Walker Clark World View

From all the attention that "Big Law" is getting in the legal press and at legal conferences, one might erroneously assume that a relatively small number of large firms are destined to rule the legal world, and that smaller firms are irrelevant to the future of the legal profession.

Don't believe it.

Although being large can sometimes be an advantage, many small and midsize firms are competing successfully, and will continue to compete successfully, for high-value legal work.

So, what should a small or midsize local law firm do when an international giant comes to town?

The entry of large foreign law firms into a legal market is a challenge, but it also offers great opportunities. Merging with a larger international firm, or with another local firm, can be a good strategy for some law firms; but successful independence remains a financially viable option for others.

It is not a choice of “merge or die” or “grow or die” for most well-managed firms. 

As the managing partner of a successful national firm in South Korea told me last year: “The entry of the British and American firms into our market was the best thing that ever happened to us. It made us a better law firm because it forced us to compete more intelligently.”

What does competing more intelligently mean? Our firm's experience advising small and midsize firms in emerging legal markets suggests at least four elements to a successful competitive strategy for a local firm in a legal market that is internationalizing:

1. Pay close attention not only to protecting your firm’s profitability, but to making it sustainable into the future.

In our experience, the number-one challenge to small and midsize local firms in a rapidly changing legal market is profitability.

Pay close attention not only to protecting your firm’s current profitability, but to making it sustainable into the future. A Walker Clark Small Firm Profitability Self-Diagnostic, which is designed especially for small firms, could be a good starting point. Firms with more than five partners might want to consider our full Strategic Profitability Diagnostic. 

2. Identify, understand, and build on your current strengths.

Many lawyers and law firms spend a lot of time contemplating their weaknesses, both real and imagined. Few firms invest time to understand their strengths.

Rather than go off and try to build an entirely new practice area, for example, invest your time and intellectual energy in improving the strong ones that you already have.

For example, look closely at the services that you already offer and the clients whom you already serve.

• Which ones currently are the most profitable?

• Which ones have the greatest potential for future growth?

These two questions can help you to identify the “stars” in your practice, upon which you can build sustainable, profitable growth. They also can help you to identify services and client sectors in which you should reduce your investment of partner time and management attention, as well as ones that you should consider eliminating entirely.

3. Demonstrate how you are different and better.

A lack of differentiation is why most law firm websites say the same thing, and why they often have little or no effect on the client's selection of a law firm. 

Can your firm demonstrate – not just claim, but actually demonstrate – how you are different?

• What makes you different from the other law firms? This is a tough question, because it is not easy in a regulated profession to be unique. Sometimes you can be “virtually unique” by being the only competitor who can demonstrate the difference.

• What specifically do you do better than your competitors? How does this result in important, specific benefits to your clients?

• Why should a sophisticated client select your law firm over any of the other excellent law firms offering the same services in your market? You must be able to explain this clearly to the market. If you cannot explain this, do not expect a busy prospective client to figure it out for you.

4. Pay attention to the professional culture of your firm.

Culture is what you and your colleagues actually do, not what you say.

Culture is demonstrated through the actions of people, not vision statements or lists of inspiring values.

Culture is important because the external signs of your firm’s culture can be a powerful business development tool. For example, one of our clients, a midsize firm in the Caribbean, had difficulty differentiating itself from the other leading firms in the country. I interviewed their top clients to see whether the clients could describe how the firm was different. Everybody said that the firm was just like all the other top firms, except for one thing:

"The lawyers in that firm are nice people... They listen... They are not arrogant like the partners in other firms... They demonstrate that they really care about our business."

In other words, the firm's culture, as demonstrated by their partners, was their differentiation and a significant competitive advantage. As one general counsel told me, “We like to work with that firm. Even in a tough case, they make it a good experience.”

Culture is also important as you manage growth. The most frequent cause of disappointing financial results in law firm mergers is a failure to conduct cultural due diligence. Even when there appears to be a good business case for the merger, and the two firms have conducted thorough financial due diligence, a failure to conduct cultural due diligence – to understand thoroughly how well the cultures of the two firms will integrate and operate together -- can cause the merger to fail within two years, as lawyers, and eventually their clients, become dissatisfied and leave.

You might be smaller, but you are not inferior.

So, if you are part of a small or midsize law firm with a giant for a neighbor, avoid sinking into an inferiority complex. Think about your new foreign competitors not just as competitors, who can make you more competitive; but also consider them as potential collaborators, referring to you sophisticated legal work requiring a level of experience and expertise in the local business and regulatory environment that they cannot deliver on-site. 

Merger or affiliation with an international firm will undoubtedly be a wise choice for some local and national law firms. However, there is, and will continue to be, a role for independent law firms in emerging and recently-emerged legal market. The best strategic course is highly firm-specific, requiring a realistic analysis of a firm's current strengths, the changing needs and expectations of its client base, and a well-informed analysis of the options.

But, more importantly for most national and local law firms, be sure that you can continue to deliver the highest levels of local commercial and regulatory expertise to foreign clients and national ones. Small and midsize firms that are successful at this sometimes describe themselves as “reliable guides” to the jurisdiction, or as offering “turn key” services for clients investing in their countries.  This is how, even when large, highly-capable, international firms enter a legal market, much of the best international legal work can continue to go to the best national and local law firms. 

Norman Clark

a selection of other articles of special interest to small and midsize law firms:

survival skills for small and midsize law firms (25 July 2017)

Are you a law firm or a condominium? (16 December 2015)

level playing fields, giant shadows, and other cliches that can come true through electronic publications (17 November 2015)