Establishing non-legal businesses seems to be back in favour among Australia’s larger law firms.
Minter Ellison was an early mover with acquisitions of an IT consultancy firm and an executive remuneration practice in 2017. Others include Corrs Cyber (data breach and crisis management), G+T (Gilbert + Tobin) Innovate (in-house legal transformation), Ashurst Consulting (board risk and governance), TG (Thomson Geer) Endeavour (public affairs), McCullough Robertson’s Allegiant (insurance broking) and Hall & Wilcox’s Global Mobility Services (migration, tax and relocation).
The rationale for these new non-law ventures is mostly centred on strengthening or defending the core business and making significant client relationships stickier. Some firms pursue these adjacencies to deliver new sources of profitable growth or to provide a hedge in the event of industry disruption.
Original AFR article
To increase the chances of success of these new ventures and others seeking adjacent opportunities, there are four key strategies to consider.
#Reinforce the core
Many adjacency failures can be put down to firms straying too far from their core business.
Woolworths’ foray into the retail hardware sector via its Masters business was an unmitigated failure. Masters did not reinforce Woolworths’ core grocery business or leverage existing customer and supplier relationships. While its retailing and property management capabilities were strong, they couldn’t outmuscle a formidable incumbent (Bunnings).
Success comes from investing in areas where there are substantial, measurable and mutually reinforcing economies between the current and the new.
#2 Align financial expectations
One of the main reasons law firms have not persisted with non-law businesses in the past is that they have simply not made enough money.
Well-run premium law firms are very profitable. Despite intense competition, the market price for specialised legal advice has increased significantly over the past 20 years.
Many of the new ventures compete in market segments where the price point for partner-level advice is 30 per cent to 40 per cent lower than law firms. Others are pitched at the ‘brain-surgery’ end of the market with relatively low leverage and utilisation.
The upshot is there is a significant risk regarding profit expectations. My advice is to ensure everyone is 100 per cent on the same page early on – and if there are irreconcilable gaps, walk away!
#3 Pre-empt cultural clashes
While great strides have been made in recent years on using the talents of those without legal qualifications, the lawyers still market – and see – themselves as the smartest people in the room.
So, it is vital that your cultural due diligence cover over things like common aspirations, values and standards. When it comes to adding advisors from non-law disciplines, there is an added risk of professional arrogance.
One of the keys to success is to pre-empt and address any cultural differences between the lawyers and those other idiots. Only joking!
#4 Ensure a founder’s mentality
Why is profitable growth so hard to achieve and sustain?
Chris Zook from Bain & Company researched this question and found that when firms fail to achieve their growth targets, 90 per cent of the time the root causes are internal and not market related.
He also found that firms experience a set of predictable internal crises, at predictable stages, as they grow.
Zook suggests that managing these choke points requires a “founder’s mentality”— someone with fire in the belly who is relentless in pursuing the business’ mission, adept at leading others through change and imbuing the firm with a strong client focus.
So, in summary, all it takes to succeed is to have a driven intrapreneur leading a new venture that is deeply connected to the core business – from a market, financial and cultural perspective.
Joel is the consultants’ consultant! For the past 30 years he has helped law, accounting, engineering and other business advisory firms plan, innovate and grow. In addition to heading up Barolsky Advisors, Joel is a Senior Fellow of the University of Melbourne, Teaching Fellow on the College of Law’s Master of ... Continue reading →
#growth, #leadership, #legal, #professional service firms, #strategy
Firms face danger if they stray too far from the core
In Articles, Commentary on 10 October 2020 at 12:24 pmFull text of my opinion piece first published in the Australian Financial Review on 9 October 2020.
Establishing non-legal businesses seems to be back in favour among Australia’s larger law firms.
Minter Ellison was an early mover with acquisitions of an IT consultancy firm and an executive remuneration practice in 2017. Others include Corrs Cyber (data breach and crisis management), G+T (Gilbert + Tobin) Innovate (in-house legal transformation), Ashurst Consulting (board risk and governance), TG (Thomson Geer) Endeavour (public affairs), McCullough Robertson’s Allegiant (insurance broking) and Hall & Wilcox’s Global Mobility Services (migration, tax and relocation).
The rationale for these new non-law ventures is mostly centred on strengthening or defending the core business and making significant client relationships stickier. Some firms pursue these adjacencies to deliver new sources of profitable growth or to provide a hedge in the event of industry disruption.
To increase the chances of success of these new ventures and others seeking adjacent opportunities, there are four key strategies to consider.
#Reinforce the core
Many adjacency failures can be put down to firms straying too far from their core business.
Woolworths’ foray into the retail hardware sector via its Masters business was an unmitigated failure. Masters did not reinforce Woolworths’ core grocery business or leverage existing customer and supplier relationships. While its retailing and property management capabilities were strong, they couldn’t outmuscle a formidable incumbent (Bunnings).
Success comes from investing in areas where there are substantial, measurable and mutually reinforcing economies between the current and the new.
#2 Align financial expectations
One of the main reasons law firms have not persisted with non-law businesses in the past is that they have simply not made enough money.
Well-run premium law firms are very profitable. Despite intense competition, the market price for specialised legal advice has increased significantly over the past 20 years.
Many of the new ventures compete in market segments where the price point for partner-level advice is 30 per cent to 40 per cent lower than law firms. Others are pitched at the ‘brain-surgery’ end of the market with relatively low leverage and utilisation.
The upshot is there is a significant risk regarding profit expectations. My advice is to ensure everyone is 100 per cent on the same page early on – and if there are irreconcilable gaps, walk away!
#3 Pre-empt cultural clashes
While great strides have been made in recent years on using the talents of those without legal qualifications, the lawyers still market – and see – themselves as the smartest people in the room.
So, it is vital that your cultural due diligence cover over things like common aspirations, values and standards. When it comes to adding advisors from non-law disciplines, there is an added risk of professional arrogance.
One of the keys to success is to pre-empt and address any cultural differences between the lawyers and those other idiots. Only joking!
#4 Ensure a founder’s mentality
Why is profitable growth so hard to achieve and sustain?
Chris Zook from Bain & Company researched this question and found that when firms fail to achieve their growth targets, 90 per cent of the time the root causes are internal and not market related.
He also found that firms experience a set of predictable internal crises, at predictable stages, as they grow.
Zook suggests that managing these choke points requires a “founder’s mentality”— someone with fire in the belly who is relentless in pursuing the business’ mission, adept at leading others through change and imbuing the firm with a strong client focus.
So, in summary, all it takes to succeed is to have a driven intrapreneur leading a new venture that is deeply connected to the core business – from a market, financial and cultural perspective.
It sounds easy. Until you try.
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