Boutique law firms become the new 'black'
If only I had a dollar for every time someone uttered the phrases "new normal" or "changed purchasing behaviours" when discussing the challenging conditions that confront Australian law firms in this post-GFC market.
There is no doubt the market has changed and law firm business practices continue to evolve with the industry's transformations. Over the past few years the concept of the "Boutique Law Firm" has been thrust firmly to the forefront of the legal world's lexicon. Advocates of the boutique firm claim that small, agile practices are the future of the industry, but does the concept have substance or is it all just marketing 'smoke and mirrors'? Further, when considering the future of your firm is a boutique strategy the right one for you?
Back to basics
The first point to remember about successful boutique firms is that the term "boutique" is not simply a euphemism for small. If anything the idea of a boutique firm aligns most closely with the concept of specialisation.
Across the globe many successful boutiques have emerged through a similar pattern - a niche practice has split away from a large, established firm. The new firm's value proposition to the market has been two-fold:
- All practitioners focus on one specialisation (e.g. not for profit clients or providing regulatory guidance to financial services companies) improving the quality and consistency of expertise/service their clients receive.
- Reduced prices achieved through (a) the decrease of expensive overheads that don't contribute value and (b) clever outsourcing of the firm's back office functions.
While there is nothing to say that boutiques can only be borne from large firms the boutique's value proposition is powerful because it starts from a client need and works backwards to the structure of the firm. Clearly creating this structure from scratch is much easier than reshaping an existing firm.
There is no doubt that the needs of clients continue to evolve following the GFC. Authors such as Richard Susskind have long predicted clients' increasing sophistication and innovation in their quest to find legal expertise at the right price. At first glance boutique firms are an excellent answer to client prayers by maintaining quality whilst reducing cost.
It's not all sunshine
For boutiques however, delivering on this promise is confronting, particularly for those not fully committed to the cause. Setting aside the cultural change required to outsource back office functions, the more daunting challenge is a strategic one: Does the firm have the intestinal fortitude and discipline required to develop and maintain a niche practice?
Embarking upon a specialist strategy has two components: firstly to define what will sit inside your target specialisation and secondly to determine what work you won't do. Of course the natural tendency is to deal with this challenge by allowing your areas of specialisation to grow, particularly when reshaping an existing firm. However, this tendency is a strategic trap.
The more numerous your areas of specialisation, the weaker your value proposition to clients. Large firms struggle to maintain deep expertise across a range of practice groups and smaller firms will experience this concern more acutely. While some may be tempted to address this issue through a "fake it 'til you make it" approach most will find "faking it" simply increases costs, either for the client or the firm itself.
Boutiques also face the specific challenge of collaborating with other firms when working for large clients. Rare is the case that any individual area of legal specialisation can practice in isolation. Indeed most significant transactions require multidisciplinary advice, for instance an acquisition may raise issues across corporate, banking and finance, workplace relations, property and tax to name just a few groups.
Of course, full-service firms are designed to fulfil this need. Boutiques on the other hand must either forgo these transactions or find ways to collaborate effectively and efficiently with their competitors. Beyond these logistics the boutique must convince the client that the benefits of splitting the work between firms outweighs the accompanying risk and inconvenience factors. Not an insurmountable obstacle but certainly a further complication to the client relationship.
Since the GFC Australia has seen numerous large corporates 'open' their panels to boutique and smaller firms. On the face of it this trend supports the boutique cause. However, not all of the new panel firms have prospered. Standing out from the crowd and disrupting incumbent relationships remains a daunting task for newly added firms.
If you build it they will come
The market is tough but it will reward firms that can find an effective means to provide clients with improved service at a lower cost. Successful boutiques deliver this result to their clients and offer an intriguing alternative to larger, full-service firms.
Clients appreciate the boutique concept but they are discerning in their assessment of potential additions to their legal panel. A successful boutique requires more than a cosmetic change to the firm via a new website or marketing text. Success demands a demonstrable track record; a committed, innovative approach to cost management; and the discipline to maintain focus on delivering excellent service to clients.
If your firm is ready to meet these challenges then there are significant rewards on offer. However if you believe that your commitment is less than complete you should strongly consider alternate strategies to grow your practice. Becoming a successful boutique is not for the faint hearted.