Over the last 20 years, the composition of regional legal markets has changed dramatically.

The graphic above shows two decades of increasing AmLaw firm competition across 10 legal markets. The dramatic across-the-board rise presents a puzzle: What’s driving the expansion?

Like me, law firm leaders see these trends and start asking questions. Should my firm have an office in Austin, TX? What about Denver or San Diego? Do my partners appreciate that, in our headquarters market, the count of AmLaw firms has increased significantly?

Through work with clients, I’ve seen how market data helps to address these questions. Three topics are especially useful for informing leaders’ thinking and planning:

  1. The nature of AmLaw 200 firm growth in a given market.
  2. The largest industry sectors based on legal spending.
  3. The distinctive nature of the metropolitan economy (i.e., high levels of industry concentration).

To illustrate this methodology, below is a case study based on Austin, Texas.

1. AmLaw growth in Austin, TX

To begin, compare the rates of growth in the firm counts. For the most recent year, Figure 2 reports the AmLaw firm numbers on the horizontal axis and the growth rates (% growth in firm competition in market since 1997) on the vertical axis.  The orange lines represent the average values within the current sample (11th to 40th market based on AmLaw representation).

The ten markets appearing in Figure 1 are labeled, and Austin, TX is our market of interest (orange dot).  These ten markets are interesting and important because they have become magnets for new entrants–we know this because they compose the right side of the chart.

Austin’s position as a fast growing market shows up in the 300% increase in the number of AmLaw firms. Yet a number of markets demonstrate similar or even more rapid growth. Consider two geographic markets with similar numbers of AmLaw firms: Tampa has expanded more rapidly and warrants further investigation. San Diego has a similar representation count of about 45 and its growth rate is only slightly lower than Austin’s.

Since other markets are growing, it’s worth asking what’s drawing firms to Austin at a high number. Efforts to answer this question can benefit from a focus on client industries.

2. Legal spending broken down by industry

The industry analysis situates corporate organizations within the Austin metro economy. Results indicate which industries (from a list of 13) are important given their size and centrality. Figure 3 answers the size question by charting the estimated legal spend for Austin companies by industry. Spending estimates are derived from a statistical model that uses data on companies’ gross revenue, employee headcounts, industry specializations, and additional predictors.

Altogether, Austin comes in with a total legal spend of about $900 million. The Technology sector dominates at almost $500 million. The next four largest industries are Manufacturing ($94m), Wholesale and Retail ($84m), Professional Services ($70m), and Healthcare ($43m).

Austin’s rapid growth in AmLaw firms may reflect these firms’ interest in working with Technology clients. This would be understandable.  Technology companies tend to spend relatively high shares of their revenue on outside counsel (the same is true of Financial Institutions).

3. Distinctive features of the Austin Metro economy

The high levels of legal spending in the Technology sector in Austin may provide a compelling reason to open an office in Austin. But are there other industries worth pursuing?

A useful metric for measuring industry importance, or “distinctiveness,” is the location quotient (LQ). In words, this metric defines the importance of a given industry in a specific market against the importance nationally.  See “What are location quotients (LQs)?,” Bureau of Economic Analysis, Jan. 11, 2008.  The LQ score offers a summary metric reflecting the extent to which an industry’s share of spending in each of the 13 sectors compares to its share of spending in the entire U.S. Industries at “par” are those for which the proportion of economic activity in the metro area are the same as for the U.S. as a whole; sectors above or below “par”” are relatively over- or under-represented.

Figure 4 shows that in Austin, Technology’s contribution to the market is about five times higher than its contribution to the U.S. as a whole. There are 160 Tech companies (revenue floor is $10 million) who are contributing to the local economy. For a firm looking to enter into or grow their work in Austin, the ability to service Technology clients would seem to be essential. For the ambitious firm, Real Estate clients also contribute a disproportionate share of legal spending.


This quick analysis of the Austin market shows how data can help to inform a strategy process. For one thing, we saw that Austin is not alone in growing quickly.  Second, we observed that Technology is the dominant industry, both in terms of overall size and in terms of its distinctiveness. The Tech sector is tantamount to Austin’s “Economic DNA.”

Firms can use information like this to enhance both client development and client service. It gives law firm leaders data that can help the firm target its efforts to grow the business.  And it gives practicing lawyers data that can help them relate to their clients.

What markets are you interested in?  Data like this doesn’t shine when only one market is under investigation. Indeed, the point of these types of analyses is to facilitate meaningful objective comparisons.  In addition to testing our assumptions, a systematic analysis tends to reveal subtleties and insights that are invisible to those relying upon intuition and anecdote.

To cope with increased competition and effectively manage internal debate over the firm’s strategy and allocation of resources, I recommend the following:

  1. Analyze all the markets where your firm currently has an office.
  2. Analyze the top 3-5 markets where your partners are urging a presence.
  3. Among your top competitor firms, analyze the markets where they do business.
  4. Pull back and look for patterns.

At the end of the day, setting strategy with data is about thinking and reasoning, albeit with higher quality facts. Remarkably, we are still in the early days of this transition.