Last month we talked about mid-size law firms: how best to define “mid-sized;” whether aggressive growth was the most logical strategy for mid-size firms; and alternatives to adopting an aggressive growth strategy. We got quite a bit of feedback – including some asking whether we had any alternatives to rapid, merger fueled growth. Part of the answer to that question was addressed in the second half of that article (a section entitled “winning strategies for mid-size law firms”). This article advances that discussion further.
Last month we identified some important commonalities among successful mid-size law firms, including the following.
- Successful mid-size firms tend to be general service, business law firms (though not “full service” – that is unattainable even at 2,500+ lawyers).
- A large number (perhaps a majority) of their clients are middle market companies – and that means that legal costs are essentially paid out of the owner/CEO’s pocket.
- Successful mid-size firms have people and/or practices that are the absolute best in the local/regional market in their areas of expertise.
- They have at some point (perhaps frequently) been approached by another law firm (probably a larger law firm) interested in merging.
There are important strategic implications associated with each of these traits, each suggesting potential sources of competitive advantage and vulnerabilities to competitive disadvantages. Some generic strategic thinking can be applied to these common attributes – a few examples follow.
General Service, Business Firm
As a diversified law firm, a “general business firm” has an opportunity to build deep, multi-practice, multi-partner client relationships.
Potential Advantage – Partners at mid-size firms have a strong personal familiarity with (most of) their partners. That should provide an advantage relative to introducing one another to clients as new needs arise (assuming partners have confidence in one another).
Potential Disadvantage – Every firm has practice capability gaps and those gaps can be pretty large at mid-sized firms (even in the strongest). When competing against biglaw, mid-size firms need to avoid competing on the basis of scale or breadth.
Middle Market Clientele
Serving middle market companies has preconditioned many partners at mid-size firms to be value conscious. The legal market has been moving decisively toward reduced costs and value, particularly since the great recession. Many mid-size firms have been benefiting from that trend.
Potential Advantage – Generally speaking rates are lower in mid-size firms. In addition, many mid-size firms are predisposed (temperamentally and practically) to staff matters with lean teams.
Potential Disadvantage – Biglaw firms are making substantial investments in knowledge management, project management, and financial management and that has the potential to close rate and efficiency advantages currently enjoyed by mid-size firms. In addition, as Bruce MacEwen has noted here, some large firms are engaged in “suicide pricing” – it isn’t sustainable for a biglaw firm, but it is a real threat to competing mid-size firms.
Strong mid-sized firms are often the best choice in their local or regional market for a number of legal issues. Yet, they are rarely the largest or most visible firm in their own market.
Potential Advantage – Marketing and business development that supports market leading practices generally has the best return on investment. That includes both investments intended to attract new clients and those intended to expand existing relationships across practice areas. The key is being willing to make those investments.
Potential Disadvantage – Essentially, two can play that game (i.e., biglaw competitors will be pushing their own strengths forward in the marketplace) – and larger law firms have larger marketing and business development budgets. In addition, that biglaw competitor may have a great option for the client sitting in an office 2,000 miles away (geography often isn’t a barrier for work these days).
Critically, you need to know what your firm’s general disposition is vis-à-vis merger. Even if it is quickly dismissed by the partners, it is important to have that conversation from time to time at the Executive Committee or Board levels, as well as with the broader partnership.
Beyond that, as a general rule of thumb, mid-size firm managing partners should accept invitations to lunch from an out-of-town (merger seeking) peer. At worst, you will learn a bit about a firm that is obviously interested in competing for clients and people in your market. And, you will gain insights into what other people value in your market and in your firm.
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As always, we welcome your comments and insights below, via email at email@example.com, and via phone at (312) 543-6616.