Squeezed middle? Time to push back

Conventional wisdom says that to succeed, firms need to be either behemoth or boutique. But the success of some middle-ranking firms in law, asset management and elsewhere is beginning to suggest otherwise. So AML Strategy Director Christian Barnes asks, how can the ‘squeezed middle’ push back?

The odd spare tyre or two, particularly at this time of year, needn’t be anything to be ashamed of. But if your business lies somewhere between sumo and svelte, chances are you’ve thought about adding or losing some weight in the interests of long-term health. Commercial challenges aside though, those in the so-called ‘squeezed middle’ could join others that have beaten the ‘barbell’ by being themselves more, and trying less to be all things to all.

Undeniably, big scale distribution, R&D, marketing budgets, talent attraction & development, awareness and sheer critical mass can help survival and success in any sector. And regulation or deregulation, fee and margin pressure, changing audience behaviour, political change and the digital transformation of operations and customer interfaces can all be met by the specialist focus and agility of the smaller firm, too. If you lie somewhere between these ends of the barbell, do you risk facing all those challenges with neither the scale nor niche expertise to address them?

Whilst there is some truth in it, this is a crude analysis. Major players are rarely unskilled rampaging elephants, any more than all boutiques lack clout. Arguably it is more fundamentally flawed than that, though.

Thomson Reuters, in a 2018 report with Georgetown University,1 lamented the apparent denial of the winds of change blowing through the legal profession. The report noted how disruptive forces are allowing alternative providers (such as the ‘Big Four’ accountancy firms) to step across, where barriers to entry once deterred. In identifying where those threats will be most keenly felt, independent consultant Mark Lee2  observes that, “Those mid-tier firms…will face increased pressure from the egg-timer squeeze of both the largest firms and of the smaller, more focused… firms.” In the Thomson Reuters/Georgetown University report1, legal strategy consultant Richard Tromans also identified the ‘mid-tier’ firms as being the most exposed.  But he then concluded that, “The well-known economic argument of ‘get big, get niche or get out’ is partially true, but it’s more complicated than that. This isn’t necessarily about…size.”

The recent regulatory spotlight on Audit and Tax practice, as well as M&A trends in Asset Management, suggest a similar story of disruption and structural change in financial services and accountancy. And whilst it seems that everyone is beginning to eat everyone else’s lunch, the ‘barbell’ theory is under fire here, too. As Mackay Williams’ FB50 2018 study3 states, “midsized providers that differentiate themselves between the extremes of ‘expert specialist’ and ‘too big to fail’ bulge bracket firms have risen strongly up the rankings…”

The significant word here is obviously “differentiate”. We can attempt to differentiate functionally by how our firm meets those commercial challenges. But we’ll find many fellow travellers on the same track. Functional differentiation is usually short-lived.

Law firm consultant Mark Lee again: “I address the individuals in the firms, as ultimately it is them, their reputations and their expertise that clients…buy” and FB50 20174, “…the data suggest a shift in favour of groups with a brand personality.” So, differentiation based not on functional aspects but on more human attributes. And we shouldn’t be too surprised. Whether wearing our work or weekend hat, we humans use our more animal, ‘limbic’ brains first and our sophisticated ‘sapiens’ neo-cortex second. We need to instinctively like all of our experiences, before we can rationalise a decision to choose their provider. The IPA5 found that, averaged across over 1,000 communications campaigns, (trade and consumer, all sectors), emotional won out over rational >2-1. And Mackay WIlliams’ data6 also show that a fund selector’s perception of which provider they ‘most use’ and the one they ‘most prefer’ are strongly correlated.

Can we really differentiate by image, personality, character? In recent years, many have latched onto the work of Simon Sinek7, who champions the power of why firms do what they do over what they offer, for just these reasons. Indeed, ‘purpose’ has become the buzzword of the boardroom in many sectors and perhaps most recently in financial services. In his January 2018 letter to CEOs, BlackRock co-founder Larry Fink8 set Davos delegates a-chattering when he extolled the necessity for all firms to promote their ‘social purpose’ alongside commercial credentials.

But what if firms have the same ‘purpose’? As the world demands more responsible behaviour as the norm, asset managers and corporates alike are falling over themselves to promote their Sustainability and ESG credentials. So keen have some been that a failure to look closely in the mirror first has generated commentary contrary to the anticipated. ‘Purpose’ has become a difficult and crowded space in which to ply the case for differentiation – especially for sectors that have long found themselves at the bottom of Edelman’s global consumer Trust Barometer rankings9.

Again, this shouldn’t surprise us. Trying to be someone or something you’re not rarely fools many for long. Your purpose, indeed all of your behaviour traits, are but aspects of who you are – but who you are is genuinely unique.

So if your firm seems adrift between the extremes, rushing to put on the pounds or slim down a few sizes may not be the best response. Perhaps focus less on the what or why or how – and more on who. Take comfort from those so-called squeezed middle asset managers, law firms, accountants and others that have pushed back and differentiated themselves successfully. Simply by being themselves.


By AML Strategy Director Christian Barnes.



12018 Report on the State of the Legal Market – Georgetown University Law Center and Thomson Reuters Legal Executive Institute.

2 2017 Mark Lee – bookmarklee.co.uk

3 ©️Mackay Williams, FB50 2018

4 ©️Mackay Williams, FB50 2017

5 IPA 2017 ‘The Long And The Short Of It’ Figure 55

©️Mackay Williams 2017

7 Simon Sinek 2014, ‘Start With Why’ TED talk

8 FT, 16th January 2018

9 Edelman Trust Barometer Global report 2019 (5 yr trend 2015-19)