Some years back, the southern San Francisco Bay Area transitioned from an agricultural region into the center of technology known as Silicon Valley. Emblematic of that transition was a plum farmer who decided to ride the growing technology revolution by creating a new use for the plum. Specifically, he endeavored to invent a fat substitute.
To that end, he hired a biochemist to create the fat substitute and a patent attorney to protect the related intellectual property. Within a year, the biochemist had created a fat substitute that passed the core taste, texture, and appearance tests. The attorney, who had come highly recommended, seemed ideal to the farmer: his quality was strong, the fees were reasonable, his client care was exceptional, and best of all, he had experience in the agricultural business.
And yet, the product failed in the market. Why?
Neither the farmer-turned-entrepreneur nor the attorney had asked the four following crucial questions:
- How many fat substitutes were already on the market?
- Who purchased those fat substitutes in large quantities?
- How many of the existing fat substitute products were based on intellectual property already controlled by the purchasers through their own internal R&D or third-party licenses?
- The final, obvious question: what were the odds that a San Jose plum farmer could capture a credible share of an already overcrowded fat substitute market?
The product, of course, was abandoned in short order.
On its surface, it wasn’t the attorney’s job to answer the questions posed above, which were basic business questions that the farmer-turned-entrepreneur should have addressed. But at the same time, it would have benefited the client immensely had the attorney raised those questions at the concept stage.
In comparable situations, what many clients need and what a skilled attorney should be able to offer is a degree of business acumen. Here is a working definition:
Business acumen is an understanding of how a to become successful and remain successful. It combines legal literacy—the ability to understand and solve a client’s legal issues and concerns—with business literacy; recognizing how strategies, behaviors, actions, and decisions surrounding these legal issues not only affect the client’s immediate legal challenge, but also drive profitable and sustainable growth in the longer term.
In most business segments, whether local or global, clients continually think of the “big picture.” They desire a clear understanding of how business works and how it sustains profitability. In this context, your attorney should regularly ask him/herself, “How do I positively impact my client and its long-term success?”
Too often attorneys don’t understand enough about the intricacies of a business to help it make solid, strategic decisions. Without understanding the business side of a client’s legal issues, an attorney is less likely to guide a client to align its priorities or support the company’s vision and goals.
This gap in understanding the basics of the business, operating goals, and competitive comparisons means that too many recommendations are being made and too many actions are being taken that may not align with essential business objectives.
It is useful for attorneys to be able to accurately help a client assess the industry landscape and connect decisions and activities, not just with key legal issues, but with financial, functional, operational, and strategic issues. A business owner or senior officer can assist their attorneys (both in-house counsel and law firm counsel) by ensuring that those attorneys have:
- Thorough insights into your organization;
- Comprehensive understanding of your organization’s operations;
- Correct use of your industry’s business and technical terminology;
- Keen and direct awareness of your priorities and the priorities of the organization;
- Ownership of the legal agenda of your organization;
- Substantive knowledge of your organization’s business model, strategic plan, and competitive position in the marketplace;
- A clear understanding of how the business leverages core competencies for growth and profitability;
- The ability to recite your organization’s value statement to its customers.
Every lawyer should clearly understand how their clients define business success. By the same token, every enterprise should be able to depend on both their internal legal department and their external attorneys to do more than provide legal advice. In the best relationships, attorneys help their clients to develop sound strategies that best position the organization to achieve its goals. To foster that type of partnership, both clients and lawyers must not shy away from a free exchange of critical questions and answers about the relevant industry, customers, and business strategies.