Hey now, welcome to the Inside BS show where we share with you all of the inside business secrets that you want to know. Here with me this morning is Dave Lorenzo, the godfather of growth. Dave, how are you doing? I'm doing great.

I love your radio voice. That was awesome. Hey now, that was really good.

What's happening, Nicola? So here's what's on my mind this morning, Dave. Lawyers and a lot of other professionals that are adjacent to lawyers have an issue that we keep coming across in our careers. And that is you get that big case and it is an excellent revenue stream for a good period of time.

And then eventually it comes to an end. What's next? Yeah. So we call this the revenue rollercoaster and it's really common for people who are lawyers like you, especially lawyers exactly like you who are litigators.

This is probably the most common question I get. And here's what happens just to set this up. You're an excellent lawyer and you were in a big firm.

And when you're in a big firm, there's usually, I want to say, maybe 10% of the people in the big firm who originate all the work. Now, if you're a CEO, lawyers use the word originate for sales. So there are three people or four people in a firm of 200 who originate probably 80% or 90% of the work.

Maybe a dozen people in a big firm who originate 80 to 90% of the work, but that work keeps all those other lawyers busy all the time. So then you're a litigator and you think to yourself, I've got a great network. It's time in my career for me to go out on my own.

I'm really excited. Is this starting to sound familiar to you? I'm really excited. And then you go out on your own and guess what? You got to develop relationships in order to get the work, but maybe you have a relationship and maybe that relationship gives you one really good case.

As a litigator, a good case, Nicola, that can carry you through for eight months, maybe a year, right? Is that fair? Sure. Sometimes even longer, depending on the size. So you get this good case, but what happens because you're the great lawyer, what happens to your time? If you're in the middle of a big case, how much of your time are you spending on that big case? A lot of your time.

Let's say of your working hours on a percentage basis, you got a big case, how much of your time are you spending on it? If it is at a very busy phase, right? Because it kind of comes in waves when you see what the trial schedule looks like. It could be 70% of your time. It could be 80%.

If you've got an injunction proceeding, that is almost every waking moment of your time for that period of two to three months leading up to something like that. And trying to balance that is very tricky. And then that case makes it past summary judgment, right? And you end up getting into discovery, and discovery takes up a lot of time.

You go through discovery. Maybe there are motions, either you have motions or you're responding to motions. Then all that goes through, you negotiate, you mediate, nothing happens.

You got to get ready for trial. How much of your time are you spending on that case if you're getting ready for trial? Trial is almost every moment of your day. Yes.

It will be a very long time, every day. So you're a sole practitioner, or it's you and a paralegal, or you and an associate, or you and contract attorneys, and you're spending every waking moment of your day. That case comes through, you go through the trial, no matter what happens, win, lose, no matter what, that ends, and it's like you go from 100 miles an hour to zero in no time.

What happens then? You got no business. And the reason you got no business is because you just spent the last 14, 16, 18 months working on this case. And you know what? Good for you because that case paid you, hopefully, a really nice amount of money.

But is that nice amount of enough for you to get through the long, cold winter that's going to come until you get another case if you get another case? So here's what you need to think about. Those of you who are listening to this now, if you're in a firm, whether you're a lawyer, a CPA, an architect, and you're thinking about going out on your own, or you're in a business where you provide any type of service, what you need to think about before you go out on your own, you need to have a plan for how you're going to bring the four different types of revenue into your firm. Ideally, and by the way, nobody does this.

99% of people don't do this. So if you're out on your own now and you haven't thought about this, look, the best time to think about it was before you went out on your own. The second best time is right now.

So give yourself a pass if you haven't thought about this because nobody thinks about this. There are four types of revenue in any business, right? The first type of revenue is what we call ad hoc revenue. And ad hoc revenue is exactly what Nicola was talking about.

You got a great case and the great case comes to you, you do the work and you finish the work, the case goes away, right? It's a one-off. That person hopefully is never going to get sued again or that company is never going to get sued again if you're a lawyer, right? If you're a forensic accountant, that particular matter is never going to come up again. So that's ad hoc revenue.

You find it, it comes, it's done. The second type of revenue is repeat revenue. So what repeat revenue is, is it's the same client but a new matter.

Now those of you who are listening who are not lawyers, a matter is simply a project that you're working on. So the same client but a new project. So let's say in Nicola's case, she's a litigator but she had a transactional division in her firm.

She had a transactional group in her law firm. Her client who she just won the big litigation matter for comes to her and says, Nicola, thank you so much. We really like you.

We trust you. We're going to buy another company. We need somebody to do the paper on that deal.

We need somebody to do the M&A work on that deal. Do you have somebody in your firm? She says yes. That would be repeat revenue for her.

Same client, new project. And the reason it's repeat and it's different from the third type which is recurring, is recurring revenue is the same client, the same type of matter. So let's say Nicola was a transactional lawyer and what she did all day every day was handle mergers and acquisitions.

And her client comes to her and they say, we're buying a company in Miami-Dade County. She does the work and then they say, Nicola, you did such a great job. We're buying companies in every county in the state.

We want you to do that work for us. That would be recurring revenue because it's the same client and the same work. So the difference between repeat and recurring, repeat is same client, new type of work.

Recurring is same client, same type of work. And then the final type of revenue is passive revenue. And for professionals, I highlight referrals as passive revenue.

And the reason I highlight referrals as passive revenue is because Nicola and I have a relationship, right? So if I'm out and about and I connect with someone and they say, hey, I just received this thing. A process server came and handed me this piece of paper and it says I'm being sued, Dave. What do I do? I say, well, you got to call my friend Nicola.

She's a litigator. She'll help you defend this matter, right? That's a referral that I'm going to pass to Nicola. I come across another friend of mine who's getting sued.

I'm going to send that person to Nicola. Nicola is doing nothing to get this work for me other than being a great friend, but I'm continuing to send her that work. So it's passive revenue.

Now in most businesses, there are dozens of ways you can realize passive revenue in professional services, in the practice of law, in accounting. There aren't too many ways to receive passive revenue other than referrals. So we spend a lot of time talking to lawyers, talking to CPAs about generating referrals because it's passive revenue.

So those are the four types of revenue in any business, in any professional firm. There's no other revenue that's going to come in. Nicola, how am I doing? Does that make sense so far? Makes sense to me.

All right. So once you have those four types of revenue, you sit back and you start to realize to yourself, hmm, what am I going to go after? What type of revenue am I going to source in my firm? Because you as a professional have the ability to source any type of revenue you want. You don't need to go out there and chase one litigation matter after another litigation matter after another litigation matter.

You can go out there and build referral relationships, which Nicola does very well. You can go out there and look for repeat or recurring revenue. Now how do you decide which type of revenue you're going to go after? Well, acquisition intensity is one thing you need to look at.

Now acquisition intensity is just a fancy way of saying, how hard is it for me to get this type of work, right? So if you're a professional right now, you're thinking to yourself, ad hoc revenue, it's freaking hard. You got to start a new relationship with a client. And then if you're Nicola, you got to wait for that client to get sued.

You know, you're going to bed every night and before your head hits the pillow, you're praying, please somebody sue one of my friends so that I can have some money coming in the door tomorrow. Ad hoc revenue is incredibly difficult, right? Repeat revenue is a little easier because you already have a relationship with the person. They already trust you, but they've never seen you do this specific type of work before.

So if you're in business and you're a contractor, let's say, and you're really great at doing exterior work. Let's say you're great at doing stucco and you're doing stucco repairs outside. You're here in South Florida.

Every time there's a big storm, the stucco slides off the side of somebody's house and they need a contractor to come and fix it. You've done stucco work for people in XYZ neighborhood all day long. Well, somebody needs work done inside, but you did the stucco on the outside of their house and they call you and they go, hey, Joe, you did a great job with the stucco on the outside of my house.

Your crew was completely professional. You were neat. Everything was done on time.

Do you do any interior work? And you say, yes, of course we do drywall. We do all kinds of repairs. We do handyman type work.

They say, great. That would be repeat revenue, but they've never seen you do interior work before. So they're going to need to invest additional trust in order for you to get that work.

So that's why for repeat revenue, the acquisition intensity is medium because they trust you as a person. They trust you as a business leader, but they've never seen you do that type of work before. So it's still a little bit harder to acquire.

It's easier to acquire that work than it is ad hoc work because they have no relationship with you, but it's harder than say recurring or passive revenue. Now recurring revenue, this is probably the easiest type of work to get because they've seen you do that work before. If Nicola handles the litigation matter for me and she crushes it like she always does, I'm going to give her a litigation matter again because I know she's really good at this.

I've seen her work. I've worked with her. I completely trust her.

The relationship is there. The trust is there. I've seen her do the work.

She has enormous credibility in my eyes. So recurring revenue, same client, same type of work, easy for me to be convinced to give it to her. Passive revenue is also really easy to acquire.

There's low acquisition intensity. Why? Because if I'm referring work to Nicola, I trust Nicola. So my buddy Pete comes to me, he's getting sued.

He goes, who can I trust? He says, who can I trust? And I say to him, you got to trust Nicola. She's the person that I would trust if I were being sued. My relationship with her serves as the foundation for him to develop a relationship with her and the trust I have in Nicola is passed through me to Pete.

So he immediately trusts her because Pete trusts me. He trusts Nicola vicariously through me. So from an acquisition intensity perspective, recurring revenue and passive revenue are the easiest.

Repeat revenue is the next easiest and the hardest is ad hoc revenue. Now, Nicola, you just saw this. What do lawyers in particular, but all business owners, where do they spend all their time? What type of revenue do they spend all their time chasing? More often ad hoc than passive.

I think for lawyers, there's a challenge sometimes with marketing. And so that was going to be my question to you, Dave, is what about those people who are looking at this saying, this sounds great. And I think that this is spot on Dave, in terms of the intensity of the acquisition.

But what about those people who don't view themselves as good marketers? What can they do to make sure that they are accessing the passive revenue and making it easier for them to develop more business? Yeah, that's a fantastic question. Thank you for asking that. So if you're, let's say you're outside of professional services first, let's say you're you're in a B2B setting because that's who this show is for, right? We share the inside business secrets for B2B CEOs and business leaders.

So you're in a B2B setting and you want to go out on your own. The first thing you need to do is take an inventory of your relationships. Now, if you're in professional services, it's exactly the same.

You want to go out on your own. You want to take an inventory of your professional relationships. And you're going to say to yourself, here are 25, 50, 100 potential clients.

Here's the value I could provide to these 25, 50, or 100 potential clients. And I know that if I provide this value to these 25, 50, or 100 clients, half of them will give me a shot because I have relationships with them. But that's not where you're going to stop.

You're going to then look at those. So let's say of your 100 closest relationships, you know 50 of those potential relationships will come on board with you. Either they're working with your current business or they're adjacent to you in some way where they've seen you work over the years and they're going to come with you.

The 50 businesses you're going to look at, the ones you're going to go the hardest after, the ones you're going to secure right when you come out of the gate, when you go on your own, you're going to secure the people as clients who have multiple matters that they could send to you. So in your case, Nicola, if you're a litigator and you're going to go out on your own, before you go out on your own, what you should be doing is you should be looking at your 100 top relationships and then calling it down and saying to yourself, okay, who has three or four different revenue streams where they're going to need my type of protection? And this is what you're going to do. You're going to do what nobody else does before they go out on their own.

Only the top 1-2% of the best entrepreneurs do this. You're going to adjust your business so that you can meet the needs of those prospective clients. And I'm going to say that again because it's so important.

You're not going to go out from an internal orientation perspective. You're not going out thinking to yourself, what can I, Dave Lorenzo, provide to the world? No. You're going to form your business with an external orientation and you're going to say to yourself, what does the market need and how can I set up my business before I even go out to meet those needs so that I can make the fourth sale easily and I don't have to worry about the first, the second, or the third sale? Lawyers don't do this.

Here's what lawyers do. Lawyers go, I'm a great transactional lawyer. I just handled a $360 million M&A deal.

I'm a master of the universe. I can do that all day, every day. I'm going to go out on my own.

And then they look for another $300 million merger and they're shocked, absolutely shocked, when it's not there. What they should be doing is they should be going, what do companies need in preparing for the $360 million merger and how can I fill those needs along the way? And the fourth sale will be the $360 million merger. But the first, the second, the third sale I make are going to be the steps in preparing for that.

So to answer your question directly, look at what the market needs, set your firm up to fill those needs, and then you'll not only be ready to handle what's in your wheelhouse, you'll also be ready to handle everything that leads up to what comes that's in your wheelhouse that you can serve. Now here's what that's going to do. That's going to force you to think about complementary partnerships, either strategic alliances or it's going to force you to think about bringing other people on board before you go out on your own.

And what that will do is that will also force you to think about repeat recurring and passive revenue because now you're not just thinking about what you can do, you're thinking about what your team can do. And it's going to put pressure on you to get business for the people who are part of your team. And this is the most valuable thing I teach brand new baby lawyers, most valuable thing that I teach brand new people who are getting into practice on their own, most valuable thing I teach to entrepreneurs.

You need to source work first and foremost for people who are not you because if you're doing the work all day every day, nobody's growing the business, nobody's watching the accounts receivable, nobody's thinking about the strategy for the business 3, 5, 10 years down the road, nobody's thinking about your exit strategy because your head is down and you're buried in your business all day every day. So if there's one thing to take away from this, it's not just that professional services focus too much on ad hoc revenue, it's thinking about that fourth sale first, thinking about the relationship first, having an external orientation and saying to yourself what is the market need and how can I fill that need and then in filling that need maybe your service comes second or your service comes third or the service that you're so in love with comes fourth and it's easier for you to get that from a passive point of view or from a recurring point of view or from a repeat point of view. What do you think, what's the big takeaway for you in this Nicole? I mean you're a fantastic lawyer, you're a great relationship person, you started your firm a year ago, you know 14-15 months ago, what's the big takeaway for you from this? Excellent advice Dave, I mean I think you nailed it by saying start with your client list, those relationships that you have, narrow those down to be able to focus on where do I go next.

You know something else that I would add to that is also think about who else do you want to work for, who are those clients in the market that you would love to have and apply that same level of thinking towards those clients. Let me build my model so that I already know I can service them so when you get the opportunity to present to them you can already say we know what you do, we know we could be an excellent partner with you in this market. Do you find, you talk to a lot of attorneys and I know some of the attorneys you know and you know a lot of excellent lawyers, how often does something like this come up? How often is this topic, client segmentation, client selection, how often does this come up? Not as often as it should.

We should be thinking about this a lot more often, I think there's a tendency when you have great work to not be thinking about what's next, what other relationships can I focus on building right while you're having a great, whether it's a transactional matter that you're working on or litigation matter that you're working on, I think sometimes it's not at the forefront and it really should be because going back to the model you don't want to be at a point where it runs out and then you're thinking about what's next because now you've created the lag time to get there. Yeah so here's the action item for those of you who are listening, those of you who are watching and I'll give you, I'll break it down for three different types of people. First and foremost if you're an attorney, you're like Nicole, you're a really good lawyer and you're thinking to yourself well what do I do with this information if I'm a sole practitioner and I'm a litigator? First thing you do is you go out on the hunt for a great transactional firm and you create a strategic alliance with a transactional firm that you will send them your transactional work and they can send you the litigation.

Now the temptation will be to make this a reciprocal referral relationship where you think to yourself hey it's going to be one for one I'm going to send them you know a transaction and they're going to send me litigation. That's never going to be equitable. Somebody's always going to be out of balance.

So my guidance to you would be to quote unquote date for a little while, maybe send one or two referrals to each other and then form an of counsel relationship or a true strategic alliance where there can be in compliance with all of your state bar rules, there can be some sort of fee sharing. What that does is that gives you an incentive to source work for others and then you got a real business on your hands. When you're sourcing work for others and you're getting paid without having to do any work, that is the opportunity that you've been looking for.

There's your passive revenue stream. So that's what I would do if I were a lawyer. Now if I'm a CEO of a business, I'm immediately going to go out and I'm going to call my best clients and I'm going to say to my best clients what are the biggest problems you have? What are the problems that are that you're struggling with? What are the problems that are keeping you up at night? Who's tried to solve them and why haven't they been successful in solving them? And then I'm going to spend my time figuring out how I can solve those problems.

Why? Because if you come up with a solution to those problems, you've immediately got a brand new revenue stream that you don't have to spend a lot of money to acquire because nobody's solving this problem for them now. Your solution is the only solution. You're operating in a vacuum.

The third group of people who should think about this immediately are people who are thinking about becoming entrepreneurs. I have a friend. Her name is Tracy.

Now she runs a travel agency for affluent people, provides phenomenal experiences. And we got together three years ago before she started to think about going out on her own and she was an executive with a large hotel company. And for three years, she systematically put the pieces in place to get ready to acquire these clients so that the minute she left, the minute she hung her shingle, she had four different revenue streams in her business.

Only one was dependent upon her. So if you're thinking about becoming an entrepreneur, what you need to think about is who your target client is and what needs they have now that are either underserved or not being filled. That's what you got to do.

And you have to have a plan for how you're going to fill those needs. You don't need 20. You need two, maybe three.

If you've got four, that's great. Then you're ready to go out on your own. One of those four should be services you provide yourself.

The other three should be services that could be provided for you. That's the inside business secret to how you get your business off to a fast start. That's the inside business secret to how you develop a business, that you don't have to pull your hair out every day to make sure that there's money coming in the door.

All right, Nicola, close us out. That was great advice. Thanks, Dave.

If you've enjoyed the show today, please make sure to subscribe wherever you get your podcasts. And if you'd like to leave us a comment, we encourage you to do so. This is Inside VS Show.

I'm Nikki G. And you are? I'm Dave Lorenzo. I'm the Godfather of Growth. We'll see you next time.