What are the risks and rewards of setting up a niche legal practice?

Peter Scott, principal of Peter Scott Consulting and former managing partner of Eversheds’ London and European offices, and Tony Williams, principal of Jomati Consultants and former managing partner of Andersons Legal and of Clifford Chance, offer their thoughts on carving out a niche in the legal market.

What are the attractions and advantages of establishing and running niche practices?

Peter Scott (PS): Niche practices are about specialisms—which is what clients now want. Clients go to lawyers for their expertise. Gone are the days when clients wanted generalist firms. Niche practices, by specialising, often tend to be market leaders in their fields—achieving market leadership is about gaining a competitive edge over rivals. A niche firm is likely to be able to win and retain more clients, be better able to recruit and retain the best people and, because it is seen as the specialist firm, charge more for its services. I have a number of niche firm clients who are market leaders and all highly successful. However, we do need to be clear about what we mean by niche firms. They can be very small or very large and they can be built around a specific area of law or an industry or sector.

Tony Williams (TW): One main benefit is that the firm has a clear focus and a clear message to send to the market. It’s a case of classic branding. To maintain that benefit and advantage, the firm must live up to its message, so it has to be diligent about not going off piste. Firms like Sackers—which specialises in pensions—continue to prove that if a firm is properly determined, they can establish and maintain a credible niche strategy.

What are the major considerations for firms in determining whether to develop a niche practice?

PS: Each niche firm would have its own reasons for establishment. There are, however, a range of factors which have driven the growth of niche firms. One is that lawyers see an opportunity to service a particular market more competitively than larger, more broadly based firms driven by client needs. Also, large firms may no longer want to handle a particular area of work. The considerations may be personal too. Some lawyers may be unhappy, for various reasons, with life in a large firm and partners and other lawyers may be made redundant. Some too have a desire to run their own business.

TW: The first thing to bear in mind is that the focus must be on the client. Firms have to ask what sort of people they want to work for and what those people want from them. Other questions include:

  1. Is the specialty central to their business?
  2. How credible will their offering be in comparison to others in that market?

Firms need to ask themselves if they can be a strong player in that market and will it fit in with what they want to do overall.

Smaller to medium-sized firms must remember that, as a niche firm, they could lose clients to bigger firms who work in a range of fields. Another challenge for niche practices is that, depending on the size of the market, they may find conflicts of interest can constrict their client base.

Firms have to work on being very good in their field by not only achieving legal excellence but by providing excellent service too. So you have to remember that you will have to be able to stay at the top of the game in terms of legal skills and service. Fees can be relevant to a specialty—however, in a niche, you may not be competing on fees alone. Firms have to be able to offer their clients something they want at the right price point.

What are the various ways to develop niche practices?

PS: It depends on the area of work/sector niche/industry niche. As I said earlier, a niche practice can be built around one area or a whole industry sector. There’s no one way to develop a niche practice. The important thing is whether there is a sustainable market which needs the services and in which there are clients which will buy those services from a niche firm at prices which will mean a firm will be profitable. If a niche firm can provide clients with what they want, at prices clients consider as value for money, and they can do this better than larger, more developed rivals, then a niche firm can compete.

TW: It’s possible to practice in a number of niche areas. However, if you have too many you can start to be seen as having a general offering and look like a full-service firm. If you’re going to have a range, ask yourself:

  1. Is there a relevance and coherence between them or are they different markets entirely?
  2. How then do you provide different messages to different markets?

One niche is fine but as I mentioned before, you have to ensure you remain at the top of your game. Firms must also look at the relevant cycles the industry or market may be subjected to:

  1. Will you be able to survive if it goes through a fallow period?
  2. If you’re not in a high period, how do you manage the lows?

Employment is one area where you may have work in both bad and good times—in times of recession you may have to help with redundancies, in good times, with recruitment. Some accreditation schemes, like those run by the Law Society, may well help with small to medium-sized clients. Larger clients may make their own decisions.

What concerns have the Solicitors Regulation Authority (SRA) voiced about adopting a niche strategy?

PS: In July 2013, Richard Collins of the SRA said that market trends are having a major impact on how services are delivered. Smaller firms which provide specialist or niche services are finding they could be particularly at risk if their main focus of work, such as legal aid and personal injury work, starts to dry up. For many firms, this narrow focus is often more of an accident than design. The SRA does not think that niche and specialist firms are in themselves a bad thing, because, of course, specialism in particular areas is essential for a vibrant market. But if such firms are failing to compete, they’re having to look at diversifying in order to remain viable.

TW: I think the concerns relate to the fact that firms need to exercise caution in how they select a niche and how they try to sustain and develop it. They have to be alive to how the market can change.

What are the greatest challenges in developing and maintaining niche practices?

PS: In one word—resources. In particular, firms need the resources to provide all the infrastructure now necessary to run a profitable law firm, which include:

  1. finance
  2. risk and compliance
  3. marketing
  4. IT
  5. human resources

I have noticed a change to a degree for some niche firms as their clients grow and markets consolidate. The needs of larger clients may grow to such an extent that a niche firm may not be able to grow at a sufficient pace to continue to service such clients in the way they demand because they don’t have the financial resources to do so. Also, very large clients may tend to buy only from larger law firms because of their own perception of the risks attaching to buying from a small business.

Pitching for work from large clients can take much more time and effort than for a large well-resourced firm. Increasingly, some clients also require more of a joined-up or one-stop-shop approach to buying legal services. For these reasons many small niche firms are likely to lose market share to larger firms which have built their own internal niche groups and who have far greater resource to provide clients with what they want and delivered how and where the clients want services delivered. This trend has increasingly contributed to successful niche firms considering joining together with larger firms where they view their futures as more secure.

TW: The continuing challenge is whether the specialty is ring fenced enough, or whether clients will want the other things that go with it. It can be a challenge for firms to keep going and stick to their strategy. They can suffer from ‘mission creep’, which is where their strategies become blurred and they turn out not to be a niche firm any more.

Clients expect not just legal know-how and good service, but business skills as well. Firms need to keep honing their business knowledge and skills. They also need to concentrate on marketing and keep getting their message out as you clients are also part of your informal sales force.

Interviewed by Diana Bentley.

 

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