Forecasting Failure -­ 9 of 10 Failed Firms Losing Share to Competitors

"If I knew then"…Potent, but less-than-popular metrics pointed to trouble years long before the major law firm implosions of the past decade. Top performers track these leading indicators for themselves and competitors. They gauge where they stand – and know exactly when competitors become vulnerable. They use this insight to pounce; snagging the best partners and clients – before the world starts to end.

Fully 9 out of l0 major law firm failures over the past 10 years shared similar financial profiles prior to their downfall. BTI’s exclusive analysis of law firm financial performance shows these former high-fliers were:

1. Losing market share to competitors

The CAGR in gross revenue for these law firms trailed growth in outside counsel spending over the same timeframe. While some of these former trailblazers boasted annual growth rates of 6, 7, even 9% before their decisions to dissolve, this growth was not enough to outpace the market. Growth masked the fact these firms were giving up fees and clients to competitors.

Lesson Learned: Clients losses follow market share losses.

2. Earning below average profits per attorney

The average multi-year profits per attorney of these former firms paled in comparison to similarly sized peers. Leveling the playing field by eliminating differences in partner status and structure creates a core profitability metric proven to weave a potent tale. Despite some profit-per-partner figures rivaling elite firms, this apples-to-apples comparison uncovers potentially unseen vulnerability, revealing weaker cash flow and capital reserves than competitive players.

Lesson Learned: Embrace metrics tracking core profits.

Learn more about the 10-year market share and financial performance of the US’s largest law firms, as well as tomorrow’s top opportunities and best practices, in our recently released report BTI’s Strategic Review and Outlook 2012 for the US Legal Services Industry.