According to a recent ABA Journal article, Law Firm Mergers Continue at Record Pace, the first nine months of 2015 saw the highest number of law firm mergers since Altman Weil began tracking them, and all were acquisitions of firms with fewer than 35 lawyers. In late December, Law360 reported that 2015 set a record for law firm mergers, again citing large firms acquiring smaller ones to fill in holes in geography or service areas.
What does all this mean?
In a word, "consolidation," which signals market maturity, which in turn is defined as an absence of significant growth, and a lack of innovation.
Whether you're a large firm doing the acquiring, or a smaller one subject to being acquired, you'd be well served to understand the lessons of The Consolidation Curve, which explains how, once an industry is formed or deregulated, it moves through four stages of consolidation.
I put law firms in the newly-deregulated category because, for them, The Great Recession was really the Great Reset. Formally protected by licensing and other regulations, law firms were also insulated from meaningful competition by years of unprecedented and steady increase in demand, driven by the growth of business complexity, and producing what The American Lawyer called the "Golden Age of law firms."
In 2008, forces that had been bubbling below the surface, long suppressed by the 25-year bull market for legal service, emerged to accelerate fundamental change akin to those that follow deregulation, most notably, out-of-category competition, such as law firms are seeing from legal-tech startups, "offshoring," and other consultancies, and a decline in pricing power.
The Harvard Business Review graph and article (above) suggests that law firms are in Stage 1. They're advised to "build scale, create a global footprint, and establish barriers to entry by protecting proprietary technology or ideas." While the previous spate of mergers and acquisitions that combined so many of the larger firms was often in pursuit of a global footprint, few law firms have proprietary technology or ideas to protect. This makes them vulnerable to innovators, whether from law boutiques or technology startups or, most ominously, clients themselves. Yet, despite the risk of obsolescence argued by the New York Times, inexplicably, law firms remain resistant to embracing the changes necessitated by their circumstances.
The HBR model further urges firms to "focus more on revenue than profit, working to amass market share, and begin perfecting their acquisition skills." Law firms have long been focused on profit, and it seems they're trying to pursue both goals, i.e., revenue and profit. The inherent conflict may at least partially explain their struggle to formulate and apply a cohesive strategy.
Most of the challenges derive from firms' failure to recognize, or outright denial about, the fundamental shift in 2008 from a longstanding Seller's Market to the Buyer's Market that is a permanent element of the law industry's future. This Seller's-Market-to-Buyer's-Market shift is the most fundamental in business. It obsoletes virtually every strategy, operational philosophy, and business model that has characterized the business for the entirety of its existence.
Nothing that worked in a Seller's Market will work in a Buyer's Market. Nothing.
In a Seller's Market, everyone is a product company. In a Buyer's Market, everyone must be a marketing and sales company.
Whether an AmLaw 100 firm, a solo practice, or something between, the law business has been as far removed from marketing-centric as is possible. That has to change, and perhaps the biggest mindset shift is to accept that Sales is too mission-critical a function to trust to luck. It must be professionalized.
It doesn't matter whether you hire a professional sales force or train your lawyers to sell professionally, it's time for law firms to take Sales seriously, and stop hoping that a part-time, volunteer, occasional sales effort will somehow succeed. It simply can't.