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.
Bruce, I sense that you’re suggesting that the Skins firms (mine is so small that it’s more of a Toenail firm) ask themselves two questions about their work. First is the traditional question, “Why is the client sending this work to my law firm and not to another law firm?” Second is the question that your discussion of NewLaw implies: “Why is the client sending this work to my firm instead of to no law firm at all?” All the marketers try to answer the first question; it’s only in the last few years that you and a few others inside the industry have realized that they need to ask the second question as well.
I came up with five reasons that answer the second question. (1) The law bars unlicensed persons from doing the work, as for example appearing in court or before most administrative agencies. (2) Doing the work requires special expertise that the client doesn’t have but the lawyer does, as for example certain tax advice, compliance with opaque regulations, and so on. (3) The client would rather have the work done by an outside contractor who is called only when needed than add someone to the payroll who might be idle, similarly to why small law firms use IT vendors instead of hiring an IT person. (4) The client wants an advisor and counselor to help think through a business problem, and values the lawyer’s general reasoning ability, as for example when clients ask me if they should buy a particular property or how they should leave their estate. (5) Force of habit, because the client hasn’t discovered NewLaw yet.
In all of these except the first — and I think this is your point — the Skins firms compete with people and institutions outside the world of law firms. If they direct their marketing efforts to explain only why they’re better than other law firms, they’ll miss out on responding to their real competition.
Trenchant as always. Yes, you absolutely positively got my point.
And I agree with you on the 5 elements of distinguishing service that clients could use a law firm/lawyer for, but/and that 4 of those 5 do not technically or pragmatically require a lawyer and only a lawyer. (I also will speculate, and leave it at that, that the first, activities which require bar admission, will over time be a shrinking atoll of services, perhaps not dissimilar to the expansion of nurse practitioners in the medical field taking over some functions previously performed by MD’s.)
Firms like yours (I’m projecting on to your firm without knowing this to be true for sure) benefit immensely from items ##(4) & (5) on your list: That the lawyer has become the client’s “trusted advisor” for many extra-legal purposes, and simple ignorance of alternatives.
Realistically, there’s almost no visible activity yet in the NewLaw sector serving the small-midmarket corporate sector and HNW individuals whose needs fall somewhere above LegalZoom but below Axiom, Elevate, UnitedLex, or EY/Riverview. This remains an enormous client sector and that should be great news for firms like yours, but scant comfort to the AmLaw >50 and their kin.
Ah but how does one convince the Skins that they should stop aspiring to be Shirts? Think about what that takes. A concession that they aren’t the best (what lawyer concedes that?). A decision not to hire and promote the best, because those star A players are not going to want to stick around to deliver routine client services. What firm doesn’t try to recruit and hire the best? But a Skin firm really needs a broad base of B players who work hard, are happy doing less interesting work, and don’t rock the boat. A decision not to raise salaries and rates with the top firms because they are not doing the same type of legal work, which is an industry-wide concession that they are not the best and not trying to hire the best. I whole-heartedly agree with your assessment of the industry. The problem, of course, is that lawyers are professionals with huge egos — and are most certainly not business people.
One other thought. It seems that way back in the day – long before I became a lawyer – companies hired one firm for all of their legal needs. Maybe the Skin firms need to go back towards that model. Teams dedicated to particular clients, broad agreements on pricing across the services provided, and a soup to nuts approach of all of your general legal needs covered at a reasonable price with efficiencies gained from our knowledge of your business. The downside of course is that if you lose a big client you are sunk. But it would build relationships, bring stability, reduce marketing costs, and give associates a career path as part of that client team, whether they ultimately make partner or not.
Hi Allison –
What you discuss here is very much what firms should do; have an external/client-facing focus I’d build on your premise a bit to that of an industry focus and make arrangements as you suggest with individual clients within a given industry. Building firm services around the needs of the client and powered by a profound understanding of the clients’ business issues.