Biglaw

In Defense Of More Sizzle, Less Steak

Why Grey Poupon may be the answer for the bottom 99 percent.

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I’ll say it: efficiency and value are overrated. I’ve argued long and hard in this space that law firms in today’s market need to get creative and aggressive about cutting overhead, getting lean and mean, and delivering value in new ways to clients. I retract nothing, but I do feel compelled to add some caveats after reading two recent articles about continuing trends that I’ve been documenting in this column over the past months.

The first article is an excellent breakdown by Roy Strom of the recently released figures on growth and revenues in the Am Law 100 firms. The overall picture was strong, at least by modern standards. Revenues are up 5.5 percent, net income to the partnership level is up even more at 6.1 percent, and other leading indicators of the overall health of the industry are positive.

There are a couple of spots for worry, however. First, these numbers still haven’t caught up with the figures that law firms were pulling down prior to the Great Recession. Given that we’ve been in a strong economy for the past few years, including recent record-breaking numbers in the stock market, every year that law firm production continues to remain stagnant is another nail in the coffin of the Golden Era of Biglaw. There’s still plenty of money to be made, but the fact remains that the legal market just ain’t what it used to be.

We’re also continuing to see the ultra-rich firms at the top of the market experiencing growth and revenues that outpace the rest of the pack. Firms like Latham and Kirkland are doing record business, pulling in over $3 billion in revenue each last year, and are seeing growth percentages well above the rest of the Am Law 100. The farther down the list you go, the less growth you see.

The realities of this new normal were hammered home a few days later by Hanna Barczyk, whose linked article has lingered in my mind since I read it. We’ve known for a while that, in law as in life, the rich tend to get richer. Those with the most wealth attract the best talent, who tend in turn to attract more wealth. Firms positioned at the top of the market are going to bring in the highest quality work, be able to poach the best attorneys from their rivals, outspend and outmaneuver the competition, and generally leverage their existing advantages into even bigger advantages.

What Barczyk highlights is that the super-rich firms at the top of the market have put themselves in a class of their own. Latham, Kirkland, and their peers may be law firms, but they aren’t really in competition with the rest of the legal market. Their only competition is each other. When multibillion-dollar transactions come around, or publicly traded entities end up in bet-the-company litigation, where money is truly no object, that short list of firms will always get the call. No one’s staring down due diligence on a $600M acquisition and wondering whether to go with the firm that’s $25/hour cheaper. The competition is instead based on who’s got the experience, who’s got the relationships, who’s going to succeed where failure is not an option. Their reputations and experience are such that price competition isn’t really something they need to think about. As a result, their profit margins remain, to use a technical term, ginormous.

The rest of the legal industry is running a fundamentally different race. We’re increasingly competing not on prestige or name recognition, but on value. The legal market below the absolute top tier is focusing intently on efficiency to survive an increasingly competitive market. Law firms are cutting their rates and commoditizing work, sometimes to a fatal degree. We’re looking to technology and going virtual in an attempt to cut overhead and maximize profitability. We’re getting scrappy and creative to survive in a market that’s under siege by alternative legal providers, the Big Four accounting firms, and our clients’ incentives to pull work in-house. In short, most of us are competing in a value-based market where someone’s almost always going to find a way to do what we’re doing cheaper. I’m exhausted just typing that sentence out.

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I’ve long been banging the drum of efficiency, creativity, and a client-centric mindset that focuses on value. But I’ve also long held that there’s a benefit in zigging where everyone else is zagging. If the vast majority of the market is going all-in on increasing client value as its strategy, doesn’t it make sense to hedge against that trend?

My father is an attorney, and before moving to an in-house gig, he spent a short time as a solo practitioner. When he hung out his shingle, he was charging $50/hour, well below the going market rate, and yet had few clients. He went to a mentor, and received some great advice: double your rate. At $50/hour, potential clients were wondering why they were getting such a steal, and wondering if the quality of representation matched the fee they were paying. At $100/hour, potential clients presumed they were getting quality to match the bill. The clients started pouring in and his practice went on the upswing.

As attorneys, we absolutely need to be competing on value. The market is more competitive than it’s ever been. Compared to 10 years ago, more attorneys are out there fighting over a smaller pie, and now non-attorneys are getting into the fight more than ever. But value can’t be the only answer to this problem. The drive for low-rate, commoditized work has killed more than one firm. Cutting rates can be a savvy move, but it also decreases the perception of a firm’s value.

Law firms that want to remain relevant would be well-served by not just increasing the value they provide to their clients, but also by maintaining their old-school cachet. That’s a market advantage that no online document repository or accounting firm can match. Even the best steak needs some sizzle.

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James Goodnow

James Goodnow is an attorney, commentator, and Above the Law columnist. He is a graduate of Harvard Law School and is the managing partner of an NLJ 250 law firm. He is the co-author of Motivating Millennials, which hit number one on Amazon in the business management category. You can connect with James on Twitter (@JamesGoodnow) or by emailing him at James@JamesGoodnow.com.

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