Bigger Isn’t Always Better

Firms With Niche Practices and Narrow Missions Often Out-Perform Their Growth-Driven Competitors

As the larger economy faces labor challenges and supply chain issues, the legal industry faces its own version of those struggles. Recruiting data released earlier this year counted 8,268 open jobs for lawyers, a 150% increase since the start of the pandemic. Across the country, leaders at the largest firms complain that they can’t hire lawyers fast enough or hold on to them long enough or get them to take on leadership positions.

Associates and young partners aren’t necessarily leaving the field entirely, but some data shows they are moving away from the largest and most elite firms and toward those offering a different work environment. As Reuters Legal News noted, “Recruiters said associates have turned down signing bonuses as high as $300,000 for firms with a culture or geographic or industry footprint they prefer.”

When it comes to law firm strategy, growth — opening more offices, offering more areas of practice — has always been the measure of success. Getting bigger meant you were getting better. But, at a moment when firms are hard-pressed to hire and hold on to the lawyers needed to sustain that growth, is it time to rethink our view of what a thriving firm really looks like?

Big Growth vs. Deep Dive

Aggressive growth strategies — acquiring smaller firms to enter new local markets, taking on multiple groups of laterals at once — certainly drive up revenue. But, ironically, they might also drive some of the very factors that hurt law firm performance over the long term. The bigger a firm gets, the thinner the cultural bonds keeping it together are stretched. Especially in virtual and hybrid work environments, leaders are hard-pressed to motivate, develop and retain associates for whom the firm exists mostly as an administrative entity. These firms lack a shared vision or mission or purpose, the why of their work. (And no, “generating more revenue” does not really count as a why.)

As a recent piece in The American Lawyer noted, “workplace turnover is shaping the legal industry … the level of discontent and disconnectedness driving it seems ‘almost unmanageable.’”

But, while holding together an ever-expanding firm might seem a near-impossible task for a managing partner, there is a cohort of firm leaders who have seen their recruiting and retention efforts thrive in these disconnected times. “Niche” firms, whether they’re boutiques focused on super-specific areas of litigation or mission-driven enterprises serving particular sectors of the economy such as green energy or nonprofits, have a natural advantage in attracting talent and keeping their teams together.

There is, of course, a long tradition of Big Law refugees spinning off to create their own firms where overhead costs are lower and decision-making is less bureaucratic. Conventional wisdom has always held that, while these boutiques might be pleasant and profitable places to end one’s career, they weren’t places where ambitious young lawyers could actually build careers of their own. In today’s market, though, hyperspecialized and “deep niche” firms might be better positioned for strong, long-term performance than larger, more generalist firms and, not coincidentally, might also have some important intrinsic advantages in the war for talent.

Recruiting and Retention

As leaders at global firms fret over “the great attrition,” the seemingly mysterious exodus of workers from a profession suffering a self-described mental health crisis, the industry’s standard tools for attracting and holding on to high-potential recruits — namely bonuses and salary increases — have lost their traditional effectiveness. A recent piece in Bloomberg Law, headlined, “Big Law Hiring Practices Bring Shortages as Client Demands Grow,” noted that this is a structural problem, and quoted Indiana University law professor William Henderson as saying, “We’ve got a lot of a high pay, but we don’t have a lot of thoughtful training or investment in culture.”

Firms seeing their $300,000 signing bonuses rejected by candidates would do well to look to the places where laterals and new hires are actively seeking opportunities. As one example, Applegate & Thorne-Thomsen, a real estate boutique focused on community development projects, has seen a 30% increase in unsolicited calls and emails from potential laterals during the pandemic and has hired attorneys away from Mayer Brown, Kirkland & Ellis and Ropes & Gray over the last 18 months. Along with a 43% increase in attorney headcount over the last five years, the firm has reported a 60% increase in new matters and a 67% increase in revenue. Because revenue growth outpaces headcount growth, the firm can maintain its small size (still under 50 lawyers) while still increasing profits for its partners.

And, lest those results be dismissed as outliers reflecting the personal choices of a few pandemic-inspired do-gooders, similar booms in proactive inquiries from potential laterals have been reported by midsize and boutique firms in smaller and regional markets, with attorneys from a wide range of practice areas seeking “more hands-on experience, a better shot at partnership and more predictable hours or a more manageable lifestyle.”

As Applegate’s Chief Operating Officer Jessa Baker noted, while the firm’s community-minded mission was a factor in its popularity with opportunity-seekers, Big Law attorneys also consistently noted that they were finding far less value in having a large firm platform and receiving far fewer personal perks now that they were working from home and not traveling.

While it’s still too early to tell whether attorneys joining smaller firms with narrower geographic, industry or practice focuses will be more loyal over time, there are some indications that firms with more clearly defined identities do tend to have lower turnover rates than their larger full-service counterparts. Overall attrition numbers are dismal, with firms losing 15 associates for every 20 they hire, according to one study. Data from Law360 and Chambers over the last several years seems to indicate that lawyers at midsize and boutique firms are less stressed and more satisfied than their counterparts at either larger firms or in solo practices. This certainly makes intuitive sense: If attorneys are attracted to join a firm because it has an identity they want to be part of, as long as the firm continues to be true to that identity, the attorneys will be inclined to stay.

Marketing

When firms prioritize expansive growth — more lawyers, more markets, more practices — over targeted growth, such as deeper relationships with current clients or building share in specific verticals, the focus on breadth over depth is often reflected in a struggle to come up with effective marketing content. If your firm’s definition of who you serve is “everyone” and what you do is “everything,” you don’t have very interesting stories to tell. And, even worse, you might be censoring yourself from sharing news about great work you have actually done because you don’t want to be “pigeon-holed.”

Niche firms, by contrast, have virtually no trouble with this. They know who their ideal clients are, can readily articulate the value they deliver to those clients, and can direct marketing messages to the organizations, conferences and media outlets where those potential clients gather and seek information. Internal political conflicts about how marketing resources are invested and directed are almost nonexistent because the team shares common goals.

Deep expertise in particular markets — whether that’s practice-specific, such as handling IP litigation for biotech companies or advising large businesses on state and local tax strategies, or geography-driven, such as focusing on closely held businesses in the upper Midwest — is easy to market through advertising and public relations work. And, perhaps counterintuitively, this expertise is often easy to promote in directories such as Chambers too, since concentrating notable matters in a single category can help smaller firms achieve higher rankings.

Client Service

While growth-minded firms might have “scale” on their side, depth is often far more appealing to potential clients, especially when the face-to-face business development activities that can personalize a business’ relationship to a large law firm are still limited. You wouldn’t take your Ferrari to a mechanic who works on all kinds of cars. You would find the one mechanic in town who works on Italian sportscars all day, every day. To a GC, a firm that specializes is a firm that won’t be distracted by competing interests or “hot” practice areas they really have no business moving into. A client knows what they are getting when they hire a niche firm: focus and expertise.

Senior attorneys leaving Big Law and looking to serve clients from smaller or more specialized platforms often cite their former firms’ focus on cross-selling and multi-practice expansion as a reason to make the change.

“If I have a client who needs serious tax help,” one former office managing partner now running his own litigation boutique says, “I don’t want to be obligated to refer him to my firm’s senior tax partner if that’s not the best person for his needs. I want to be able to give him a referral to someone who can really deliver in that particular situation.”

As firms expand, their attorneys’ relationships to clients can come under strain. Conflicts arise more frequently, and competing incentives complicate the “trusted counselor” role. Attorneys often struggle to balance firm priorities with the primacy of the client relationship, and it can become a credibility issue.

Resisting Temptation

Law firm leaders are barraged with messages about the importance of growth. Legal media offers sports page-style coverage of big acquisitions and lateral deals. Industry consultants, most of whom collect fees based on making mergers happen, present charts full of arrows pointing up, with larger headcounts delivering increased revenues. But those charts leave crucial data points out.

In this moment, when so many challenges and unknowns still loom large, perhaps it’s time to consider the notion that being a small- or midsize firm is not merely a temporary state to grow out of, but a mode of doing business with efficiency and focus.

Market opportunities are tempting. If you’ve been successful in guiding a major manufacturing company through a thorny internal investigation, it’s hard to resist contemplating the notion that you should also be handling their real estate deals and employment matters. No one wants to let down their partners by leaving money on the table. But before you embark on a hiring spree to bring transactional and labor lawyers on board and launch a marketing campaign to land new work, pause for a moment and consider why the manufacturing company hired your firm for the investigation in the first place. Your clients know who you are — and they value you for it.

As a leader, you should be able to pass the same test: Do you know who you are?