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Managing partners feeling knocked off stride by the recession had best look around because another numbers-jarring wave is headed to shore. Get ready for the quarter-million-plus baby boomer lawyers who are gearing down-or up-for a new kind of retirement.
The bubble has burst. Whatever serendipitous demand fostered massive law firm growth was temporary. Those days are over. What’s your firm going to do about it?
First, some perspective. What is happening in the legal market has played out in virtually every other market and industry in the history of business. Some call it the business cycle, others call it the product cycle, the maturity curve or the like.
Law, in other words, has finally seen what is common to the rest of the business world. It has passed its demand peak, lost its pricing power and is trending downward permanently — at least as legal services are currently defined and offered.
Think of the megafirms, which came into existence because of a demand bubble. Huge transactions or massive litigations required armies of lawyers. Firms merged themselves up to critical size to grab a piece of the windfall. Now those deals and cases have gone away — and they’re unlikely to return in any appreciable volume. In a way, those firms’ reason for existence has largely gone away. Without massive cases or deals, who needs a 1,200-lawyer firm?
A Reverse Food Chain
The dearth of big deals has reversed the growth dynamic. Since fewer clients will now pay BigLaw prices, some BigLaw relationship partners are moving elsewhere and taking their clients with them. They are moving to firms whose prices match their clients’ current appetites. In turn, those firms are losing clients to still lower-priced firms. And so on in a declining-price progression.
The market dynamic right now is cannibalistic. The only ones who don’t have someone to undercut on price are the top firms. Some, desperate to find new work, are trying to go down-market with little success. But they’ve never really understood how to sell or manage that kind of business.
So who can honestly say they would be shocked if a number of the AmLaw 50 were out of business within five years? They have massive cost structures, and the markets that caused them to grow to that size have shrunk or disappeared. Where will the demand come from to consume all that expensive capacity sitting in expensive offices? Emerging industries and companies? Not likely, unless the firms can somehow hang in for years until some of those companies get big enough.
Then it’s high-fives time for the lower-tier firms, yes? They seem to be the big winners. They’re the initial beneficiaries of the new price sanity, with a sudden flow of price-driven business and widened access to law students from top-tier schools.
It’s too early, however, to dance in the end zone. Lower-tier firms would be wise to remember not to confuse a rising tide with genius. Unless they recognize that this is merely an artificial — and temporary — bonus and get serious about discarding the broken law firm model, they’ll waste their temporary advantage.
So, in the face of all this, what should forward-thinking firms do? Here’s some advice based on many years in the legal sales sector.
Over the long haul, there are no successful businesses that haven’t had to master marketing and sales. If you’re a law firm, it’s time to become what you must become for the next 50 years. What’s that going to be?
Mike O’Horo recently retired from the law industry. For 18 years, he was a sales coach to senior lawyers in firms of all sizes across the country. He now lives in Las Vegas and blogs at Mike on the Move.