Category Killers

Monday, June 10, 2013

We continue our taxonomy of law firms with a term I’ve borrowed shamelessly from the retail industry, “Category Killers.” In retail, these have traditionally been Big Box stores with exhaustive inventory and wickedly competitive prices on one deep “vertical” category of merchandise:

  • Home Depot and Lowe’s
  • Toys ‘R Us, Linens ‘R Us, Attorneys ‘R Us
  • Bed Bath & Beyond and The Container Store
  • Petco and Petland
  • Staples and Office Depot

You get the idea. The most salient characteristic of this model is that it works. If you doubt me, then I have to ask if you disbelieve the famous phrase, “imitation is the sincerest form of flattery,” because the concept of category killer retail stores has spread far and wide from its initial roots.

As I use it in Law Land, it means a firm that has the following characteristics:

  • Highly specialized in delivering one well-defined practice area and doing it exceptionally well;
  • Possessing tremendous depth of resources and expertise in that practice area;
  • And able to undercut rivals who only dabble in The Category by investing deeply in processes and management to optimize their service delivery.

This is entirely orthogonal with what Category Killer means in retail land. Consider the mapping:

  • Highly specialized: When you go to Staples, you’re looking for office products; when you go to (say) an employment law firm, you’re looking for employment law expertise.
  • Depth: If Staples (or staples.com) doesn’t have the office product you’re looking for, uh, what do you do now? Similarly for our employment law example. If they don’t have the arcane expert, who would? You’re probably stumped, at least for the moment. (The point isn’t whether you’ll ultimately be able to find the arcane expertise elsewhere—you doubtless will—the point is that you started with the Category Killer and will do the same next time, and the next time.)
  • Process management: These firms can invest serious resources in optimizing, automating, co-sourcing, templating, and KM’ing best practices, document assembly, and more—and continuously can push work down to lower-cost resources while maintaining or even enhancing quality through exploiting the never-ending learning curve. This is the secret sauce.

The bottom line is pretty simple: You can’t beat them at their own game.

And you see this in the migration of talent.

I’ve spent time at several of these firms, and because I’m a curious fellow and genuinely interested, I like to ask people about their backgrounds: “Where did you come from?” “What do you like about what you do?” “Why are you here?” “Tell me about your colleagues.”

The answers reveal commonalities:

  • Many—I bet most—of them came from other firms, some ostensibly more prestigious, but where they didn’t really seem to fit in;
  • They love what they do because they’re appreciated for what they do; virtually all of their colleagues do pretty much the same thing, or something highly complementary, and shop talk is natural and seamless;
  • And they know that for what they do there’s no better place to do it.

Let me go back to the “secret sauce.”

Other firms can’t afford—and it makes no sense—for them to invest in deep optimization of processes in practice areas that aren’t core to their business. Category Killer firms have one and only one practice area that’s really core to their business, so the question of how much to invest flips from “what can we afford in this marginal area?” to “how can we not invest as much as we can as fast as we can to build insurmountable barriers to entry?” Guess what: They’re building insurmountable barriers to entry.

And, as with the migration of talent, you can see it with the erosion of the Category Killers’ targeted practice areas in the rest of the industry. Employment law is probably the poster child example. More and more mainstream firms are cutting back on, de-emphasizing, disinvesting it (choose your euphemism) employment law. (Maybe everyone claims they do boardroom level executive comp packages, but that’s no one’s bread and butter.)

Now, do these firms have management challenges? Join the club; all firms do.

Pro’s of these firms’ business model:

  • They’re the Masters of Branding: it’s self-evident what they do, to clients and potential partners and associates
  • They can trump competition
  • Talent feels valued
  • They tend to have few conflicts.

Con’s of the model:

  • Lack of diversification; subject to cyclical downturns
  • Can become complacent
  • No cross-pollination of ideas

And the management challenges? A reflection of who they are and what they do:

  • The unyielding requirement to remain rigorous about your focus
  • Remain uncompromising in talent recruitment—no “bleeding over” into adjacent practice areas
  • And most importantly, disciplined, “continuous improvement” [kaizen] in business process optimization.

Can they screw it up? Permit me to editorialize that the capacity of lawyers to be severely retarded developmentally challenged as businesspeople knows no bounds. But if they can hold it all together, it seems to me the pertinent questions are:

Can you fight them on their own turf?

Why would you want to try?

The question for clients is extremely simple: When you need what they offer, “why go anywhere else?”

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