The problem with the mushy middle for law firms
“It feels like common sense to play to the center of the market, but actually the middle is least desirable place to be. If you try to simultaneously appeal to the high end and the low end of the market, guess where you’ll end up? In the ‘mushy middle’, where you appeal to no market.”
- Tim Williams, The Mature Company’s Identity Crisis
When buyers look at the market for legal services they see it as something of a bell curve. On the right they see the highly skilled work that’s the domain of global or big national firms and a few lucky boutiques.
The work on the right side is labour intensive and often hyper-specialist and it’s also high profit.
If you’re playing here it’s because you provide clients with a measurable competitive advantage which not many people can. In this space price doesn't matter so much, even if it matters more than it used to. After all, if you’re doing an M&A deal for a billion dollars, what’s a million or two between friends?*
And on my left
On the left of the bell curve you have the lower skill, high volume legal work that’s also low fee. Victory over there goes to whoever can do it fastest and cheapest.
That means it’s also increasingly the domain of lawyers who blend technology with their processes and project management skills: online legal advisers, legal process outsourcers, robo-lawyers and the like.
But because it’s high volume and low ‘touch’ (ie the client doesn’t expect much, if any interaction), it’s possible to turn a reasonable profit here too. It’s mainly a question of finding the right way to keep costs down, as well as developing a product people want to buy.
And then there’s the middle…
Then there’s the middle.
It’s that large, amorphous blob in the centre of the page that already accounts for about 60-70% of firms. And this area is under attack from all sides – clients, traditional competitors, new entrants and even internal competition.
Which means, of course, you’ve got to fight hard for it. So it’s also where intimacy, client loyalty and client experience management matter most.
But that’s only a part of it.
Because, while the number of players increases, there’s pressure coming from in-house teams too. There was a time when they briefed out as a matter of course. Not anymore.
In-house legal teams are skilled up, selective with what they dish out and they only want to use lawyers who jump through their hoops and take the work on their terms. They’re subjecting them to panels with cabrank rules that drive down prices and create more competition. And they’re expecting way more for their money than they’ve ever asked for before.
It might seem that there’s no alternative but to take what they’re dishing out because there’s a wall between the middle and the top of the market (are you really going to nab M&A work from Gilbert + Tobin, Allens or Freehills?) and trying to compete with the bottom is a surefire recipe for going under.
The middle is becoming a pretty awful place to be. And it seems as though you’re stuck.
But you’re not.
Where there’s life there’s hope
While it may seem as though there’s little hope, there’s a lot of it. I know, because I’ve seen firms take on this challenge and not just beat it, but banish it forever (well, ok, for the foreseeable future anyway).
Take, for instance, Littler Mendehlson, a large employment law firm from the US (they have 950 lawyers and 55 offices across the country).
These guys were fighting it out in the US where their client base was actively looking to reduce legal costs, get some predictability in their budget and limit their legal risk.
But, of course, they didn’t want to compromise the quality of their advice.
So the lawyers sat down and figured out ways they could compete.
The answer they came up with was Littler Casesmart, a platform which radically changed the way they administered advice, moving from a traditional lawyer/client relationship to a project management approach. With an online platform at its centre, Casesmart was backed by experienced lawyers who could work on their terms, which made a lot of staff happy. And it delivered a different kind of advice: more integrated, proactive and - as clients often found - lower risk.
The result for clients was a 20% cost saving for clients. So, as you can imagine, many were pretty keen to take it up.
But what about their firm?
The sceptical among you are probably thinking all Casesmart did for the law firm was to destroy their existing model and replace it with a lower cost, lower profit model in its place. But that’s not what happened at all.
Instead, it shored up their client base and created an entirely new revenue stream, helping the firm become more profitable not less.
And this isn’t a one off
There are so many examples of firms that have found ways to thrive. This is just one of them. Others have happened closer to home.
So if your firm finds itself in the mushy middle and you’re wondering how you can win, stay tuned... Because next week I’m going to talk about seven ways you can do it.
Sue-Ella is the Principal of Prodonovich Advisory, a business dedicated to helping law and accounting practices sharpen their business development practices, attract and retain clients and become more profitable.
*OK, so it’s not quite that simple. While the firms that tend to work on the most complex deals and cases have their fees somewhat protected, they don’t have it all their own way. For instance, barristers are now treading on their toes, accepting briefs direct from in-house counsel (around 10% of all barristers on the NSW Bar Association site now state they’re happy to do this).