Why do start-up law firms fail?

July 22nd, 2016
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By Moroke Phajane

Start-up law firms fail as a result of various factors. In 2013, The Mail and Guardian‘s Thought Leader reported that 78 attorneys nationally were struck from the roll in 2012 (William Saunderson-Meyer ‘Just trust me I am a lawyer…’ www.thoughtleader.co.za, accessed 4-7-2016). Although these are unofficial statistics and it is not clear what offences were committed by these attorneys, I am certain that most of these disciplinary cases stem from the failure by attorneys to manage sustainable and competitive practices.

But what does managing a sustainable and competitive practice mean? A sustainable and competitive practice, like any other business, is one that is properly positioned to –

  • take advantage of the opportunities that present themselves; and
  • mitigate against the threats that are posed to it.

Andrew Finlayson, one of the co-founders of a company called Maven Wealth, was asked to reveal the ‘secret of being a good entrepreneur’ (Carin Smith ‘Finlayson brothers tackle wealth management together’ www.fin24.com, accessed 29-6-2016). He responded by stating that it is ‘[t]o have the ability to see what the future may hold and translate that vision into a business strategy that you can implement now’. You can only have the ability to see ‘what the future holds for the business’ if you are properly positioned.

A law firm, like any other business can only be properly positioned if it has a business strategy, which is a plan that sets out how a company will achieve its business objectives. This can be formulated by:

  • analysing the firm’s current situation in order to determine –

– where the firm wants to be; and

– ascertain how the firm can get to where it wants to be.

Analysing the firm’s current situation

This entails analysing the situation the firm exists or will exist in. This can be achieved by using the analytical tools used by marketers and strategists to conduct a situational analysis, namely, PEST, Competitor analysis, Porter’s five forces, and the SWOT analysis, which are discussed below.

  • PEST is an acronym for political, economical, social and technological factors. Political/legal factors include the regulatory framework the firm operates in. Social factors refer to the demographics of customers (age, geographic location, race and gender mixes) while technological factors refer to the technological advances and innovations, which can have a direct impact on the business.
  • Competitor analysis involves identifying key competitors, namely, their objectives, strategies, strengths and weaknesses, the fees that they charge, etcetera. It also helps the business to identify gaps in the market for services. The processes followed by the competitors, the technology they use and the people they have hired are also reviewed as part of this exercise.
  • Porter’s five forces is a high level analysis of the competitive rivalry that prevails in the market the firm operates in, the bargaining power of suppliers and buyers and the threat of substitutes. Competitive rivalry can be determined by looking at the number of players in the market. The more concentrated the market is, the more competitive it would be.

A highly concentrated market may result in customers (buyers) having more bargaining power due to the options available to them. An example of the bargaining power of suppliers is insurance companies that provide legal cover to clients. Such companies have the power to dictate the tariff that will be charged for the services provided by the attorney.

Examples of threats of substitutes include: Companies appointing in-house attorneys to provide legal services in-house instead of briefing external attorneys. In some instances potential clients opt to purchase templates or precedents (namely, wills and lease agreements) that are sold over the counter at some retail outlets instead of procuring the services of an attorney.

  • SWOT is an acronym for strengths, weaknesses, opportunities and threats. The firm analyses its strengths and identifies opportunities that may be presented by such strengths. By analysing its weaknesses the firm is able to identify the threats that come with such weaknesses and to determine how to mitigate against such threats.

Once a firm conducts a situational analysis, the firm is now in a good position to set out its objectives, determine its marketing strategy and plan how it will achieve such objectives.

Moroke Phajane LLB (UFS) Post Grad Dip Business Administration (Milpark Business School) writes in his own capacity and is an in-house attorney at Liberty Life in Johannesburg.

This article was first published in De Rebus in 2016 (Aug) DR 18.

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