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2018: The year Axiom becomes the world’s largest legal services firm

13 September, 2013

. Law. Strategy

Upstarts will first capture new and low-end customers, and then gradually move upmarket to pick off higher-end customers from incumbents” Clayton Christensen in his seminal Harvard Business Review article in 1995.

2018 is the year Axiom may become the world’s largest legal services firm. Last week the UK’s trade magazine The Lawyer published a series of articles on how the legal landscape may look like in 2018.

Some of the bold predictions included:

Earlier this year The American Lawyer published its annual league table, revealing DLA Piper as the largest firm in the USA and almost certainly in the world. In the process the incumbent, Baker & McKenzie, was dethroned as the largest of the BigLaw community.

These articles beg (perhaps avoid?) another question: Which of today’s firms will dominate in 2018?

The evidence: A changing landscape

My colleague Dr George Beaton’s diagnosis of the BigLaw business model reveals weakened vital signs. And an autopsy of major law firm collapses in the last decade paints a sobering picture for some of the cherished practices of the BigLaw business model.

Beaton Capital_major law firm failures

Chronology of law firm failures since 2000

The chart clearly shows the size of law firm failures has increased substantially in recent years. Mismanagement and burying heads in the sand characterises most of these failures which have been well documented by Adam Smith Esq and others.

2018: NewLaw outgrows BigLaw

The meteoric rise of substitutes (in the Michael Porter sense) for traditional BigLaw firms is witnessing the emergence and growth of firms like Axiom Law, Riverview Law, Keystone Law, AdventBalance, to name but a few. To describe these substitutes I have coined the collective noun ‘NewLaw’. These firms are designed around virtual work spaces and rely on the rise of supertemps. Supertemps are lawyers who have been trained by traditional BigLaw firms who are now looking for flexible work arrangements. These alternative business model (ABM) legal services providers are able to provide the same or similar service levels to BigLaw – but at or below incumbents’ break-even points.

Axiom, founded in 2000, is the face of this new group of ABM legal service providers has grown its revenue exponentially at 72% compound annual growth rate (CAGR) from 2002 to 2011. During the same period the largest law firm today, DLA Piper, has grown its revenue at 13% CAGR, including through adding new firms to its network.

Beaton Capital_Axiom will be the world's largest legal services firm by 2018

Axiom will be the world’s largest legal services firm by 2018

At Axiom’s current pace, the firm will outgrow DLA Piper by 2018. That’s in five years from now! Our modelling shows:

  • Axiom, $130m in 2011 and growing at 72% CAGR will have a turnover of $5,730m in 2018,
  • DLA Piper, $2,231m in 2011 and growing 13% CAGR will achieve a turnover of $5,215m in 2018, and
  • Axiom would be at least $500m larger than DLA Piper by that time

Of course these are estimates based on historical data and should be treated with proper caution. But for the sake of this argument, the uptake of clients as evidenced by the growth of NewLaw and the plateauing of BigLaw points to a possible future when NewLaw rivals BigLaw for overall market dominance.

As corporate clients continue to exert downward pressure on external legal spending (by reducing price and volume), the more cost-effective ABMs will continue to grow in influence – and size. And one can only guess at their profits. Of course in NewLaw profits are not measured by PEPP.

As Clayton Christensen observed, once the upstarts (NewLaw) move upmarket, incumbents (BigLaw) are in a danger of losing their clients.

If you find this post of interest, you can find more on related topics here:

This post was written by Eric Chin, Senior Analyst at Beaton Capital and Beaton Research + Consulting. Eric is also at Google+ as +Eric Chin.  You can connect with Eric on LinkedIn or Twitter.

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