One ought never to turn one’s back on a threatened danger and try to run away from it. If you do that, you will double the danger. But if you meet it promptly and without flinching, you will reduce the danger by half. Never run away from anything. Never!    Winston Churchill

Law Firms, like all businesses, are in a constant state of change. Similar to an annual check-up on your health, law firm leaders should periodically take the time to evaluate the condition of their firm in order to catch looming challenges before they become a threat to the institution. Regular “check-ups“ increase the likelihood that you‘ll be in a position to take action in time to prevent a down stream crisis.

All of this begs the question — What are the most common signs that a firm’s relative market position is beginning to slip? 

  1. A sudden unanticipated loss of lawyers– We’re not talking about normal “comings-and-goings” the propensity for frequent movement of individuals is the topic for another post.  This is about a greater-than-normal degree of movement.  During a measured period, the greater the percentage of lawyers lost, or the more prominent those departures, the more this should be taken as a warning sign.
  2. The loss of key clients(or increased difficulty in winning new business).  Continuity of critical relationships is one of the greatest assets of any firm.  Savvy management works hard to avoid the too-many-eggs-in-one-basket syndrome, and insuring a portfolio of clients central to success.  But in any firm, the loss of one or two key clients, or the departure of a large number of clients from any group should set off an alarm.
  3. The absence of strategic organic growth.  If you are increasingly unable to win the new business targeted in your firm’s strategic plan, take heed.  Either the competitive landscape is shifting in a way that directly impacts your position, or the market is sending you a message. In either case, your firm is likely in some stage of transition. It is time to manage appropriately.
  4. Increasingturnover in key positionsin the firm. I often refer to Jim Collins principle of having the right people on the bus.  If you begin to lose significant non-attorney personnel, this can be much more than an inconvenient (and costly) loss of continuity. In a competitive marketplace, viewing key staff positions as fungible can serve to mask a troubling organizational issue.  (see short Collins video on the topic here)
  5. Flattening or declining profits. On one hand, this seems simplistic, but so often a continuing trend of economic performance falling below expectations is ignored and shouldn’t be.  If profits are flat or declining, it is almost always time for action.
  6. Falling revenues. Often declining profit is preceded by shrinking revenue…but not always.  Whether profits decline or not, falling revenue is a reason for concern.
  7. worsening relative debt position. Debt, in and of itself, does not spell trouble.  Most law firms rely on debt to some extent to finance growth and manage short-term fluctuations in cash flow.  That said, an increase in a firm’s relative debt position should be closely monitored.  Absent alignment with strategic moves, this is often a sign of impending decline in market position.
  8. Negative external visibility. Many firms receive some degree of bad press; loss of a case, a high-profile departure, or litigation filed against the firm are typical causes. But leadership must resist the temptation to ignore what can be viewed as uninformed voices.  An increase in negative visibility via local, regional or internet distribution channels is an early indicator, and cause for concern.
  9. Difficulty in attracting talent. When your firm finds it increasingly difficult to attract lawyers, it is either the sign of a declining market position or an increase in the perceptionthat the firm is in decline.  This perception is, itself, an indicator of decline.  If strategic talent believes your firm may be in decline, each day brings increased danger that the perception will become reality.

All well-run firms recognize benchmarks and maintain performance data. The best routinely evaluate performance in critical areas – carefully looking for any sign or signal that the landscape is shifting.

The more comprehensive our list of early warning signs, the more accurate our assessment of existing and future market position.  What would you add (or remove) from our list?  Does your firm monitor the early warning signs?


Read addition posts related to restructuring and repositioning here.