Development

& Growth of SME’s

A2. Attorneys.
How to grow on a Russian legal market.

Business report.



















Moscow, EMBA 2016-2017

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Table of contents

Executive summary 3

Introduction 4

The case study 4

Barriers to growth 5

Growth strategy 6

Conclusions and recommendations 8

References 11

Annexes 12

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Executive summary
The business report investigates the growth of a small law office in a Moscow region over the
past three years. Started as a spin-off from another firm the A2 primarily focused on making
internal processes more efficient which resulted in two-digit growth figures for 2016 and 2017.
In the mid of 2017 the firm has switched to an extensive growth strategy with a focus on hiring
of new partners. While external barriers do not seem to be critical internally high portion of
support staff may influence profitability. Also the growth may be hindered in case of
disagreement between the key stakeholders – partners of the firm. The A2 should continue its
search for the promising new partners but also take into consideration further development of
an existing client base and keep an eye on legal technology innovations.

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Introduction
The purpose of this business report is to evaluate how A2.Attorneys was growing over the last
three years, reflex on a chosen growth strategy and provide practical recommendations to shape
future development of the firm. Based on the analysis of internal and external environment for
A2.Attorneys growth barriers has been identified and some measures were proposed to
overcome those obstacles for further business expansion.

The case study
A2 is a small attorney’s office based in Moscow, Russia. It has been created by 3 partners in April
2015 after a spin-off from another law firm.
Initially a team consisted of 2 founding partners in Moscow office who has long record of working
together since 2002 and one partner leading an office in Saint-Petersburg, Russia with two
lawyers employed there. So totally after a spin-off the firm had 2 partners and 3 lawyers in
Moscow and 1 partner and two lawyers in St. Petersburg.
As mentioned the partners have been in this business since 2002 so A2 had an existing client base
and proven business model. Therefore, it can be hardly called a start-up business. Despite that
fact from the very begging the idea was not to “just continue doing what we’ve done before” but
to grow faster than the market.
By the end of October 2015 within 7 months from the lunch of a project the break-even point
was reached. From that point there was no need for further investments from the founders.
Despite the fact that 1st year was completed with a significant loss a revenue has grown year-to-
year almost twice in 2016 and another 25% in 2017 (see Annex 1 for financials).
In 2016 a hard decision to close down the office in Saint Petersburg has been taken as it was not
profitable enough. By November 2016 the firm had only one office in Moscow with two founding
partners, 5 lawyers and 5 non-professional staff employed. At about the same time a strategic
initiative to bring more partners to the A2.Attorneys was formulated with a core idea to have a
growth rate above market average. In April 2017 the firm had to move to new premises which
required some additional expenses.
In October 2017 a promotion of a head of litigation to a partner’s position was announced. So by
the beginning of 2018 a firm had three partners, 3 lawyers and 4 support staff as employees.
Effectiveness of a law firms is usually measured by two parameters: revenue per lawyer and
profit per partner. As can be seen from figures in Annex 2 the 2,5 years passed since the lunch of
the business resulted not only in growth of a revenue but in an enhanced efficiency too.
A2.Attorneys is stepping in 2018 in a good shape. But the main challenge for the firm will be to
secure the once reached growth pace and continue to increase its performance.

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Internal and external barriers to growth
To understand what can actually hinder the future growth an analysis of internal and external
environment for A2 is necessary.
Though A2 is still a small firm internally different groups of influencers can be identified with
each of them requiring a different approach.
Internal stakeholder mapping can be found in the Annex 3. Obviously, the most important group
is law firm’s partners. Lawyers in general tend to be conformists and any development requires
change. A voice of each partner has significant importance and weight, especially in a small law
firm. Therefore, any changes can be done only once the consensus is reached. And this may
require quite a time.
Another thing is limited resources of the A2.Attorneys. Where a larger competitor can go for a
lateral hire of prospective partners bringing their own client base along the small law firm cannot
offer large compensations “here and now” in return for future benefits.
A proportion of professional staff should be noted too. At present the A2.Attorneys has four non-
professional employees: accountant, PR-manager, office assistant and a courier. As mentioned
above those for support 3 lawyers and 3 partners at present. This is obviously a large portion –
40% – of all employees and this influences the profitability.
There is one more internal trait of small law firm. The legal profession is very much a personal
case. And when the firm is small its therefore quite “fragile” in terms of possible mistakes – hiring
a partner who does not share the values of the A2 may result in a conflict severely damaging the
overall performance.

Before looking at external barriers it is useful to make some analysis of the existing market of
legal services in Russia. Unfortunately, statistics are quite limited. Recent researches (IRL, 2016)
states that there are about 100 000 law firms and solo practitioners in Russia. A concept of
regulation of legal services in Russia (Fparf.ru, 2017) provides nearly the same numbers – 55 376
companies registered which has identified legal services as their main source of income plus 27
206 solo practitioners registered and 73 127 licensed attorneys-at-law1. A concept also gives the
figures of an overall market based on the information from Russian state statistics service – 96,5
bln. RUR (1,38 bln. EUR approx.) for 2016 (please refer to Annex 4 for the market dynamics). Only
around 200 law firms of all are actually visible as they apply for a national ranking PRAVO-300
(PRAVO.ru, 2017).
From the first glance it may seem that there is almost no external growth limits as A2.Attorneys
have currently only around 0,003% (30 mln. RUR) of the market. But closer analysis will bring
different results.

1
At presence all legal services besides criminal defense can be provided without any admittance
to the bar. Therefore, an attorney’s status is not required for legal consultancy.
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Most of the A2 clients are based in Moscow and Moscow region. Even though the geography of
projects is in fact wider all this projects are initiated in Moscow which is one of the biggest mega-
cities economies in the world (Moscow Investment Portal, 2018).
A2 mostly works with SME's defining its clients as real sector businesses (construction,
production, wholesale and etc.) with revenue from 300 mln. to 15 bln. RUR and owners of those
businesses.
Russian legal environment is quite complex so in fact businesses do need lawyers.
So the good side of the picture can be summarized as:
• Even at present A2 is among 300 most visible law firms in Russia;
• The market is large enough for future growth;
• Russian environment “demands” lawyers as legal landscape continue to be
complicated for the business.
But there are number of things which influences the market badly. First of all, this is a complete
de-regulation of legal profession. At present anyone can practice without passing a bar exam or
even with no law degree at all. The situation will be changed in the future but current plan of
reform implies that profession will become fully regulated in 2023 only (Fparf.ru, 2017).
The second important thing is trust. According to different researches (Ortiz-Ospina and Roser,
2017) a level of trust in Russia is very low comparing to EU countries. And a trust between the
client and his lawyer is the most important part of the profession.
The third thing is relatively low salaries of lawyers. A professional lawyer can be hired for around
150 000 RUR (around 26 000 EUR per year) and Head of legal will cost around 60 000 EUR per
year or so (Hellevig and Lazareva, 2016), (Payscale.com, 2018), (Prokofiev, 2017).
Those three drivers mentioned creates a unique situation when businesses tend to hire an in-
house lawyer rather than seek professional consultancy. There are three reasons for that: a
perception of trust as the lawyer is controlled employee and not an independent agent; even a
representation in courts can be done by in-house professionals with no bar exam; and – yes – it's
fairly cheap to have an in-house lawyer.
So the main “competition” for the A2.Attorneys is probably not with its fellow professionals but
with an option to have an in-house specialist. And this can be probably seen as a main external
barrier.
However the concept of market regulation is currently underway and the overall balance of
external factors in the dynamics look pretty well for the potential growth of A2.Attorneys.

Growth strategy
As was described above (please refer to section “Case study”) the firm has been started in 2015
as a spin-off. Hence some inefficiencies were simply inherited as almost ½ of the team of the
previous law firm has left. So the first growth stage which lasted till the end of 2016 can be
identified as driven by internal factors through increase of efficiency of work. The last internal

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resource which has actually been deployed in 2017 was promoting the best lawyer of a firm to a
position of the partner.
At present the “low hanging fruits” for internal growth seems to be utilized. This doesn’t mean
that further growth is not possible at all but it would be hard to reach the growth rates of 2016
and 2017 counting only on improvement of processes within the firm.
Therefore, A2.Attorneys need to switch to an external growth strategy. Despite the fact that the
legal support for business is a fairly new – comparing to the world experience - as it has emerged
Russia in the end 1980’s – beginning of 1990’s, it is definitely and existing and established market.
And though there are lots of debate now for digitalization of a legal profession so far legal
services can still be treated as an existing product.
So on an Ansoff growth matrix (please refer to Picture 1 below) A2 will be positioned in the upper
left quadrant.

Picture 1.

The market penetration strategy for A2 can be different however. The firm can grow organically
by acquiring more clients and better projects or the firm may opt for expansive growth.
At present the A2 has chosen the second option because it’s obviously faster to become a bigger
law firm by acquiring new partners or even small law firms.

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In this field lies a very important strategic choice: whether the A2.Attorneys should try to acquire
new partners or acquire the firms or maybe pursue both ways.
It is quite obvious that the choice between acquiring new partners or new firms can be described
in the terms of risk/return. Picture 2 below provides for some key differences in those
approaches.

Picture 2. Key differences between acquisition strategies for A2.

At present the A2 partners has decided to focus on acquisition of the new partners and started
to work towards it in mid of 2017. Headhunting firm specializing in legal recruitment has been
hired and interviews with 5 potential candidates has been carried out in the past months.

Conclusions & recommendations
The A2.Attorneys growth seems promising though not without its pitfalls. The figures look quite
impressive but this is a growth from a low base. And the key challenge would be to keep the two-
digit growth rates for the future.
All internal resources seem to be depleted at least is terms of the “low hanging fruits”. Moreover,
the decision to close down the Saint Petersburg office can be seen as controversial especially
taking into consideration that this left the firm with quite unhealthy proportion between support
staff and fee earners.

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It should be noted that at present the firm is very much dependent on three partners and this
may influence its further development especially if it would be hard to reach the consensus.
The good thing is that the market regulation reform is underway and this would definitely boost
the demand for professional law firm’s services. Also the market of Moscow and Moscow region
seems to be big enough to promote the firm’s growth. So the A2 should not focus on hires of
new partners only but also pay attention to the development of an existing client base.
At present the A2 seems to be too small to take over any other law firm. This doesn’t mean that
those ambitions should be completely abandoned but it is better to primarily focus on acquisition
of new partners rather that search for M&A opportunities.
Another thing to add is that the A2 should not overlook opportunities brought by the LegalTech
to the profession (Sobowale, 2016). This may well help to discover additional internal resources
for making the work more efficient.
So the list of recommendations for the A2.Attorneys may include the following initiatives:
Initiative Description Practical steps Ease of
implementation
Continue Don’t focus on external Add more efforts to Initially can be done
development growth only. The overall client development. with own resources but
of existing market looks big enough Maybe consider some trainings and CRM may
clients to provide for rapid special trainings for require additional
growth especially bearing partners or introduce funding
in mind the regulation some kind of CRM
reform system within the firm
Investigate There are quite a number Search for the possible May require some
the LegalTech of projects aiming for a solutions which already investments to
opportunities digital transformation of exists in the Russian implement but mostly
law. This may well bring market and would not can consume time of
additional competitive require massive the partners and
advantage as A2 is a small investments lawyers for actually
firm and adoption of adopting the
technologies may be technology
easier and quicker
Lateral hire of Focus more on hiring of Continue working with The initiative has
the partners partners than on seeking the external recruiters already been launched
to the firm of a merger or acquisition but also try to search within the firm but
opportunity – A2 may still through own partners should be
be too small for that professional contacts ready to spend more of
network to bring new their time to find the
partners on board perfect candidate

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 Merging or Should remain as an The A2 should be open The initial “passive
acquiring option but without to alliances and discuss search” is obviously not
some other specific focus on it the opportunities if costly but the merger
legal marker discovered but should process may well be. So
player not be active in the if the A2 would really
M&A pursuit be considering and
option certain financial
reserves should be
allocated

Summarizing, the A2 should continue their efforts to hire new partners if the two-digit growth is
to remain but development of existing clients and making internal processes more efficient is not
be abandoned.

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References

1. Ansoff, H., Mcdonnell, E. and Harvey Jones, J. (1988). Corporate strategy.
Harmondsworth: Penguin Books.
2. Burns, P. (2011). Entrepreneurship and small business. Basingstoke: Palgrave Macmillan.
3. Fparf.ru. (2017). Project of regulation of a legal profession in Russia. [online] Available
at: http://fparf.ru/documents/proekty/44274/ [Accessed 9 Mar. 2018].
4. Institute for the Rule of Law (IRL) at the European University at Saint-Petersburg
(2016). Russian Legal Market: statistics. [online] Saint-Petersburg: Institute for the Rule
of Law (IRL) at the European University at Saint-Petersburg. Available at:
http://www.enforce.spb.ru/images/lawfirms_report_e_version.pdf [Accessed 09 Mar.
2017].
5. Mendelow, A. (1991). Proposed model on stake- holder ranking. Paper presented at the
Second International Conference on Information Systems, Cambridge, MA.
6. Moscow Investment Portal. (2018). The level and pace of economic development -
Moscow .... [online] Available at: https://en.investmoscow.ru/investment/economic-
indicators/investment-in-moscow-is-profitable/the-level-and-place-of-economic-
development/ [Accessed 9 Mar. 2018].
7. Ortiz-Ospina, E. and Roser, M. (2017). Trust. [online] Our World in Data. Available at:
https://ourworldindata.org/trust [Accessed 9 Mar. 2018].
8. Hellevig, H. and Lazareva, E. (2016). SALARY SURVEY MOSCOW 2015. [online]
https://www.awaragroup.com/. Available at:
https://www.awaragroup.com/upload/pdf/surveys/moscow-salaries-post-sanctions-
and-ruble-devaluation.pdf [Accessed 9 Mar. 2018].
9. Payscale.com. (2018). Corporate Lawyer Salary in Moscow, Moskva (Moscow) (Russia).
[online] Available at:
https://www.payscale.com/research/RU/Job=Corporate_Lawyer/Salary/a631e48c/Mos
cow [Accessed 9 Mar. 2018].
10. PRAVO.Ru. (2017). Russian national law firm ranking PRAVO-300 for 2017. [online]
Available at: https://300.pravo.ru/rating/filter/?city_id=&branch_id= [Accessed 9 Mar.
2018].
11. Prokofiev, D. (2017). Lawyer's salaries in 2017. [online] Nortoncaine.com. Available at:
http://www.nortoncaine.com/resources/files/salary_review_2017.pdf [Accessed 9 Mar.
2018].
12. Sobowale, J. (2016). How artificial intelligence is transforming the legal .... [online]
http://www.abajournal.com/. Available at:
http://www.abajournal.com/magazine/article/how_artificial_intelligence_is_transformi
ng_the_legal_profession [Accessed 9 Mar. 2018].

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 Annex 1.






























12
 Annex 2.






























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 Annex 3.






























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 Annex 4.






























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