This year’s LexisNexis Bellwether survey of UK SME law firms has just been published. The Brief discusses its findings relating to growth plans with law firm leaders.
At the beginning of June the legal information and analytics provider LexisNexis Legal & Professional published its 11th annual Bellwether report into the smaller end of the UK legal sector.
Entitled Bold Ambitions?, this year’s report found that 46% of firms surveyed expected to grow during the coming 12 months, while 38% anticipated remaining stable.
This represented a palpable drop in confidence since last year, when 51% of smaller law firms expected to grow over the year ahead, and a still more dramatic fall since the post-lockdown legal services boom of 2021, when the comparable figure was 66 per cent.
M&A versus BD
As well as fewer firms anticipating growth overall, there was also a reduction in the proportion of those which did expect to grow envisaging doing so through mergers or acquisitions, with just 13% saying they anticipated such activity. This figure compares to 16% in 2022 and 15% in 2021.
Instead, firms planned to focus on organic growth, with 94% of respondents saying winning new clients would either be important or very important over the next 12 months, and 83% saying gaining more work from existing clients would either be important or very important over the same time horizon.
This focus on organic growth is reflected in firms’ investment priorities. In 2022, only 24% of firms said they planned to increase their investment in marketing but a year later this has leapt to 81% of respondents. This year 88% of firms also said they planned to invest further in business development.
Swinging pendulum
Debbie Sumner, go-to-market consultant at LexisNexis, told The Brief, “The pendulum of the legal industry tends to swing between mergers and acquisitions and organic growth as the primary tool for growth. M&As can work well for many firms, but they can be disruptive, time consuming and take years for the value to reach the bottom line.
We have seen intent to merge or acquire ease in this year’s Bellwether, but balanced by a sizeable increase in plans to invest in marketing. It seems that, in these more challenging economic times, firms are looking for stable routes to growth by investing in organic and lateral growth strategies.
“Eighty-three per cent said that gaining more work from existing clients was one of their highest priorities.”
Conflicting cultures
These comments were echoed among the law firm leaders to whom The Brief spoke about this year’s findings. Steven Bernstein, senior director and co-founder of London corporate and commercial firm Lawrence Stephens, himself a specialist in corporate law, said, “It’s unsurprising to see large-scale law firm mergers falling out of favour with those firms that are looking to grow their business.
A merger can bring disruption to a firm, as it takes time and effort to fully integrate two businesses, which may have conflicting cultures, and this issue will be exacerbated in the current climate where many people work from home for much of the week. Organic growth and business development, by contrast, appear far more popular for this reason.
He did, however, point out that not all M&A transactions would carry the same challenges: “While large, ‘flashy’ mergers might be falling out of favour with SME law firms, the combination of organic growth with smaller acquisitions seems to be bearing fruit. By bringing in individuals or small teams with an existing following, as opposed to entire firms, the transition process is far less disruptive and takes less time to embed new joiners into the culture of a firm.”
Seeking stability
Katie McCann, managing partner of family law specialist Lowry Legal, struck a similar tone. She said, “The pandemic and the ongoing war in Ukraine and cost-of-living crisis have led to an uncertain world economy.
“Entrepreneurial law firms such as ourselves still have huge ambitions to grow, but we have found the market at large, and prospective new talent, are seeking stability at present. Whilst mergers cannot be ruled out, they are much more risk-laden than organic growth.
The goal at present is much more about maintaining a solid base, weathering the storm, as it were, and coming out the other side in a strong position to hit the market when conditions change.
She also echoed the report’s findings in relation to plans to invest in marketing and business development. “An essential component in our strategy this year is to invest in our PR and digital marketing presence,” she continued.
“In doing so, we're confident that building trust and recognition in our brand and reinforcing our position in the local network and market is key.”
Cross-selling
While the nature of family law means opportunities for repeat business are limited, in the corporate and commercial field existing clients can be one of a firm’s most valuable sources of new work. Bernstein told The Brief, “While business development and marketing is of course an essential part of winning new business, it is far easier to get additional work from an existing client than it is to secure new business from a new client.
“As Lawrence Stephens continues to grow, over the coming year we are placing a greater emphasis on cross-selling our services to existing clients, as our wide range of departments and expertise allows us to provide a full service to clients while also winning new business for a range of departments.”
Pressurised partners
According to Toby Harper, founder and CEO of Harper James, the focus on marketing and business development highlighted in the latest Bellwether report will pose a challenge for many firms to put into practice. He said, “The success of any strategy in a traditional law firm that seeks to achieve organic growth rather than through acquisition ultimately hinges on the partners having to win new work and upsell to existing clients.
“This will inevitably place a renewed and added pressure on them, and not all partners are adequately prepared for this. It is rare to come across a partner who possesses exceptional skills in professional sales that are on par with their expertise in their legal specialism.
In my view, for organic growth to be successful and scalable, it is imperative to invest in building teams of skilled marketing, BD and client account management professionals who are responsible and accountable across every part of the business.
“We’ve structured our firm this way, which leaves our lawyers able to concentrate on what they truly enjoy the most – practising law and delivering a high-quality service to our clients. Meanwhile, others take care of winning new and repeat business to enable the 40 per cent-plus year-on-year growth we’ve experienced.”
Whether firms chose to follow Harper James’s example and build specialist sales, marketing and client services teams (read more about this here) or to double down on the traditional “partner as rainmaker” model, the focus on marketing highlighted in this year’s report is likely to prove easier to talk about than to execute.
However, for a sector that has only been allowed to advertise its services since the mid-1980s, it also presents an opportunity, in many cases, to professionalise its approach. Cross-selling has also traditionally been an Achilles Heel for many firms, meaning there should in some cases be significant opportunities to be had here, too.
Next year’s report will make interesting reading.
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