As we prepared for a panel discussion last month, a KPMG partner and I were comparing notes about our respective industries. As I described the legal sector—the near-flat growth, consolidation, industry disruption, newfound focus on profitability, changing talent models, etc.—she remarked astutely, “well it sounds like law firms have to get used to competing in a low-growth market just like us.” The trick is, competing in a low-growth market demands different tools and approaches than the ones to which most law firms are accustomed.
The low-hanging fruit to propel growth, of course, is acquisition. Last year saw near-record levels of law firm mergers in the U.S. Like the accounting firms before them, law firms are using consolidation as the “easy access” way to expand their client base and talent pool in an effort to compete more effectively, yet bigger isn’t always better. Of the 17 major mergers between AmLaw 200 firms that took place between 2003 and 2013, just 6—or 35.3 percent—resulted in firms that grew faster than the market in the third year after the merger, according to LawVision’s MergerCounsel. Moreover, 2 of the combinations failed completely (i.e., the firms ultimately dissolved).
The Organic Growth Challenge
The alternative to acquisitive growth is organic growth. Organic growth presents a more nuanced approach to topline growth—more akin to a precision play than a blitz. Organic growth is an approach that demands investment, patience and diligence, alongside a tolerance for risk and a willingness to take the long-view. Accounting firms have mastered the formula for evaluating, pursuing, and perpetuating a form of organic growth. They do this specifically through ancillary service offerings and in adjacent spaces. Virtually all major accounting firms are aligned by verticals (client industries), have robust client-facing programs to drive loyalty, cultivate strong alumni networks, invest routinely in thought-leadership and innovation, and rely on metrics to systematically and effectively measure performance. A new opportunity is assessed by how it will contribute to these efforts, support the firm’s overarching strategy, and drive long-term goals.
For law firms, particularly those whose strategic goals are not as concrete or who lack internal resources to drive the analytical process, taking a more aggressive stance on organic growth can be daunting. Though many have experienced “one-off” success, hiring small lateral groups or bootstrapping a new effort, far fewer have approached this challenge in a concerted and systematic manner. Even fewer have entered a new market, business, or service offering in a manner that realizes the true potential of the opportunity.
Fortunately, there is a tried-and-true formula to help transform an idea into a revenue stream. A well-designed go-to-market strategy will:
1. Evaluate alignment with the firm’s strategic objectives
2. Define the specific client or market need it seeks to address
3. Establish criteria and metrics against which to measure progress
4. Assess risk factors to the firm and to the effort, including a critical evaluation of the firm’s internal capabilities, financial resources, and talent
5. Include a list of critical success factors (what will it take to be successful)
6. Project a timeline and investment of resources required
Developing a Go-to-Market Strategy
A go-to-market strategy is the result of a dedicated effort combining analysis of internal and external data with input and feedback from firm leadership, practice heads and other stakeholders. In the absence of either external or internal data, a go-to-market strategy risks missing the mark entirely, whether because there is no actual need, too many entrenched competitors, or lackluster financial opportunity. Conversely, without the perspectives of leaders and other firm constituents, the strategy may be sound analytically but void of the “human element”—the direction, passion or motivation required to act on the recommendations. The process, therefore, is an iterative one that involves interjecting periods of research with the development of analytical frameworks, brainstorming exercises, and group discussions.
From an analytical perspective, the minimum inputs to consider and bring together include:
1. External factors
a. Clients—direct feedback and input on changing needs and priorities
b. Market forces—these include industry dynamics, regulatory environment, and other forces that influence clients and prospects
c. Macro-trends—such as generational shifts, global economics, political winds, disruptive entrants
d. Area-specific—trends in litigation, billing rates, hiring criteria, M&A activity, private equity deals, etc.
2. Internal factors
a. Capabilities assessment—what are the strengths of our talent pool, gaps between our talent, and the client/market need(s)
b. Financial performance—which clients/matters/types of service offerings are most profitable/generate the greatest revenue
c. Staffing model and approach—do we have the right staffing mix, how are we applying project management
3. Competitive landscape
a. Differentiation—what are the firm’s competitive characteristics in the eyes of clients and the market, and in the eyes of potential talent?
b. Barriers to entry (market dominance)—market segmentation of firms already in the space, strengths of incumbents, potential vulnerabilities, or untapped differentiators
c. Clutter/noise in the market—how crowded is the landscape, are their nonlaw firm alternatives
A Picture is Worth a Thousand Words
The presentation of this data is equally important as (if not more important than) the information itself. First and foremost, acknowledge that this exercise, like almost any nonscientific approach to data analysis, is not foolproof. Data sources have liabilities. The ones we face most regularly in legal is that our data sources are a) not comprehensive, and b) inaccurate representations of larger populations. For instance, we can’t extrapolate middle market spending from an analysis of Fortune 1000 organizations. To transform data into analysis demands a special skillset, one that is rare in many law firms. Consider hiring analytical talent to ensure the firm is accurately portraying and optimizing the data collected. Infographics can be useful tools as can proven analytical frameworks from business such as quadrant charts, “bubble charts,” and other matrices.
Create a Dialogue and Build an Implementation Plan
At the outset of any go-to-market analysis and again at various points throughout the process, bring together those with a vested interest in the outcome e.g., firm leadership, practice heads, those partners whose clients may benefit from the resultant effort. The goal of these facilitated discussions will morph over time. Initially, these meetings will offer guidance and direction to the effort; eventually they will turn into a sounding board and, then, a catalyst for change. A rough timeline of topics and discussions may look like this:
1. Selection criteria—Devise and prioritize a list of what matters most to the firm.
2. Spit-balling—Create a master list of all the zany ideas that could possibly be of interest to the firm. Ignore practical questions such as cost, implementation, etc. and focus on idea generation.
3. Discuss initial findings and feedback from the analysis—Review opportunity against the criteria set. Isolate areas in need of additional input or data.
4. Define critical success factors—Delineate metrics to evaluate ROI and set targets and expectations for progress.
5. Build out the potential steps—Time to get real and put action steps, timelines, and individuals responsible on paper.
Mastering the process of organic growth will be a competitive differentiator for years to come. The ability to innovate, bring data to bear, identify opportunities with the greatest chance of success, and pursue new markets and services is an essential skill in the “low-growth market” that we may just have to get used to ... for now.
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