I’m very happy to announce I’ll be delivering a keynote address to the annual conference of the Barreau du Québec in Gatineau, QC, on June 2, 2011. More details to come as the event approaches.
From the incumbent’s point of view, the only thing worse than a revolution that topples you is one that renders you irrelevant. You can mount a comeback from exile; you can’t mount a comeback from Nobody Cares. Law firms, pay close attention.
We’re now less than six months away from the implementation of the Alternative Business Structures (ABS) provisions of England & Wales’ Legal Services Act. This event has been forecast as law’s “Big Bang,” the equivalent of financial services deregulation in the UK in the 1980s, although I suspect this will be a long rumble of change rather than a sudden explosion. But as we get closer to October 6, signs are emerging that should be making British firms very uncomfortable and firms elsewhere in the world more than a little uneasy. It’s quite possible that the biggest change in legal marketplace history will pass law firms by.
The Legal Futures website reported last week that English and Welsh law firms are finally starting to take ABSs seriously and are becoming more amenable to external investment. The bad news: the investors may already have lost interest. “City solicitor Paul Harding, who heads ABS Advisory Partners, said he was ‘absolutely convinced’ that private equity firms were getting ‘cold feet’ because of the difficulties they foresaw from investing in partnerships. … Mr Harding said law firms do not really understand what an investor would require of them. ‘They’re thinking about creating capital value that they can buy and sell, and not looking any further than that. They’re in for a shock. If money is made available, they won’t like the terms.’”
Subsequently, at an ABS-themed conference sponsored by Legal Futures, Richard Susskind issued the same warning: most law firms will not be invited to this party. “Law firms hold few attractions to private equity investors because there is no obvious exit route and little profit, he said, predicting that external investment will be made exclusively in new forms of legal business: ‘These are the businesses that are growing; doubling, tripling, quadrupling every year. Of course they’re going to attract investment.'”
When you think about it, the idea that private equity will bypass law firms and roll straight into new business models makes perfect sense. As any managing partner will tell you, running a typical firm is a task that inspires mythic adjectives like Herculean or Sisyphean. Law firms resist corporate management the way cats resist baths. John Wallbillich at The Wired GC illustrates this perfectly by listing five reasons why law firms couldn’t adopt the Goldman Sachs model:
- They don’t hire the best and then invest in their development.
- They don’t honestly evaluate talent at all levels.
- They don’t make people leave who don’t perform.
- They don’t directly link pay with performance.
- They don’t accept downside risk for upside reward.
Savvy investors would balk at an operation that failed on one of these points; most law firms fail on all five. Why would investment firms take on the headache and heartache of trying to corral hundreds of independent lawyers who each insist on professional autonomy and consistently put their own interests ahead of the firm’s? Many law firm partners, if offered cash for an equity position in their firms, would likely take the money and run. Private investors are fully aware that six months after buying your average law firm, they’d be left with a logo, a lease, and an unfunded pension plan.
Much better, from the investment community’s point of view, to start from scratch. Finance a small greenfield firm where lawyers work efficiently, price by value and are committed to the cause. Alternatively, kick the tires on some of these virtual or distributed firms that deliver results without overhead and attitude. Better yet, never mind the lawyers: go find an LPO the way Thomson Reuters did, inject millions of dollars into its operations, and see what happens. Or throw your weight behind a document service company like LegalZoom or a small-firm franchisor like Quality Solicitors. In all these cases, investors will be looking for private companies that think and behave like private companies, not like country clubs with billable-hour targets.
The threat of irrelevance is not limited to either the UK or the ABS world: it represents a general marketplace shift away from the traditional providers of legal services and their bases. The Daily Business Review recently published an account of a conference where in-house counsel from Microsoft and Hewlett-Packard — not exactly lightweight clients — cheerfully described all the ways in which they were slicing millions of dollars off their annual legal spend.
But the Microsoft lawyer also threw in a statement that should make even the biggest and most “prestigious” firms shiver: “‘When I started,’ he said, ‘everything I did … all the regulatory work … was centered in Washington. Now the centers of power are Asia, Sao Paulo and Moscow. … All the complex legal issues these days are outside the United States.” In other words, complex legal issues — the ones that big firms pursue because they pay off so handsomely in money and prestige — are leaving the building. If you’re a US firm that stretches no farther than the continental 48, that’s a problem.
A year or so ago, I quoted a Seth Godin observation: “When the platform changes, the leaders change.” I think that process is now underway in the law: a shift in the marketplace environment that has a very good chance of deposing incumbents and producing brand new players. Twelve months from now, when the first ABS dollars start circulating through the system worldwide, we should start to see that shift manifest itself.
Law firms that want to survive this change could stand to do a lot of things, but they might be best advised to start with management. Specifically, they could junk a model where the owners manage the business, manage it according to their individual short-term interests, and treat the firm as a means to an end rather than an end in itself. The global legal market is about to hand down a verdict on that model: it doesn’t deliver what we need. It’s irrelevant.
Jordan Furlong speaks to law firms and legal organizations throughout North America on how to survive and profit from the extraordinary changes underway in the legal services marketplace. He is a partner with Edge International and a senior consultant with Stem Legal Web Enterprises.
Time for another roundup of articles I’ve recently published elsewhere — a bit more extensive than usual — with the thought that you might find some of them interesting.
I’d like to start with a link to the newest edition of the Edge International Review, a semi-annual collection of articles from my partners in Edge. I served as editor of this issue and contributed an article titled: “The talent portfolio: where, how and by whom your work is done.” The Review will be mailed out this week to thousands of subscribers; if you’d like to be added to the subscriber list (or to receive Edge’s free e-newsletter, containing more exclusive articles by Edge partners), please drop me a line.
For the Canadian Bar Association’s National magazine, I wrote a cover story on the most recent round of mergers in the Canadian law firm marketplace. “Merger mania” featured lengthy interviews with the managing partners of Norton Rose, Ogilvy Renault, Miller Thomson and McMillan LLP. I think you’ll find their perspectives on the rapidly evolving law firm landscape to be illuminating.
For the CBA’s PracticeLink online periodical, I wrote an article titled: “How to use old media to access new media,” which talks about how social networks can help you raise your profile in the mainstream and legal press. I followed that up with a complementary post at Stem Legal’s Law Firm Web Strategy blog that added more pointers for joining old and new media in your marketing efforts.
For The Lawyers Weekly newspaper, I published two columns: one on the strategic management of legal talent, and the other on a subject I wish would get more serious attention in the legal profession. “Law firm diversity beyond the platitudes” cites the example of Nixon Peabody’s diversity initiative, which is the most demanding and the most pragmatic I’ve yet seen.
My regular column for Slaw, “Exploding some law school myths,” generated a remarkably large and intense amount of feedback. Read the article and review the provocative comments to get a sense of popular feelings about law school these days.
For Attorney At Work, I wrote two articles: “Create legal annual reports for your clients” received a very positive response to its idea of preparing yearly reviews and previews of clients’ legal health, while “Demographic business development” talked about generational change from clients’, rather than the lawyer’s, perspective.
Susan Cartier Liebel and her great team at Solo Practice University were kind enough to interview me for a two-part webinar on the future of the legal profession. (Note: if you haven’t heard about my SPU scholarship contest, check it out here.)
Finally, I was honoured to be interviewed or republished by some leading media outlets over the last couple of months.
- CNBC in India reproduced my Edge e-newsletter article about what IBM’s Watson means for the future of law firms.
- The Lawyer newspaper in the UK interviewed me about the dramatic changes underway in the Canadian legal marketplace.
- The ABA Journal interviewed me for a piece on legal process outsourcing companies, and was kind enough to pick up two of my blog posts on the ethics of law blog content and the rise of free-agent lawyers.
- And Canada’s leading French-language legal blog, Droit-Inc., interviewed me about the rise of legal process outsourcing and its impact on both lawyers and Quebec notaries.
A last couple of notes: April 1 finds me in Quebec City addressing the spring meeting of the Chambre des Notaires, the governing body of Quebec’s notaries, while April 4 brings me to Orlando to open the MasterMinds session at the 25th annual conference of the Legal Marketing Association. If you’re attending either of these events, please send me an email and let me know.
Jordan Furlong speaks to law firms and legal organizations throughout North America on how to survive and profit from the extraordinary changes underway in the legal services marketplace. He is a partner with Edge International and a senior consultant with Stem Legal Web Enterprises.
An extraordinary conversation has emerged among multiple authors in the blawgosphere over the past few days. It revolves around a pressing question: in light of the huge changes in the marketplace, what will become of law firms? More specifically, given the increasing segmentation and stratification of the universe of legal work, how can law firms — traditional, inflexible, one-size-fits-all businesses that they are — respond to these changes and continue to thrive? Can law firms serve multiple segments of a newly diverse market simultaneously, and if so, how?
No fewer than seven articles by six writers have explored this subject so far, and I recommend you take 10-15 minutes and go read these pieces (if you haven’t already) before continuing:
- “Bet-The-Farm” vs. “Law Factory”: Which one works? started the ball rolling, a pair of posts by Toby Brown of 3 Geeks and a Law Blog and Ron Friedmann of Strategic Legal Technology that consider the future ability of law firms to serve either or both of the high-end, high-value market and the more commoditized low end.
- Law Firm Investment Portfolios built on Ron and Toby’s work, a post by V. Mary Abraham of Above and Beyond KM that suggested firms adopt a diversified investment portfolio approach to their choice of practice areas and market segments and raised key issues regarding law firms’ cultural ability to withstand such radical change.
- The Law Factory Debate: Another Perspective and a companion post, Apple Meets the Law Factory came from Steven B. Levy of Lexician and raised the specter of once-dominant companies in the technology and electronics space that saw their market share drain away to simpler, lower-cost competitors, with clear implications for law firms.
- Legal Billing Rates: The Next Wave by John Wallbillich of The Wired GC came next, setting out a new “law firm pyramid” structure wherein certain types of legal work commanding ever-declining hourly rates are divided up among a range of legal service providers (not all of them lawyers), with constant price pressure pushing up from below.
- Inside Straight: In Praise of Mediocrity completed the septet, a column at Above The Law by Mark Hermann that provided, to my mind, a critical perspective on this topic not previously solicited: that of the client. Mark provided a blunt assessment of the law firm talent pool and some insights into in-house lawyers’ outside counsel decision-making process.
Collectively, these posts represent a deep dive into a subject that should command the attention of law firm leaders in firms of every size, because they identify a fundamental challenge. The nature of legal work is changing, and when demand changes, markets require suppliers to change as well. Law firms must adapt to at least some degree; but how, and in what ways? Inspired by all these posts, here’s my assessment of where we find ourselves right now and whether and to what degree law firms can move forward from here.
When viewed from the perspective of clients (which, when you think about it, is the perspective that counts), there are three types of outsourced legal work (that is, work not performed in-house). This is roughly how clients would describe them:
This requires a lawyer.
It really matters who we use.
It doesn’t matter how much it costs.
“This is mission-critical stuff; if this doesn’t work out, the company takes a major hit and my job could be on the line. Conversely, though, if it works out, the company avoids a hit and/or makes a huge gain, and my star rises considerably. There’s no way we can pull this off ourselves — it’s too big. So we need to hire the best — that is, either the very best lawyers to get it done right, or the firm with the best reputation so that if it goes wrong, I can point to the firm’s rep and say, look, I chose the cream of the crop, so don’t blame me. I’ll pay whatever lawyers or firms like that cost.”
2. Ordinary course of business
This requires a lawyer.
It doesn’t matter who we use.
It matters how much it costs.
“This needs to get done, and it’s definitely lawyer work, and we don’t have the manpower in-house to do it. But it’s also the kind of thing that comes up pretty frequently in our business. And of course we want it done well, but a loss or a failure wouldn’t be fatal. ‘Good enough” is good enough here. Many lawyers and a lot of firms do this kind of work, so we’ll be well served no matter who we choose. But with the budget pressures I’m under, I’m going to make sure that whoever we hire has a good system in place for doing this work and bills below the median rate. I can afford to set some conditions.”
This doesn’t require a lawyer.
It doesn’t matter who we use.
It really, really matters how much it costs.
“This needs to get done, but this is basic stuff and it’s the sort of thing that comes up over and over again. I’ll find a cost-effective outside solution that can process these matters rapidly, repeatedly and reliably: a professional staffing firm like Axiom, a freelance contract lawyer, or maybe an LPO. Unless we’re really lucky and can find a law firm to do it as well and as cheaply as these other suppliers (which I seriously doubt), I can’t justify asking a typical firm to do this — even their discounted rates are more than this is worth.”
(This division is inspired in no small part by John’s rate pyramid. It also helps to think of these three types of work as occupying, in declining order, the five stages of legal matters proposed by Richard Susskind: bespoke, standardized, systemized, packaged, and commoditized.)
Law firms have long supplied all three types of work to clients, invariably by way of the cost-plus billable-hour system. Clients, lacking both other options and the incentive to go look for any, went along. One market, one model. But now there are three markets: mission-critical, ordinary-course-of-business, and commodity. The universe of legal work has segmented and stratified. (One can argue that it was always segmented and stratified, but that the market mechanisms to recognize and process this segmentation didn’t exist till now, which I think is fair.)
The question before us is whether one law firm can still supply all three types of work, or even two of the three. More specifically: is it possible for a firm to do so, and then, is it feasible?
1. Is it possible? Yes, as my friends make clear in their blog posts. Ron and Toby point out that the hotel and banking industries feature companies that successfully serve different market needs through different brands. In a similar vein, Steve points to Toyota, a company that profitably produces both the Lexus and the Yaris. To those three examples, I’d add a fourth: shoe stores. Many people don’t realize that the five or six different shoe stores in your average shopping mall, each geared towards a different market segment, are often owned by the same company. Theoretically, there’s nothing preventing law firms from taking the same approach, adapting their offerings to the demands of each market segment.
2. Is it feasible? Here’s where it gets tricky. In practical terms, how would a law firm go about offering both mission-critical and ordinary-course-of-business services simultaneously, within the same enterprise? This raises problems that, on the whole, I see as insurmountable.
- The structures for each tier (let alone for the commodity work) are very different and would require, at a minimum, separate facilities in different locations: Hilton doesn’t house Astorias and Hampton Inns in the same complex.
- They would have to operate under different brand names: Cravath can’t start up an employment-law subsidiary under its high-end corporate name, for the same reason that Florsheim doesn’t sell basketball sneakers: the brand dilution is too strong.
- And as Mary points out, support systems and infrastructure will differ too. Will one part of a law firm will suffer systematization and efficiency measures when other parts of the firm continue to happily bill by the hour? And could that even be managed financially?
But I think there’s a more fundamental challenge, which Mary also raises: “How do you handle the potential for income disparity and differing levels of respect for the lawyers in each practice?” To an extent, this is a problem in current full-service law firms, where some partners earn ten times or more what others make. But in an explicitly two- or three-tiered law firm, it would become intolerable, because there would be clear divisions in quality of work, level of pay, and inevitably, quality of lawyer, and that simply will not be borne.
Every lawyer considers himself or herself to be an exceptional talent, and if there are some within the firm who make more money, well, that can be an accident of economics, and if there are some who are clearly incredibly gifted, well, we all like to have a few superstars on board; but let’s be perfectly clear, we’re all excellent around here — we’re only talking about degrees of excellence. This is the fiction that all lawyers in a firm tell themselves, even when the hard truth is that, as Mark puts it, most lawyers are mediocre (I’d use the more charitable term “ordinary”). The politeness of collegiality (which some partners lack the manners to maintain) asserts this fiction of excellence because it makes everyone feel better about themselves and improves morale and unity of purpose. But a firm that publicly announces, “We have one set of lawyers for extraordinary work and another set for the basic day-to-day stuff,” abandons this fiction and suffers the consequences. Firms hide this division today under the “full-service” label, but it exists and everyone knows it; keeping it hidden and unspoken is one of the things holding many law firms together.
At a certain point, the multiple divisions within a tiered firm would diverge so widely that they would effectively become separate firms, bringing into question the point of the whole exercise. Could a law firm create a holding company to manage a fleet of separate legal enterprises? Within the right legislative environment, sure — but why would it want to? How could it be worth the hassle? It’s hard enough to manage a single law firm, and as Ron suggests, lawyers don’t possess a ton of management acumen or entrepreneurial spirit. Berwin Leighton Paisner’s Lawyers On Demand service, which Ron references, may be the only really successful example I’ve seen of a law firm operating two legal business models simultaneously — and even that service, which explicitly offers different types of lawyers serving different types of client needs, looks like it might be spun off into a separate entity.
For these reasons, I think it’s next to impossible, in practical terms, for a law firm to explicitly serve both the mission-critical market and the ordinary-course-of-business market: the requirements are too different and the cultural pressures too intense. A firm can position itself to offer ordinary-course-of-business services — Mark cites the example of a “big-firm quality at small-firm prices” brand that presents a sensible-yet-still-professional image to the market and allows everyone to save face. But that image can’t co-exist, within the same enterprise, with a “We’re the very best in the world and you’ll never get fired for hiring us” brand. Very few lawyers beyond their third year of call will voluntarily wear the “second-class status” discount tag with a smile.
So how will this dilemma be resolved? Legal work is segmenting and stratifying, and law firms can no longer profitably perform this work in a one-size-fits-all business model: mid-level work requires a degree of management and systematization, while the truly commoditized work requires full-scale business process re-engineering. But it seems to me that trying to operate two or three different business models under the same roof, name or brand will generate centrifugal forces too powerful to contain. How does this story end?
I think, inevitably, it ends with the breakdown of many of today’s large, full-service firms into smaller enterprises that serve these component markets:
Mission-critical work will go to a small cadre of firms with outstanding lawyers and outstanding reputations: they might be global, but they won’t be as massive as they are today, because they will require fewer lawyers on-site to carry out their work and will instead make use of the “commodity”-type enterprises described in #3 above to carry out the more routine work that associates and junior partners used to do. These mission-critical firms will retain the powerful names and brands that their best lawyers helped forge over the years. They will charge stunningly high rates and will likely operate much the same as today’s law firms do.
Ordinary-course-of-business work will be the province of large firms that have evolved the types of systems, procedures and philosophies that reflect the “Law Factories” Ron writes about. They will routinely make use of legal project management, automated document assembly, dynamic knowledge management, online service delivery and other innovations that reduce the cost and increase the efficiency of legal service delivery. Will they do good work? Of course! Competence is not an issue within any of these tiers. But the work will be less valuable to clients and will be priced more competitively, necessitating a frugal-innovation approach. These firms might very well employ lockstep partner compensation, since the corner-office gorillas will have decamped to the mission-critical providers. Some of these firms will be direct descendants of today’s big firms, with the same names and addresses; but many more will be entirely new creations, formed from the splintered remains of today’s big firms that found themselves caught in the no-man’s land between the high-end critical and low-end commodity markets.
Commodity work will, for the most part, have left the legal profession behind. It will belong to enterprises that resemble informatics providers more than law offices. Indeed, leading the pack will be companies like Thomson and its Pangea3 division, along with other financial, data and information companies like Bloomberg and LexisNexis (and maybe Google?). Legal process outsourcing companies will be players, some of them riding a wave of venture investment made possible by the Legal Services Act and its North American progeny. At the consumer end, look for outfits like Wal-Mart or CitiBank to offer as many basic legal services as regulations will allow. This is the work that has, in Steve’s words, risen up “through the floorboards” and is now, as Toby suggests with banks and check-cashing services, no longer lucrative enough to warrant lawyers’ efforts.
That, to my mind, is the near-term future of the legal marketplace: a wide-scale disaggregation of full-service law firms into smaller enterprises adapted to meet stratified market segments. If you think that sounds like a chaotic, messy and deeply upsetting experience for the legal profession, then I think you’re right. Law firms are complex business models of the kind Clay Shirky warns about, and when these models pass the point of maximum complexity, they don’t gradually disassemble themselves in an orderly manner: they simplify, quickly and radically. I don’t hope for that outcome. But it’s difficult to see another likely way for this to end.
Jordan Furlong speaks to law firms and legal organizations throughout North America on how to survive and profit from the extraordinary changes underway in the legal services marketplace. He is a partner with Edge International and a senior consultant with Stem Legal Web Enterprises.
When Ogilvy Renault announced last fall that it was joining the Norton Rose Group, I went on record as saying I thought this was a watershed moment for the legal profession in Canada — that the world had finally arrived on our doorstep, more global firms were surely coming, and the law firm marketplace would never be the same. Some managing partners of Canadian firms were quoted as saying pretty much the opposite — that this was an interesting move, to be sure, but it didn’t fundamentally reshape the marketplace here.
Then, earlier this month, came a report in the British legal newspaper The Lawyer that not one but two more sets of UK-Canada law firm merger talks were underway. One was between Clyde & Co., a London-based firm with 24 offices from Riyadh to Caracas and points between, and insurance-defence firm Nicholl Paskell-Mede, a relatively young firm with offices in Montreal and Toronto. The second involved none other than the world’s biggest law firm, DLA Piper, and a large Canadian firm such as Heenan Blaikie (denied by the firm’s managing partner) or Fraser Milner Casgrain (neither confirmed nor denied by the firm’s CEO). I’m sticking with my original sentiments.
The legal trade press is always interested in merger talk, of course, and the last couple of years have seen a series of transatlantic tie-ups such as SNR Denton, Squire Sanders (Hammonds), and Hogan Lovells. Many law firms of all sizes are always a phone call or two away from proposing a merger or considering such a proposal themselves — size, as my Edge colleague Ed Wesemann points out in an article in the new Edge International Review, is something many firms reflexively pursue in the (often correct) belief it will make them more attractive to both clients and lateral hires.
The problem, of course, is that mergers are hard. They’re difficult enough to pull off in the corporate world, but they’re especially challenging in the law firm context, thanks in no small part to various cultural issues unique to our profession. There are as many examples of high-profile possible mergers that fell through (Orrick and Akin Gump, Reed Smith and Thompson & Knight, Proskauer and SJ Berwin) as there are successes, and many more such discussions never break the surface before sinking.
So I’m starting to wonder whether the immediate future trend is towards acquisitions more than mergers. Instead of two giant firms attempting to hook up (the analogy to dinosaurs mating is too good to ignore), we might start seeing more examples of very big firms expanding their presence incrementally, by picking up smaller firms or simply snatching the best lawyers and practice groups from rivals and using them to start up a local office. This is hardly a new tactic, of course, but it seems to me it’s been picking up steam lately.
Ogilvy Renault, for example, was just the 10th-biggest firm in Canada and it had a relatively small presence in oil country — but Norton Rose saw a cultural fit and that was more important. Deneys Reitz, Norton’s target in South Africa, was one of the smallest of that country’s Big Five firms. Clifford Chance, which has long had an interest in Australia, broke off merger talks with national firm Mallesons last year and instead, last month, acquired two small firms in Sydney and Perth with a total of just 14 partners to make their debut down under. Magic Circle giants Linklaters and Allen & Overy, The Lawyer reports, are making similar inquiries in Houston and may follow the lead of Latham & Watkins and Cadwalader, which set up their Houston headquarters by raiding lawyers from three established local firms.
That latter approach is one that should concern a lot of firms: it’s what the managing partner of one global giant calls “a rip-out.” Check out a firm, identify the star rainmakers and core practice groups, and make them an offer they can’t refuse. The most aggressive global firms likely don’t have a lot of interest in full-scale integration of other large entities — most such firms are too big and bloated to swallow comfortably. Many law firms, in truth, contain a lot of empty calories, and potential suitors would prefer to ingest as much protein and nutrition as possible while filling up on the least amount of starch. Rip-outs can achieve this effect, but they can be ruinous to the victimized firm.
The problem for many potential victim firms is that they won’t have a strong enough cultural gravity to resist the pull of an international giant. One of the drawbacks of making profit the foundation of your firm’s strategic purpose, as many law firms do, is that you attract people motivated primarily by money — and these people will be the first to leave when more money is thrown their way. Firms with a powerful cultural identity will still lose people to other firms — churn affects everyone — but they’ll lose fewer, and I wager that they’ll rarely lose those they want to keep. The firms I know with the strongest internal culture and clearest strategic direction are the ones that show up least often in the “Departures” section of the legal periodicals.
As for the predator firms — and I think we can reasonably call them that — they’re working not just to get bigger, but also better. Aric Press pointed out last month in The American Lawyer that a segmentation process is underway among the world’s largest law firms, by which a select few giants are separating from the pack and getting more of the very best, non-negotiable-fee work. Only seven firms, he noted, are among the 25 biggest and the 25 most profitable firms in the world, and none were the product of mergers. But each, it’s worth noting, has expanded its global footprint step by step.
So it’s quite possible that managing partners looking to get their firms involved in merger talks will be notified that their firms are in play — but it might not be via a phone call from a consultant or another managing partner inviting them to a working dinner. It might be a phone call from their own partners to report that most of the energy and infrastructure practice group is walking out the door to join a global firm.
The old saying is that there are two kinds of people: those who finish in the money, and those in whose money the others are finishing. I suspect we’re about to see that rule applied, with force, to law firms.
I’m honoured to be part of a Presidential CLE event, co-sponsored by the ABA Standing Committee on Technology and Information Systems and the ABA Center for Professional Responsibility, at the American Bar Association’s Annual Meeting in Toronto on Friday, August 5, 2011. The working title of the presentation is: “Modern Family & Modern Attorney: How Technology Is Changing The Way Attorneys & Clients Communicate and Collaborate.”
(Author’s note: Read to the end to learn about a scholarship contest for sole practitioners.) During my recent webinar on legal marketplace trends with Susan Cartier Liebel of Solo Practice University, I raised a point about solo law practice that’s been bothering me for a while.
Almost every lawyers’ association in North America, I noted, has a section devoted to “Solo, Small-Firm and General Practice” lawyers. My problem with that category is that it still lumps together two groups — solo and small firm lawyers, and general practice lawyers — that should now be considered separately. Today’s (and especially tomorrow’s) sole practitioner has to pursue a niched, specialized practice — one that offers a focused set of skills and expertise with which to compete in an extremely fractured and specialized marketplace. If anything, I argued, today’s “general practitioners” are in fact the national and global giants — the full-service firms who assure the marketplace that “we do everything.” The traditional roles have been reversed.
This reversal is part of what I think we can justifiably call a “paradigm shift” for the solo bar — a change in its underlying assumptions and realities. Sole practitioners (for the purposes of this post, I’ll risk a charge of hypocrisy and bundle “very small firms” under the same term) have been accustomed to viewing themselves in a certain light, a view that the rest of the bar has shared and encouraged: the jack-of-all-trades, the storefront attorney, the low-cost but personal-touch underdog. This view of solos directly contrasts them with bigger law firms: we are more flexible, more affordable, and more personal. The flip side of that contrast, of course, is that solos are viewed as less specialized, less sophisticated and less able to take on big tasks.
Many solos have long been content with this trade-off. Not only that, many have welcomed the current upheaval in the market that has caused bigger firms so much heartburn. We’re now poised, they say, to take in those price-conscious, relationship-hungry clients who’ve left the giants — this is our time.
To which I reply: not so fast. Solos are not exempt from the revolution. Everyone else in this market — big firms, mid-size firms, corporate clients, consumer clients, law schools, legal publishers and many others — is being transformed by the crucible of these times. Solos will prove to be no different. Taking advantage of this new market will require solos to change as well, which will mean abandoning some long-held habits and identities.
Here’s what I see as four characteristics of the successful 21st-century sole practitioner.
1. Specialized. I mentioned this at the outset, but it bears repeating. “General practice,” in real terms, has traditionally encompassed a range of product and service offerings that today have become economically unfeasible for lawyers. Real estate transactions, straightforward wills, contract drafting, incorporation and other basic business law services, and so forth — these are the stock in trade of the online, automated, or para-professional providers now accelerating into the market. This type of work has never paid handsomely, but in future, it will rarely pay enough to justify a lawyer’s efforts. Running a general practice has usually meant being good at a broad yet shallow range of services; but the shallow waters are precisely those into which the new competitors have advanced.
The solution for solos is to go deeper and develop specialties. Yes, as you give up a wide swath of your current broad practice, you will lose clients — but as you drill down and build up valuable expertise in a specific area of law for which there’s market demand, you’ll add clients, many of which will pay better for your scarcer skills and knowledge. And thanks to the internet, your geographic market has widened enough to allow you to maintain your reach while narrowing your offerings. Solo specialties are not unprecedented: criminal defence and family law practices are longstanding examples (although “vocation” is also a good way to describe these challenging but socially crucial practices). Most solos outside these areas of practice, though, have been general business and consumer lawyers. Now they need to focus.
2. Sophisticated. This is partly a function of specialization, as described above, but it’s also a function of business infrastructure. Solos cannot afford to give anything away to their rivals in bigger firms — yet they’ve usually been quick to concede organizational sophistication: we don’t have the marketing budget, we don’t have the IT capability, we don’t have the administrative capacity to do what bigger firms do. This simply isn’t a viable concession to make anymore — solos need to be running businesses as powerful and efficient as any big firm in their neighbourhood. Mid-size and larger firms that have taken infrastructure seriously and invested in it (especially on the client-facing side) have changed marketplace expectations of what a law practice should be able to do. You’ll have to keep up.
Fortunately, now you can. The available suites of law practice management software have never been better, more varied, or more affordable than they are today. In addition, cloud-based law practice management providers have emerged and have become completely reliable in a remarkably short period of time, removing the need to host any of this software or data on your own office systems. Virtual assistants can carry out administrative tasks as or more cost-effectively than an on-site person, often at customizable hours. Good websites and blogs allow solos to build up market profiles many multiples greater than their physical footprint could manage alone. Advanced client intake/contact and workflow systems can be implemented once and left humming for years to come. Your business can now be as sophisticated as you need it to be without overwhelming you with time and financial costs.
3. Collaborative. The “lone wolf” image of the sole practitioner was hard-won and is something many solos continue to treasure. But as I’m sure you’ve heard, this is no time for lone wolves, not in this economy or in this society. Solos simply must be networked, connected and collaborative in order to survive. Partly this is a matter of taking advantage of both old and new networks, from specialty bar groups to LinkedIn, and of contributing to communities like the blawgosphere. But it’s really about learning to collaborate with other solos, and even with larger firms, on projects that more and more frequently will involve multiple types of lawyers to achieve the client’s objectives.
The biggest knock against small law practices is that clients are reluctant to entrust them with anything more than small jobs — that for work of any real size or scale, clients consistently seek out the bigger firms with their greater manpower and their brand assurance that size guarantees reliability. This may prove to be many large firms’ strongest and most resilient selling point: don’t worry, because we have the critical mass to get anything done. That may be a battle that solos can’t win — but it’s not territory that you want to give up altogether, because the financial and intellectual rewards of big projects can be immense. So find ways to collaborate with other practitioners — perhaps as part of the free-agent lawyer wave, perhaps by launching your own specialist solo network that works together on projects — finding ways to punch above your traditional weight class.
4. Innovative. In many ways, I think this is the most important feature of the successful 21st-century solo. Sole practitioners have long prided themselves on flexibility, nimbleness and efficiency as market advantages, but bigger firms are now picking up some of these features by necessity. Solos can continue to have an entrenched advantage in innovation, however, because the bigger you are, the harder it is to enter new markets and try new things. Here’s how Clayton Christensen puts it in The Innovator’s Dilemma:
[C]reating new markets is significantly less risky and more rewarding than entering established markets against entrenched competition. But as companies become larger and more successful, it becomes even more difficult to enter emerging markets early enough. Because growing companies need to add increasingly large chunks of new revenue each year just to maintain their desired level of growth, it becomes less and less possible that small markets can be viable as vehicles through which to find these chunks of revenue.
Newly emerging markets offer tremendous potential, but big companies simply can’t afford to expend the resources necessary to exploit them early enough. That’s not a problem for smaller companies, which is one of the reasons why so many of today’s disruptive technologies and new markets were harnessed by start-ups. (Christensen himself recommends that big companies set up separate small divisions to pursue such opportunities.) Small law firms are in the same position: they can afford to innovate, to take chances and to try new markets and approaches in ways that big firms can’t. I submit that this will prove to be solos’ most formidable marketplace advantage, and they should press it.
What that means is that you can’t continue to practise solo law the way you always have before. You need to break out of the habits, limitations and rules that you always assumed constituted the underlying framework of sole practice. Maybe they did, once; they don’t have to anymore. Seek out clients from sectors you always thought were beyond your reach: what would it take to bring them in and keep them? Run your business in ways few other solos or small-firm lawyers would try:
- create and operate a Facebook page for your specialty area,
- define your target market generationally,
- explore the feasibility of a law firm franchise,
- identify potential clients on the other side of the globe,
- create software that prompts and answers common client questions and post it on your website,
- figure out how to guarantee a fixed fee for all your work (and make it profitable),
- develop online elements of your practice,
and many others beyond what I’ve just tossed off in a few lines. Create markets where they didn’t exist before, deliver services in ways that haven’t been done before, define and run your business in ways that haven’t occurred to other lawyers before. The ability to conceive of, and then act to exploit, new opportunities will be the hallmark of the successful 21st-century solo.
To that end, I’m going to punctuate this post with something pretty different in itself. In conjunction with Solo Practice University’s second anniversary on March 20, 2011, I’m giving away five scholarships to Solo Practice University (valued at US$695 each; CLE is not included), courtesy of Susan and her team. These scholarships will be given to five current or soon-to-be solos or small-firm lawyers who are now engaging, or are ready to engage, in 21st-century sole practice. Drop me a line at firstname.lastname@example.org and tell me about the practice you now operate or that you plan to develop — describe the ways in which it is or will be specialized, sophisticated, collaborative and/or innovative.
I’ll be accepting entries from March 15 to April 30, 2011. Throughout the course of May, I’ll select the top 10 entries and my colleagues at Edge International and Stem Legal will help me determine the five winners. I’ll then post the winners, and descriptions of their practices, in a post here at Law21 on Wednesday, June 1. Get ready to innovate!
From England and Wales, the newest hotbed of innovation in the current legal marketplace, comes word that the first nationwide solicitor franchise is on its way. Legal Futures reports that Face2Face Solicitors “is initially aimed at small private client law firms and will provide franchisee solicitors with centralized back-office systems – including accounts, IT and regulatory compliance – and central marketing and business development, to enable them to focus on the legal work.” Face2Face would seem to fit the Alternative Business Structures model very well, and in fact, the company plans to register as an ABS when the starting gun sounds October 6.
Face2Face is compared to and contrasted with another British operation, Quality Solicitors, which has been around for longer. Quality Solicitors is a network of about 200 independent law firms across the UK, ranging in size from solos to firms with more than 40 partners. Face2Face characterizes QS’s business model as one that rebrands existing firms, whereas its own model is “targeting start-ups, breakaways and firms looking to be ‘reconstructed,’ especially if there is a need to consider succession/exit.” In practice, the two models probably won’t come across much differently to clients; in both cases, they’ll see a small law firm with a franchised brand and the promises that come with it.
The UK, of course, is also home to the still-mythical “Tesco Law,” the widely mooted example of what the ABS provisions of the Legal Services Act would enable: legal services sold by supermarkets. This too would be a franchise operation, albeit with the franchised firms operating inside the mega-stores rather than in downtown or suburban storefronts. Canada has something similar with the “President’s Choice” line of banking and insurance services offered through Loblaw’s or the Great Canadian Superstore supermarket chains. (I enjoy telling US audiences that the Tesco Law equivalent in Canada would be “Loblaw’s Law”).
President’s Choice aside, however, the idea of franchise law firms hasn’t taken off in North America. I still remember the launch, back in the mid-1990s, of First American Law (not to be confused with First American Title Insurance or the First American Law Center), which planned to build a fleet of small branded firms across the US and Canada. Perhaps because it was ahead of its time, FAL didn’t take. The idea hasn’t gone away, though: Richard Granat recently floated the idea that LegalZoom might get into the same kind of business, supporting small firms with a brand and a back-office processing center.
The common thread in all these companies and concepts is this: a series of small firms, from solos up to about five lawyers but conceivably larger, operating independently but under a single brand name and supported by centralized web-based back-office support and marketing functions, serving consumers and some small businesses in heavy-traffic areas of law like family, real estate, wills, and business law. Because the work is what lawyers like to call “commoditized,” the brand becomes extremely important. Among the promises that QS firms make to their clients, for instance, are “no hidden costs,” “direct lawyer contact,” “same day response” and “the first consultation free.”
That’s one vision of the future. At the opposite end of the spectrum lie the global giants, and they’re taking a much different approach. Most of these firms dread the “commodity work” label and strive to serve a high-end market of major corporate clients with complex, challenging, high-stakes work that engages lawyers intellectually and rewards them stunningly. And while smaller firms are turning to a faceless brand to give them an edge, the larger firms are counting on faces, very specific ones, as their salvation.
The Wall Street Journal‘s recent report on lateral hiring trends was one of a growing number of accounts of law firms raiding rival firms for superstar partners with large books of business. These laterals don’t come cheap: many new arrivals expect compensation up to ten times heftier than what some of their new colleagues are earning. The compensation gap is to be expected, of course: just as LeBron James is paid a lot of money because he’s expected to fill a lot of seats, laterals are expected to earn their keep and more. But it’s still interesting to hear DLA Piper chairman Frank Burch explain the rationale behind lateral hires: “We are focused on making big, strategic hires, who can allow us to achieve greater stature and visibility in the business community.” That’s not a productivity argument; that’s a marketing argument, a profile-augmentation rationale.
None of this is new, of course: smaller firms that sell what everyone else is selling need to find a market differentiator (hence the interest in brands), while large firms want to sell services of a type or quality that no one else is selling and make that the differentiator. The question, at this stage, is which of these approaches makes more sense in the marketplace of the near future? It seems to me that going forward, the branded commodity approach actually has more upside.
I was speaking at a retreat for an AmLaw 100 firm last summer, and one of the lawyers asked me about what the future held for both “commodity” work and “bet-the-company” work. My response was that virtually every law firm mid-size and higher insists that it wants to pursue the latter kind of work, that that’s what it wants to be known for in the market. The problem, I said, is that there’s actually relatively little work of that kind available — companies don’t bet themselves every day — and thousands of law firms are all chasing it. Compare that to the “commodity” work: there’s tons of it out there and hardly anyone wants to provide it (indeed, judging from the number of self-represented consumer clients, there’s a massive shortage of supply). Which of these two areas looks more promising from a business development perspective?
The high end of the legal market is over-served and the low end is under-served, and there’s two reasons for that. One is that many lawyers don’t find the low-end work “challenging” enough (to which I say, find me a high-paid M&A superstar who can last a week in family court without breaking down). The other, of course, is that the low-end doesn’t pay enough. But I’ve written before about how it doesn’t matter how much the client pays, it matters how much profit you make after the costs you incur are subtracted from the price you charge.
National branded legal franchises look like an excellent way to accomplish the goal of providing more with less to this market. Let us do the things you hate, the franchisors tell lawyers, like marketing and branding and administration and whatnot. You do the things you love, like practise law and serve clients. Our efficiencies reduce your costs, so you can price competitively yet still keep more of what you charge (with a slice to us, of course). As more and more legal tasks pass through Richard Susskind’s five declining stages of work, from bespoke to commodity, the “low-end” “commoditized” share of the market is going to grow. Firms that took a more enlightened approach to this sector should reap the rewards.
And the big firms, the global giants? They have plenty of marketing and branding firepower, without question, and they’re awfully good at what they do. But they’re also susceptible to the weakness inherent in the traditional law firm model: your assets walk out the door every night, and you need to pray they come back the next morning or else you don’t have a business. The Lawyer reported this month on a survey of nearly 2,000 partner moves in London from 2005-2010 that found almost half of those hires left their new firm within five years, and up to a third left after three. Do you think those acquisitions were good investments of those firms’ time, money and effort?
As legal work drifts towards commoditization, lawyers drift towards fungibility. All five partners in your branded storefront franchise walked out today? You can probably find five other lawyers with very similar skill sets to replace them — and in this economy, you can probably do so fairly quickly. But brand names and logos — they don’t leave. Now suppose that all five partners in your large firm’s biotechnology practice group walk out the door; you have a much bigger problem. A wise manager once said that if he discovers he has an irreplaceable employee, his mission become making that employee replaceable. Large firms that boast about the irreplaceability of their top earners perhaps don’t realize the double-edged nature of that particular sword.
The oldest axiom in the legal business is that clients buy the lawyer, not the firm. This is true and always will be true, insofar as the lawyer brings something unique to the table: extraordinary skills, outstanding personality, or perhaps most importantly, the ability to craft and perfect a trusted relationship. But absent those conditions — and those conditions, I expect, will become increasingly rare — and with bespoke legal work diminishing, clients’ buying criteria are going to expand to emphasize factors like price, accessibility and reliability. When you’re sliding towards those criteria, you’re walking into territory where national brands have developed a very strong home-field advantage.
Are you selling clients your lawyers or your firm? Think carefully about the ramifications of your answer, now and down the road, because clients are starting to ask themselves the same question.
I’ve been on Twitter for nearly two and a half years now, but I’ve yet to take advantage of one of its better features, Follow Friday. If you’re not familiar with it, #FF is an opportunity to recommend one (preferably) Twitter stream to your followers, along with a brief explanation why. The main reason I haven’t taken advantage of Follow Friday is that if you really want to know which Twitter feeds I recommend, follow all the ones I follow. I only track about 200 Twitter accounts, and I try to cull the list every so often to maintain a 1-to-10 follow ratio, so everyone on my Following list comes with a thumbs-up from me.
Nonetheless, I thought that it might be useful if I identified the Twitter feeds (and the blogs) that I really rely upon when it comes to understanding better the revolution underway right now in the legal marketplace. I’m extraordinarily grateful that these people and organizations deliver so much information and insight regularly, for free, and I wanted you to be able to share the value that they provide.
A Twitter account’s or blog’s absence from these lists does not, I want to emphasize, signal a lack of appreciation or endorsement: I follow many bloggers and Twitterers on subjects like legal technology, legal education, social media and so forth. These lists are what you could call my “legal innovation” recommendations: content streams that consistently appear and focus on the changing marketplace environment.
One more caveat: for conflict of interest reasons, I’m not including blogs or Twitter accounts from my friends and colleagues at Stem Legal or Edge International, although I do follow and recommend Law Firm Web Strategy and the Vancouver Law Librarian Blog (both by Steve Matthews), Amazing Firms, Amazing Practices (Gerry Riskin), At The Intersection (Pam Woldow), and Ed Wesemann‘s eponymous blog.
Okay, that’s it for the disclaimers. Here are 10 blogs and 20 Twitter accounts that explore and report on the rapidly changing legal marketplace; each would reward an investment of your time and attention.
3 Geeks and a Law Blog: Toby Brown, Greg Lambert and Lisa Salazar write maybe the best legal innovation blog now in operation.
Adam Smith Esq.: Bruce MacEwen delivers a rare combination of sublime writing and strategic guidance for large firms.
Legal Futures: Neil Rose’s website has a blog, but the whole site is a must-read for the latest developments in the most important legal laboratory: London.
John Flood’s Random Academic Thoughts: Tremendous and incisive insights on UK legal practice and legal education.
Seth Godin: For my money, the best blog anywhere: marketing and client service, yes, but really about making this a value(s)-driven world
Slaw: More than just a legal blog, Canada’s foremost entry in the blawgosphere has become, I think, the first online legal magazine.
Strategic Legal Technology: Ron Friedmann writes about offshoring and commoditization, taking the pulse on the legal workflow revolution.
The Intelligent Challenge: One of the best new law blogs, this UK entry from Mark Smith is remarkably insightful about the legal market.
The Legal Brat Blawg: Financial Times GC Tim Bratton’s new entry, another must-read from the UK, has a journalistic edge rare in legal blogs.
The Wired GC: John Wallbillich brings another (former) GC perspective to his ongoing deconstruction of the outside counsel relationship.
In addition to the Twitter accounts attached to the foregoing blogs, here are some more that I highly recommend.
@attnyatwork: One really good idea every day
@BetsyMunnell: Former BigLaw partner/rainmaker now relentless career & business development coach for young lawyers/law students; mother of 3; Francophile; expat New Yorker
@donnaseyle: Founder/Coach, Law Practice Strategy, provides resources & training on newly-emerging law practice solutions for solos & small firms:
@eicdocket: Association Publishing Executive, Mom, Wife, Avid Reader, News Junkie, Bunco Player. Roll Tide! Redskins fan.
@jasnwilsn: V.P., Jones McClure Publishing | author, writer of law practice manuals | former trial & appellate attorney | fan of all things tech & paper
@jayshep: Saving the world from lawyers (and saving lawyers from themselves)
@jkubicki: Legal process engineer & project management
@JuSummerhayes: A non-practising solicitor with a passion for excellence in professional practice and social media.
@KevinOKeefe: CEO & Publisher of LexBlog. We’re improving the lives of professionals by building the world’s premier legal network. 28 year lawyer. Father of 5.
@lancegodard: International legal business development and marketing consultant. I help law firms grow and prosper
@LawyerCatrin: Editor of The Lawyer; Welsh-speaking North Londoner; likes theatre, polyphony, music education, curry and the works of Nelson Riddle
@matthomann: Legal Thinker. Innovational Speaker. Creative Facilitator. Dad.
@PosseList: U.S., Canadian and international temporary/contract/freelance attorney market
@pwoldow: Master Coach, Attorney, Advisor to General Counsel & ABA Legal Rebel
@StephenMayson: Director and Professor of Strategy, Legal Services Institute, London; strategic and non-executive adviser; certified business coach; speaker; author; wine fan
@TheTimeBlawg: The past, present and future practice of law (brought to you by Brian Inkster)
@VMaryAbraham: Knowledge Manager, Blogger, Corporate Lawyer, Social Media Enthusiast, Personal Knowledge Management Coach, Twitter Fan.
@ValoremLamb: Trial lawyer for business using alternative fees; Change agent for legal profession,Husband, Father of 4, Blogger
As I say, this only scratches the surface of the available social media resources for lawyers and the legal marketplace. Your turn: what blogs and/or Twitter accounts would you recommend to other readers of this blog (yours not included, of course), and why?
Their World Series victory last fall wasn’t the only surprise the San Francisco Giants sprang on the baseball establishment. Throughout the 2010 season, the team engaged in “dynamic pricing,” changing the price of single-game tickets according to demand. The same seat for a Monday night yawnfest in May against the Washington Nationals, for example, would be priced well below a Friday night game down the stretch in September with the L.A. Dodgers. The new system, which reflects the ancient marketplace rule that demand drives price, produced a 6% revenue increase throughout the season and is expected to spread throughout not just MLB, but also the NBA and NHL in short order.
The Giants’ approach will sound familiar to anyone who grew up, as I did, in the era of “cheap night” at the movies, wherein ticket prices for Tuesday night showings were less than half those of other nights. The theaters, normally all but deserted on Tuesdays, were instead always full. Given that cinema owners make most of their money off concession sales, I imagine that “cheap Tuesdays” were immensely profitable. But as Malcolm Gladwell observed in The Tipping Point, theaters could actually go farther and change the price of individual movies according to their popularity, much as the Giants are doing with their game tickets: charge more for The King’s Speech and less (much less) for Yogi Bear.
There’s a reason why price tags are printed on cheap stickers, easily applied and frequently changed. Price is not carved in stone; it’s elastic, a function of supply and demand. This is true even in the law: it’s the rare lawyer who has never offered a discount on his or her hourly rate to win a client engagement. But rate discounts are about as radical as law firms have ever gotten with price. For most lawyers, fixing a price in advance of providing the service is anathema, and adjusting that fixed price according to a set of evolving criteria is farther beyond the pale again. But I think that’s about to change.
What got me thinking in this direction were reports this week that henceforth, DLA Piper (the newest holder of the “world’s biggest firm” title) was instituting minimum purchase levels for its clients. DLA’s US offices are said to be mandating an entry-level threshold of $200,000 a year for all new clients, while DLA International will set the amounts at €25,000 for new clients that don’t pose a potential conflict and €100,000 for those that do. The reasons, as explained in an excellent post by Financial Times GC Tim Bratton, are interesting: the firm wants lawyers to consider the firm’s strategic priorities more than their own; it wants to reduce the size of “conflict shadows” cast by smaller clients; and it wants to reduce the administrative cost of dealing with so many matters. Essentially, the firm wants many fewer, and much bigger, clients.
Some of my friends in the blawgosphere have called this a “cover charge,” but I don’t think that’s exactly the right analogy. A cover charge is an amount everyone pays at the entrance to ensure that no matter how little you spend upon entering, the proprietor will still turn a profit. DLA Piper, by contrast, is hiring a large, heavily muscled man to stand at the front door and admit only those customers who are guaranteed to spend enough to produce a profit. They’re pre-screening their clients for wealth, much as a legal aid clinic pre-screens its clients for poverty.
It might not win any points for populism, and there are serious implications for current and future partners. But as a strategic execution, as a profitability measure, and as a clear marketplace signal about which clients it desires, it’s brilliant: as Ron Friedmann notes, “it’s about making a conscious decision about your business, your costs, and your market position,” something few firms do. And in its own way, it’s an example of pricing innovation that other firms should follow.
I’ve written before about how the maxim “Don’t compete on price” has limited value in a highly competitive, price-sensitive market. Law didn’t use to be one of those markets; it is now, and some degree of price competition is becoming inevitable. But “competing on price” doesn’t have to mean getting involved in a downward-spiraling price war. As DLA Piper has demonstrated, you can compete on price upwards, setting floors rather than ceilings on how much you charge. For that matter, you can compete on price sideways, diagonally, and inside out through the fourth dimension if you like. You can make price a market differentiator simply by being creative and gutsy.
Examples are already abounding. Carolyn Elefant suggests that DLA Piper might effectively “offer $300,000 worth of service to clients who are willing to lock in and pre-pay the $200,000 minimum. Between the cash-flow benefit of receiving $200,000 up front and use of offshoring or second-tier contract lawyers in house, DLA Piper could still earn a decent profit, even while providing a ‘volume discount.” John Wallbillich at The Wired GC goes further: “What about a firm that does $1 million plus for a client not charging for telephone consultations with a defined number of client in-house counsel? Or provide access to part of a firm’s form files or knowledge management repository? How about a 3+ year associate on-site, gratis, for clients spending more than $5 million?”
Here are some more possibilities that law firms should mull over.
1. Charge like an airline. Some client matters are utterly routine, some are high priority, and some are absolutely urgent; but most lawyers tend to price solutions to each type of matter the same. Airlines thrive, even in a cutthroat marketplace, by charging you more for a ticket tomorrow than for one in three weeks’ time. What’s to stop a law firm from saying to client with an urgent problem: “To get this done tomorrow, we’ll need to drop everything else we’re doing and work on it for the next 24 hours; that’s a lost opportunity cost for us that will be reflected in a higher price.” Or conversely: “This is a low priority for you and can be done at a fairly leisurely pace by us; we’ll chop 30% off our regular price to reflect those facts.” Clients might not like the former treatment, but they’d understand it and probably accept it; they would love, and remember, the latter treatment.
2. Charge like a cellphone company. A dangerous comparison, to be sure, since many cellphone contracts epitomize the concept of gouging. But I mean this in the sense that many companies will discount the price of a cellphone itself, all the way up to 100%, if you subscribe to the connection service and payment plan. What would a law firm give a client for free in return for the guarantee of a fixed (and pre-paid) monthly fee over a two-year period? Maybe ten hours a month of a designated senior associate or junior partner’s time, no bills, no disbursements; maybe access to multi-jurisdictional regulatory compliance status updates; maybe an emergency “hot line” number that would put the client directly in touch with a responsible firm representative 24 hours a day. It would essentially be the freemium model applied to law.
3. Charge like a partner in a relationship. Seth Godin points out the cognitive dissonance by which many companies give their best rates to their worst customers: the difficult, the demanding, the frequent switchers. Similarly, their most loyal and enthusiastic customers are taken for granted and are charged accordingly. My Edge colleague Ed Wesemann has noted the same problem in law firms: discounts are offered to entice new business, but if the one-time client comes aboard and stays aboard, its rates soon go up and it’s relegated to the same “standard” treatment as the firm’s other “best” clients. Reward your best clients, give them discounts and freebies without being asked, simply to say thank you for being your relationship partner. As Seth puts it: make your best customers into your best marketers.
Lawyers resist change in many aspects of their work, but most of all in pricing: they try to pass all the risk of price miscalculation onto the client, a goal that the billable-hour system fulfills perfectly. Mature markets, however, allow (if not demand) more sophisticated pricing in which both the buyer and the seller accept some risk as a justifiable sacrifice to the greater goal of a stable, mutually beneficial relationship. DLA Piper is taking a risk with this new client minimum scheme, because it has both upside and downside: good for them, no matter how it works out.
Price is a conversation, not a command; it’s a journey rather than a destination. Lawyers with the wisdom to recognize that, and the courage to be flexible and creative in response, will emerge the winners from the new price wars that look poised to begin.