Strategic and profitable growth has nothing to do with size. Instead, it has everything to do with market positioning.
[This is Part Two of a two-part series on Strategic Growth in the Legal Services Market and the foundation for the second half of my September 2024 keynote address to the Alberta Civil Trial Lawyers Association in Calgary.]
I noted in my final thoughts of Part One that evolution in the global legal services market has been upon us for well over three decades. Also, that shifts within the staid and traditional legal services industry have been accelerating more fiercely over the last 10 years in particular and with jet-like propulsion of late.
I identified four legal market juggernauts: 1) Post-pandemic business recovery – or not; 2) Culture shock affecting associate churn, partner transfers, and succession; 3) AI’s influence for better and/or worse; 4) The billable hour on trial for its life, and that all will continue to impact the business and practice of law for years to come.
Despite these daunting hurdles and other concerns, growth can be realized by expansion or contraction. Either strategy—when well-considered and tightly customized—enables exponential and profitable growth provided business and not practice is the primary consideration.
So, questions that must now be asked, examined, and answered are: What will growth in the legal services industry mean and look like in the very near future and years to come? And will exponential growth be triggered by the intuitive reaction of expansion or the counterintuitive strategy of contraction?
Expansion: More is more
Expansion is intuitive. That’s because breadth is often gained by adding complementary services, practices, or talent. Breadth enables:
- Greater number of practice offerings
- Practice and practitioner variety
- Cross-servicing potential
For example, in Canada, several Personal Injury firms based primarily in British Columbia and Ontario have expanded beyond traditional personal injury services to provide medical malpractice, sexual assault litigation, etc. to broaden their business models and offerings. Knock-on benefits can include attraction of new types of talent. This, in turn, can lead to injections of capital to buy into a partnership that, like a ship carrying ballast for stability, enables the distribution of risk onto more individuals who also – to extend the shipping metaphor to piratical – share in divvying up the doubloons.
While expansion is intuitive, it can also appear, at least on the surface, to be natural and seductively easy. However, expansion can lead to ruin if not carefully managed with constant checks and balances of all kinds, including financial. I mention financial because it’s shocking how often money is not a primary consideration but often an afterthought that comes back to bite and bite hard.
Expansion can work if is crafted strategically with brightline boundaries along with transparency of procedures and processes that are executed and operated by strong, savvy and efficient professional management.
Strong governance, savvy management, and across-the-board buy-in are critical components to success of any expansion process. This is because without specific legal market growth goals, defined strategies, astute tactics, and merciless measurement along with testing against the consistent “why?” plus quick and nimble course correction, expansion can lead to morphing into an out-of-control situation that tips a firm into failure. In the Canadian legal market, look no further than the mismanagement crash-and-burn horror show that decimated Heenan Blaikie in 2014.
Mergers and Acquisitions A-Go-Go
Mergers and acquisitions have always been a go-to strategy for law firm expansion.
In Canada, this year’s most notable transaction was IPH Limited’s acquisition of Bereskin & Parr, which was added to Smart & Biggar in September. Along with Ridout & Maybee and ROBIC, the B&P acquisition marked Australia-based IPH‘s fourth acquisition in Canada in two years.
In U.S. markets, this year has been a “bigger is better” bonanza. Among headline-grabbers: Allen & Overy merged with Shearman & Sterling in May, Lathrop GPM acquired Hopkins Carley in October, and Womble Bond Dickinson and Lewis Roca, Troutman Pepper and Locke Lord, and Ballard Spahr and Lane Powell are set to formally combine in January.
“More is more” isn’t a panacea. Often, it’s an attempt to extend a lifeline.
Law firms of all sizes are going through mergers and acquisitions because combining enables breadth. However, there is always a price to be paid in terms of client conflicts, operating differences, and cultural traits that can result in internal wariness often to the point of downright hostility. These damaging issues and more culminate in ongoing revenue leakage due to client and lawyer departures at worst and, at best – if it can be called that – referring work to firms across the street rather than colleagues down the hall.
Those who have hands-on experience with law firm mergers or acquisitions know the myriad problems that come from combinations. Among them are operational issues, such as location decisions, practice technology tools, and most importantly, alignment of financial systems. For example, many years ago, I was involved in a merger where the combined firm was grappling with each of the four merged firms’ accounting systems none of which spoke to each other.
Pay and People
There are always issues around pay and people with pay often eclipsing people in importance.
Because compensation is consistently front-and-centre, culture is pushed backstage pre-merger. A dead giveaway? Dismissive comments, such as “they’re just like us” when often the combining firms are as alike as a turnip and a zebra. Not even the same species.
Post-merger is where cultural issues surface. This is where the fairytale ends, and fallout begins. This is often a good thing. Talent and clients migrate elsewhere by choice or conflict. This happens quickly. The combined firm rebalances more slowly, often taking years and resolving only when long-term talent shifts through a succession process or are otherwise sloughed off.
Because oftentimes size seems to matter, there is an old chestnut to be cracked that pertains to growth by lawyer headcount. In the 1990s, law firms touted market strength by their number of lawyers. Now, growth by laterals is driven by compensation with talent swapping firms on an almost daily basis as if they’re changing their shirts. In 2012, Norton Rose had 2,900 lawyers before its 2013 merger with Fulbright & Jaworski – I know due to involvement – after which it boasted 3,800 lawyers. However, as of June 2024, “NRF today has more than 3,000 lawyers.” Do the math.
Better to scale revenue rather than headcount by instituting processes and procedures within high performing legal service offerings that deliver quality output consistently without ballooning overhead.
Nuts and Bolts
Anyone who has taken a law firm through a merger or a series of mergers as I have, knows that once you’ve done one, subsequent additions are rote. You get out your merger recipe and add more nuts.
Many combinations are simply bolt-ons rather than mergers or acquisitions. They are the addition of either practices not previously offered by the “new mother” firm or adding more people to that firm’s standard practices in the belief that more services or people will result in more money.
The trouble with bolt-ons is that the additional lawyers can turn tail and bolt off to act as standalones, join a boutique firm, or another competing firm. Duplication of management and staff roles usually leads to dismissals. This not only directly impacts the individuals involved, but they take institutional knowledge with them when they leave, and their departure results in a battering toll on the combined firm’s culture.
The upshot is that a drive for expansion—merger, acquisition, or bolt-on—can dilute a firm’s focus and impact, and leave it positioned in the legal market as one of many.
Contraction: Less is More
Contraction is counterintuitive. This is when business depth is gained by narrowing to a niche or vertical practice. Vertical growth enables:
- One of one legal market positioning
- A beacon for specific skill mastery
- Targeting, attracting and retaining specific talent and clients
- Competition and cost irrelevance
- Concentrated budgeting and targeted spend
While “more is more” mergers and acquisitions enable breadth, “less is more” boutique-size and -style firms provide depth.
Vertical Practices
Boutique firms with a “less is more” strategy that position as tightly niched vertical practices enable depth that acts as a beacon for clients wanting specific industry and practice expertise, deep experience, sterling concierge service, and stable cultural definition.
Vertical practice boutique firms also enable legal talent to hone and apply their unique skills in an environment where their qualifications are more highly valued, contributions are more meaningful, and individual personalities shine more brightly.
A Rich Niche
Vertical or niche practice is not for the faint of heart. However, a niche oriented boutique carefully managed for depth rather than breadth will enjoy benefits of exclusivity that eludes the more general practice firms that call themselves “full service” – whatever that means.
Niche practice requires dedication and discipline, and most importantly – grit – to accept only those clients, work, and talent that sit squarely in the centre of your business and practice wheelhouse. Declining what doesn’t fit within your wheelhouse enables market exclusivity along with an easy ability to cultivate reciprocal networks that provide continuous and non-competitive referral streams.
Value and Worth
Expansion and contraction both have merit. However, strategic growth boils down to value and worth that are predicated on your client’s needs, not yours.
That is because value is a measurement of worth. Worth is determined by how much more value a client receives from you than you receive from them in payment. Additionally, value is determined by how what you provide to a client benefits them now and over the years to come.
Payment is only a small factor of an ongoing value exchange. That’s because deep, trusting, and valued relationships have far greater worth than money can buy. This is why the most valuable relationships are priceless.
Legal Market Strategy
My definition of legal market strategy is the creation of new value to drive growth. It pertains to markets, services, products, solutions, direction, etc. New value drives economic growth, market distinctiveness, and cultural differentiation. Market strategy is outward focused and directed at only those clients and talent you wish to attract and retain. It is not an internal navel-gazing exercise nor a smoke-and-mirrors public relations stunt.
Smart legal market strategy is single priority driven, resulting in one of one market positioning that either curtails or eliminates competition.
This is why legal market strategy is hardcore business that compounds the effort expended to start it, stick with it, and stay the course. It is also why nailing legal market strategy successfully is tough stuff undertaken only by the ferociously brave and ruthlessly committed.
Famous Last Words
I began Part One of Strategic Growth in the Legal Services Market: What’s Next? How Do We Cope? with this somewhat famous quote: “Life moves pretty fast. If you don’t stop and look around once in a while, you could miss it.” – Ferris Bueller, Ferris Bueller’s Day Off.
The global legal services environment is facing unrelenting pressure to adopt, adapt, and embrace many aspects of change and reinvent itself at the speed of summer lightening. Strategic and profitable growth through either expansion or contraction is only one of those choices, but it is the most crucial decision to securing your future success and solvency in the legal services market.
My advice, as always, is to be fearless, stay out of the weeds, and keep your head up.
Life really does move pretty fast. You don’t want to miss it.
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