Legal Markets and Marketing: 10 Trends to Watch and Watch Out For in 2018
The year 2008 marked a global financial crisis that was considered the worst since the Great Depression of the 1930s. It also marked the end of the traditional law firm’s 20-year bull run.
Now, a decade later, 2018 will be a make-or-break year for many firms. Some will fail while others will fracture. Some are scrambling to save themselves while others remain mired in inertia. Firms wanting to be vital and solvent are overhauling how they do business. Smart firms have already retooled.
The Citi Private Bank – Hildebrandt Consulting 2018 Client Advisory Report reveals that, on average, legal industry revenue growth and profit per equity partner (PPP) growth will remain in the single digits, which will result in continued consolidation.
Not surprisingly, the report also says strong brands in specific markets, fast response to client demands, and top talent will be important factors.
To that end, below is a selection of 10 legal market and marketing trends to watch – and watch out for – in 2018.
Marriages of Convenience
Many mergers will be marriages of convenience rather than unions of equals. They will be between one firm wanting to acquire the usual trappings – clients, money and territory – and another needing access to expensive assets, primarily technology and infrastructure rather than investing in these resources themselves.
This “marrying up” is apt to end unhappily when the acquiring firm with its technology and infrastructure winnows out the clients, money, territory and talent it wants from the acquired firm.
Failures are inevitable because too many undifferentiated traditional law firms are offering the same types of services and doing the same types of work, the same types of ways. Also, there’s not enough legal work to go around. As once senior partner told me, “I’ll have been practicing for 40 years by the time I retire and there’s not 40 years of work behind me for others to do.”
In addition, corporate legal departments are bulking up with talent that exclusively serves the company, learns and understands its industry, culture, politics, people, needs, wants, and budgets. Dedicated in-house talent also has a relatively fixed cost due to being on salary, which lessens unpleasant financial surprises.
Corporate counsel expect improved work processes from law firms that service them. Firms that appear on most-favoured lists – and want to remain there – must get lean and serious about taking action on client-centric issues. These include, but aren’t limited to: partnering effectively with clients and continually communicating with them to ensure that their needs and wants are delivered on time and on or under budget, right-sizing client service teams, providing outsourcing options (see Low Cost Centres below), commoditizing rote work, and proactively offering choice in billing structures.
Lawyers who don’t have an active, solvent practice will need to overhaul and rejuvenate their business fast. Firms wanting to be profitable will try to raise rates, which is likely to draw fire from clients. Therefore, firms will seek better profit margins by eliminating non-producing lawyers, including equity partners.
Strict admission criteria are now a factor with respect to laterals. Some firms no longer accept retired politicians or allow partners wishing to move from their former firm to instantly become partners at a new firm. In some instances, a partner can only join a new firm as an associate until they prove partner-worthy. A caveat is when a partner brings a proven book of ingrained business that is highly unlikely to go elsewhere.
Restricted admittance helps achieve a solidified culture through organic growth. Closing ranks also helps eliminate divisive politics and baggage that can accompany refugees from other firms or areas of endeavor.
Low Cost Centres
Low cost centres are a major factor in law firms wanting to win new clients and retain current ones. It has become a client expectation that a firm will have a low cost centre – either on-shore or offshore – operating as a back office for commodity work.
Many European firms have opened back offices and supply chains in low cost countries. In some instances, they have moved their infrastructure such as finance, IT, marketing, and business development to these countries in order to lower their cost of doing business.
Low cost centres may also take the form of legal service providers – human or machine – that work within the legal services supply chain to produce efficient, risk-level appropriate, client-oriented results.
Big Four’s Big Bite
Competition will continue to be fierce and come from all forms of legal service providers. However, the super threat is the continuing advancement of the Big Four.
Each of the Big Four professional services firms is armed with internationally recognized brands, legions of professionals of numerous descriptions, infrastructure that has been built up for the last 30 years or more, access to every significant business tool and system, and capital resources and financial acumen to run efficiently and effectively.
The Big Four are operating globally in the legal services market using a one-stop-shop platform that offers legal business services that complement and align with their core offerings of audit, tax, and accounting within their target markets and key industries. Their growth within the legal market will be exponential and potentially explosive.
Clients don’t care about your practice; they care about their industry. This is why understanding your firm’s industry strengths are critical to remaining vital and solvent.
Classifying clients using Standard Industrial Classification (SIC), North American Industry Classification System (NAICS) or International Standard Industrial Classification (ISIC) codes that are determined by a company’s primary line of business, enables a firm to determine sectors in which it has strengths and position itself according to the client industries it serves.
Industry alignment sends the unmistakable signal to target markets and clients that a firm reflects the world of business.
It also enables marketing and business development initiatives to fall into place with ease. This is because sector strengths are clear and irrefutable client industry data helps determine with precision how the firm’s time, resources, and money are best invested.
Firms with grit will ruthlessly examine themselves from the perspectives of their target markets and clients. They will then need intestinal fortitude to right size and reposition their offerings. This is when examining financials in terms of profitability and understanding industry strengths come to the fore since rightsizing may mean spinning off practices and teams better suited as independent boutiques.
Astute positioning leads to legal market differentiation. It is at this point where your legal market differences becomes both your strength and brand.
Traditional law firms won’t fix themselves by themselves. If they could have fixed themselves, the legal industry would have been updated and upgraded long ago.
Solutions enabling the legal industry to survive and thrive will come from accountants, management consultants, engineers, technicians, professional services industry experts, and those with applicable business backgrounds some of whom may have legal understanding and know-how.
The legal industry is continuing to expand by creating new resources and ways to provide legal services that are exciting, encouraging and revitalizing. But there is also retraction due to enormous pressures, particularly on traditional law firms.
Only those firms that get out of their own way and retool with speed in the very near future will be vital, vibrant, and solvent in the years to come.