Twilight of the Boutiques?

Despite the stupefying fact that The Wall Street Journal reported late last year that 45% of Americans believe "literally" in the Biblical story of Creation, whereas only 31% subscribe to the theory of evolution (have you thanked a teacher today?), Darwinian selection pressures are every bit as valid in economics-land as they are in biology-land.  I've talked about this before in the context of the structure of the law firm market, but now IP Law & Business talks about it specifically in the context of the landscape for IP boutique firms.

Pop quiz:  Which of the following IP firms (founding date noted) is still around?:

• Fish & Neave (1878)
• Pennie & Edmonds (1883)
• Lyon & Lyon (1901)

Answer: None of the above. 

But many others have survived and even grown—not, I hasten to add, through any systematically-adopted strategy, but each through their own highly circumstantial, "fact-specific," response to marketplace pressures.  As the article puts it:

"But in evolutionary terms, [the survivors] were either born with traits that have allowed them to prosper in a hostile environment -- strong management, loyal clients, merit pay -- or they have adapted, rapidly."

Many are, predictably, moving beyond exclusively IP-centric practices, such as Fish & Richardson (one of only two IP firms in the AmLaw 100). With 350 lawyers and a respectable PPP of $755,000 in 2003, Fish & Richardson still plays to its strength as a "technical powerhouse," to grow its non-IP practice from its current 30% revenue share. "We can put four or five PhD.s on the conference call."

What do the survivors have in common, and what to the road-kill have in common?  The first group has adapted and changed, the second group never did. Evolution.  For example:

• A survivor:  "Any firm without strong management -- general practice or IP boutique -- is generally going to have serious issues with regard to retention of partners and firm viability."
• A survivor:  "The legal industry has changed -- we haven't."  But the firm is already on the right track; it has always had a merit-based pay firm and revenue per partner is rising at a healthy rate.
• A dinosaur: "Pennie & Edmonds never changed its compensation plan."
• A dinosaur: "Change is not easy.  Fish & Neave couldn't do it."
• A (potential?) dinosaur:  "If I'm at Kenyon & Kenyon, I'm sweating bullets."

Meanwhile, there are signs on the forest floor that a weird new species may be about to come into its own:  No, not mammals, but—the IP boutique!  Case in point:  10-year-old Lee & Hayes, a 25-lawyer patent firm improbably based in Spokane, Washington, with clients you've actually heard of including Microsoft, HP, GE, BellSouth, and Qualcomm.  "Bigger clients used to hire the bigger firms, Lee says, but 'the industry's changed.'"

The moral of the story?  Not by any means that the IP boutique—or the boutique market niche—is dead, but rather that across all segments of the market, Darwin rules:  Adapt or die.