A few weeks ago a law land journalist asked us if we had any insights to offer about the above-average rate of expansion of law firms in a particular US metro market—which itself had been expanding at an above-market rate in business investment and population.
This set us to thinking about fashions in geographic emphasis for BigLaw and its followers.
To rehearse recent history, these metro’s have been outgrowing US averages for the past decade or so, albeit not synchronously and not equally: Austin, Boston, Salt Lake City, Silicon Valley, South Florida, Texas. (If I left out your home town and you think you ought to be on that list, ping me; nothing personal!)
Long-term urban powerhouses like DC and New York continue to go from strength to strength despite sniping from some jealous wannabes. And the same is true in Europe. London has a richer and deeper market of legal talent than anywhere in the EU, bar none, and even Brexit turned out to be nothing more than a bump in the road.
But back to our journalist’s question, which implicitly asked us if we thought the metro area cited “deserved” more law firm investment or whether it was at risk of becoming over-lawyered.
Let’s stipulate that no one, Fed Board of Governors included, can forecast whether this area’s supra-normal growth will continue. But if we were bettors, what would we do about it?
Here’s one approach: Put some lawyers on the ground there. Think of it this way: If you do a simple cost/benefit exercise, I find it hard to imagine a scenario where a law firm that’s judicious about the scale of its entry could lose a painful amount of money creating a presence there. And the upside, assuming your firm is a known and respected brand, could be substantial.
Time was that every locus of major economic activity had a leading incumbent law firm: Think Covington in DC, King & Spalding in Atlanta, Vinson & Elkins in Texas, etc. (We called them “Kings of the Hill.”) But powerful and irreversible trends including the march of globalization, the homogenization of business models, and the shrinking importance of physical propinquity, give firms outside those fast-growing metro’s a more level playing field.
What about the war for talent?, you ask. After all, what law firms have to sell is their lawyers. Aren’t all the best lawyers in these metros well settled in established firms? Yes, but….is that a deal-killer? The switching costs for a lawyer in demand are minimal in general and can deliver a windfall bonus and/or enduring bump in base comp at best. Carefully identify the talent you’d like, do your exhaustive due diligence, and buy them a drink. You never know.
OK, so what about rates? If your firm is used to getting >$1,000/hour where you’re established, but that’s far too rich for our target metro, won’t this dilute profitability? Not necessarily. The math is simple: [Revenue – expense] = Profit. Revenue may be lower but if you can be confident that expense will also be comparably lower, roadblock solved.
So far I’ve argued in favor of entry. What’s the brief against?
As is often the case in our charming and perverse industry, it’s the human side. Picking off talented lawyers who are known quantities one by one is relatively easy, but turning an assortment of them into a cohesive, integrated, powerful team is another matter. The critical precondition for succeeding at that integration is that you have a cogent business case for entering the market in the first place: And that is emphatically not that some of your clients have told you it would be nice if you were there. Those same clients, assuming they have economically meaningful legal needs in the target market, have ongoing relationships with incumbent firms serving those needs. “Build it and they will come” is wishful thinking. “Build it if you can convincingly articulate exactly how and why you can displace the incumbents” is closer to the mark.
Most of what you’ve read here so far today falls into the domain of microeconomics: Localized market structure, target clients’ expectations and demands, providers’ offerings and pricing. These are core economic conditions you need to analyze, but they have nothing to say to strategic objectives.
Elite law firms do not try to be all things to all people, or, stated differently, view “full service” as an admission of strategic confusion and indecision, not a claim to fame. Focus on doing a few things and only a few things: Invest heavily in them (technology, human talent, and replicable process) and build a capability so robust and well-defined that it (rightly) discourages competitive entry and compels clients to ask “Why go anywhere else?”
For purposes of today’s discussion, that means that the indispensable analysis you need to perform before deciding go/no-go on this hypothetical target market entry is whether the prevailing business landscape there tends to over-index on generating demand for one or more of your firm’s core practice strengths. At a non-negotiable minimum, is there a compelling case that it’s a growing center for a sector you have identified as core to your firm’s future.
In other words, potential market entry is anything but an exercise in keeping your firm fashion-forward or assuaging your fear of missing out. It’s a rigorous exercise in specifying, through gimlet-eyed analysis, exactly why you could dislodge a material amount of business from incumbent competitors.
We opened today’s essay by alluding to geographic or SMSA fads. We close it by stoutly recommending against fashion victim-hood.
Courtesy ChatGPT image generation. But don’t be so sure….
