Plan B is, in terms of execution, trivial to accomplish (for the local firm) and an almost universally available option and will remain so for awhile—but not indefinitely. The easiest way for a firm to enter new territory is to take over an existing, up-and-running, operation. It’s true in manufacturing and it’s true in Law Land.
The acquirer knows to an almost irrebuttable level of confidence that the lawyers and groups acquired have a solid track record of being able to work together, that virtually all their clients will migrate with them, and that transaction costs, while still material, will be strikingly lower on a “per lawyer” basis than achieving the same growth by ones and twos and threes.
Yet we all know the pride independent firms take in their very independence. Occasionally it’s even warranted.
Plan A is hard.
Maintaining your independence not only requires being resolute in the face of what is guaranteed to be a long parade of blandishments from outside, but (and here’s the hard part) it actually requires you to articulate in a succinct, persuasive, and durable way why your firm will be better off independent than with a far wider footprint. And make sure the reasons underlying that belief remain true. Here, playing the kinder and gentler local rate card game is not, I suspect, an enduring strategy—at least not all by itself. Lower rates of course bring consequences of their own, which generally involve topics that your partners, focused on clients’ being amenable to their nice economical pricing, prefer not to think about.
Like lower compensation, less ammunition in the war for lateral talent, flight risk of existing talent, and clients’ viewing your firm as delivering quality commensurate with price—that is to say, below average on both scores.
Pursuing Plan A means preparing for a long war. Here’s what to look for:
- It will be, as they say, a ground game. You’ll need to really and truly maximize your investment in your local networks. Love every single client as an individual.
- Double down on getting that special intrinsically local knowledge for which there is no substitute and to which there is no shortcut: not just the judges, but the county, city, and state officials—and their staff members and their staff members’ assistants.
- Be savvy about recruiting, not just in terms of where you fish but in terms of what you can offer. Hint: It won’t be every last dollar, so it better be something else compelling. Figure it out.
- Finally, take small comfort in the statistic that 98+% of lateral partner moves are within one city or at most one metropolitan area. This won’t be the Huns coming in multitudes. What you have to fear, however, is not the first wave. It’s that porous membrane. Who’s “local” and who’s “not” will be a concept drained of meaning.
As at the outset, the Pacific Northwest is fascinating, changing before our very eyes, and understandably a magnet for all kinds of talent: From lawyers to software engineers to baristas. Yet it’s also a case study of what’s happening in every region of the US.
If you haven’t been, I highly recommend a visit. You might learn something.
Starbucks “Reserve” Store
Having practiced in the Pacific Northwest for a while with firms spanning 1 to 200 lawyers, I see a subtlety in your description of “local” pricing, and your implication that what is “local” to the lawyer may be different from what is “local” to the client. In your first example, a national firm may bring work in from large clients in NYC or SF, and then have the work done by lawyers in secondary cities at costs and rates substantially lower than the costs and rates in NYC and SF. (I’m using “costs” to mean the firm’s costs and “rates” to mean the charge to the client.) Another model is the national firm that charges the local rate for whatever office the work comes in to, regardless of where the work is done. You allude to this in your practice caliber model: superstars in Seattle should command the same rates as superstars in New York. (I think that’s harder to pull off than it sounds.) Move down from superstars to workhorses: if the New York client is attuned to paying $700 for midlevel partners then the client may not care that it’s paying $700 for midlevel partners in Seattle and Portland, as long as the quality of work is the same as that of the midlevel partner in NYC. The hitch, I think, for the Seattle or Portland office is that $700 for a midlevel partner is well above the market rates here, so a lawyer in Seattle who charges $700/hour for national clients either must charge a lower rate for the local clients and risk running afoul of most-favored-nation fee agreements with the national clients, or must give up the lawyer’s local book of business to Seattle-based competitors who charge at Seattle rates. It’s a fascinating business problem: how to set a rate for a lawyer at a high-rate firm in a low-rate city.
Ahh, the evergreen Plan A vs. Plan B discussion for (midsize?) regional firms. As you say Plan A is very difficult. And there are some prerequisites to even be in a position to really execute on a long-term basis. In fact, I think it means behaving like a successful boutique would:
– Your partnership needs to be extremely cohesive. And not just economically, but from an interpersonal perspective as well. Cowboy camps of lone rangers who get along begrudingly using strong forms of eat what you kill aren’t going to make it. Those guys will be picked off one by one. Slightly stronger loose confederations of silos with similar compensation schemes run by/for the benefit of a powerful few will likely splinter as well.
– You better be in touch with what makes millenials tick. This is going to be a differentiating point in recruitment in the next ten years for all firms, but really a key point for firms choosing A. Not the talking points that get the headlines, but the reality of work environment, the day to day expectations, the compensation and the career tracks. These are not your father’s lawyers, and there are no “one size fits all” answers to these questions.
– Hand in hand with the second point, firms choosing A are going to need real, transparent and executable succession plans for key relationships and the leadership of the firm. The development of the bench at several levels needs to be taken very seriously. If the younger cohort feels disenfranchised and that there is no future for them, they’ll leave for the bigger money from national competitors in droves.
Needless to say, the managing partner of a firm choosing A is going to need to be pretty dynamic and at the same time completely self-honest about whether his or her partnership is truly capable of these things. Chances are, if the firm isn’t already doing these things, its chances of survival on its own in this type of environment (over the long haul, say 5-10 years) are probably slim.
Dear “Skeptic:”
First of all, thanks for your thoughtful comments.
I agree that
We and I suspect you have seen enough of the “Cowboy/Lone Ranger” firms as well as those challenged by succession planning (of senior firm leadership as well as key clients) to know that the handwriting is on the wall for a large percentage of these midsize regional firms. We may pine for the good old days but if you look into the background of any of the founders of these firms (I have), they were not risk-averse, steady-as-she-goes types in the remotest.