An article at WSJ.com yesterday pointed up a growing source of competition for many law firms: their own clients.

There are probably some of you reading this right now who have already experienced this shift, which started during the recession and now appears to be sticking.  According to an analysis of 300 corporate counsels by BTI Consulting Group, 58% of larger companies are sending more of their legal work to in-house attorneys.

In-house counsel is now increasingly performing the work that junior attorneys at law firms used to cut their teeth on like contracts and real estate deals.  A report by the Association of Corporate Counsel released earlier this year found that 63% of chief legal officers surveyed said they are now keeping work in-house that they used to send out to law firms.

If there is a bright spot in this news, it’s that the more specialized work is still being farmed out and law firms have started migrate to more specialty practice areas where legal expertise is more difficult to duplicate in-house.

Clearly what has happened in the consumer legal services arena with online legal services providers is making headway into the C-suite.  Which makes it even more important than ever for solos and small firms to target and own a niche where you can command a reasonable fee for your services and increase your opportunities for referrals because you are no longer seen as a competitor.

One of the biggest misconceptions is if you market like a specialist and niche your legal practice, your business is going to diminish. The truth is, when you niche your legal practice you can communicate more powerfully to your ideal market than if you say you can help anyone and everyone.

Of course, there may be a few prospects you will no longer reach…but because you are stating a compelling reason why your ideal target should do business with you, the firm will begin to attract your ideal target market more powerfully.

This is exactly what you want. You want to attract the people or companies that are most likely to do business with you initially, repeatedly and at the highest profit margin.