Bankruptcy, Boutique Law Firms, Small Law Firms

Reinventing The Law Business: Porter's 5 Forces Applied to the Legal Profession (Part 1)

Managing partner Bruce Stachenfeld applies the insights of Harvard Business School professor Michael E. Porter to the business of law -- and starts by defining a key term.

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At last, the article that the scholars of the legal profession have no doubt been waiting for — here it is finally! I have been thinking about writing this for some time now. It is an analysis of Michael Porter’s famous “Five Forces” as applied to the legal profession.

This will be a two-article series due to its length.

I am starting with the works of Michael Porter. In case you missed my background on him in a prior article, I will say that Professor Porter is an (brilliant) professor at Harvard Business School. He has spent his long career analyzing strategy and competition. His analysis is exceptional and probably just about everyone in the business world knows all about him; however, strangely, I never see people applying his thinking to the legal profession.

Porter is most famous for developing the concept of the Five Forces, a framework that inexorably sets the competitive position within an “Industry.” In other words, one could analyze an Industry as highly competitive, or not that competitive, based on an analysis of these Five Forces. The stronger the Five Forces are, the more competitive an Industry becomes and, perforce, the harder it is to make high profits in that industry.

Why should you care about this as a lawyer? Well, you would care hugely if, for example:

You were coming out of law school and picking where to go in your legal career;

You are managing a law firm and deciding whether to enter, or support, a practice area, or even to terminate the practice;

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You are a lawyer with a practice and evaluating whether to continue what you are doing, enhance what you are doing or, possibly get out; or

You are considering merging with another law firm and evaluating the likelihood that the merger will be a success.

Being a bit provocative, in my view the managing partner of a law firm or the leader of a law practice group should be well-versed in Porter’s Five Forces if she wants to do an effective management job.

So let’s have at it here. I will start with a short recitation of the Five Forces and see if, by the end of this article, you are as enthralled as I am by how useful this analysis can be. The Five Forces, as defined by Michael Porter, are:

The Degree of Competitive Rivalry

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            The Threat of New Entrants

            The Threat of Substitutes

            The Bargaining Power of Buyers

            The Bargaining Power of Suppliers

These are the Five Forces, but before you can really use them effectively, you have to define the Industry you are in. This Industry analysis is very tricky and can easily become self-serving or pointless, or just lead you in the wrong direction. For example, you can’t just say the legal profession is the Industry. This is because clearly a solo practitioner in, say, Des Moines, has little to do with the Skadden Arps corporate legal practice in New York City.

So for the analysis to be useful, you have to define what you are doing more narrowly. I am going to work here with bankruptcy law as a proposed Industry within the law, as an example. For this reason, I have relied for guidance upon my longtime bankruptcy law veteran partner, Kirk Brett, who shares credit for this article.

So I start out by wondering: does the Industry consist of all bankruptcy lawyers? As I think on it, the answer is “no.” There are geographical constraints because a local lawyer is admitted to practice in the applicable state where the bankruptcy might be filed, plus a local lawyer is the one who will know the judges, know the other lawyers, and be much more effective. So probably the Industry is the bankruptcy bar that practices in the state in question. Since I am in New York, I will pick New York.

So I might initially conclude that my Industry is bankruptcy lawyers in the State of New York. However, if I wanted to further peel away the onion, I would also start to wonder whether the fact that some bankruptcy lawyers seem to specialize on the creditor side and others on the debtor side might further subdivide the Industry. Also, in the same vein, there are practices devoted to individuals, practices devoted to business reorganizations, practices devoted to cross-border insolvencies, and a bunch of others I cannot think of off the top of my head.

This analysis is further complicated by the fact that even if the debtor is in New York, the company may decide to file in another state, which is often Delaware. And sometimes New York lawyers, due to perceived large-law-firm expertise, get legal work in other parts of the country, so that work is part of the Industry of bankruptcy lawyers in the State of New York.

Finally, to possibly make things even more complicated, many bankruptcy lawyers include within the ambit of their expertise business reorganizations in so-called pre-packaged bankruptcies, which are often undertaken by businesses to avoid the expense, uncertainty, and time-consuming nature of the bankruptcy process.

Are all of these separate Industries?

I am not sure about the answer to the foregoing, and there is obviously a lot of subjectivity – and indeed planning – that would go into the definition of the Industry to be analyzed — and if I were doing this “for real” (i.e., if I were considering taking the plunge in acquiring a bankruptcy lawyer or expanding my firm’s bankruptcy practice group), I would certainly spend some real brainpower figuring all this out, as it is critical to the overall analysis; however, since this article is merely illustrative, there is no reason to delve that deeply.

For now, and because my firm is focused on sophisticated and significant matters, I will narrow this to say that the Industry in question is as follows:

Bankruptcy lawyers in the State of New York that focus on sophisticated and significant bankruptcy matters.

Since I am out of space here, I will end the article at this point with the definition of the Industry in question. In my next article, I will apply Porter’s Five Forces to this Industry. You may be surprised at the results too.

P.S. By the way, I am blessed to have had Kirk Brett as my bankruptcy partner for the past 15 years (click here for a link to his bio). He is extremely smart, creative, aggressive, and strategic. He has practiced bankruptcy law (both litigation and transactional-based) for nearly 25 years. His practice includes business reorganizations and is thoroughly interwoven with our real estate pure play – since we have so much real estate work here, the reorganization and insolvency work weaves in seamlessly. Finally, as distressed real estate has become less ubiquitous in recent years, Kirk has morphed his practice into being the “guy we call when there is trouble.” His informal internal nickname is “The Wolf” (for those who are fans of Pulp Fiction) – when we have trouble, Kirk just comes in and gets us out.

Bruce Stachenfeld is the managing partner of Duval & Stachenfeld LLP, which is an approximately 70-lawyer law firm based in midtown Manhattan. The firm is known as “The Pure Play in Real Estate Law” because all of its practice areas are focused around real estate. With 50 full-time real estate lawyers, the firm is one of the largest real estate law practices in New York City. You can contact Bruce by email at thehedgehoglawyer@gmail.com.

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