The business of law is changing. Many market elements are moving at the same time. In this article you will find thoughts and comments from some of the top experts from the legal industry, as well as my two cents, on those changes. You will learn about the following:
- How to be on the winning side in the legal service market;
- How leading law firm partners reinvented how they get new clients;
- What is the difference between the legal profession and the business of law – and how to decide which one is the right for you?;
- Who is competing with you for your lunch today (!!), and what can you expect them to do in the future?;
- What is the biggest reason established incumbents fail (and why you should reconsider your law firm business model);
- What is the purpose of legal project management, and do your clients actually need it?
Before reading on, I must warn you: this not a light read. Some points below will likely challenge many of your practices. I write about alternative fee arrangements, law firm business models, project management, and other practices that law firm leaders should consider.
You will read about principles which, if applied, will transform your law firm into an agile business.
I cite thought leaders and include their views of current trends. If you do contact them, please do say that we sent you their way.
I also link to surveys, articles, and further resources that depict the major trends. You will find all the references and links in the “Resources” section, below this article.
Thank you for reading.
How and why did I write this article?
A few weeks ago, I got an interesting challenge. Susanna of HighQ asked if I would like to contribute my thoughts to HighQ’s new ebook: “SmartLaw: Expert insights for the future of law”.
Susanna was collecting views from industry experts on where (and, more importantly, how) the legal industry goes from the present point, in the age of transformation and increased competition, to its ideal destination.
The question was short, complex, and certainly thought-provoking: “What do you believe law firms should do to prepare for the future of legal services?”.
The only twist? I had to answer in just under 300 words. Imagine that challenge. How do you answer such a question?
How do you effectively say, “Hello, legal profession! You must take the following into consideration unless many of you wish to be displaced by ruthless market forces.”?
Where do you begin? What do you focus on? More importantly, how do you fit your response into under 300 words?
Well, by going all philosophical, of course, and by using the power of abstraction.
Normally, there are many actionable pieces of advice from which lawyers and law firms can benefit. These pieces of advice affect different disciplines and practices. LegalTrek Blog regularly publishes insights from top thought-leaders, researchers, and practitioners.
The business of law is extremely complex. This is because:
- law is very complex per se; and
- running a business is a multi-faceted problem.
Finally, on top of all that, we face TECTONIC changes in the legal service industry. Current market forces effectively change how lawyers and law firms practice law FOREVER. Even without such an influence, it would have been hard to cite only one area of improvement for the legal industry.
So, I used the power of abstraction. My goal was to find advice that you would need to implement right at the start of your transformation.
Partners and lawyers must keep learning
Here is what I finally sent Susanna:
“Every lawyer, from a partner to an associate, has to keep learning about everything they do.
Regardless of your experience, the chance you have the best answer at all times drops by a vast margin. And it does so with each passing second, in this ever-changing world.
With your mind open, you will be ready to explore all the factors that will keep your law firm afloat and growing…” – Ivan Rasic
And this is just an excerpt I wrote for “SmartLaw: Expert insights for the future of law”. You can download the whole ebook here. It has great thoughts from top thinkers in the legal industry.
While my answer can be summed up in one word (LEARN), I feel I should say more. Partners, lawyers, law students (and otherwise aspiring lawpreneurs) deserve to hear more about what awaits in the years to come.
We care about people. The legal industry can go and transform itself
Why do I feel as if I should contribute more than one easily digestible, light-hearted piece? Well, let me say that I haven’t a certain clue where the legal industry will go from here (although I have my thoughts). I don’t know how will it end up looking. I am not sure what form it will take. Do you?
What I do know is that, as long as humans exist, the legal industry will involve people. Regardless of the tools they use, people will ultimately be in charge of delivering the service.
And I also know that the “industry” will be fine. It will survive, transformed, but it will go on.
Hence there is no reason to stick with any particular business model, be it the traditional Cravath Partnership (aka the Pyramid), or the NewLaw model (i.e. the Rocket). Use whatever works best, for you and your clients.
There will always be buyers of legal services. Transactions will go on. I am not worried about the industry.
However, we do care about people. I have a deep sympathy for lawyers, my fellow colleagues. Likewise, I feel for their families, and their dreams.
And, more than anything, I feel for law students and recent graduates who are about to start grappling with the cold reality of markets.
I write for all those people who wonder what to do in order to be on the winning side of the transformation.
Now, I don’t claim to be right 100% of the time and , this is not the “ultimate guide” to win big in the legal industry; despite my good intentions, I may have missed some of the tips that can be very useful.
Behold the five principles to navigate through the change:
1. Be flexible and have an open mind
So yes, I have already said that. You must be open and receptive to new concepts. Never stop learning: It will make or break you in the long run. This applies to any industry and situation. I wrote about that a while ago in one of my answers on Quora.
I am not alone in this regard. Lindsay Griffiths, Director of Global Relationship Management for the International Lawyers Network, a contributor in “SmartLaw: Expert insights for the future of law”, wrote:
“If there’s anything that we learned from the economic downturn of 2008, it’s that those firms that are most successful today are those that are flexible and responsive, and able to collaborate with their clients as business partners.
Flexibility translates to being open to market shifts, advances in technology, and adapting your partnership/business model to the needs of clients and the marketplace.” – Lindsay Griffiths
Ron Friedmann, a partner with Fireman & Company and also a contributor to SmartLaw, supports Lindsay’s view. Ron feels it is important that lawyers also become more open to the idea of working in teams:
“I’m a big proponent of dismantling the caste system so that lawyers work effectively with other professionals, both in their own firm and in other organizations.
That will lead to better legal service quality output, by informing legal answers with essential disciplines such as marketing, IT, accounting, consulting, engineering, science, and statistics.”
In a brief follow-up conversation with Ron, he told me that the lawyer habit of splitting the world into “lawyers” and “non-lawyers” diminishes the value of multidisciplinary teams.
“With that split mindset, lawyers often underrate the views of other professionals. Yet legal solutions often depend on inputs from business experts, economists, scientists, and many other professionals. Lawyers should be as open to their contributions as they are to that of other lawyers.” – Ron Friedmann
But how to leverage this? What do you do, as an open-minded law firm partner who wants to take their legal service business to the moon?
There is no limit to what you can achieve with your law firm business. However, you are limited in terms of the resources and you will have to prioritise.
Imagine you have identified an area to improve. For example, obtaining new clients. If you refer to the blogosphere, you will find advice like “build your website, develop your niche, meet people, pay it forward to your community” etc.
Now, while all that is true, nothing on that list seems revolutionary. I feel you should still step it up a bit further.
His guest presenter, Brett Sullivan, a partner at Lucent Law, explained how Lucent essentially turned their website into an e-commerce platform where clients can easily add-to-cart-and-checkout many standardized legal services.
Yes, they built their very own LegalZoom.
How did they do that? Well, while you can get more details in Brett’s presentation, here are a few rough ideas of the steps needed:
- Recognize and separate standardized work from non-standard (i.e. bespoke) work;
- Identify the standardized services that can largely be delivered without a human touch (e.g. standard forms);
- Turn those services into self-service products;
- Step 3 includes identifying on-boarding process : define how your clients actually get the proper form (e.g. filling it out online);
- Set a price for each self-service product;
- Define the buying process, and implement the e-commerce solution to help facilitate the sale.
And while I have simplified the process, these steps are pretty much in the ballpark. However, it is more important for you to understand WHY you should decide to do the same. In other words, how would this help your law firm get more clients?
Wouldn’t this mean you merely hung some forms online and denied yourself some sweet billable hours?
Well, yes, would be the short answer. But, allow me to explain the benefits. True, Lucent Law did forgo hourly rates for low level standardized work.
However, by hanging the forms online as e-commerce, they created a scalable and self-serving system which yields revenue with a small (if any) human touch. They can earn money while asleep.
However, they did not stop there. Their e-commerce, while generating revenue, is far from their end goal. They also use it to generate leads for their main business.
Yes, in spite of a highly standardized and automatic legal service system, Lucent Law still employs lawyers, and, guess what, they still render services.
Basically once Lucent Law sees purchase orders for their legal products, they have (at least) a basic idea of the purchaser’s needs and/or legal issues.
That allows them to follow up (by email and/or a call) to identify any other legal needs that their team of lawyers can address.
Now, tell me please, isn’t that a great low-cost form of client acquisition?
Lucent Law turned their website into a sales machine AND a lead generation machine. It generates revenue. It gives them great intelligence about their website visitors and purchasers and helps them serve their clients better.
A truly open mind. Well played, Lucent Law.
2. Choose: legal profession, or the business of law?
Many practicing lawyers consider legal service delivery to be a profession. Those who do, frequently use that to justify their resistance to change. Other, more agile and entrepreneurial lawyers, consider serving clients to be their business.
But what is the difference between those views? Quite a lot, as I will illustrate.
Since many lawyers like to describe their services as “bespoke”, I am going to use the analogy of a tailor (a professional) and an apparel company (a business). What is the difference between a tailor and an apparel company?
|Tailor (professional)||Apparel Company (business)|
I hope this breakdown helps you determine which category fits you better.
And there is nothing wrong in either. Some people feel more comfortable when left alone to practice their craft. Others want to build real businesses.
The reality may be more both/and than either/or. Even a bespoke tailor runs a business and the apparel company seeks to have its products appreciated for their quality.
All you want to be is a professional? Then accept that you may not grow by much. Innovation may not be important to you, neither for your niche. Maybe you can live cosily like that. This is completely fine.
If, on the other hand, your goal is to really boost your business, stay afloat, and thrive, you WILL have to accept all the principles of good business (see the table above).
In the open-minded world of innovation, professional businesses must be both/and in order to maximize quality and improve financial performance.
If you want to be a business(wo)man, you cannot act as a mere tailor.
Forget about the whole “bespoke” narrative. Accept that you will have to drop the traditional billable hour business model and turn to value-based pricing, even for hourly based legal projects. Learn to discover the problems of your market niche. Then build systems to solve them.
Don’t wait for clients to tell you what they want. Find out what it is and give it to them before they even ask.
So, let me recap. The whole “profession vs business” dichotomy influences the following:
- How you approach and find new work and clients;
- How you organize your team and processes;
- What you sell (services or products);
- What fee arrangements you use (e.g. billable hours vs alternative fee arrangements);
- How you innovate (if at all);
- How you grow (if at all).
There is nothing wrong in either. It is a matter of choice. Each has its positives and negatives. Combining the best of both may be the path to success in the future of law.
What is alarming, though, is that many law firm partners merely want to be left alone. According to the Altman Weil 2016 survey report:
“In a third of law firms, leaders believe their partners – if forced to choose – would sacrifice some compensation to protect their current level of autonomy.
In other words, law firm partners would actually pay money to be left alone.
Partners in smaller firms (below 250 people) are considered to be much more protective of their individual autonomy.”
This is clearly a problem. If you aspire to be a leader, you must walk the walk. That means talking with clients, building systems, changing internal structure, changing compensation and fee arrangement plans, and innovating.
But, when law firms are asked why many do not do more of what I just mentioned above, the answers were:
It is alarming to have that many partners opposing change. However, answer two is equally concerning. Client’s aren’t asking for it? So law firm partners feel it is a CLIENT’S JOB to spell out to them how they should conduct THEIR OWN business?
No business operates like that. A tailor may, but not a successful business.
One attendee argued that it is actually clients who hinder innovation, given that clients ask and get what they pay for. John’s answer was simply brilliant:
“Any business would be silly not to be aware of what their customers want. But not all customers know what they want (before getting it).
Why should we leave it to clients to seek (or not) innovation from law firms? They have their own businesses to run, their own innovations to worry about.
I never asked Steve Jobs to design an iPad, I had no idea what those were at the time when Apple put them on the market. Yet, they were so innovative that millions could not resist them.
It is not fair to say that clients slow down innovation, by not asking for it.” – John Chisholm
Steve Jobs also said: “It is not a client’s’ job to know what they need.” Have that in mind especially if you aim to build your law firm as a business.
And while I support John ‘s view, sometimes clients do manage to influence their law firms.
Recently, GlaxoSmithKline, the global pharmaceutical firm publicized its progress in abolishing the traditional billable hour in its dealings with outside law firms.
From 3% of alternative fee arrangements in 2008 to 84% in 2015, GSK like other large clients are taking charge of their own legal spend by insisting on outside law firm compliance with alternatives to “we’ll tell you how much it costs when it’s over” approaches to legal service pricing.
However, I feel this approach should be more of an exception than a rule. Law firm leaders must retain and carry their responsibility for their own business. Steve Jobs also said: “It is not a client’s’ job to know what they need.”
3. Be aware of the fierce competition and act
Who do you compete with? Who is working relentlessly every day to take your market share? Did you ever stop to think about it?
While obsessing about competitors is unhealthy, you must understand your competitive landscape.
But the question seems easy, right? To answer, all you need do is analyze your local law firm listing publication, filter by niche area, and compile a list relevant for your locale or region.
Well, that is only a start. Law firms that you identified by using the said approach are DIRECT competitors. However, this list does not answer your question fully.
So rather than asking “Which other law firms do what I do?”, ask “What alternatives (other than my law firm) can satisfy my client’s needs?”.
Altman Weil might have an answer. They recently published their 2016 report “Law Firms in Transition”. Eric Seeger and Thomas Clay, the authors, surveyed Managing Partners and Leaders of over 800 law firms with over 50 members of staff.
Thomas and Eric asked what OTHER competitors to law firms are there, and got very interesting results:
Only ten years ago (as of the date of publishing this article) legal industry was oblivious to alternative service providers. Granted, there were some notable exceptions. However, by and large, almost no one was concerned by non-law-firm players in the legal service market.
Forward to 2013, and the trend becomes more solid. So much so that Eric Chin, strategist to professional services firms at Beaton Capital, coined “NewLaw” – the new term that will differentiate those novel legal service providers that use a much different business model than traditional firms. Still, not many were concerned by the new players in town.
Fast forward to 2016, and NewLaw legal service providers are spreading like a bonfire. In his recent article “The NewLaw Tipping Point” Eric wrote:
“From humble beginnings as peripheral players in a knowledge-intensive and relationship-driven industry, NewLaw firms are now viable competitors to the traditional establishment.
As recently as the early 2000s, when an organisation had a legal need, it essentially had two choices, firstly to turn to its in-house legal department, and, if needed, an external law firm was appointed.
Today, that same organisation would be faced with a myriad of options to service its legal needs.” – Eric Chin
Eric ’s findings are confirmed by the Altman Weil survey respondents too, as illustrated below:
See that? “Non-law firm providers” and “Client use of technology reducing the need for lawyers”. THOSE TWO categories represent the very definition of NewLaw.
“…I was inclined to encompass not just law firm models, but also new legal talent combinations, legal service managers, and technology that both changes how lawyers practice and places the power of legal service provision in clients’ hands.
So I use “NewLaw” to describe any model, process, or tool that represents a significantly different approach to the creation or provision of legal services than what the legal profession traditionally has employed.” – Jordan Furlong
This NewLaw paradigm is exactly what the American Bar Association’s Futures Commission identified as the evolving landscape of legal services of which lawyers must be aware.
Also, let us not forget the Big Four accounting firms, who are now pushing hard to enter the legal market. According to Georgetown’s Report on the State of the Legal Market:
“…EY Law, Ernst & Young‘s legal arm hired over 250 lawyers in 2013, increasing its total lawyer headcount almost 30% to 1,100. Also in 2013, it launched legal services in 29 countries. The firm’s head of global legal services, Cornelius Grossman, said: “We want to at least double or triple in size by 2020.”
Also, other major accounting firms are pursuing similar strategies. In February 2015, PriceWaterhouseCoopers obtained an “alternative business structure” (“ABS”) license in the U.K., permitting its PwC Legal unit to offer legal services in that country.
Deloitte and KPMG have expanded their legal service offerings by hiring additional lawyers in the U.K., Germany, and Asia.”
Seems as if respondents are just now becoming aware they are losing business to NewLaw and Big Four competitors. On the other hand, law firm partners are far more aware of another, more imminent threat: in-house legal departments.
Their own clients? Isn’t that a bit ironic?
A staggering 70% of respondents are aware they are losing business – to their clients!
So, what conclusion can you draw? My reading of the survey results is : “You will either set your law firm processes right, or you will not do any of my work at all.”.
Now, that is fascinating. Sometimes lawyers like to believe their services are somehow special or unique. “You do not understand my work. It cannot be standardized,” but from the business perspective things may look a bit different.
“(Lawyers) need to start thinking how they can build systems. Good lawyers are not scarce. They’re necessary but they’re not scarce.
What is scarce are good systems for delivering legal services. Systems are much more predictable than people.
So start thinking that way when it comes to pricing, project management, and practice innovation. These three “P”s are the essence of the “P3” initiative started by Toby Brown.
Pricing, Project management, and Practice management are big part of of what we need to innovate around, and that’s true whether or not the billable hour goes away. However, it will certainly put law firms in a much better position if the billable hour goes away.” – D. Casey Flaherty
According to Casey, even if there was no competitive threat in the form of NewLaw, there are good lawyers around. That forces the competition level up. Altman Weil‘s survey clearly lists over-capacity and a surplus of lawyers as major challenges.
Furthermore, law firms don’t keep their lawyers sufficiently busy. Over 50% of survey respondents felt their equity partners are not getting enough legal work. Among non-equity partners, it was even worse – 62% of respondents reported their non-equity partners are being underutilized.
So what should law firm partners do?
Jordan Furlong offers sound advice in the ebook “SmartLaw: Expert insights for the future of law”:
“Move your feet. The legal market right now is a kaleidoscope of motion – countless elements, moving at varying speeds, in multiple directions, on different planes.
If your firm is stationary, it’s going to get hit, repeatedly, from several unexpected directions, all at once.” – Jordan Furlong
Being on the move keeps us alert. Observe, learn, deploy, try, and try again.
4. Reconsider your law firm’s business model
Namely, they invested in RnD, they purchased state-of-art technology, they even leveraged internet photo-sharing start-ups as their lead funnel.
The only thing Kodak did not do? They did not change their business model. They decided to stick with printed photographs: they believed people would ALWAYS want to make printouts.
Let me repeat. Kodak helped create digital cameras and photos, but, in the age of digital photography, Kodak was still expecting people to print photos. They have bet their farm on that card.
That bet cost Kodak dearly.
Does this story sound crazy? Of course, hindsight is always 20/20. But how many of you feel it is strange that in the age of internet, web-based applications, cloud computing, legal project management, electronic files, law firms still charge by the hour?
The bottom line from Kodak’s example? You can RnD all you want, and use expensive tech, if, however you do not pay attention to your clients’ needs and desires, ultimately, you will fail.
Innovation is not about technology. Technology cannot be a purpose, an end in its own right. Technology is a solution, facilitating your business model. It empowers you to do more, faster, and better – of what you already do.
Casey Flaherty made a resonating point during our webinar “Is the Billable Hour Slowing Down Innovation?”:
“I, as a huge proponent of technology, am very skeptical when people refer to introducing new technology as an innovation.
It is one thing to purchase technology, it is another thing to use it, and it is yet another to use it well.
I spent a lot of my time focusing on technology we already have and how poorly we use it. We tend to fall into the exact same patterns – no matter what the technology can do we use it the way we do and have done things before.
And innovation is about doing things differently. Innovation is a discipline. Technology can support a process improvement. But technology can not substitute what you need to do in order to be innovative.” – D. Casey Flaherty
George Beaton, a partner of Beaton Capital, is also supportive of this view. Law firms simply need to change their business model and remake their practices. In his book “Remaking Law Firms: Why and How” George says:
“The business model of the traditional law firm, i.e. how the firm serves clients and makes money, is starting to reach its use-by date.
Remaking a traditional law firm means designing its business model to move towards the more client-centric, more efficient, and more agile hallmarks of NewLaw.” – George Beaton
So if all you do is billing by the hour, well, technology will assist you there. Will that be what your clients ultimately want?
5. Legal project management & tech for your agile law firm
Wow, you made it to here. Pat yourself on the back – you deserve it. If you passed through the whole mental exercise, from opening your perspective, to thinking about your business choices, learning about the competition, and alternatives to your business model, you have already done a lot.
I hope this piqued your interest and sparked you to think more about what you can do, and where you can be, with your law firm in the future. Consider also the following – if you are going to be suiting up for the future of law, legal project management is a must-do practice.
It may sound like a complex subject, but it merely represents a discipline that makes sure your clients get their services on time, in line with the agreed budget. Quality of service is a given, of course.
However, sometimes law firms and partners object to legal project management [LPM] simply because their “clients never asked for it”. And their argument may be very true, but clients are asking for the results that Legal Project Management delivers, e.g., greater fee predictability, more value for time spent on matters, increased efficiency, more transparency into how matters are handled.
While clients literally may not be asking for LPM, that does not make it a valid point in this discussion. In fact, many firms admit that requests for proposals from corporate clients uniformly inquire about the firms’ LPM and PI protocols.
You already read above John Chisholm ’s reference on Apple and Steve Jobs. It is not a client’s job to know what they want. It is your job, as a leader running a business, to deliver what your clients need.
Legal Project Management is essentially about understanding a client’s needs and priorities, which includes their appetite for risk.
For example, if you have a boutique commercial law firm serving corporate clients, you probably noted your clients are not comfortable with risky and confusing situations. They trust you with their problems, and your responsibility is to provide a solution.
However, the outcome is not the only value for your clients. The experience your clients have under your guidance is equally important. In mature markets, such as the business of law, competitors are differentiated by customers’ experience of their service.
Now, with that question out of the way, you will need to think about some of your work processes. You can start small. Do not spend too much time thinking about how to reinvent every aspect of your law firm practice. Start small, get a few early wins, and remain pumped-up for future challenges.
Kenneth Grady, Seyfarth Shaw LLP Lean Law evangelist, says law firms would be wise to prioritize their efforts, and find a segment which they will truly excel. “To be really good, you must be really bad”, he says, and illustrates it with an example:
“There are some firms that do provide comprehensive legal services. Not surprisingly, they tend to be the most expensive firms. Their clients have decided to use these firms when comprehensiveness matters and to pay for that service level.
These firms are the worst when it comes to price level, because they charge the most.
They are really bad when it comes to cost and that is okay. Their clients are not price sensitive and so the firms don’t have to charge a low amount and provide comprehensive legal work.” – Kenneth Grady
Do not try to be everything to all clients. You should excel in certain areas. And excellence requires focus and relentless devotion to that one certain area. It is OK to be bad at other areas, as long as you are strategic about it.
Finally, remember one important ingredient. Yes, legal technology solutions that will support your processes. And we happen to have one.
You know what we also have? A team of specialists that will talk with you and learn about the challenges that you hope to solve.
Drop us a line, and we will be happy to listen, get to know you, and, of course, help you.
May the market force be with you!
Altman Weil 2016 Report: “Law Firms in Transition”
Georgetown Law 2015 Report on the State of Legal Market
The NewLaw Tipping Point
[Webinar] Packaging Legal Services as Products
[Webinar] Is the Billable Hour Slowing Down Innovation
Incomplete inventory of NewLaw
What is NewLaw and how It Is Changing Legal Industry Forever
From Pyramid to Rocket: How Legal Technology will change the Business of Law
Can Law Firms Escape Their Own Kodak Moment
Remaking Law Firms: Why and How
Straight from the Horse’s Mouth: – GC’s Say What They Want From Outside Firms
To Be Good You Must Be Very Bad