The Small Firm Advantage

Originally posted on Small Firm Innovation 

Large law firms today are in a real bind.  Their large clients are looking for lower legal costs, but large firms have big overheads, lots of partners to feed, and little experience in providing alternative billing solutions.  They have increased their chargeout rates significantly in the last decade, and large clients are understandably upset.  The rise of the Association of Corporate Counsel (ACC) is an indicator of just how upset they are and their need for retribution.

Small firms, on the other hand, are sitting in the catbird seat.  They have what large clients want.  They have low overheads, their chargeout rates are significantly lower than large firms, and they have lots of experience with fixed fee billing for commodity work.  They’re also hungry to get their hands on large firms’ institutional client work.  Large clients are interested in what small firms have to offer, since large firms aren’t responding to their repeated requests for alternative billing.

The time is ripe for small firms to turn their better value offering to their advantage and steal good work away from large firms.  It’s there to be had, and large clients are looking for options.  Take the advantage now.  The economy is in tough shape, and the opportunity won’t get any better for small firms. Put together an alternative billing strategy and lure away large firm partners looking for more flexibility and better work/life balance.  These partners can make more money in less time with a lean platform that’s already in place in a small firm. They can be the big fish in a small pond.  And many large firm partners are doing just that.  They’re jumping ship from large firms that have retirement policies that force them to retire in their prime practicing years.

Why not take your clients with you and create something new, that’s truly yours, and not be treated like an employee in a mega-firm where you have no say? No oppressive rules, no national firm overheads, no one telling you what to do.  Be creative, experiment a little, and have fun.  What more can you ask for?  Use the technology you want without the constraints imposed by some large firm tech department.  Use LegalZoom technology, outsource to the best lawyers available, work virtually and create virtual teams of like-minded partners from other large firms who are ready for a change.

The legal industry is in turmoil, and that’s a real opportunity for small firms. Develop a new strategic plan with a unique value proposition.  Offer value pricing and make clients very happy.  The Valorems of the world are already doing it, and have done all the groundwork for you.  Market yourself as the expert in your field on your terms, and no one else’s.  Use social media as you see fit, and take advantage of this very effective and inexpensive marketing technique that large firms just can’t seem to do as well as a small firm can.

Make your legal working life a lot easier and more fulfilling.  Work with like-minded people who want to create something new, something exciting, and something that can allow you to make twice as much money in half the time. Now that’s real work/life balance!

5 Major Trends Impacting Canadian Law Firms Today

1) The Norton Rose Phenomenon

One of today’s key trends affecting law firms of all sizes in Canada is the Norton Rose phenomenon. Norton Rose is a 2,900 lawyer global giant, organized as a Swiss Verein, which has just gobbled up Ogilvy Renault and Macleod Dixon in two quick bites. Within a matter of months, they have singlehandledly changed the face of the Canadian legal industry, creating the third largest legal firm in Canada and they’re just getting started. That’s incredible, and scary for some at the same time. This is the new order in Canada’s legal industry.

This is also a defining moment for the legal industry in Canada, and might drive more mergers and changes in national and regional firms as Norton Rose presses its influence. It could force Canadian national firms to get bigger or they’ll be swallowed up as well. Other global giants such as DLA Piper are waiting in the wings.  At 4,000 plus lawyers it’s the largest law firm in the world.  Discussions are happening amongst multiple potential Canadian merger partners, with other global firms no doubt interested in Canada’s lucrative resources legal work as well.

There are many similarities to what the large accounting firms such as KPMG and Deloitte went through in the ‘80s and ‘90s, as they used Swiss Verein structures to build their global presences as well.  The Swiss Verein structure provides limited liability, world-wide branding and consistent client service standards as some of its features.

Large Canadian law firms are being influenced by the large accounting firms in many ways. In the 90’s, large Canadian law firms went national to protect against the feared onslaught of accounting firms, which fizzled out when Enron happened, but the large national law firms remained. Now there is pressure  again being exerted from the outside, and large firms will have to restructure to fight against this new enemy.  Rumour has it that the large accounting firms are looking to get back into the legal industry again as well.

As an adjunct trend, the rise of the ABS regulations in the UK is putting an even more interesting spin on Norton Rose’s arrival in Canada. ABS allows public ownership of law firms, which is happening right now as UK firms are lining up to go public. If this trend catches on in the UK, even more resources will become available to UK-based firms like Norton Rose, and the US may have to consider the possibility of allowing public ownership for US firms to compete with publicly owned UK firms. This could lead to the ultimate showdown of publicly-owned global law firms, which may lead the legal industry to look something like the big 4 accounting firms when the dust settles, or…? Stay tuned on this one :).

2) Move to Corporate Model

Another trend happening simultaneously is the move to more corporate models of firm governance amongst large Canadian firms. McCarthy’s moved to a board of directors and a full corporate business model a few years ago, and other large and regional Canadian firms are now going the same way. Practice groups are consolidating nationally, similar to what the large accounting firms have done for decades.

3) Alternative Billing

Fee pressures from clients are being experienced by firms of all sizes in Canada. It ranges from the small firms that do commodity work such as residential conveyances for less than what notaries charge in British Columbia, to large firms that are being pressed by large clients to offer alternative billing arrangements such as fixed fees to provide more certainty and less risky billing options.

Alternative billing is not as advanced amongst large firms in Canada as it is in the US and Europe, however, it is coming and firms need to prepare. It is being felt in the banking and intellectual property areas already. It has been prevalent in commodity work in Canada for decades eg. personal services law, residential conveyancing, wills and estates, etc.

Project management is another trend that midsize and large firms are embracing, as a forerunner or as an adjunct to alternative billing. To get as efficient and effective as you can, then use this efficiency to compete in the fixed fee arena, and hopefully maintain or enhance profitability.

The whole concept of value is being embraced by clients, who are looking at the high chargeout rates that law firms have brought in over the last decade, and they now want retribution and rollbacks, or at the least a stop to the increase in their legal budgets. The rise of the ACC Value Challenge is just one indicator of their resolve here.

If the economy worsens in a possible double-dip recession, clients will exert even more pressure on law firms. Firms must prepare for this change and must demonstrate more value to satisfy clients.

There is also a movement to reduce the recovery of soft costs such as photocopies and fax charges, which irritates some clients, and law firms are pulling back on this somewhat.

4) National Firms Cleaning House

National firms are cleaning house and cutting partners with practices below minimum $ practice size and clients that don’t meet minimum $ billings levels. This is a great opportunity for small and regional firms, who are picking up these senior national partners who have been pushed out or who have left national firms for better work/life balance.

This can be a great boon for the smaller firm, as they acquire new talent and institutional clients, who will remain with the smaller firm after the partner finally retires. Many national partners have established long relationships with their clients, and can transition their clients to their new smaller firms and make them profitable with the lower overheads of a small firm.

5) The Rise of Innovative New Legal Business Models

The rise of innovative new business models such as Delegatus, Clearspire, Axiom, Cognition, etc. The concepts of outsourced in-house counsel, no partners, franchised firms and virtual firms are threats to national and regional firms and an opportunity for small firms.

Presented at the Seventh Annual CBA Law Firm Leadership Conference held October 24-25, 2011 in Vancouver, BC

What Strategies Should Law Firms Be Focusing On Now?

I would suggest one simple killer strategy that firms should being doing already, which is even more critical during tough economic times. Interview all your top clients and find out what issues are “keeping them up at night”. Then help your clients focus on these issues and resolve them. They’ll thank you for it with more work and market share. This strategy will also help you avoid losing your top clients to other hungry firms approaching them during this period.

Tough times like these lead to many opportunities for smart firms. Another great strategy is to pick up star partners from your competitors in lucrative practice areas you want to grow. These folks are available now since it’s slow, and not normally available in regular economic times. When the economy returns, your new star partners will help your firm dominate your market space and greatly enhance future profitability.