We have never subscribed to the belief that law firms operate in a fundamentally undifferentiated industry—that each law firm competes with every other law firm—and that given the magic alignment of expertise, cost, and personal rapport, clients’ choice of law firms is essentially unbounded. Not so. When it comes time for a client to choose a law firm to address an issue, the client knows the short-term and long-term gravity of the issue to the company, has a rough sense of what the monetary and/or reputational risk exposure is, knows the venue/locale (if that’s germane), has a good idea of which firms have handled lots of similar matters and which haven’t, and indeed has in mind a multitude of other considerations from the quantitative to the subconscious. These combine to produce a short list of “plausible” law firms for the matter.
Stated differently, law firms do not exist in their own economic walled garden, exempt from the normal economic dynamics of competition, substitutes, price/quality tradeoffs, reliance on familiarity and personal relationships, and the anchoring effects of search costs. And, to run a law firm effectively you have to be a gimlet-eyed realist about your firm’s position in the market.
Back in 2014 we published A New Taxonomy: The seven law firm business models, which introduced and discussed general categories of law firms such as “global player,” “capital markets,” “category killer,” and of course the most-discussed if least favorite category of all, “hollow middle.”
Taxonomy remains, we believe, a useful construct, but it’s hardly the only one. So, while markets continue to evolve, our dedication to analyzing them is unyielding and, if anything, ever stronger. Our goal is simply to attempt to provide insight into the landscape in ways novel and helpful to participants and observers alike—ideally producing a reaction along the lines of “that explains it!”
What follows, then, is our newest law firm segmentation model, the “maroons” and the “grays.”
The Core Model
This segmentation model is not based on:
- Size ($$ revenue or headcount)
- Type of firm (litigation boutique, private equity juggernaut, high-tech/startup mothership, etc.), or
- Geographic footprint.
In this model, these factors are largely irrelevant.
The fundamental premise of the Maroons and Grays segmentation model is that law firms have divided into two different businesses—not (just) two different business models. With these two businesses come diametrically different business challenges.
Probably the easiest way to introduce to the distinction between the maroons and the grays is in terms of client selection criteria.
Client selection criteria
- Truly distinctive “destination” capability
- Price no (real) object
- Rarer events in corporate lifecycle with boardroom visibility
- Efficient, predictable, reliable, transparent
- Price-sensitive, from mildly so to least-cost wins
- Mostly “run the company”—less “bet the company:” Legal services that are a cost of doing business
Next it makes sense to follow client selection criteria with what are the scarce resources for each type of firm and what the existential threats would be.
Scarce resource/existential threat
- Scarce resource: Highest conceivable level of legal talent plus business savvy—in one and the same individuals
- Existential threat: A run on the talent bank; fielding teams of “B” players; complacency
- Scarce resource: Expertise in continuous improvement, driving costs out, and assembling networks of highly reliable suppliers
- Existential threat: Self-delusion; lawyers solely in charge
With those building blocks in place, we can finish off our compare/contrast exercise with perhaps the most pointed and hard-edged differentiator of all, that of the two types’ competitive sets.
- Other “Maroons:”
- A known set of players
- Limited consideration set—a non-negotiable “brand” threshold
- Membership in the club must be earned over years and years (used to be decades and decades)
- Other “Grays,” but also:
- In-house capability
- Combinations and fluid networks of all the above
Here’s where the strategic rubber hits the road: Different competitive sets demand that your firm make different strategic and tactical choices. It will propagate through everything you do.