Law firms can prosper from two very different shores. Some value close relationships, specialization and low leverage. Others focus on volume, cost reduction and process formalization. Both approaches work in tangible ways: the former generates personalized service and a cohesive culture; the latter, a capacity to handle a greater number of transactions; and, today, both firms can generate a very attractive profit per partner.

All those firms that float in the middle ground (at the risk of generalizing), without clearly defining their model, run the risk of entering the “Bermuda Triangle”: that space where the costs of growth and formalization do not at all offset the benefits of scale.

A couple of years ago, the managing partner of one firm convinced his colleagues to pursue growth and invested in tools, more lawyers and increased capacity. However, he soon realized that profitability and client proximity were suffering; administration and supervision costs were multiplying every six months, while the individualized treatment that made his clients fall in love with him dissipated. For this reason, it decided to halt the objective of massifying the scale of its service and return to the original size, prioritizing the culture that had given the project its shine.

This example shows how a small firm, with an agile leadership managing partner and a proven successful service, can see its essence diluted as it tries to expand without the infrastructure and processes in place to absorb the additional demand. And by infrastructure we don’t just mean physical: it also includes sufficient partners, teams and organizational systems.

Another firm, with a completely different strategy, has grown steadily thanks to a well-defined business vision: to focus on medium complexity issues and offer standardized solutions to a high volume of clients. The commitment to massify the service requires formalizing procedures, implementing control systems and establishing coordination structures that, although costly, are profitable because the firm only receives matters that can be scaled and handled with agility. The internal culture does not stand out for its warmth, but it does stand out for its stability. That environment, combined with acceptable compensation, has kept lawyers satisfied and turnover average.

Professor Ashish Nanda compares the expansion of professional services firms to a road that can lead to prosperity or shipwreck. As the firm grows, it is forced to implement formal processes, controls and structures, which implies a rise in investment and a a change of culture.

For scaling up to be a real leap forward – and not just a cost overrun – the organization must leverage scale through one or more defined mechanisms. There is the potential to do so by significantly reducing the average cost of each matter through a large volume of work, by clients feeling confident in a firm with sufficient presence and resources, by capitalizing on collective learning that fuels continuous improvement, or by establishing a platform model where clients and professionals feed back to each other.

Before embarking on expansion, a firm’s leaders should ask themselves whether investment in technology, infrastructure and management is really justified. And, above all, whether their clients will value having a team of dozens of lawyers capable of working in different jurisdictions or covering several practice areas. It is also worth examining whether the firm has knowledge management systems that ensure the internal circulation of best practices and whether it aspires to operate as a large platform that connects specialists and clients from different areas.

If the answers to these questions are not convincing, in our experience the firm runs the risk of being trapped in an ambiguous terrain, with the costs of a large organization, but without the profitability margins or the advantages of scale. The quality of service falls due to process overload, and the culture becomes strained because the team feels forced into a rigid professionalism for which it was not prepared. In such cases, the virtues of informality fade without the benefits of formalization.
The experience of the two firms I use as examples makes it clear that there is no single model for success. It is feasible to maintain a smaller, highly specialized firm that is very close to each client, especially if the local market appreciates personalized attention and assumes rates capable of sustaining that environment. It is also feasible, on the other hand, to build a large, formal firm that invests in technology and has an extensive roster of lawyers, as long as this translates into a competitive service for clients willing to pay for that infrastructure.

The big challenge is to avoid the gray zone where costs increase without real compensation. Instead of growing aimlessly, partners must decide honestly what their positioning is and why the market recognizes them: cultivate proximity and exclusivity or aim for efficiency and volume. Then, provide that strategy with the necessary structure to make it sustainable in the long term. This is the only way to avoid the “Bermuda Triangle” and anchor in safe waters, either as a small firm with differentiated attention or as a legal giant with scalable processes and global reach.

Antonio Gómez Montoya – partner of black.swan