Conventional wisdom in management circles has held for decades that professional service firms are “grow or die” businesses. Either the organization grows as a result of successfully serving clients, creating more business and referrals, or it stagnates and dies, shedding talent to other firms that are growing.
Since the recession this premise has been challenged. Altman Weil affiliate Bruce MacEwen of Adam Smith, Esq. authored a book in 2013 challenging this assumption, entitled “Growth is Dead: Now What?” A recent study published by the Georgetown Law Center challenged the assumption that bigger firms are more profitable and that in turn drives some of the intense merger activity in the marketplace in recent years. That study pointed out that there is no discernible correlation between firm size and profitability amongst the AmLaw 200 law firms. On the other hand, economic surveys of a broader sampling of law firm sizes have consistently shown for decades that there is a general correlation between firm size and profitability, as evidenced by results in ALM’s Survey of Law Firm Economics. So what gives?