THE STRATEGIC LAWYER + + + politics.::. get the jist.::

On Law Firms, Entrepreneurs & Small Businesses

Image source: Licensed for unlimited commercial & non-commercial use.

Image source: Licensed for unlimited commercial & non-commercial use.

A couple of weeks ago, this article from the Economist showed up on my LinkedIn feed, posted by a friend. It gets at a key distinction that is often elided, between two different types of small business paradigms, namely, “replicative” entrepreneurs and “innovative” entrepreneurs, and reading it, I had one of those deeply satisfying moments in which an article articulates a concept or distinction that has been floating about in my mind for ages, but which hadn’t quite gelled until I read the piece and thought “exactly!”.

The replicative entrepreneur comprises the majority of small business owners, who start a business  and run it on the basis of tried and true methods for providing a particular kind of product or service. Sometimes, the replicative entrepreneur will grow, by taking risks, possibly leveraging debt, and applying a replicative model of growth (e.g. moving from a couple of wholly owned shops to a franchise model), but generally it will involve some luck and taking of calculated risks in the timing and execution of standard, tried and true, business models.

These “replicative” entrepreneurs, are people who want to start their own hot dog stand, or watch repair shop etc. and provide essentially the same service as others, in more or less the same way.

The “innovative” entrepreneurial approach is fundamentally different, even though both the innovative and the replicative entrepreneurs begin as small businesses. It is the innovative approach–which may apply to product, or to method, or to both–that can lead to catastrophic failure or meteoric growth. This approach arises out of a completely different paradigm and approach.

The article goes on to talk about how one factor in monitoring the health and viability of a given economy has to do with looking at the number of small businesses in that economy–but that in looking at that simple metric, the two types of small business are conflated, even though they each tell vastly different stories with regard to the economy’s prospects.

As I read it, the piece seems to favour the innovation model over the replicative model, but both would seem to me to have significant strengths: the one is about innovation, change, evolution and the need for all these factors if an economy is to advance. It is, however, a highly volatile and high risk endeavour–meteoric growth stands opposite failure, should the product or business model prove non-viable. The other paradigm, the replicative model, presents an important counterweight, namely, stability, slow growth and mitigation of volatility.

The piece, with its useful articulation of this key distinction, got me thinking about these two approaches in the context of law, and the business of running a legal practice.

I mostly see the replicative model in the context of the vast majority of lawyers in sole practice or small to mid-size partnerships. This is natural enough. It’s a strictly regulated industry, which of itself limits innovation. As well, the practice of law is in many ways about anticipating risks, assessing how significant or minor those risks might be, then presenting the client with that assessment and letting him or her make the final call–all of which means that we lawyers tend to spend a lot of our time thinking of all the things that can go wrong. This in turn means that a large segment of people in the profession will tend to be on the risk-averse end of the spectrum. Those with higher risk tolerances are often drawn to litigation, which will serve as a venue to indulge in that appetite for risk, such that the business end of the practice is less likely to be the outlet for innovation.

All of which points towards the reality that many of the sole practitioners and partnerships will tend to make use of the replicative model of practice, just as other industries like the tech sector will often make use of the innovative model in one aspect or another.

As as I say, there is nothing wrong with either–the replicative model has a greater chance of stability and longevity. But if a firm wants to grow on its own steam (rather than growing by being bought out by one of the larger firms), then the replicative model will only take it so far. At some point, innovation has to be introduced, whether that is in the context of its business model, its expansion plan, or some other aspect of the desired trajectory that is sought.

The managing partner of such a firm–with buy in from his or her fellow partners–will need to look up from the practice of law, start thinking strategically and actively seek out modes of innovation in planning (while remaining compliant with the regulatory requirements of the licensing authority).

It’s a tricky thing, to change tracks in such an industry–tricky, challenging, potentially risky, and in the case of those firms in the legal landscape who are making such strategic, innovative moves, fascinating to watch.


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This entry was posted on March 17, 2014 by in Business, Risk management, Strategy.
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