Carve out a strong niche and watch your profits grow

Law firms that understand their niche market and target it through clever management strategies are well placed to thrive, despite the presence of high-profile international firms in Australia, writes Trish Carroll.

The latest IBISWorld industry report on legal services in Australia forecasts industry revenues to grow by a compound annual rate of 3 per cent over the five years to 2019-20, hitting a total of $26.3 billion. So do not get distracted by Greece, China or our own rising house prices and growing unemployment. Instead, stay focused on creating and implementing a strategy that will help your firm become more successful.

The IBIS report makes the point that the threat posed by international law firms operating in Australia has, in fact, turned out to be good news for those firms that are focused on working with medium to large-sized Australian entities. These entities are more inclined to use Australian firms because of the affordability factor, and smart domestic firms have made the most of positioning themselves as a better-value proposition.

Partners on the move

Affordability is one of the reasons there has been a lot of movement of partners between firms in the past few years. You can link the tsunami of partner mobility to the entry of the international firms into the Australian market. The first wave saw top-tier national law firm partners moving to the internationals. The second wave involved partners in top-tier national firms (which had become international firms) shifting to firms of assorted shapes and sizes.

Many other firms have been beneficiaries of top-tier firm partners with great reputations and stellar client bases who wanted to find a home with their clients in firms where they would be welcome; including the likes of HWL Ebsworth, Lander & Rogers, Mills Oakley and Sparke Helmore. This observation is not to discount the importance of international firms operating in Australia; it merely highlights that we really operate in a horses-for-courses world. International law firms are a natural fit for international corporations because they have a huge appetite for global or regional transactions and this needs the bench strength and legal and cultural credibility that international firms have in spades.

Key profit drivers

The IBISWorld report offers a commonsense assessment of what will drive profit, but it may be the clarion call that some lonely managing partners need to get their colleagues focused on what really matters. Unsurprisingly, the two big profit drivers are:

• Better management – This is not about better management in the traditional sense at many law firms; rather, management in a leadership sense that embraces rethinking how things are done. This includes work practices, resourcing, use of technology and process improvements. The key is around better management designed to produce a higher margin for the firm and a lower total cost to the client. Push to one side any thoughts of ditching the managing partner or the management team as the key to your profit growth, unless they are hard-wired into old ways of thinking and leading.
• Specialisation – True specialisation in an industry segment and/or area of legal expertise can be a genuine differentiator. It can allow you to charge higher prices and attract more of the right type of business for your firm. Obviously, you have to choose your sectors and expertise aligned to economic and industry forecasts and take an enterprise risk management approach. Many of the start-up firms or re-invented firms that have emerged over the past few years are clearly distinguishable by their clear alignment with an industry sector and the legal specialisation(s) that sector needs.

This can be a hard strategy to implement in firms that cling for far longer than they should to specialisation in areas that are saturated and in decline. Doing so takes their eye off new growth areas as they are putting so much energy into extracting diminishing and low returns from the familiar but no longer friendly areas of practice or clients.

Own your niche

The IBISWorld report touches on the value of niche practice and marketing in a saturated legal environment. For those of you who have followed my column, you will know I am a zealot when it comes to the need for firms, especially smaller ones, to be famous for something; to choose something they can own, whether it is family law, criminal law, elder law, sports law, consumer protection, insolvency or whatever. Shine Lawyers is a case in point – it takes advantage of specialisation and a business strategy based on the knowledge that people will always want to take on insurance companies.

Nothing beats a well-defined business strategy led by people who know the importance of a clear vision, couple with quality people to implement it, effective marketing and internal processes to embed it, and maintained by investment in the people, processes and training that will help your firm capture its share of the growing Australian legal market.

Trish Carroll is the founder of Galt Advisory, an advisory firm focused on helping firms and individuals devise successful business strategies. Trish can be contacted at trish@galtadvisory.com.au.