For the Shirts Firms, your competitive set is the Shirts Firms. I don’t mean to be cute or tautological. A Major Corporate facing a material transaction or litigation will be considering a Wall Street or London elite law firm and an AmLaw 50+ is by no stretch of the imagination a plausible substitute.
The good news for the Shirts is that you know who your competitors are, and can map them out in two or three-dimensional capability and reputation space with financial and economic research you commission a capable grad student to do, together with brand perception scoring from Acritas (full disclosure: Adam Smith, Esq. has a close working relationship with them and we like their work) or BTI.
The bad news for the Shirts is two-fold:
- Your core competence has to be recruiting and retaining the top 1/2 of 1% of lawyers in both legal expertise and business savvy. It’s a small pool to draw from, competition for those people is intense, and they know their market value.
- Being superb at this altitude means being choosy; you cannot do everything exceptionally well. Be focused, courageous, and consistent in saying “no.”
- The most trenchant observation about lockstep is “There is no such thing as a tolerant lockstep” (thank you, Tony Angel). Whether your firm is strictly, somewhat, or not-at-all lockstep, you need to take the wisdom embedded in that to heart and live it every day.
The Skins are operating in a completely different competitive space. Their competition is:
- Other Skins firms;
- Their own corporate clients and their increasingly sophisticated in-house legal capabilities; and
Another option for many corporates facing legal issues with minor ramifications is to do nothing; some corporate work and more and more of litigation is viewed as frankly discretionary. A nasty letter may suffice. But it tortures and dis-serves English to label this alternative a “competitor.”
It is a business truism that when you have a different competitive set, you have to adjust your business model to be able to effectively compete. The business model for the Shirts (elite) firms is not sustainable for the Skins (everybody else) firms. But the great majority of Skins firms are not adjusting their business model in any material way. Perhaps they are unwilling or unready to acknowledge they’re not in the same game as the Shirt firms.
The implication for the Skins crowd is clear: Not only do you have to be perceived by clients as a superior alternative to Skins Firm B or C or D (presumably you know how to do that at least passably well or you wouldn’t still be here), now you also need to demonstrate why you’re superior to what the client could do for itself or what the latest constellation of NewLaw providers could accomplish. It’s unlikely you can seriously undercut your own client or NewLaw on price, and even if you could once or twice that’s not a battlefield you want to wage an extended campaign on. So what else have you got?
Performing the function of “super-coordinator” may seem like a viable card for you to play. Other industries are routinely organized around networks of specialized firms with varying but complementary core competencies that come together to execute a specific project and dissolve as soon as it’s complete. Think the General Contractor in construction, or the Producer in movies, TV, and entertainment. Other companies put together rather more long-lasting networks of suppliers (Apple, Boeing, any global car manufacturer) but only the duration of the constellation of suppliers is different; the principle is the same.
The manifest problem with this option is that law firms are dreadful at coordination; they’re notoriously poor at pulling it off internally even when, an objective observer might assume, everyone’s interests are aligned. That innocent outsider would quickly learn that their assumption (collaboration works best) won’t survive an encounter with an amazing proportion of law firm partners.
Alternatively, maybe you could tell your clients that you’ll take care of all the routine due diligence, e-discovery, etc. (“don’t worry about a thing”), by outsourcing it to a capable NewLaw provider but that your firm will stake its reputation on the results and stand behind the quality overall. This sounds more promising, but if you’re going to do it routinely and well you have to hire highly accomplished business professionals who can actually evaluate various NewLaw offerings, diagnosis their strengths and weaknesses, and install a layer of fit-for-purpose Q.C. (quality control) on top of their work product. And you’re going to have to pay these business professionals very very well and defer utterly to their judgment: No second-guessing by partners.
Does that sound like an equilibrium steady state for a law firm?
Let me end by venturing to put this in a larger context. A slow-rolling but accelerating revolution has been taking place under our noses since the global economy emerged from the Great Meltdown of 2008, with clients increasingly calling the shots on the terms of buying legal services. That’s so commonplace as to border on trite. But I’m suggesting something a bit more subtle and quite a bit more powerful.
No one in NewLaw, or the Big Four, talks about the “practice” of law, and it’s not because they’re dancing around so-called “ethical” walls. What they talk about is “legal service delivery,” of which the actual hard-core component of activities narrowly confined to licensed attorneys is all but a vanishing fraction. In the Skins marketplace, clients don’t want and aren’t buying legal expertise (another phrase you never hear NewLaw or the Big Four utter); they’re buying legal services, which is the output that results when several functions intimately familiar to MBAs but far less so to JDs come together: Scale, financial and human capital, process optimization excellence, and a sprinkling of domain knowledge, all of it resting on an integrated technology platform and all of it designed to learn from defects and continuously improve the process.
Except for the elite firms–The Shirts–lawyers have lost control over what “the practice of law” means and clients have lost interest in buying it. Clients want efficiently delivered “legal services” at scale, on demand, with price certainty and consummate quality. That’s the competitive field the Skins firms are increasingly playing on.
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.