The curious irony is that most law firms go to great lengths to look like every other law firm. In fact the common response that you are most likely to elicit from the management of any firm when first presenting a new concept, idea, or potential market opportunity is: "Can you please give us a list of the other firms which are doing this".

"Competitive advantage means getting out in front, by focusing on some area in which you can be unbeatable. By definition, if you are doing what everyone else is, you don't have an advantage" says Rowan Gibson, author and editor of Rethinking The Future.

Growth is what we are taught to pursue. It creates marketplace recognition, higher profits-per-partner, makes it easier to attract better quality young legal talent and better quality clients. And as one managing partner artic ulated this classic view: "There are no partnership problems that growth can't solve."

But should this growth be simply the result of client demand or the result of strategic opportunism? Should firms develop distinct practice groups only in direct response to client need (client driven) or, rather, proactively formulate expert teams and then go looking for the business (opportunistic)? This is the fundamental practice management and business development question that firms have been wrestling with for quite some years.

Observations suggest that leading firms in any endeavor start with the premise that the key to competitive advantage is to set your sights on being "first to market" with exceptional ideas and exceptional service offerings. They become obsessed with: How can we serve clients in such a way that nobody else can? What clients can we serve that no one else seems to be adequately serving? What services can we offer that will make clients go 'wow'? What can we do that will actually lead the market?

We believe, from our two-decades of hands-on experience in working with professional firms, that there are some distinctive (and often difficult for competitors to replicate) advantages in being first to market - - ahead of the curve, ahead of client demand, and ahead of the pack!

Some of the distinctive advantages of being first, include:

- It allows you to attract and retain the top talent that yearns to be a part of something meaningful.

"Interestingly, the best retention rates are most often found at firms with the highest growth. While money matters, it is the quality of the work assignments (challenging client projects and opportunities for professional growth) and the quality of the people at a firm that often tips the balance as to whether a professional stays or goes. The type of professionals you attract have lots of options. What buys loyalty these days? Growth and opportunity. If they 'don't see you at the forefront', you can forget ab out the other issues." says Patricia Milligan, Managing Director at Towers Perrin.

- It provides for the enhanced visibility and marketplace recognition which translates into increased client revenues and profitability.

Quick question: Who was the first professional services firm known to offer their clients a written guarantee of satisfaction? Most knowledgeable observers would immediately offer the name of Chicago's Coffield Ungaretti & Harris. When a survey of Chicago area businesses indicated that over half were dissatisfied with their law firms, and over half of those surveyed said that when choosing between equally qualified firms, they would select the one that could guarantee their satisfaction, "guaranteed satisfaction" became the calling card that worked for Coffield Ungaretti & Harris. As a result, the firm's revenues jumped 25% and attorney retention increased by 400%.

Next obvious question: Who was the second professional services firm known to offer their clients a written guarantee of satisfaction? Answer: Who cares? People remember those that were first easier than those that came later. Sometimes the first preempts there even being a second, as no firm wants to be viewed as a direct copy-cat; devoid of any innovative thinking of their own.

Or the first then manages to re-set the bar such that subsequent firms find it even harder to break through. Such is the case with the Canadian law firm of Prowse & Chowne, recognized for having been the first professional services firm in North America to attain ISO 9000 certification. Having achieved that distinction in 1997, they went on to assist the certification authorities to redefine the requirements for professional firms. Today, many firms are trying, but none have yet to attain their certification.

Of the top ten fastest growing accounting firms, the only one to have achieved that distinction without a merger is Atlanta's Hyatt Imler Ott & Blount, an example of a firm that was th e first to function more as consultants than as accountants doing audits in working exclusively in the Health Care field providing tangible operational assessments for hospitals. They first developed their unique service and then "packaged" it in such a way as to offer to prospects something that was not seen to be available from any other provider. This is a firm that wins in its markets by developing a tangible product that can be used with multiple clients employing the leverage of experience to maximize profitability.

- It allows you to progress up the learning curve faster than those that follow.

Consider the case of the British firm of Watson Farley Williams. With 166 fee earners, no foreign offices, and only the 49th largest of the UK law firms they are not exactly of the stature, by UK standards, that would be known or accepted to have any real international expertise. However, this firm ranked #1 for the number of their privatization deals in eastern Europe in 1995 according to Privatization International, and then #2 in 1996 behind Baker & McKenzie. The Eastern Europe Privatization Group, composed of only six lawyers based in London, is the most profitable practice group in the firm. The reason for their success: the two leading partners exploited a "first mover advantage" by having started working in the area as early as 1985; and now because of the contacts they've developed, are often able to win mandates before other firms are even aware of them.

- It allows you to meaningfully differentiate what it is that you have to offer.

Imagine wanting to develop a commanding presence in what looks to be a growing and lucrative industry known as biotechnology. This was exactly the position that accounting giant Ernst & Young found itself in at the beginning of the decade. What to do? Go for a portion of the industry and "re-label" the segment. With over 800 significant companies and a potential $50 billion and growing segment at stake, Ernst launched the f irst extensive study of the industry, re-labeled this industry segment "Life-sciences", promoted heavily their pioneering efforts, and established themselves as the initial leaders in this area.

Now contrast that example with the experience of one of America's leading high-technology firms, Wison Sonsini Goodrich & Rosati of Palo Alto, California. This firm became widely known for their dominant position in serving the high-technology industry, or more specifically, the semiconductor and computer peripherals industries, as they came to be labeled once the high-technology industry began to mature and divide into smaller distinct categories. It was just naturally assumed by most observers (including the partners at Wilson Sonsini) that nobody could be better positioned to serve a new emerging biotechnology industry than Wilson Sonsini.

Following upon the Ernst & Young example, two San Francisco based competitors - Brobeck Phleger and Cooley Godward, by the early 1990s, had capitalized on a "first mover advantage" to gain the inside track and establish a reputation in serving this lucrative new field. Cooley Godward had recognized a unique experience acquired while serving the litigation needs of a couple of biotech clients and set about to focus on this segment by forming a life sciences practice group to target this industry category.

Meanwhile Wilson Sonsini's philosophical opposition to industry specialization delayed the partners understanding this new industry segment's unique needs and the commitment required to successfully court the key biotech players. Finally, despite reservations, in 1992 Wilson Sonsini responded to the competitive challenge by creating their own life sciences practice group, only to have the entire 15-lawyer team leave the fold about six months later to start their own firm.

While conventional wisdom would have suggested that the biotechnology industry was a field that Wilson's should have owned, leaders are almost always toppled fr om their position when the category they dominate divides beneath them.

If you want to be highly profitable today, you have to narrow your focus in order to stand for something in the prospective client's mind. The firm that captures a lead in a new industry sector or technology early on achieves a big advantage as that sector matures. "Catching up is a lot more expensive and labor-intensive than being there early" says Stephan Dolezalek, corporate partner at San Francisco's Brobeck Phleger & Harrison.

The larger any market, the more specialization that takes place and the more specialized a firm must become if it is going to prosper. In any market or industry, with the passage of time, that market or industry will eventually divide, and become two or more separate and distinct categories. Each category has its own reason for existence and it's own market leader - which is rarely the same as the leader of the original category.

The initial market leader is no smarter and no dumber than the new entrant. The problem is that they are most often burdened by historical baggage - - the psychological comfort of the status quo.

PURSUING NEW FRONTIERS

One wonders how a firm like Arthur Andersen has managed to maintain such a dominant position in the accounting profession - dominant in terms of their presence, their profitability, and the admiration that others in the profession accord this firm. However, if we examined the historical evolution of Andersens we might discover that this firm has largely succeeded from recognizing that their greatest challenge (and the greatest challenge for any professional services firm) is constant commoditization of their services. According to Terry Neill, former head of the firm's UK offices, "Our success depends on our ability to stay ahead of the commoditization envelope."

In the 1940's Andersen's expertise lay in designing the complex and manual accounting procedures required in corporations to meet the increased rep orting demanded by the SEC. But, by the 1950's many of those same companies were able to do that work internally as efficiently and cost effectively as Andersens. By then Andersen's had moved on to the next emerging business requirement - payroll systems. These then became commonplace by the 1960s and Andersens had proceeded on to the development and integration of computerized accounting and payroll systems. Likewise, with the introduction of personal computers and such, by the 1990s Andersens was the first to be targeting the emerging business integration market, described as the client's need for an integrated business, information and people strategy. In every instance, over the past sixty years, Arthur Andersen led the field. Is it any wonder that Arthur Andersen was the first to set up an independent law firm network throughout Europe?

We believe today's challenge is to get the practice up, operational, and marketing its services without waiting for clients to say they need it - to develop enough expertise ahead of time to respond at once when businesses finally do come forward with problems.

As firms begin to exploit the potential from having developed practice groups that can adequately respond to the Y2K glitch, those that are now attempting to play catch-up are being dwarfed by those who moved early to establish their position.

San Francisco's Thelen Reid & Priest concurrent with New York's LeBoeuf Lamb are continually identified by in-house counsel as the two dominant players. They were the firms that first surfaced when Aspen Law and Business initially studied the terrain in March 1997 and continue to get the majority of the attention. "The forerunners are apparently still the front-runners" says Larry Smith, Editor of Of Counsel. Largely, we suspect, due to a fourteen month lead time.

These forerunners are usually also the firms, that as a reflection of their commitment, are able to have a number of partners working "full-time" on the issues while t he late-comers are likely to only have the client work to occupy about 20% of any partner's time.

Who came first can be an important issue and market visibility is the key. Timeliness distinguishes practice groups with a long-standing interest in and commitment to the area, versus those who may be delayed in hopping on the bandwagon so they don't miss out.

The critical objective is "to be ahead of the curve"; to be able to see the issues unfolding ahead of time.

Attempting to be ahead of the curve was precisely the position that London based Linklaters and their Financial Markets and Derivatives Practice Group was taking when they became the first to launch an automated online legal service, entitled Blue Flag, over the Internet.

Blue Flag's origins date back to 1994 when practice leader Paul Nelson wanted a more effective way of advising clients on complex national compliance laws. Reported to be the product of two-years worth of R&D, containing the equivalent of 11,000 pages of the firm's collective expertise, and requiring constant updating by a team of partners and IT specialists, the system was formally launched in February 1998. Following an interactive question-and-answer format, subscribers can obtain legal advice on selling securities, finding out the rules for a public offering, or any number of securities issues in over 40 international jurisdictions.

According to practice leader Paul Nelson, the majority of global financial institutions have already subscribed to Blue Flag

Meanwhile, London based Clifford Chance and their Media, Computer and Communications Practice Group is currently selling their own subscription service providing multijurisdictional legal advice on data protection law. Located at www.nextlaw.com , any client subscribing to this service can find out how to comply with data transfer rules in 30 different jurisdictions and obtain a customized legal report.

What is most interesting is that these automated syste ms are not supplanting human lawyers, but rather, actually generating more work for them. The NextLaw system has Internet links to regulators, to relevant websites, and to Clifford Chance's lawyers. Clients are discovering more areas where they are not compliant and coming in to alter contracts and instigate new filings.

The firm began developing NextLaw in mid-1997 and launched it in May of 1998 with a reported investment cost of over £1 million. "It's just like opening a new office - but in cyberspace," reported Christopher Millard, a partner in the firm's media, computer and communications practice group.

According to Clifford Chance a large portion of activity consists of providing legal advice on tax, property, employment, regulation and securities law; all great candidates for this kind of delivery. The firm is now aggressively forecasting that online services could account for 20% of the firm's business within the next five years - which at their current status translates to over £75 million in revenues.

THE LESSONS.

Today's revenues are a direct reflection of yesterday's decisions, while tomorrow's numbers will be a direct reflection of today's decisions.

Aim to be the first to market, the first to organize a new practice group, the first to serve a potentially new client need.

To accomplish that objective:

* someone must perceive a potential need in the marketplace and determine whether an internal "champion" exists to spearhead the effort. Time after time we have witnessed that if there is no champion - there is no hope.

* your firm must determine whether there is long-term market growth potential and an existing experience base to build upon to support the investment ; and you must be able to overcome what is likely to be persistent economic doubts.

* there needs to be a strong degree of support ("will") within the firm to invest in "test-marketing" a new practice group. A new practice is usually always partner-intensive as the emerging work at this stage requires "senior judgment." Only after significant work comes in are associates likely to be meaningfully involved.

* members of the pioneering group must be protected as they spend, what might otherwise be billable time, researching and learning the field, planning and meeting with other experts both within and outside of the firm.

* further time must be spent in developing questionnaires, tools, templates and approaches for pricing, marketing, and delivering the group's services.

* resources must be invested in initially providing education (articles and seminars) and counseling services to prospective clients on the issues, the ramifications, and the benefits of taking remedial action so that the group can then be in a position to actually sell its services.

* you must decide what critical mass is required to become a "player", whether to expand ahead of the client need, and whether the group should remain local or be multi-city. Getting in early, but remaining relatively small may result in your losing the advantage.

It's called the "First Mover Advantage" - Sometimes it is better to be first than it is to be better. In general, studies have shown that the first firms get the lions share of the market, while the latecomers divide the rest.

It is a curious phenomena that if you ask someone you consider fairly well-informed to name all of the firms who have a practice serving the "so-and-so" industry segment, at best, most will only be able to name three to five firms - and the more narrow the market or industry segment, the fewer the names they will be able to recall.

© Copyright 2000. Patrick J. McKenna