Law firms remain excellent at fulfilling their original purpose: addressing intermittent or unpredictable business needs raising complex or novel legal questions in high-consequence matters. With the explosion of in-house departments*, the growth of the law firm market has fallen off precipitously. And the dispersion in economic performance between law firms reflects a dramatic increase in competition as client dollars grow more scarce. Winning is harder.* And losing happens faster than ever before.

For decades, law firms were the sole beneficiaries of the growth in legal complexity*. The compound annual growth rate of law firms for almost three decades—from the 1970’s to the mid 2000’s—was astounding. Over the subsequent three decades (mid 2000’s to today), the growth rate has been much less spectacular, especially if you adjust for headcount and inflation. Average, inflation-adjusted revenue per lawyer for firms in the AmLaw 100 grew 3.5% per year from 1993 to 2007. From 2007 to 2022, average, inflation adjusted RPL for firms in the AmLaw 100 only grew 0.6% per year (i.e., 6x slower).

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Law firms still provide valuable services. And lawyers, especially the top lawyers at the top firms, remain well compensated. Indeed, the law firm market has increasingly shifted towards the winner-take-all-economics prevalent in so many industries. Sharp decreases in the proportion of equity partners paired with growing compensation spreads within the equity partner ranks reflect a continuously frothy lateral market. The frothy lateral market, in turn, is a product of clients’ commitment to “hiring lawyers, not law firms” for cream work while endeavoring to bring core work in-house.* Client buying behavior is the primary impediment to law firm innovation*, including service-model and business-model innovation. This makes good strategy* challenging, and essential.

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We suggest starting with Jae Um’s killer trilogy analyzing the Am Law 100 (here, here, and here). And we always recommend following the writing of Adam Smith Esq., including Bruce’s stellar books like Tomorrowland.