The Competitively Sized Firm: Narrow Where it Matters, Broad Where it Counts, and Operationally Excellent Everywhere

Law firms, as part of their normal evolutionary path, have historically moved from small practices to full-service mid-sized firms.

Their reasoning for expansion made sense. Markets have historically punished service gaps more than they have punished firms that overreached, and midmarket-sized clients have sought firms that could handle all or most of their legal affairs.

Further, lateral hires and a lack of succession planning resulted in the addition of practice areas and industry alliances – national, global, and specialty-focused - that have allowed firms to "punch above their weight" by reinforcing the ability to offer full-service locally.

Current market conditions, however, are making the traditional evolution less financially prudent than in the past. Several developments are contributing to this:

·      Client consolidation and paneling are resulting in reduced demand for outside counsel.

·      Talent wars with big firms and specialized boutiques, recruiting senior partners and practice groups from midsize firms.

·      Scale economics and cross-border reach.

·      Price/fee pressure and alternative arrangements.

·      The ability of boutiques with clear niche expertise (e.g., securities, competition, FinTech, life sciences) to attract premium mandates.

·      Technology and process investment and efficiency variations

·      Declining revenue streams for mid-sized firms due to clients shifting routine work to alternative legal service providers or in-house legal ops teams.

·      In‑house counsel sophistication.

·      Marketing and international networks that midsize firms cannot belong to or capture.

So, what are the simple indicators that big law firms and specialized boutiques are squeezing your mid-sized firm out? They include:

• Fewer mid- to large-sized mandates and more commoditized work.

• Competing on price without the scale or tech to reduce costs.

• Losing rainmakers or senior lawyers (talent drain) undermines client retention and the capacity to handle bigger matters.

• Being perceived as lacking specialization or bench strength for top-tier work.

A full-service "focused" model, while not the only solution, has the greatest chance of responding effectively to their squeeze play.

A key criterion for evolving into a "focused" full-service firm is the discipline to stick to the necessary strategy. The strategy involved in such a transition should include:

1.   Choose 3–5 "anchor specializations" and dominate them. These are practice areas where the firm can realistically rank in the top 3 in the region.

2.   Maintain "supporting" practice areas – but only those that protect client retention, are profitable, and do not require expensive, large infrastructure.

3.   Increasing your complement through alliances, referrals, and co-counsel, not adding bodies.

4.   Dedicated investment in operational excellence - speed of service, responsiveness, AI-enabled delivery, workflow efficiency, etc.

5.   Redesigning your service pricing to match mid-market client expectations, including various alternative arrangements.

6.   Building your brand on specificity, not generalist (we specialize in X, Y, and Z and support your legal needs across the rest).

7.   Embracing succession planning as a recruitment tool, a client retention strategy, and a growth opportunity.

In pursuing this strategy, Steve Woodruff's comment comes to mind, where he pointed out, "Not all business is good business, and not every customer is a good customer." ― Clarity Wins: Get Heard. Get Referred.

Moving to a "focused" full-service firm is not the only long-term solution, nor will it guarantee a leveling of the playing field with big law and specialty boutiques, but doing nothing will result in an increased squeeze on mid-sized firms at multiple levels.

Who is Stephen Mabey?

Stephen Mabey is a CPA, CA, and the Managing Director of Applied Strategies, Inc. His credentials include:

·       Fellow of the College of Law Practice Management (one of 19 Canadians – 276 Fellows);

·       Author of Leading and Managing a Sustainable Law Firm: Tactics and Strategies for a Rapidly Changing Profession and Co-author of Key Performance Indicators For Your Legal Practice: Measuring Success and Driving Growth

·       A founding partner of East Coast Legal Ops

·       More than 25 years in a senior management role with Stewart McKelvey, a 220-lawyer, six-office Atlantic Canadian law firm;

·       Over 16 years of providing advice and counsel to small to mid-size law firms on a broad range of issues;

·       Panelist and facilitator of the Managing Partner Information Exchange ("MPIE") at the annual Managing Partner Forum Leadership Conference held in Atlanta, Georgia, each May.

·       A free group mailing list that circulates articles, directly and indirectly, impacts law firms.

He has been advising law firms for over 16 years on a wide range of issues, including - strategic action planning, leadership, understudy (succession) planning, compensation - both Partner and Associate, organizational structures and partnership arrangements, business development, capitalization of partnerships, partnership agreements, lawyer & staff engagement, marketing, key performance indicators, competitive intelligence, finance, mergers, and practice transitions.

Applied Strategies Inc.'s website contains testimonials from clients describing the value of the services rendered https://www.appliedstrategies.ca/client-testimonials.

Steve can be reached by email – smabey@appliedstrategies.ca or phone at 902.499.3895