April 27, 2005
Leverage and the trailblazer practice
In a prior article, I noted that there are two certainties, “change is constant and we are always judged by others”. It follows that any practice area changes its character over time and, as it does, so does the value (how we are judged) of those services. Graphically, the life cycle is similar to a bell-shaped curve.
As a practice area emerges, there are no precedents, no forms, no prior experience, and no accumulated work product. Solutions in this emerging area have to break new ground. This groundbreaking area requires the brightest and most creative minds. It commands the highest fees and clients seek out the law firm because of its reputation for creativity and for having a smart professional team. This professional work is performed with very little or no leverage. Effective use of leverage requires prior experience in order for the supervising professional to efficiently instruct, train and mentor the less experienced assigned professional staff. Thus, the trailblazer firm will hire laterally rather than recruit new associates.
As the practice area matures, firms (and competitive firms) gain experience. They develop work product and increase their ability to use less experienced staff for an increasing portion of the work. Clients seek out these firms because of their successful prior experience handling similar cases. By then, other firms also have successful experiences under their belt. Competition drives prices down. As the practice continues to mature, it will evolve into its transactional phase where the work becomes routine and leverage reaches its highest level.
The important point is that trailblazer practices will not remain low-leverage, high-fee areas for all time. The life cycle for a practice area is bell shaped. The practice emerges then matures. It crests the bell-shaped curve and on the down side of the life cycle curve, it evolves in transactional business. Trailblazers have two alternate strategies that they can follow. The practice can either change its leverage ratio and management style so as to operate successfully throughout the life cycle or it can move from one life cycle to another. That later strategy says, “We are going to remain a low leverage firm of only the brightest and most creative people”. The firm will look for and move to new emerging issues and abandon old issue areas as they mature.
Today most firms are engaged in multiple practices areas. In many cases, the multiple practice areas resulted from hanging on to trailblazer areas as they matured, or mature areas that have evolved into transactional areas. It is important to point out that all three types can be highly successful, but only if the appropriate leverage and management is applied to each. You can’t blaze trails configured and managed as a mature or transactional practice and you can’t successfully compete in the mature areas with the high cost of a trailblazer practice.
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Filed under Law Firm Bus Model, Leverage, Management by Tom Collins