Boutiques have always been with us, and with almost any other industry I can think of. You might be tempted to think of them as close cousins of category killers, in that they do one thing and do it well, but they aren’t really, since their model isn’t necessarily premised on wringing cost out of service delivery through regularized and (to the extent possible) technology-enabled business processes and methods. Indeed, many boutiques have sky-high billing rates, just as Cartier, Ferrari, and Gulfstream (boutiques all, I would argue) position their offerings exclusively in the sky-high price tranche.
Moreover, the boutique model is far more flexible and extensible than the category killer model: There are only so many available categories, after all, that call for scale on the order of (say) Home Depot or Littler Mendelsohn, but boutiques are found everywhere.
Some species of boutiques are so familiar we may not even think of them as boutiques any more, but they are: The IP boutique or litigation boutique, for instance. In a totally separate market from BigLaw, we obviously have players concentrating on things like divorce family law, or plaintiff-side class action litigation.
Boutiques—as a business model, abstracting from the boutique’s chosen subject matter—have several features to commend them:
- They know who they are, and their clients know who they are;
- They can avoid distracting and time-consuming debates about whether to launch new practices or cut back on existing ones;
- And the smallish size of the organization, and the commonalities among what everyone does within it, vastly simplify management.
The one systemic threat to boutiques arises from the roots of almost all of them in one or a handful of visionary founders or leaders. The risk is succession planning; there may not be any. But realize this isn’t a flaw in the boutique model; it’s a flaw in that particular endangered boutique’s management.
If I’m right that we see boutiques throughout the economy, why is that?
My best guess is that the fundamental reason boutiques are ubiquitous has to do with economies of scale, or rather the relative lack thereof in niches where boutiques thrive. A large part of the value of owning a Rolls Royce stems from its taking on the order of 400 man-hours to build, vs. 20 or less for a Toyota; a single person can spend an entire day selecting and matching sections of leather (all from the same animal’s hide, mind you!). Toyota can’t cope with that and isn’t interested in trying.
This in turn stems from another deep fact about most markets: A certain small subset of customers in almost any market has a set of preferences so specialized, demanding, and dare I say “picky,” that price almost ceases to matter. These are the multinational corporations or, more likely, individual moguls, who just have to have the latest G5—or luxuriously customized 767, for that matter.
Where, in this taxonomy, you might be wondering, do the super-prestigious law firms fit?
Cravath, S&C, Wachtell, Slaughter & May, Davis Polk, etc.—the New York and white shoe and London elite? Right here, folks: In the price is (almost) no object league.
Truly global powerhouses have a place in this ecosystem, first and foremost, because they have multinational corporate clients who need a matching footprint in their law firm. That’s the primary reason many of these firms will survive, and thrive. (See “Demand,” above.)
But there’s a separate category of client that can benefit from capabilities these firms can provide that no one else really can, and they need not be globe-spanning enterprises in their own right at all: Indeed, they could be quite small. I have in mind clients who, because of the intrinsically global nature of the industry/market they’re in, can benefit from a law firm ally with global reach. For example, imagine a small biotech or medical device manufacturer located in one of the US’s local hotbeds of IP—maybe Research Triangle Park in North Carolina or Austin, Texas—who needs to connect with a manufacturing facility in a place like Taiwan or Vietnam. Wouldn’t a globe-spanning law firm come in handy? And there aren’t many “substitutes” (economic sense) for that kind of ally.
Note I have not discussed whether these globe-spanning law firms have to be at the “elite” end of the market, because I don’t believe they do. There’s room for high-end and middle-market players, and perhaps even some room for another level below that.
How many? Well, pre-2008 everyone used to think there would be dozens and dozens. Not any more.
My own money would be on the order of 15—20 firms, with:
- Flags planted at least in North America, Europe, and Asia
- And maybe South America, Australia, and Africa
- Strong expertise in English and New York law
- And as much of a presence as regulatory authorities permit, in closed or quasi-closed but economically vital markets such as Brazil, Korea, and India.
Finally, national or regional full-service, but not particularly specialized, firms.
I fear that firms in this group are at risk of not being able to state a compelling value proposition to clients. If they can’t, their competitive position will slowly erode and they could find themselves marginalized, certainly if doing any meaningful amount of high-end work is their aspiration.
Whereas the first three types of firms have, I believe, a credible and distinctive positioning that clients “get,” and can deliver a tailored set of services difficult to duplicate through other structural forms of organization, firms in this group need to focus more rigorously than ever on precisely what it is that their particular firm offers to clients—and why clients should engage them to deliver it and not someone else. (Hint: It’s not “superb lawyering.”)
Firms in this category won’t be able to find a “one size fits all” solution to their challenges. (Trust me, if I had such a solution I’d be pounding the pavement with it.) Rather, each firm will need to engage in an intensive, and challenging, process of articulating what they can do for clients that other firms can’t, and communicate that to clients.
These firms may have to wrestle with what could be make-or-break decisions and initiatives about client management and client service.
What that means, and how to do so, will be the subject of our next piece.
