When a law firm becomes dominant in its marketplace, there is only one place for it to go – down. Often, firms find that retaining their position as king of the hill is as hard as getting there was in the first place.
Most firms find that the old Mel Brooks line is true – “It’s good to be king.” The power and benefits of being a primary law firm in a market make it a position worth whatever efforts are required to get there. Unfortunately, it’s easy for dominant firms to become complacent. Realizing that it is difficult for another law firm to unseat them, dominant firms tend to forget about their competitors. They typically devote their strategic efforts to internal issues or trying to build their weakest practice areas.
But with industry consolidation, the free movement of lawyers and even whole practice groups between firms, and the appalling lack of attention law firms give to existing clients while they are out courting prospects, dominance is not the free ride it used to be. Becoming dominant is one thing; staying there is another.
As we work with more firms that have become dominant, even in a sliver of a market that they have carved out for themselves, we have come to find there are three basic strategies that seem to work in maintaining their position.
In situations where a firm has a clear position of dominance over its competitors – especially if that dominance is in practices that make up the majority of their firm – we find that a predatory strategy is particularly successful. It involves an aggressive frontal assault on the competitor that will eliminate the other firms as effective competitors while solidifying the dominant firm’s position.
Consider the following case study: Our client was in a city and specific practice area where there were three major firms competing for dominance. The most dominant firm, our client, was perhaps 20 percent larger in the number of lawyers and in the dollar volume of fees generated than the next largest firm and perhaps 50 percent larger than the third firm. The rest of the market was fragmented among firms with minimum capability. The second firm was, as one partner put it, “continuously nipping at our heels” and was forcing our client to devote substantial efforts toward maintaining its existing client base rather than pursuing a geographic expansion strategy.
The firm decided on an attack strategy designed to do sufficient damage to their competitor to permit our client to at least double their lead in transaction volume. As the managing partner said to his partners, “What’s the sense of having a market advantage if you’re not going to use it?” The attack strategy took three forms. First they hired a legal recruiter on an hourly rate basis to continually pursue their competitor’s partners and senior associates. Senior associates were offered an immediate non-equity partnership with equity consideration within 18 months. Partners were offered immediate equity partnership with a guaranteed minimum compensation for two years. The firm set aside $2 million in capital to cover the cash flow requirements for the laterals.
The second aspect of the strategy was to offer clients a service level that it would be difficult, time consuming and expensive for their competitors to match. They took the extranet system (that had been created for a specific client but was rarely used) and linked it to the document management system providing clients with access to all of their documents related to specific transactional matters. In a few weeks they were able to repackage the extranet into a graphically striking program and develop an on-line presentation for use in demonstrations with potential clients.
The third aspect was a direct assault on the competitor’s clients. An appointment was made with each of the competitor’s largest clients. The presentation was specifically prepared to present an assembled client service team to the client, demonstrate capability second to none and present a client-based technology not available from competitors.
The firm did not win any awards for camaraderie at their local bar association, but the new strength of their dominance is staggering and the aggressiveness and effective nature of the strategy netted the firm a significant number of additional laterals outside their dominant area of practice.
One of the difficulties with dominance is that a firm eventually runs out of new client engagements to obtain due to conflicts of interest or competitive conflicts among clients. One attractive strategy is to leverage a position of dominance to a closely aligned geographic area or industry. That is, taking the critical mass, capabilities, name recognition and stable of clients that provide a firm with dominance in one market and using them as a base to create dominance in another.
Consider this case study: A firm with a particularly dominant practice in a Midwestern city found it could not realistically grow the practice any further in its primary market. The choice was to attempt to grow other practices in which it was unlikely they could achieve anything approaching dominance or to attempt to transfer their strength into a new geographical market.
The firm’s real desire was to duplicate their dominance in Chicago but they realized the sheer magnitude of the Chicago legal market made the transition almost impossible. Therefore, they decided to pursue opening an office in Cleveland where there was no dominant player in their specialized practice. Because Cleveland was a relatively short drive from their home location, they were able to call on some of their partners with the strongest reputations in the area to spend time in Cleveland and quickly recruited several laterals on which to build the practice. Within nine months they had a ten attorney office in Cleveland, eight of whom were in their dominant practice, and they represent virtually all of the major clients who needed the specialized legal service in Northern Ohio.
Interestingly, they then followed the same process in Minneapolis which turned out to be a more difficult market to break into. The city had a stronger presence of firms in the practice area and the major clients were being served by small practice groups in the two dominant corporate firms in the city. The process was also made more difficult by the distance factor which required greater time spent traveling.
A third strategy is to refocus the firm toward its areas of strength by reducing or eliminating weak areas of practice. This is perhaps counter-intuitive because the natural reaction is to devote efforts to the firm’s weakest areas. In fact, the likelihood is that these areas, if strengthened at all, will at best reach a level of mediocrity compared to competitors.
For example, we worked with a 175 lawyer firm that was known for its health care litigation practice that ranged from defense of pharmaceutical and medical devise products liability to fraud and abuse defense. The firm considered itself to be full service and had corporate, real estate, estates and trusts, employment and bankruptcy capability. Their strategy had traditionally been to build each of these practices through their health care relationships, and the firm had spent most of its lateral acquisition resources on adding breadth to the practice. At the same time, competitors were becoming increasingly active in litigation matters that they successful spun off of their corporate and health care practices.
Our client refocused itself as a litigation boutique emphasizing health care clients. They developed industry groups within their litigation practice, each of which dealt with a specific sub-industry within the overall area of health care. The only non-dominant practice they fed was their employment law area in which they already had some degree of strength. While they did not close down any of the other practices, their policy of benign neglect resulted in far greater internal focus on their core areas of strength and an unassailable position of dominance in their marketplace.
Some firms may find these tactics incredibly aggressive and perhaps unprofessional. For other firms, this is just part of running a legal practice. The point is that the battle is only half over when a firm becomes preeminent. Then, the trick is to stay there.