There's a Reason the Conventional Wisdom is Conventional

If you believe Legal Week, the waters are already choppy and will become downright stormy for tech-centric California-based firms, particularly the two remaining powerhouses of Silicon Valley, Wilson-Sonsini and Cooley-Godward. 

[As to other late, great tech-centric firms, Venture Law Group was obviously absorbed into Heller-Ehrman as VLG's "you can pay us with equity" model hit a brick wall, and Gray-Cary joined up with Piper-Rudnick, while Testa-Hurwitz dissolved for essentially sui generis reasons having to do with a failure of succession planning, and the biggest of them all, Brobeck, got its capital structure famously and wildly over-leveraged.  Of these four high-profile endings, only Gray-Cary's, I would argue, is an example of a firm deciding it needs to be bigger and more diversified per se.]

Essentially, the article posits what is almost becoming received wisdom, namely that:

• Global firms, or at least seriously-national firms, will emerge at the top of the competitive food chain;
• A California firm without a serious New York City presence is compromised when it comes to the most sophisticated work (as is a New York firm with no meaningful California footprint); and that
• Unlike with Wall Street valuations, where a focused company commands a premium and conglomerates are so very yesterday, law firms need a diversified mix of practices to "motor through" the economic cycle.

Mark Levie, transactions group managing director for Orrick, puts it bluntly:

"Firms need a diverse mix of practices and operations in the financial centres in order to have stronger profits year-on-year. Marquee deals are fantastic but firms need a steady flow of work."

But wait?  Why can't one have both a "steady flow of work" and "marquee deals?"  

The reason appears to be self-reinforcing,  if not tautological:  Focused, medium-sized firms are in a disequilibrium position simply because "The momentum is clearly going in the direction of the nationals."  In other words, the market dynamics have changed because everyone agrees the market dynamics have changed. (And did you say "medium-sized" firms were threatened?!   According to the most recent AmLaw 100, Wilson-Sonsini was #46.)

To be sure, there's probably more to it than that:  F1000 clients are by and large pruning the length of their favored "panel-member" firms, the legal profession's geographic footprint should approximately follow that of its core clientele (and we know what that means given increasing globalization of you-name-it), and to the extent that savvy firms are beginning to truly adopt techniques such as knowledge management and customer relationship management, they may actually be bonding more tightly to their clients. 

On the other hand, markets are far from immune to the pack mentality.  As no less than John Maynard Keynes, himself a crack investor who died quite wealthy, once observed about the stock market:  "Unlike a beauty contest, the investor's objective is not to pick the prettiest girl; it's to pick the girl that most of the other judges will pick."

I remain convinced that, as evolution has taught us, there are many roads to success as a species.  Just because Cisco is down 75% from its all-time high five years ago this very day (and, at that moment, the single most valuable company in the U.S. in terms of market cap) does not mean the Internet is over.  In fact, by comparison, Wilson-Sonsini and Cooley have scarcely skipped a beat; there could be life in the know-your-niche model yet.