The Foster Group Featured in Law.com on the "Top 5 Advantages for Middle-Market Firms in a Shifting Market"
/Top 5 Advantages for Middle-Market Firms in a Shifting Market
It is not yet time to announce a down market, but there has been a shift, as illustrated by the recent Big Law layoffs that are making headlines. A number of well-known firms implemented layoffs as 2022 came to a close. While experts expect the trend to continue in 2023, they are also predicting that firms will continue to make smart moves in the area of lateral hiring.
The layoffs can also be seen as part of the ripple effect of a slowdown in the technology industry and corporate and real estate markets. A surge in activity in those markets in 2020-2021 led many firms to hire aggressively to meet the rise in demand. As those markets have cooled, some of the lawyers hired during the height of the market have been left without work, which has triggered layoffs.
The layoffs can also be attributed to rising inflation in 2022 and the ensuing policies to control rising inflation cooled certain segments of the market, which put some law firms in a position where they much control costs. The most recent GDP report, however, shows the US economy grew at a rate of 2.9 percent in the final quarter of 2022 and consumer spending increased, both positive signs.
For middle-market firms, a shifting market offers a variety of advantages in terms of attracting both client and talent. Should a further economic slowdown create conditions that cause a down market, those advantages could be even more pronounced. Here are the top five advantages middle-market firms could leverage for growth in a shifting or down market.
1. Attracting laterals with flexible billing rates
Partners who are looking for platforms to continue growing their business appreciate the flexible billing rates that middle-market firms facilitate. Big Law firms do not always provide such opportunities. Middle-market firms are able to operate in a more nimble way and provide a variety of alternative fee arrangements, which allows for more creativity when it comes to the arrangements that they can offer to laterals.
2. Attracting laterals with fewer conflicts
As attorneys - especially litigators - attempt to bring in new work or new clients, conflicts can become a major source of frustration. As the firm’s current or prior relationships prevent attorneys from taking certain new clients or cases, it limits those attorneys’ avenues for business generation, which impacts an attorney’s compensation and ability to advance internally. Middle-market firms offer an advantage in this area as they tend to have fewer conflicts.
3. Innovative Business Models
Ancillary business units - such as consulting, risk management and insurance services - can generate strong revenue for firms. When this occurs, that revenue is distributed internally via marketing budgets, associate bonuses, partner compensation and other channels that benefit the attorneys and staff. The business model and the resulting benefit, which is more prevalent in middle-market firms, can attract laterals as well as help with retaining talent.
4. Attracting clients with better rates
Middle-market firms typically have lower operating expenses than some of their Big Law counterparts, which allows them to work with a broader swath of clients. Clients who are tightening their belts appreciate the alternative fee arrangements that middle-market firms are able to offer. In a shifting market, middle-market firms with strong cash reserves, low overhead, diversified practice and client bases, and a clear strategic plan are well-positions to compete for clients and work that may not have been readily available to them in prior years.
5. Capitalizing on advantages
To capitalize on advantages related to attracting talent, middle-market firms should ensure that their recruiting processes are well-managed and thoughtful. Having a clear strategic plan and being able to explain the role that the candidates would play in the firm’s overall growth strategy is important to laterals, especially during uncertain economic times. In addition, the hiring process should be optimized to onboard new hires in a timely manner.
Firms that wish to attract talent should also make sure they are supporting their attorneys’ business development, branding and market initiatives. After all, attorneys are the ambassadors for their firms. The more that firms support their attorneys’ efforts to get out and engage with the broader legal market, the more returns they are likely to see.
Finally, middle-market firms should also make sure that the hiring they do in a shifting market continues to support the client growth and development that is outlined in their strategic plan. As partners bring in new clients and work. they expect to have the support needed for growth. When clients are prepared to give a partner ongoing deals or litigation matters, few things are more painful than being forced to turn down the work because they can’t staff it appropriately.