We often ask law firms, “Who’s your competition?” The single most frequent response we get is, “Well, no one, really.”
This is delusion on stilts.
Every business, I would venture to extend that to any human organization, has competition, and it has nothing to do with how rarefied are the precincts in which you (yes) compete: Even Sotheby’s has Christies. Extending it a bit, Harvard has Princeton and Yale, the Louvre has the Met, and even the Episcopalian Church has the Presbyterians (and that perennial choice, nothing at all).
With that hopefully settled, what does your “competitive set” mean exactly? In plain English and everyday experience, it would be those firms that you repeatedly find yourself up against and win from or lose to. In stricter economic terms, it’s firms who are a credible and viable “substitute” for yours in the eyes of clients. Not in your eyes, mind you; it’s the clients’ viewpoint that matters because they have the wallets.
As I wrote in a column from about six months ago (“Is BigLaw One Business, or Two?“), the test is along these lines:
The defining characteristic of two products or services being widely recognized substitutes for one another is not whether you are indifferent between them or whether you view them as alternatives on a single spectrum of possibilities; that’s a matter of personal taste. Rather, the test is posed to the market overall: The test is whether some meaningful cohort of the buyers of that product/service will switch from one to the other in response to price and quality changes and will be, all in all, equally satisfied with either one “depending.”
Also in that column, I introduced the trope of “Skins” and “Shirts” firms.
Consider the market for clients selecting a firm to represent them in a major M&A or private equity transaction, or a high-profile corporate or securities investigation. The consideration set of law firms (“Shirts Firms”) for such engagements is limited and is anything but coterminous with the consideration set of firms for, say, cost-of-doing business litigation, ordinary-course asset acquisitions and divestitures, roadmaps for complying with new corporate housekeeping regulations, and so forth (“Skins Firms”).
I always hesitate to name names—and I anticipate plenty of “Hey, what about us?” emails—but a suggestive and non-exhaustive list of Shirts firms almost surely includes London’s Magic Circle, the New York white shoe elite, focused powerhouses such as Latham, Gibson Dunn, and Kirkland, and some first or second-generation litigation super boutiques.
Pretty much everyone else? Skins Firms.
What that column did not discuss, but this one intends to, are more specific definitions for each of those two sets of firms of their respective competitive sets.