The march of the niche law firm

Delivering a great client experience within a transparent and competitive pricing model, powered by specialist legal advice, is differentiating an increasing number of small law firms from their competitors.

Small is undeniably becoming the new ‘big’; at least in terms of the flourishing number of small firms – a growing number of which are niche, boutique or specialist law firms (take your pick). And they are thriving not only numerically but in reputation.

If in doubt, cast your eye over the range of niche firms that made The Times Best Law Firms 2019 list of top 200 law firms in England and Wales.

Size matters

The small law firm sector as a whole is thriving, as the latest Bellwether report, “Is the future small?” from Lexis Nexis confirms.

Small firms currently make up the overwhelming majority in the legal market, with 95 per cent of firms earning less than £500k and 50 per cent earning less than £150k.

Size really does matter, according to the solicitors surveyed. The report found the size of a firm dictates everything from hiring practices and workloads, to workplace culture and profit.

The report says: “Solicitors working at small law firms are overwhelmingly positive about the benefits, citing improved workplace efficiency and better quality of life.”

The results are an encouraging springboard for solicitors in the larger firms who may be contemplating leaving to set up a small law firm to focus on a sole area of specialty.

Going niche is the obvious way to go for those who have honed their specialist skills and expertise – in some cases for many years – and who target a particular market or type of clients.

These specialist lawyers are perfectly positioned to service these clients efficiently, particularly in an era when external pressures are continually exerted on firms.

Niche firms typically have the flexibility to be responsive to external factors more quickly and efficiently than larger firms, not to mention the economic advantages (lower prices and lower overheads).

Indeed, the Bellwether report reveals small law firm solicitors are overwhelmingly positive about the benefits, such as improved workplace efficiency and better quality of life.

To establish and service these niche firms, the founding lawyers have to come from somewhere. Given that a solicitor cannot set up a new law firm without at least three years’ post qualification experience within the last 10 years, they invariably come from another firm (we can probably safely assume few leave the profession completely then take the decision to come back to set up their own law firm).

So it’s unsurprising that the Bellwether research shows the number of solicitors leaving larger practices to work in smaller firms is increasing. Andrew Campbell is one such solicitor who made that exit.

He established Bikelawyer, a firm specialising in motorcycle accident personal injury claims, which he established almost a decade ago after heading up the UK’s largest motorcycle accident department.

Such was the volume of work he was bringing in for the firm he decided he could set up his own firm and benefit from the work he generated, rather than “benefiting the few at the top of that firm”. The service he provided his clients was also a key factor.

Campbell explains: “The size of the firm made it hard to ensure clients received a top level of service, which is important to me. Clients are people not numbers, and I like to provide a personal, bespoke service, not have staff led by case management systems and pro formas.”

Campbell already had a reputation and his own clients following from his former firm, which helped. He adds: “Continuing to provide clients with what I deem to be a great service leads to word-of-mouth referrals. I have written for motorcycle publications for many years so I’m known in the field.”

He found the practicalities of setting up a firm “fairly straightforward” but without any funding available from the high street banks, he was fortunate a relative with faith in him helped with the running costs for the first few years.

Serious injury work doesn’t pay for two to five years so funding is, he says, essential in the start-up period. And what of the future for specialist personal injury (PI) firms?

The PI sector has come under serious financial pressures in recent years, not only with the legal aid cuts and increase in small claims limit – but, as Campbell points out, “firms dealing with bulk low value motor claims have found fixed costs difficult, and it will get worse for them in the coming years with the expected changes”.

He believes more firms appear to be seeking to present themselves as specialists in niche areas thus increasing competition; with bicycle accident claims becoming a fashionable niche (as well as more firms entering the clinical negligence arena).

Client outcomes

Outcomes-focused regulation, which is now focused on client outcomes, means specialist niche firms are arguably best placed to facilitate the best client outcomes. Campbell explains: “The benefits for clients are true specialist advice from qualified solicitors (we only employ fully qualified solicitors to have conduct of cases) with a personal service.

Our expertise maximises claim value so clients are properly compensated.” He says as specialist lawyers, they take “great satisfaction providing far more of a service than the bulk factory firms can offer”.

This, he adds, is reflected in the number of cases the firm takes over from other firms which far exceeds expectations. David Farquharson is co-founder of Ignition Law, a specialist firm advising entrepreneurs and start-ups.

The firm is based on a relatively simple model: “High quality lawyers offering great advice to early stage companies – something the big firm’s business model is not set up for.”

Though only set up in 2017, the firm was shortlisted in this year’s Legal Business Awards in the ‘boutique law firm of the year’ category. So what’s the backstory to the firm’s success? Farquharson and his co-founder had expressed, five years’ previously, a joint desire to “provide top level legal advice to start up and scale up firms when they really needed it”.

“We did a lot of market research prior to setting up and really listened to what clients said”, says Farquharson. What did they really dislike about legal service providers? (Generally, a lack of transparency on fees and over-lawyering – “lawyers not being commercial”).

So from the outset, they wanted to be as transparent as possible on legal fees, giving capped fees wherever possible; and for their advice to be “astute on commercial realities – in negotiations, particularly with a limited budget, focusing on the things that can be realistically changed in the client’s favour and which would have long-term importance to them”.

The reaction of other lawyers to Farquharson’s plans – that they were “incredibly brave” to take this “risky move” – proved to be no understatement. He says the first eighteen months were “extremely hard graft, doing the admin, the client work, the marketing; the billing; and essentially working 80-hour weeks”.

He says the initial issue wasn’t getting clients (it quickly became clear they were meeting a need in the market), it was “to get decent lawyers to come to work alongside us because of the perceived risks of joining a start-up law firm and leaving an established one behind”.

In just two years, Ignition has rapidly become a commercial success growing to a team of 40 lawyers, many of whom have arrived from Magic Circle firms.

This is a trend borne out in the Bellwether report which says the majority of solicitors working in small firms have previously worked in large or medium sized firms.

It also revealed almost two-thirds had worked in medium, large or top tier firms before their current role – the number increased from 53 per cent in 2016 to 64 per cent in 2019 – indicating either more solicitors have earned experience in larger firms in recent years or the flight to smaller firms is increasing.

A new breed

The advent of alternative business structures (ABS) has facilitated a new breed of specialist law firm combining the niche skills of specialist lawyers with professionals in other disciplines.

William Franklin is a chartered accountant who worked for Pinsent Masons for 10 years before setting up Pett Franklin, an SRA-regulated ABS at the end of 2009.

This integrated niche practice made up of lawyers and accountants is, says Franklin, “an example of a specialism within a specialism” – specialising in employee share schemes and employee ownership, for which you need both lawyers and an accountant (“The two just intermingle all the time”).

Unusually, the firm is also a training office for the Law Society and for the Institute of Chartered Accountants.

The idea had been lurking for years. Franklin comments: “The inertia of lawyers to leave a law firm and create a new kind of practice which was niche, cut off from the normal routes to market of cross-referrals that a big law firm gives you, and having to do it all on the basis of your own reputation and skills is a scary thing for lawyers to do.

“Something had to happen to take the plunge, and then with that happening, the opportunity to actually build a business developed. I actually resigned from Pinsents to do it.”

To compound the challenge, Franklin and his founding partners did it in 2009 against the teeth of the financial crash which, he says, was actually advantageous as it was cheaper (they were, for instance, able to get premises more cheaply).

Then there’s the technology. “When we started ten years ago”, he comments, “we had to have our own server. We had to cool it. When you work in a big firm, there are so many things done for you, so when you start off, you have to do so many things to make it work, which had previously been done for you.

“We also had to worry about backups. Of course, what has changed now is the cloud, which makes niche firms much more practical; and it also means you don’t need to have as much in the way of premises.”

A difficult issue for smaller firms is that of succession. Franklin says: “I wouldn’t say that we have entirely cracked it but it’s something you need to think about all the time, because you need to ensure continuity.”

Collaboration

Niche firms don’t exist in an insular bubble and would be unlikely to survive if they tried to do so. Ignition Law, for example, made the early decision that “being collaborative with other firms was the way forward”.

It has received lots of support from larger firm. Farquharson explains: “Part of our client base involves high-growth clients that the big firms send our way so that we incubate them; then, when they get too big for us, we send them back – in good legal shape – to the larger firm.”

He acknowledges there was a bit of a trust issue initially “but it doesn’t suit us to have a smaller number of larger clients. We prefer acting for many earlier stage ones and that’s the type of work that many of our lawyers left the bigger firms to do. The trust is now in place and whether as ‘co counsel’ or via referral arrangements, our relationships with the larger firms are extremely positive. We learn from them and they learn from us too.”

At Pett Franklin, clients often ask the lawyers – and accountants – to do something else for them. Franklin says: “We have to say ‘no’ and that’s a very hard thing to say to a client. And that means as a niche firm you need to also build alliances with a network of other firms, who you trust sufficiently to refer work to them.”

Is the future niche?

The internet has proved a key driver for change. Franklin comments: “In terms of the evolution of a niche firm, the biggest change in the past ten years for us as a niche firm is the power of the internet.

We have a website that is rich in content. Clients come to us direct. They find us through Google. Google is so much more powerful than things like Facebook or Twitter or social media, because it’s directional, connecting people in a very focused way. So the internet has become, over time, probably the biggest single source of new work to us.”

With the growth in the numbers of small law firms, is there any danger of market saturation in the near future? “Definitely not”, says Jonathan Whittle, market development director at LexisNexis UK.

“The drivers that are supporting confidence among small law firms are only growing and we’re seeing more new small law firms opening than ever before. The shift in the market, where small niche/boutique firms are opening up with a business model targeting very specific practice areas and or market sectors, is growing in pace with the evolving business demands of corporate and commercial clients.”

He suspects that while clients continue to prefer the sort of service they can get from small firms, the small law market will continue to grow to support that demand.

Over at Ignition Law, Farquharson’s pleasure in having satisfied clients is palpable: “Their success feels like our success too.” And when you have realised your vision, the on-going challenges typically take on a new dimension: “New challenges arise every day – but that’s half the fun of it and we wouldn’t have it any other way!”

Nicola Laver is editor of Solicitors Journal and a former solicitor

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