Know Your Buyer, Know Client’s Internal Clients

At the risk of expressing pablum, KNOW YOUR BUYERS! More importantly, KNOW THE INTERNAL CLIENTS OF YOUR BUYERS! I was reminded of these insipid (yet important!) refrains during work with a client. My law firm client had three seemingly unrelated practices that all served the needs of the same particular buyer of legal services inside of a corporate environment, yet they shared none of the same clients. How could this badge of cross-selling failure happen, you ask? It actually makes sense if you understand something about lawyers, the businesses they serve, and their knowledge (or lack thereof!) of the roles certain people play inside companies. Net, net, however, it was a big failure and lost opportunity for my client firm.

Now the particulars. The three practices at the intersection of all this were my law firm client’s L&E practice, tax practice, and corporate practice. You’re probably asking yourself, “What obvious connection could exist among these three practices? What could the client stakeholders in an employment discrimination dispute have in common with the managers who count beans with tax lawyers, let alone the business managers who structure deals, alliances, and ventures?” While the matter types associated with these practices are very different, the thematic similarity lies in the nature of the internal clients these practice groups at times can share. Peeling back the onion a bit further, think about the tax practice that in part deals with ERISA and other benefits related tax issues, or think about the corporate practice that structures multi-year outsourcing arrangements involving the HR function of a client business. The intersection becomes clearer now as you see that there are occasions when each of these three disparate practice areas serve the same functional area of a business, namely the corporate HR function; now the opportunities for real cross-selling opportunities start to emerge!

For law firms that work primarily with in-house law departments, you should think about the internal clients of your own law department clients. Just as the HR department can keep law departments (and their law firms!) busy with benefits planning tax work, highly structured outsourcing arrangements, or employment discrimination cases, product development departments can keep law departments busy with IP work as well as with products liability litigation. As a law firm partner serving these clients, make sure you understand as much as you can about the activities of each functional department of your law department client’s business, and how those business activities can translate into legal work. Don’t be surprised if your immediate clients – the law departments themselves – don’t have full knowledge of what their internal clients do outside of the work they see or pass out to you. For law departments that are looking for broader ways to support their employer, you can position yourself as a consigliere of sorts by helping them take an inventory of the other operational activities of their internal clients and, in so doing, helping them take additional turf.

So get your client’s organizational chart and sit down with your law department clients so you both can begin to know your buyer even more!

Bigger vs Better: Should your firm merge?

First, see if it can answer “yes” to one essential question.

So law firm mergers are back in the news again, to the continued fascination of the legal press. For every combination that’s completed and announced, you can count on several others bubbling under in conversations within executive committees and at luncheon gatherings of senior partners, so there likely will be more such deals announced throughout the balance of the year.

It’s not clear that “mergers” are the best word to describe many of these transactions. Some of them involve global behemoths swallowing up comparatively modest firms in desired regions, resembling not so much a business deal as the annexation of territory. Others are billed as marriages of equals, but with so many of these merged firms maintaining their own profit pools, they seem like marriages where the spouses have no joint bank account and keep separate residences.

The common thread among all these deals, however, is that the merging firms go to great lengths to publicize the impressive size of the new entity, the huge number of lawyers, offices, and jurisdictions it will boast. It’s the kind of tactic you could understand if, say, two ice-cream dealers merged and could now deliver 70 flavours in one location, rather than 30 and 40 in separate stores as before. More volume and greater selection are obvious customer benefits in that kind of market.

It’s more difficult to make out clear customer benefits from law firm mergers. There’s an unspoken assumption that more lawyers in more offices in more locations is self-evidently a good thing, a competitive advantage and a client service. And maybe there are tactical benefits to be gained, especially around marketing strength, talent acquisition, and the like.

Yet I can count on the fingers of no hands the number of corporate clients I’ve overheard wishing their law firms were bigger and farther-flung. To the contrary, many clients greet news of a merger with a certain exasperation, having to turn their minds to identifying and resolving potential conflicts, or to awaiting the inevitable rate increases from the new entity.

Any law firm that’s considering a merger or acquisition should ask itself one question — the same question, really, that it should raise whenever any foundational or strategic decision is in play: “Would this make our firm more effective?” It’s a powerful question, because it forces the firm to focus its attention on its fundamental business purpose.

The point of any business is to serve its customers. For a law firm, that translates into helping clients in its chosen markets achieve their goals by addressing their legal challenges and opportunities. A law firm should be considered successful only to the extent it helps clients achieve their law-related objectives. Would a merger allow the firm to accomplish this mission more effectively? And if so, how?

Effectiveness, remember, is defined from the perspective of the client, not the firm. Clients consider a firm effective if it anticipates and meets their legal needs in the context of their business realities, demonstrates real commitment to procedural improvements that increase quality while reducing cost, provides reliability and competitiveness around pricing, and keeps lines of communication buzzing and productive. Mergers, by themselves, aren’t going to move the needle very far on any of those criteria.

Mergers might very well deliver competitive advantages, although I’d love to see a study that contrasted those advantages with the costs of merger, which are manifold and substantial. But potential mergers ought to be scrutinized primarily with specific reference to how they will enhance the firm’s effectiveness in its chosen markets, rather than with vague assurances that “global clients want one-stop shopping.”

Size alone is no longer a significant differentiator for law firms. Increased profitability does not correlate strongly with increased size, nor does talent retention, realization rates, client satisfaction, or a host of other measurable criteria with which firms should be closely concerned. There is little evidence that becoming bigger means your firm becomes better. If you’re unsure about this, feel free to call up a few key clients and ask them what they think about your merger plans. Their responses should be illuminating.