This is the fourth in a series of posts about the New Faces of the Law Firm Competitive Landscape.
The next emerging face of the legal industry is the efficient law firm.
These are firms that recognize that even the most complex legal matters have aspects that are routine and can often be standardized. They recognize that with very little exception, price matters to their clients. And they realize if they can’t tangibly demonstrate how they control costs that their clients will find someone who can.
Those factors alone are driving them to rethink the delivery of legal services to lower overall costs and provide greater value to clients.
It’s apropos to be writing this post upon my return from Legal Tech NYC and the New York Revinvent Law Conference. Both events highlighted at least two ways in which technology is changing the practices of law: 1) How lawyers deliver legal services and 2) How clients access legal information. Although related, these are distinct concepts in that more users of legal services are opting to address their needs without involving lawyers in the first place.
Although this may sound ominous, it does prevent an opportunity for firms outside the “ultra profitables” to reach a market that has need for their services but is not currently a buyer. Improving the way lawyers practice by integrating automation, work process and technology creates this opportunity. Contrary to the idea that technology will replace lawyers, early evidence suggests that firms that can work efficiently and effectively will get a greater share of legal work. Standardization also brings the opportunity for law firms to measure costs and develop business models that drive profitability rather than revenues. This opens new doors for lawyers to charge less, add more value AND make more money at the same time.
Unfortunately the gap in thinking between the Reinvent Law movement and lawyers who grew up under the billable hour model remains wide. Too many lawyers still equate efficiency with a cannibalization of their practice. I’m hoping more lawyers will buy into the concept that lawyers + technology yields greater value than either lawyers or technology alone.
Put another way — as Martin Schwimmer of Leason Ellis LLP did so eloquently as he concluded his Reinvent Law presentation, The Law of Shapes to Come — “Software can’t do the shit I do.”
This is the third in a series of posts about the New Faces of the Law Firm Competitive Landscape
While there is no evidence to suggest that bigger is better, that hasn’t stopped a new breed of Mega Global Firms from emerging onto the legal landscape.
Mega Global Firms are easy to spot: Just follow the attorneys. Mega Global firms have the most lawyers and the widest global footprint. Interestingly, there are only nine AmLaw 100 firms that meet the “global” requirement (Global is defined by distribution of attorneys across the globe rather than number of offices). Of those, only three fall into the truly “mega” category: DLA Piper and Baker & McKenzie – each with 4000-plus attorneys – and Norton Rose, which trails closely behind with 3,800 attorneys.
If you don’t think three firms is enough to make a class, let’s wait five minutes and check to see who has joined the group. The pace of acquisition raises the potential for additional Mega Global firms to evolve. Among the remaining global firms, all but one have 1,000 or more attorneys. Merger discussions with SNR Dentons and McKenna Long, would cleary establish the 1,000-plus attorney firm as a Mega Global. Talks of an Orrick-Pillsbury combination would make these two national firms Mega Global contenders as well. (Although as of this writing, there are serious doubts about the viability of either merger).
There is no question that globalization makes sense in that it provides firms a competitive advantage with multi-national companies with broad global footprints. After all, mega company begets mega firm. But the trickle-down effect these firms have on small and mid-sized players could be potentially devastating over the long-term.
With the Ultra-Profitable firms capturing the highest value work (see previous posts here and here), Mega Globals will continue to expand into new markets. While large company work may be there bread and butter, don’t be sure they won’t move downstream if demand continues to remain slow.
In doing so, Mega Globals will be positioned to poach talent in key markets where they want to grow. If the talent doesn’t come with them, they may also leverage their economies of scale to undercut smaller players and ensure control of the market.
So if the legal market evolves over the next 10 years to a handful of Ultra-Profitable firms and a handful of Mega Firms, where does that leave everyone else?
Clearly many will scramble for the last chair before the music stops playing.
But there is plenty of room for firms that define success beyond partners per profit and headcount, but it will require change. To survive among the new faces of the legal industry law firms will have to rethink the way they deliver legal services and how they differentiate from others in the market. They need to look at their market focus, the way they deliver legal services and identify insight they can provide clients that will help them run their businesses better.
Where will your firm land?
When it comes to law firm strategy, there is nothing lawyers like more than non-fee sensitive work. But with the exception of corporate investigations and tax-disputes, this coveted slice of the legal market pie is not much more than a sliver, and everyone wants a bite.
There was a time when most of the AmLaw 100 and even some of the AmLaw 200 were all able to secure a share of the highest value legal work, but that is becoming increasingly difficult — even for well-reputed firms. The reason rests with a new tier of Ultra-Profitable firms. These firms are so profitable that they are able to poach the most talented lawyers from other firms, essentially buying the clients with the highest value legal work. Although it is unlikely this group of 20-25 firms will capture 100 percent of the highest value legal work, they likely will own the majority of it. That will leave the remaining AmLaw 100 firms scrambling for what’s left — a market likely less than half the size than it was even five years ago.
What makes an ultra-profitable firm? The American Lawyer defined this group a couple years ago based on profits per partner. They looked at the Top 50 most profitable firms and found that there was a $1.3 million gap in average profits per partner of the top 25 firms compared to the average profits per partner of the next 25. My company, Legal Vertical Strategies looks at a combination of profits per partner and overall firm profit margins to predict the firms that will most likely make up a new tier of about 20 firms that will dominate the global market of high value legal services.
The impact of the Ultra-Profitables is not limited to high-end legal work alone. The strategy of poaching individual attorneys versus acquiring groups or firms in their entirety is having a trickle-down effect on the entire legal market. The Ultra-Profitables are shaking the AmLaw 100, adding to the destablization of the once monolithic sector known as Big Law. Today, the AmLaw 100 is increasingly fragmented — with four clear tiers of firms emerging. The Ultra-Profitables sit comfortably at the top.
Meanwhile, firms in the tiers below the Ultra-Profitables must make tough decisions when it comes to their top talent. The decision more often than not comes down to money. Firms either risk their top talent walking out the door and taking their most profitable clients with them, or they must compensate them accordingly to get them to stay. This makes money the driving force behind talent management, results in sharp disparities in partner pay and can contribute to the overall decline of law firm culture.
With the market for bet-the-company work saturated, firms outside the Ultra-Profitables must find new sources of revenue.
National firms face competing pressures as Ultra firms cherry-pick their talent. With the exception of non-price sensitive work, which will become increasingly difficult to retain, these firms will work to get bigger but many will have to lower rates or risk losing market share. They will cherry pick talent from the tiers below or combine with other firms. But if their business structure doesn’t change, long-term sustainability will be difficult. We’ve witnessed this with Howrey, Heller Ehrman and Brobeck already.
Regional Firms will continue to struggle to attract and retain high quality talent due to compensation pressures. If they try to be all things to all clients they will struggle to compete with national and global full service firms who offer greater breadth and depth of services and can, if needed, undercut you on price. In the short-term, there will be opportunities to acquire lateral partners from the big firm world that will help strengthen their credibility with larger clients. The challenge will be in ensuring the partners they bring on are productive.
Ultra-Profitables Have No Guarantees
Firms that fall into the Ultra-Profitable category face risks of their own. Look no further than Dewey for evidence of how special contracts to incentivize rainmakers to stay at the firm contributed to its ultimate demise.
Although demand has been flat in recent years, the need for legal services is not going away. Opportunities abound for lawyers to adopt new models for providing their services, and clients are open to these conversations. Done right, getting small can provide you with a competitive advantage over larger firms that lack the flexibility in your ability to adopt technology and legal project management skills that will increase profitability and provide greater client value.
But it will require firms in the lower tiers to rethink the way they are delivering legal services and how they are positioning themselves to compete in the market. Clarify what your firm does that no other firm can offer and use that to differentiate yourself in the market so you can then leverage your lower cost structure and high experience level to compete against large firm rates.
Five emerging faces are changing the competitive landscape of the legal industry in permanent ways. Is your practice sustainable?
The new faces of the legal industry include:
1) The Ultra Profitable Firm — The handful of AmLaw firms whose profits per partner are so great that they are able to leverage their buying power to poach the best talent in the market and capture the largest share of bet-the-company litigation.
2) The Mega Global Firm — A set of law firms that is buying up geographic market share. While all but nine AmLaw 100 firms have non-U.S. offices, there are only 10 that are truly international based on the distribution of lawyers on the ground. Of those, there are six that have reached mega status — with upwards of 2000 or more attorneys.
3) The Non-Law Firm — Increasingly non-law firm services providers are filling gaps in the market that lawyers just aren’t serving. These include leveraging people, process and technology to conduct routinized tasks more cost-effectively, as well as providing business, technology or compliance/risk mitigation consulting to limit the need for lawyers.
4) The Efficient Lawyer — These are lawyers that have learned that to sustain a thriving practice, they most work more efficiently. They have taken a lesson from the non-law firm in some cases. In others, they are leveraging the non-law firm to provide greater value to their clients and increase their own profitability.
5) The Pragmatic Client — No conversation about the legal industry is complete without a discussion about the client. Today’s decision-makers have different priorities when it comes to managing legal spend and lawyers need to start listening.
Over the coming weeks. Law Firm Transitions will explore each emerging face of the legal industry. In the meantime, as you evaluate your ability to remain competitive in the new legal market, consider the following questions:
- Do I/does my firm have a true value proposition that differentiates me even when I’m being compared to other lawyers who do the same thing I do?
- Do I/does my firm have a defined target market or do I try to be all things to all people?
- Do I/does my firm truly understand the specific pain points – legal and non-legal – my clients commonly experience when they call on me for help?
- Do I/does my firm regularly identify the trends and issues that occur time and time again when working with clients, and do I leverage this insight to add value to my clients?
- Am I/is my firm confident the current way I deliver legal services and the fees I charge will be sustainable over time, even if the work I do becomes price sensitive and new technologies change the perception of what I do?
August is the weakest month for billable hours in the United States, according to a Law 360 article published last month.
Taking advantage of downtown to relax and rejuvenate is an important aspect of all of our lives. But before you completely shut down, take time out to think about your business development strategy for the rest of the year. Consider these observations from the July/August issue of Law Practice Management:
- From a revenue standpoint, most American corporate firms will show little if any growth.
- An increasing number of corporate firm practices are viewed as undifferentiated.
- Most BigLaw firms lack leadership versed in business practices that allow them to map a purposeful course for growth.
No strategy for how you will grow or sustain your current practice in a low-growth, undifferentiated environment? You might want to rethink your summer plans. There is no better time than the present to take a step back and think long-term about your practice.
Here are four tips to start the process:
Solve your identity crisis: Without fail, nearly every firm I work with has an underlying identity problem. They don’t know who they are or, worse yet, they’ve invested the majority of their marketing in trying to look like everyone else. Start here and consider what you offer clients that no other firm offers.
Random Acts of Marketing: I probably overuse this phrase, but that is become the problem hasn’t gone away. If your marketing activities are not directly tied to a business generation goal, you are most likely engaging in random acts of marketing. This is expensive, time consuming and ultimately frustrating. To avoid RAM, identify first what you are trying to accomplish and develop a step-by-step plan of attack for getting there.
Trade “pitching” for purposeful conversations: To differentiate yourself fully, you need to stop selling services and start providing insight into your clients’ business that they don’t currently have. There is tremendous opportunity to leverage your firm’s intellectual property — your people — to develop compelling insights that will create demand for your services that no capabilities deck will be able to replicate.
Practice Reform: The competitive landscape for law firms is changing. If you aren’t rethinking the way you deliver legal services, someone else will. Law firms increasingly compete with technology companies, business consultants and hybrid organizations.
We are heading into the dog days of summer. What will you do with your free time?
I recently had the privilege of moderating a panel of general counsel in San Diego to get their perspectives on working with outside counsel in the posts-recession economy. The lesson I took away from the conversation was about the value of follow up.
While there were a variety of views on the best way to forge new relationships, one common theme was that very few attorneys follow up or try to sustain a relationship after the first attempt. Bad practice, according to the panelists.
They say that they are often impressed by certain conversations even if they don’t end up hiring the attorney for that matter.
In most cases, however, the general counsel may never hear from that person again.
The same is true for educational events. In today’s fast-paced environment, education is increasingly important. The panelists all agreed that an attorney who is impressive on a panel is memorable and someone they would consider for a future matter. But seldom do they ever hear from a speaker after the event is over.
In my experience working with law firms as a consultant and from my direct experience in house, lack of follow up is a pervasive problem. The general counsel on my panel reinforced this notion. Lawyers seem to have a natural reluctance to stay connected.
The lesson: Just because you don’t get hired on the first go-round does not mean you’ve been disqualified. Follow up with a phone call a month or so later just to check in. Invite your contact to lunch. If you are speaking at an event, send a follow up email after the fact to attendees. If possible send them something of value like an article related to the topic about which you spoke.
Be memorable and make it easy for prospective clients to connect with you.
Globalization, technology, and law firm economics are changing the face of the legal industry. Lawyers are not going to go away, but the practice of law is going to be different. Law firms need to understand where they fit in the market, who they compete against, the type of work they compete for and how they plan to execute on that work. If they are to compete outside their competitive stronghold, they will need to be clear about how they will do it.
For firms of every size, the imperative to think long-term has never been greater. Lawyers looking one, three, even five years out may not see the changes in the landscape as an imperative — after all, change in the legal industry tends to be slow.
But the changes that will need to take place to respond to the new law firm environment will also take time. Firms that start now to make long-term changes to address the shift in the legal landscape will be best positioned to thrive in the next decade and beyond.
Among the considerations:
1) Rethink law firm roles. Law firms to need analyze the process that goes into the delivery of legal matters and identify ways to standardized at least a portion of what they do and rethink the way they deliver it.
2) Technology. As the internet generation enters the business world, there will be a new comfort level with online services that lawyers cannot ignore. Lawyers need to identify ways to leverage technology to improve service delivery, the client experience, or both.
3) Offer something others can’t. The ability to stand out from the noise of a crowded legal market will be critical to survive into the coming decade. Contrary to general belief, every firm is different. Firms must invest the time and resources it takes to understand why and develop a strategy to showcase how.
4) Be a good business mentor. Many lawyers assume that clients know what they need when they seek out a lawyer. Most don’t. Lawyers who take the time to understand the business issues facing their clients and can help them define their needs will have a competitive advantage.
5) Be prepared to offer services on a flat fee basis. The death of the billable hour has been widely exaggerated. That said, clients want options and the ability to compare services and manage cost expectations.
None of these questions are easy to answer and each requires a significant investment in time and firm resources. However, as pressure continues to squeeze firms, it may be the difference between extinction and sustainability.
The pressure to discount rates has never been greater. Yet studies of complex sales like legal show that less than 10 percent of decisions are based on the value-to-price ratio:
So why has price become the cornerstone of so many conversations between lawyers and their clients? There is no question that legal budgets have become a greater focal point for companies in the post-recession economy, but it is more than that.
More people than ever before are leveraging their personal networks and publicly available information to make decisions about what and from whom to buy. These resources always have been part of the due diligence process for making purchasing decisions, but in the digital age, where people have instant access to social networks and an abundance of free online information, the influence of these factors has grown exponentially.
Just think about what happens when you get a new ache or pain. Do you call the doctor immediately? Chances are, no. First you might ask someone for their insight — maybe you post a question online, email some trusted friends, make a call or ask someone face-to-face. Once you get insight from those you trust, you will probably go online to research a potential ailment or get background on a doctor. Next thing you know, you are in the doctor’s office, sharing your self-diagnosis and inquiring about a specific remedy.
The impact of the internet on the “sales” process is fascinating. Research by the CEB Marketing Leadership Counsel across 22 B2B industries revealed that the average customer had completed more than half of the purchase process before having an initial conversation with their service provider. That means clients have already vetted their choices and face-to-face conversations often focus on specific requirements — price being the major one.
If that data holds true for the legal industry, what does it mean for lawyers?:
1) Your marketing program is no longer a “nice to have,” it is a “need to have.” Face time with potential clients is no longer a commodity, so you need to find ways to engage with potential clients long before they need your services. You don’t need to friend your clients on Facebook or have a Twitter account if that is not who you are, but you do need a robust online presence that leverages the same online channels that your clients use. And, instead of developing content that begins with you, identify topics that are focused around the needs of your clients.
2) Your brand must define you as more than a good lawyer. Your marketing must express what makes you different. This is not a new marketing concept, but it is something lawyers continually fail to do. If your website or bio is dominated by words like “Innovative,” “Client-focused,” “Responsive,” or “excellent lawyers,” it is not working. That’s not to say these things aren’t important, but it isn’t going to make your stand out.
3) If you don’t want to compete on price, bring something new to the conversation. If your prospective client has learned all about you online and wants to talk to you, be as prepared as they are. Bring something to the conversation that will give them insight into their business that they don’t already know. Make the time they spend with you valuable. If there is nothing new to talk about, all you will be left with is price.
If your marketing and business development efforts lead to conversations that show clients why you are the only person who can solve their need, price won’t matter.
Debra Baker, esq., is chair of the law firm services group of Legal Vertical Strategies. She works at the intersection of practice management, marketing and business development to help lawyers drive revenue and expand client relationships. LVS has developed a proprietary process called Insight Mapping to help law firms define what makes them different and develop strategic content marketing programs and business development toolkits that create business opportunities.
The career path for attorneys has never been more challenging. While lawyer job dissatisfaction is nothing new, rapid changes in the legal industry create uncertainties for attorneys who plan to practice law for another decade or longer.
Increased focus on profitability and changes in the law firm business model impact every lawyer:
- Service partners who rely on work from other attorneys risk being de-equitized or asked to leave their firms all together.
- Senior Associates know that the path to partnership requires building a book of business, but many lack the skills they need to do so.
- Solos and lawyers in small firms face their own challenges in trying to balance the roles of legal practitioner, client generator and business manager.
- Even revenue-generating partners realize they are only as valuable as the clients they bring in today. The pressure to remain productive is intense.
The path going forward for law firms has yet to be paved. At the same time, there are also new opportunities to rethink the practice of law in response to changing market dynamics.
Lawyers cannot afford to stand still without reacting to the changes going on around them. This is not an associate problem or a partner problem or even a law firm management problem. It is a lawyer problem. Mid-career attorneys need to start thinking about what they want their practice to look like in a decade and begin now to plan for that future. This includes:
- Clarifying why they do what they do and what their specific personal and professional goals are.
- Analyzing the market to identify and validate what their practice will look like.
- Consider what changes they can make in the way they deliver legal services to better respond to changing market dynamics.
It is exciting and a little scary to be a lawyer in today’s market. Marketing, business development and practice management are no longer distinct disciplines. Those that thrive will be the ones who evaluate their careers from all three of these vantage points and develop the discipline and consistency to execute on a defined plan for long-term success.
Debra Baker is a journalist, turned lawyer, turned business owner focused on helping law firms and individual attorneys transition their legal practices to drive revenue in a rapidly changing global economy. She offers presentations, training and law firm strategic marketing and business development consulting services. For more information on how she can help your firm, contact her at email@example.com or call 888.322.1226 ext. 701.
I participated in the Vistage All-City event in San Diego last week where Brian Beaulieu of ITR Economics spoke about how to stay ahead of the curve in light of the economic forecast for 2014 and beyond. His view: The long-term economic outlook remains dark with the next big downturn expected in 2018. Inflation and taxation will continue to plague the economy. The ITR outlook shows:
2013 – Flat
2014 – Slight Decline
2015-2017 – Growth
2018-2019: “Nasty” Decline
So what does that mean for the legal profession?
First, it does not mean that business will go away. The greatest drivers of the economic slowdown — increased taxes, healthcare costs, the Dodd-Frank Act and other regulations, will create business opportunities for lawyers.
Second, with economic downturn comes resilience. We have already witnessed a number of industries reinvent themselves to thrive in the coming decade. This will create more opportunities for lawyers.
Third, the U.S. remains the venue of choice for litigation both at home and for global companies doing business here. There will be no shortage of need for good lawyers.
All of that said, there is an important caveat: Point Four. Law firms cannot afford to wait it out any longer. We saw what happened to many firms that failed to respond to the signs that led to the financial collapse in 2008. The signs for 2018 and 2019 are clear. Lawyers must stop putting their head in the sand and start investing in their futures.
Here are two questions every lawyer must answer today:
1) What clients can serve that you are not currently serving?
2) What new services can offer that your current clients need?
The challenges facing the legal industry are no different than any other industry that has had to reinvent itself in light of changing economic conditions. Yet firms continue to be slow to change. In the next three years firms have a window to prepare for the future. But it will requires an investment of time, resources and capital. It is hard work, but one that will come with a payoff. The question is: Are you ready to make the change?