketing professionals are the same. They usually find it impossible to quantify the financial impact of marketing initiatives such as ad campaigns or customer service improvement initiatives.
Can’t show value – This lack of financial fluency puts professionals at a grave disadvantage. It excludes them from the serious c-suite conversations and it makes it difficult to justify the value of their recommendations. “If you can’t quantify what impact this “XXX” project will have, why should we pay you £100k?”.