What Are the Prospects for Mid-Size Firms – and What Does Mid-Size Mean Anyway?

by Sterling on September 17, 2013

The Executive Committee of an AmLaw 200 firm (aspiring to become an AmLaw 100 firm) raised the following question.  “(We’re at) an awkward size (roughly 500+ lawyers)…what should a mid-size firm like ours do (strategically)?”  Given their aspirations, the answer was to keep growing and become a ‘big’ law firm.  They certainly would not be the first to follow that road and some have realized their aspirations.  For instance:

  •  At the time of their merger in 1999, Piper Marbury was a 400 lawyer “Baltimore law firm” with most of its lawyers located outside money centers and Rudnick & Wolfe was a 350 lawyer “Chicago real estate powerhouse” with no New York presence at all.  According to the American Lawyer DLA Piper is now the world’s largest law firm, with over 4,200 lawyers in 30 cities worldwide.
  • Similarly, at the time Elliot Portnoy became chairman of the Firm in 2007, Sonnenschein, Nath & Rosenthal was a 600 lawyer “Chicago-based law firm,” with less than 20% of its people in New York.  Since declaring its intention to become leading global law firm, Sonnenschein scooped up over 100 lawyers from the disintegrating Thatcher Proffitt & Wood in New York, merged with UK law firm Denton Wilde Sapte, and simultaneously merged in international firm Salans and Canadian firm Fraiser Milner Casgrain.  Dentons now has over 2,600 lawyers in 80 offices across 50 countries.

“Moving up market” (as some like to term the strategy) is certainly not impossible.  But, the conversation with that aspiring AmLaw 200 firm raises a couple of pointed questions.  Is a 500-600 lawyer firm actually “mid-sized?”  And, is growth the only winning strategy for mid-size firms that intend to survive and prosper into future generations?

What is a Mid-Sized Firm Anyway?

Let’s deal with that first question – is a 500+ attorney firm mid-size?  Sure, if your frame of reference is the AmLaw 50 or 100, then an AmLaw 200 firm is mid-size.  That is especially true if your firm aspires to being part of ‘BigLaw.’  To generalize the point, defining what mid-size is depends largely on what you are comparing it to (e.g., an elephant is mid-size next to a brontosaurus).

That said, for many, many firms ‘mid-size’ is better defined in the context of nearby (i.e., local and regional competitors).  In other words, mid-size is a function of your size relative to other firms/offices in your primary (or only) city.  Firms that are mid-sized by that definition tend to share some common traits.

  • They tend to be general service firms (since “full service” is unattainable at any size) focused mainly on the legal needs of business clients and their owners.
  • They have a number (perhaps a majority) of clients who are classic middle market companies – and that means that legal costs are paid out of the owner/CEO’s pocket (if it isn’t insured risk).
  • They 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.

Is the only (or even the most logical) strategy to say ‘yes’ to merger overtures and/or launch a search for suitable merger partners with whom to grow aggressively?

Winning Strategies for Mid-Size Law Firms

So, is aggressive, merger fueled growth the best/most logical/only strategy for mid-size firms?  After all the demise of the mid-size firm has been predicted for at least 25 years.  Our answer:  it is certainly not the only strategy, but it really depends on what your firm aspires to become.  We addressed that broader question in a recent article regarding strategic direction.

Mid-size firms can adopt a compelling strategic direction that does not include substantial growth.  Assuming there is widespread agreement among the partners regarding that direction (whatever it might be), there are a few things that you can (in fact should) do to turn that into a winning strategy.

Focus on a Few Things that Can Create a Competitive Advantage

Focusing a a few things that create competitive advantages requires a firm to do at least two things.  First, honestly assess what the firm is (or can become) truly great at doing – strengths that can become the epicenter of genuine excellence that cuts across the firm.  Second, get external validation that being great at those things is meaningful in the marketplace.  Focus on a handful of things you are great at (or can become great at) that also have meaning in the market.

A basic SWOT assessment (strengths, weaknesses, opportunities and threats) can highlight your areas of strength (actual and latent).  If you are not good at looking objectively at yourself, a good consultant can help.

External validation can and should come from your clients.  Your best clients want you to succeed into the future – they almost certainly consider your partners to be among their most trusted advisers.  So, ask your clients what you are good at and what you can do better.  It will inform your strategy and improve your relationships to boot.  It is amazing how few firms do this in any systematic way.

Think Strategically

What does that mean, to think strategically?  Well at a minimum, think about competitive advantage (those areas you might focus your energies on) through three lenses.

    • Consider whether you enjoy size or scale advantages over competitors – or more likely face larger competitors who have size advantages with which you must cope.  Large firms do have deeper pockets (or at least more equity partner pockets) over which to spread marketing, technology and other shared costs.
    • Identify factors that may help you to defend your firm’s market position against competitors (even much larger, better financed competitors).  It may be your knowledge of the local courts and judges, your reputation and brand may have deep roots in the community, you may have very deep and broad relationships with clients.  Consider how you can capitalize on and solidify those defensive advantages.
    • Finally and most importantly, take an indirect approach – occupy the unoccupied market positions and be willing to do things differently from competitors.  Precedent is a horrible source of strategy – don’t do what others are doing, do things no one else is doing.

Implement – Do What You Say You Are Going to Do

We have written extensively on implementation – through the balanced scorecard and through other means as well.  Successful implementation involves:

    • Cascading strategy implementation throughout the organization – from firm level initiatives to practice and departmental level activities to a vital and meaningful roles in implementation for all of the firm’s people (partners, associates and staff);
    • Measuring and monitoring implementation and the results it is producing – reinvesting in and celebrating the things that are working;
    • Adjusting as implementation unfolds – abandoning or recalibrating initiatives that are clearly not producing expected results and responding to new market challenges and opportunities as they arise.

In sum, if you think you are mid-size, you probably are – it is entirely a function of your perspective on the competitive marketplace.  Being mid-size is not equivalent to being diagnosed with a fatal disease.  You are free to reject the label and seek to grow – others have done so with remarkable success.  But, you can also adopt other winning strategies by focusing on few sources of competitive advantage, thinking strategically, and implementing with discipline.

As always, we welcome your comments and insights below, via email at info@sterlingstrat.com, and via phone at (312) 543-6616.

 

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