Last week saw the publication of the 14th edition of CommBank’s Legal Market Pulse report for 2021. What I recall starting out as a quarterly, then half-yearly, report, now looks to be permanently set as an annual publication (feel free to do a search of my previous posts on the CommBank report to see some of the history behind this).
Anyhow, the overriding message of this year’s Report is that the pandemic had little affect on overall profit growth at most Australian law firms (probably as a result of dramatically reduced costs). And with year-on-year median 12.1% growth in profit, on first look it appears that the profession is going great guns. Which, as someone who advises to the profession, is great news!
But where do law firms think growth will come from over the next 3 years?
How Australian law firms are looking to grow over the next 3 years?
Looking at page 11 of the Report, Australian law firms will primarily look at the following 11 ways to grow their firm’s revenue over the next 3 years:
- Marketing and business development activities
- Lateral hires from competitor firms
- Adopting new technologies
- Building/expanding referral networks
- Cross- and up-selling strategies
- Increasing fees
- New models of service delivery
- M&A activity
- Graduate intake
- Boutique/niche practices
- Diversified or non-traditional legal services
Let’s take a look at some of these a little closer, with a few observations from me on how likely they are to succeed:
Marketing and business development activities
When I read in publications that law firms are looking to marketing and business development activities to grow their practices I’m not entirely sure they know what they mean.
This is not to sound disrespectful, but I do wonder if these activities relate to hiring bigger marketing and business development teams internally?; is it in the hiring of external talent (such a business development coaching)?; does it relate to an external marketing campaign (advertising); will there be more coffee meetings? indeed more client events (golf anyone?); or are these firms looking at how they respond to the growing number of tenders these days?
So when I see ‘marketing and business development activities‘ as being a top driver of growth, I think some more thought needs to be given. And part of my reasoning for saying that is because pretty much every other one of the other 10 listed activities could, arguably, fall within the realm of ‘marketing and business development activities‘.
Lateral hires from competitor firms
All I’m going to say about having ‘lateral hires from competitor firms’ as a core growth strategy is that it is fraught with challenges/problems. The problem of whether that partner’s clients will move across (for example, if you are not on the client’s legal panel), to cultural issues that may arise (if they are not a good cultural fit), to internal jealousies (because you are either paying the lateral more, gave them a sign on bonus, or have given them some sort of fee relief while they ‘rebuild’ their practice).
If you take even a cursory look at historic lateral hire movements in Australia (and Eric Chin does a great job here), you will see that more don’t work than do.
And here is another, more important problem with having lateral hires as core to your growth strategy – your clients don’t always like to see it! So if this is going to be the way you grow, at least do it in consultation with your clients.
Efficiencies of scale
Adopting new technologies, new models of service delivery and M&A activities all fall within what I consider ‘efficiencies of scale’. That is to say, the net result of all of these is found in a cost saving that should impact on the bottom line of profit, rather than in revenue growth.
Now, some may argue that M&A doesn’t fall within that definition, but in professional services more M&As fail than succeed – and it is largely because the promises of new revenue streams from a combined offering that do not materialise.
Update your partnership deed issues
The easiest way to increase your cross- and up-selling strategies and new models of service delivery is to update your partnership deed. Because if you are having issues with either of these, it is because your current partnership deed is hampering these efforts. So if you don’t update your partnership deed, you won’t fix the root problem here.
Diversified or non-traditional legal services
I was really interested to read the comment in the Report (again, page 11) that:
…the research finds that the trend to grow diversified and non-traditional legal services as a growth avenue has largely run its course.
as I certainly had not seen that trend.
My doubts about this seem to be confirmed with a headline in the Australian Financial Review on 23 November 2021 – ‘MinterEllison, Clayton Utz, Ashurst in aggressive consulting push‘ (subscription may be required) which stated that:
Almost 20 of the country’s biggest corporate law firms have introduced or plan to introduce consulting services that compete directly with the major advisory outfits.
which would certainly seem to suggest that diversified/non-traditional services are very much top of mind when looking at growth strategies.
That 35% of respondents see ‘increasing fees’ as a growth strategy over the next 3 years is a major worry. That is all I’m going to say on that one!
One other interesting comment from the Report is around the Service Lines of growth. For the ‘Big’ players these seem to be centred around the traditional offerings of corporate advisory, dispute resolution, construction and infrastructure, and property; but for the smaller firms the focus on growth seems to be more around niche/boutique offerings, such as ESG. It will be interesting to see how this all plays out over the next 3 years…
As always, the above represent my own thoughts and would love to hear yours in the comments below.
This list puts me to sleep!!!
1. Some of the more exciting growth strategies involve firms who are targeting their preferred clients based not on what subject they learned in law school, but based on what INDUSTRY is likely to be the best focus for their expertise and strengths. Because, guess what, clients want firms with demonstrated industry expertise that can speak their language and understand how they work.
2. Combine that with firms that then go much deeper such that they are not just serving the Finance Industry . . . but have recognized and are becoming the Go-To provider in specific “Micro-niches” like Alternative Finance –
NOW think equity crowdfunding, initial coin offerings (ICOs), tokenization, and special purpose acquisition companies (SPACs) – many driven by the decentralized finance (DeFi) movement via a public decentralized blockchain network. (Any of you reading this know what I’m even talking about?)
3. Now finally, let’s introduce another growth element – multidisciplinary services:
I’m particularly impressed with one firm’s industry team that does $110m+ in revenues, 70% flat fee and is comprised of about 160 professionals (90 lawyers + 70 consultants) all treated and compensated according to the same rules. (Imagine that – none of this non-lawyer BS) They have a simple philosophy: “We don’t solve legal problems; we provide a total business solution.” Needless to say in their marketplaces, their ‘typical law firm competitors,’ the ones that are following these 11 sleepy strategies, are getting their asses kicked!
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