Advantages of Being a Larger Firm

Introduction

I’ve always advised firms to view growth (defined as an increased body count) as something largely neutral. It’s not good or bad—just different. That can relieve the inappropriate pressure to grow, grow, grow. So called “developed” cultures place a premium on growth, even to the point of saying “if you aren’t growing, you’re dying.”

Nonsense. That may work for trees, but oceans and rocks don’t really care. So instead of chasing growth as the solution to what ails your firm, consider growth carefully. There are, after all, significant advantages in being a larger firm. That’s true for being a smaller firm, too (see the free position paper on that side of the equation). It just comes down to what’s important to you, what fits your style, and what your particular abilities might be.

One thing I will say, though, before glorifying growth: fix the current issues before you grow. Growing with the current issues unsolved will simply make them more acute. If the merry-go-round is spinning a bit too fast right now, you’re going to fling the weaker kids off when you go faster (i.e., get bigger). You’re not going to grow out of your issues.

Nine Reasons Why Large Can Be Good

Now, here are nine advantages you’ll enjoy as a larger firm:

1. First, a larger firm can say “full-service” and really mean it. While it’s common to claim that level of service offering, it’s never really true for firms with an employee count below, say, 35-40. The ability to claim this and then deliver on it has a significant impact on your positioning because it allows prospective clients to use you more in an agency of record arrangement, with a more complete integration of services. It’s not like anything magic happens at that size, but there is a correlation between the number of employees you have and whether or not you can truly provide integrated services to your clients.
2. Second, and closely related to the first, larger firms can afford to have individual employees wear fewer hats, which means that employees can focus their efforts and develop valuable expertise. In baseball terms, this moves that employee from utility player status to pitcher or shortstop.
3. Third, being larger means that your client will believe that you can be trusted with larger projects, and you’ll likely be doing those projects in the context of a deeper relationship. That will yield a better understanding of what the client really needs and how to deliver that. This is all true because the number of clients on your roster doesn’t vary much with size—they’re just bigger clients you’re doing more work for.
4. Fourth, being larger carries an appeal to some employees because there’s a career ladder with more rungs on it. That’s just one more reason that working for you might be interesting to them. It keeps them motivated and engaged over a longer period of time, which means that you can keep those great employees and benefit from their expertise.
5. Fifth, a larger firm is significantly more likely to be acquired or merged in a manner that will yield significant transaction value. There are many other factors that impact the deal, and the odds are still not substantial, but larger firms can be shopped with better results
6. Sixth, the cost of having multiple partners with higher pay can be carried more effectively in a larger firm. Partner compensation is simply a smaller percentage of the whole, and so paying a higher salary to three principals in a large shop is more manageable than doing the same in a six-person shop.
7. Seventh, being larger affords economies of scale in training employees. Instead of both the actual and the opportunity costs of travel, you can spend less money and expose more team members to that same training by bringing the experts to you.
8. Eighth, owning a larger firm will make it easier for you to get away for extended periods of time. Since the increased volume of work that accompanies a larger firm absolutely requires some level of institutionalization, it’s not that big of an adjustment to fill in the gaps when the principal leaves.
9. Ninth, running a larger firm means that you can safely step away from doing the work (as a player coach) to managing the enterprise (solely as coach). This fact—that your role can and must entail—has the highest correlation with the size of your firm. In other words, you might or might not make more money with a larger firm, but you will certainly be closer to management and further from implementation. Or you’ll lose your mind trying to violate that basic axiom.

Finally

That should do it. You might want to compare this article with another published one on the advantages of being small. That’ll clarify the implications of whatever growth decisions you are contemplating.