Getting in Front of the Curve

A lot is written about the first mover advantage — identifying trends early and pursuing them before competitors.   It’s a great concept and makes for some great consultant and academic articles (I know, I’ve written some of them).  But saying it is one thing, doing it is another.

To be successful in getting ahead of the curve requires that law firms do two things successfully.  The first is that they must correctly identify occurrences that will actually turn out to be trends.  It doesn’t seem like this should be all that difficult.  I hear law firm leaders talk about “no brainers” and most firms have “would have, could have, should have” stories about opportunities that they foresaw but didn’t take advantage of.  Often the early identification of a trend is confirmed by the actions of other large law firms and this serves to further stimulate the urgency of taking action.

But, as a rule of thumb, when someone labels an idea as a “no brainer” it usually is a signal to stop and think about it.  This is because even the most knowledgeable prognosticators only get it right only about half of the time.  Bill Gates in his 1995 book, The Road Ahead, labeled the internet as a minor “stepping stone to the real information superhighway,” thereby demonstrating that even the insiders frequently get the really big obvious stuff wrong.

For law firms, examples of trends that made complete sense but never really came to fruition are everywhere: firms that raced to Florida to build probate practices, product liability firms that geared up for a flood of food additive toxic tort cases, firms that opened offices in South Dakota to represent creditors in usury matters or in North Dakota to benefit from fracking.  And who can forget the investment that many firms made in 1999 to create Y2K practices.

But even firms that correctly identify an issue may not be able to benefit from their insight.  Therefore, the second thing law firms must do to “get ahead of the curve” is be capable of taking action on a trend.  Trends often take years to develop and frequently require significant capital investment that may not be quickly recouped.  Make no mistake about it.  There are significant advantages to being the first mover on a successful trend. But, the adage is true, you can always tell the pioneers; they’re the ones with the arrows in their backs.

So how does a firm identify realistic opportunities and take advantage of them without putting large amounts of capital at risk?  Here are some thoughts:

1. Look for opportunities that enjoy a horizontal or vertical integration.  If the proposed action works off of or supports a firm’s existing practices, offices or structure there is a much higher chance of success.
2. Don’t be too much of a first mover.  Many trends take year to mature to a level where there is a return on investment.  A lot of red ink over a multi-year period may be a wise investment, but it is likely to be a political disaster in many partnerships.  It is often better to carefully watch some other pioneer catch the arrows and step in when a real market has developed.
3. Don’t worry about what peer firms are doing.  Law firms can be like lemmings, following other firms off some dangerous cliffs.  While there is some value to acting with the majority, it pretty well kills the first mover advantage.  Unless it is necessary for a defensive position, there is not a lot of advantage to being a “last mover.”
4. How bad is the worst case scenario?  Even if the idea fails to turn profitable in a couple of years, there is often a possibility of some recovery of the investment.  There is a big difference between putting the opportunity for potential profits at risk and losing the entire investment.  Avoid swinging for the fences when a double is available (readers from outside the Americas, drop me a note and I’ll explain the metaphor).
5. Whenever possible, bench test ideas.  Look for inexpensive, low risk, low commitment ways to prove a concept.  Thinking of cold opening an office in Timbuktu; first put a lawyer in a hotel room or office suite for three months to better test the market.

Gaining a first mover advantage is a bit like winning a drawing.  The more tickets you buy the better your chances.  Its common sense — carefully taking small risk positions in a number of opportunities will likely yield a better result than going all in on a single trend.