That neatly encapsulates what I think is a real and dangerous trend at a lot of the bigger law firms: week by week, rate increase by rate increase, they’re pricing themselves out of the market. The profit imperative is so strong at these firms, and the level of economic sophistication often so low, that rate increases are ordered up regardless of whether the clients want them, can afford them, or are screaming bloody murder about them. To the extent a firm thinks about its clients when raising rates, it often wagers that they have relatively limited options — they need to get the work done and they want it done by lawyers they trust — and that they aren’t prepared to make a radical and onerous move like switching firms (especially since almost all big firms operate the same and bill the same anyway). That gamble has paid off handsomely over the years, and so the firms have had little incentive to change their approach.

What’s happening now, however, is that the clients and their lawyers are teaming up and doing an end run around the firms. There’s been a barrage of reports over the past few months about lawyers abandoning big firms to set up smaller boutique practices, taking clients with them, and thriving in the result. It’s a four-step process: client tells lawyer it can’t afford her rates anymore. Lawyer tells client she doesn’t control her rates and doesn’t want to lose the client. Light bulbs appear simultaneously over their heads. And a few months later, a new small firm is born, with at least one A-list client on its roster.

I’ve seen and heard variations of this account many times in the last several months. Sometimes the motivation is financial, the chance to keep good clients and retain more profit. Sometimes, especially for women who set up their own shops, it’s to escape the inflexible culture of large firms that insist lawyers devote their prime family-starting years to business. And sometimes it’s the natural desire of talented and ambitious lawyers to start a new chapter in their lives — the difference being that this new chapter can now start with an old client. All the lawyers I’ve spoken with and heard about who’ve taken this plunge couldn’t be happier — and they couldn’t be busier, either, not only with the old clients they brought along but with new clients drawn to the prospect of great lawyers at affordable prices.

This American Lawyer article describes the genesis and market advantages of these new boutiques:

It’s all about value. The recession has increased clients’ price sensitivity, creating an opening for smaller firms with lower, more flexible costs. Boutiques cater to cost-conscious clients by lowering overhead expenses, slashing rates and offering alternative fee arrangements, while providing the same legal services that their founders offered at their old firms. …

Mark Suzumoto, name partner at Van Etten Suzumoto, says his rate has dropped 30 percent to 40 percent since leaving McGuireWoods. Durie has lowered her rate 20 percent. At bankruptcy boutique Harrington Dragich, James Harrington says he gives clients a “meaningful discount” on what he charged at Foley. …”The biggest positive of our firm is that we’re delivering the same expertise at a lower cost,” says Harrington.

These lawyers can reduce their rates not just because they’ve been freed from the large firm’s profit yoke, but because they’re also throwing off much of the overhead costs — expensive leases, summer student programs, extensive administration, and general infrastructure — that large firms have accumulated over time. The benefits this infrastructure delivers to the big firm can be argued, but the benefits it delivers to clients are usually negligible at best. As far as the client’s concerned, the primary and sometimes only benefit of hiring the firm is that it gets to work with a lawyer it likes and trusts. So if the client can get that lawyer at a lower cost and with less hassle, it will. It’s also no coincidence that in many of these new firms, lawyers are selling their services on a flexible- or flat-fee basis. That’s the new reality of the lawyer-client relationship, and these boutiques are among the first to get it.

I’m not sure if large firms in this situation realize how much danger they’re courting. Two of the profession’s oldest truisms are that clients hire lawyers rather than firms, and that a firm’s only real assets walk out the door every night with the intention to return the next day. Firms that raise their fees to the point that both clients and lawyers leave seem to be forgetting or ignoring these rules. Or, maybe more likely, they know these rules and they recognize the risks, but their cultural machinery is simply too rigid and complex to allow them to respond effectively. So many aspects of the traditional law firm model are breaking down, from annual rate increases to unilateral pricing to pyramidic associate leverage to open-ended hourly billing, that it’s hard to know what to address first.

But a joint exodus of good lawyers and good clients — not to another firm, but to a brand new settlement altogether — can’t be interpreted as anything but a disturbing sign. A firm can survive a couple of these kinds of losses, but much more than that, and the internal crisis of confidence can spiral out of control very quickly. If your firm hasn’t yet noticed the link between higher rates and lower billings, take a good look right now.

I used this analogy — high-wattage lamps that cast vast amounts of light in a wide circle, contrasted with smaller, sharper, focused sources that put only the light you need exactly where you need it — in a recent discussion about the future size of law firms. My theory is that most things being equal, the future belongs to smaller firms and solos, because the large-firm model ultimately suffers from an over-reliance on volume and an inability to finely focus resources.

Many big firms are like very large lamps with incredibly high-wattage bulbs that radiate huge amounts of heat and light — but in doing so, waste a lot of energy because they light up parts of the room that don’t need it and that aren’t going to produce a return on illumination investment, so to speak. Smaller firms, which do only a few things and do them in a very specific way, are like flexible halogen lights that aren’t for everyone and everything — but are ideal for certain contexts and needs. Mass broadcast power through reach and volume was the key to success in the 20th century, from media to manufacturing to marketing, and large law firms flourished in this environment. Their largeness was a competitive feature: volume as strategy, size as an end in itself.

In the 21st century, a different model will take hold. The future is fragmented, channeled, specific, focused, niched: a needle instead of a sledgehammer, a laser instead of a lamp. The elements of small practice — flexibility, dexterity, specialization, and personalized service — are ideally suited to the deeply diverse, long-tail legal marketplace that’s now emerging. A recent Economist article about the forthcoming U.S. census makes clear just how much is changing. The 2010 census is expected to reveal an unprecedented degree of diversity in the American population, a development of the utmost importance to marketers:

Cesar Conde, president of Univision Networks, a Spanish-language media company, says [the census] will be a “wake-up to marketers”. Once the results are in, firms are likely to invest more in marketing to minorities, to develop more products to appeal specifically to them, to advertise in languages other than English and to hire more racially diverse models. Peter Francese, a demographer at Ogilvy & Mather, an advertising agency, thinks the 2010 census will permanently change marketing. When companies analyse the census data, they will see that cities, and even some neighbourhoods, are so diverse now that broad advertising campaigns are no longer suitable. Mass-market advertising, he says, will become “extinct”. Marketers will instead have to focus on reaching specific households.

While the mass market continues to shrink and dry up, technology is simultaneously making the tiniest niche more accessible. Consider what Google CEO Eric Schmidt said about the future of his company: the goal is to give the user exactly one right answer to a query, not a list of possible right answers, essentially transforming Google from a search engine to a “find engine.” This technology already exists in the form of Wolfram Alpha, an “answer engine” that “computes and provides answers and relevant visualizations from a core knowledge base of curated, structured data.” These innovations should be widely available not much more than ten years from now, and at that point, how much good is size and volume going to do you, in terms of attracting customers and answering needs? People looking for legal help will find the one right answer or the one best answer, and all the size and marketing wattage in the world won’t help you be a better solution.

Starting now, law firms will have to justify their size. This is not only because the economic rationale for some law firm lawyers will cease to exist — traditional associates with too little work to pay their salaries, partners who fail to demonstrate their contribution in value terms, and the general decline of the leveraged pyramid model — but also because the advantages of size qua size are disappearing. Largeness does still have its virtues, starting with the fact that many big institutional clients need a law firm with multiple offices and a hefty workforce to mobilize on short notice. Big firms also offer “lawyer insurance” to clients: if my lawyer is away, five others can take my urgent call. And brand still counts for a lot, and will presumably count for even more in the age of the “answer engine,” when there’ll be a real advantage to circumventing the search process altogether.

But many of these virtues are gradually being counteracted by technological and cultural developments. Solos can collaborate with each other, through social networks and websites, as easily as a big-firm lawyer can walk down the hall and talk to a colleague — and can serve as backups for each other too. Small-firm lawyers can afford all the technological bells and whistles that big firms have long enjoyed, especially with the rise of SaaS and open-source technology. Small-firm lawyers can write blogs for next to nothing that, with the help of advanced SEO and link-building techniques, could outdo million-dollar big-firm marketing budgets in terms of getting the attention of the clients they want. With all these forces at play, a law firm that’s larger than it needs to be is going to run into problems.

Any biologist will tell you that the bigger an organism, the more energy and resources it needs to expend to keep going. Unless there’s a powerful competitive advantage to being big, smallness will begin to assert itself. Today, there are tiny desktop lamps that cast stronger light than the biggest, most florid 1970s table lamp, and even tinier lasers that put them both to shame in terms of power and accuracy. If you’re looking for a reliable model for law firms of the future, I’d recommend betting on the laser.

1. Why the billable hour’s not dead — just irrelevant.
2. Why process and systematization will change how legal work is done.
3. Why “access to justice” no longer has to mean “access to a lawyer’” Will we see the demise of “Unauthorized Practice of Law” restrictions?
4. How and why client collaboration will affect your practice.
5. Are we finally ready for preventive lawyering, becoming full-time holistic legal health professionals?
6. How will the introduction of Brazil, Russia, India, Indonesia and China (BRIIC) into the global legal marketplace affect you and your practice?
7. Why solos and small firms are the long-term future of the practice of law.
8. Why law schools won’t change, but legal education will.

All the details of the Guest Lecture can be found at the SPU website. If you’re not currently enrolled at Solo Practice University but would like to access this event, log in to Facebook (or create an account) and become a fan. Hope you can make it next Tuesday!

Update: A recording of the teleseminar is now available by becoming a fan of SPU’s Facebook page here.

Maybe the best way to define “hyperlocal” is to cite new media commentator Max Kalehoff’s question in his blog post: “What is hyperlocal? Can someone please tell me?” We all know what “local” means, he says: content and advertising focused on a specific location or area, rather than on a state, provincial or national level.  City, town, and community newspapers, TV stations, and radio stations all fit the definition of “local,” as do the organizations and subscribers who support them. So what does “hyperlocal” media mean, and how does it differ in a meaningful way from these local media that are dropping like flies all around us? A good answer comes in a comment from Mark Josephson, CEO of hyperlocal news provider Outside.in:

Historically, “local” was defined by city, town or zip. It was very “top down” and assumed that everyone who lived in a certain city, town or zip was interested in the same thing. Now, hyperlocal has come to mean “smaller than city, town or zip” and usually refers to neighborhoods or small town blogs. I think hyperlocal is defined by the individual, built from the ground up; that is, local media, news or information that is personalized by you and YOUR location. Hyperlocal is unique to everyone: what are the places, locations and neighborhoods that are important to you.

Hence, whereas a local paper might cover a town and a community paper might cover one section of a city, a hyperlocal paper covers a particular neighbourhood, block or even lengthy stretch of rural road. It reports on crimes committed in these neighbourhoods, school closures, pothole repairs, building permits, house sales, restaurant openings, and a host of other details that are meaningless to anyone a few blocks away but are immensely important for locals to know. Adrian Holovaty, founder of hyperlocal site Everyblock, prefers “microlocal” as a clearer and more accurate term, because “[m]icro implies intense focus, incredibly small scale and rich depth.” And he notes elsewhere that his company takes a very liberal definition of what constitutes “news.” If it matters to the people in the neighbourhood or block, then it qualifies as “news,” regardless of how narrowly a large legacy media provider might define the term.

Hyperlocal news is extremely specialized and customized news, and while the business model for such a tightly focused media outlet is still a work in progress, it’s a concept that dovetails nicely with the growing demand for personalized information. What interests me is the potential application of “hyperlocal theory” to the legal profession. I even think the model of a lawyer with a single, intense business focus has a good shot at being the future of solo practice and a whole new way of defining what lawyers do.

Here’s one variation on the theme: the geographically hyperlocal lawyer. We’ve had “local lawyers” for generations, of course: the traditional small-town practitioner is part of our collective professional consciousness. In a community small enough to support just a few practitioners, the local lawyer (usually a general practitioner) occupies herself only with the concerns of her fellow townsfolk, and her skills and knowledge are only as broad and deep as they need to be to address those concerns. But the traditional small-town local lawyer is under the gun: many communities that size are declining, and the lawyers there are older, less likely to have juniors to whom to pass on the practice, and generally work in areas (real estate, wills, document creation) most vulnerable to new competitors from outside the profession. The small-town GP is a vanishing archetype.

The geographically hyperlocal lawyer, on the other hand, might be more an urban or suburban creature: a neighbourhood lawyer in a community large enough to have many neighbourhoods. This lawyer would restrict his practice only to the people and organizations in a strictly defined area, maybe no more than several square blocks, and he would use that fact as the cornerstone of his business development efforts. He would offer a centralized office within walking distance of the whole neighbourhood, he’d circulate a hyperlocal newsletter of community news, business information and legal tips, he’d maintain a presence at soccer games and garage sales, and he’d benefit from word-of-mouth marketing over fences and during barbecues. In short, he would be a known and trusted commodity, a community focal point. The hyperlocal neighbourhood lawyer might never become rich and could face conflict issues with some frequency, but he should still have a decent and fulfilling career.

Another way to view the “hyperlocal lawyer” is from the perspective of practice area. Think of an extreme-niche lawyer who serves a worldwide “neighbourhood,” but offers services of an intensely focused type. Imagine a lawyer who takes on not all personal injury cases, not all brain-injury cases, but only swimming-pool-related brain injury cases; not all IPOs, not all high-tech IPOs, but only IPOs in the femtocell phone industry; not all immigration cases, not all business immigration cases, but only business immigrants from blacklisted countries who seek work in sensitive government departments. The hyperlocal-practice lawyer would establish herself as the best (and maybe the only) authority in the world on a micro-focused area of law. She would write a blog and would top the Google results whenever anyone searches for information on her niche. She would take on clients in her licensed jurisdiction and provide expert assistance and advice to those outside it. The hyperlocal-practice lawyer dives as deep into a practice area as there are clients to support her.

There are obviously risks and drawbacks here, too: choosing a practice area that’s easily rendered superfluous by technological and social change, or that will be rife with conflicts concerns, or that’s so finely focused that it can’t support even an efficient solo practice. But thanks to the internet, even clients with the most obscure legal issues can find the resources they need, something that was practically impossible a generation ago. An extreme-niche lawyer who writes a good blog and pays even rudimentary attention to website SEO could get all the advertising she needs courtesy of Google. This is the Long Tail era, after all, and an age like this invites the development of a Long Tail lawyer, someone who does perhaps just one or two things, but does them exclusively and exhaustively. The hyperlocal ethic is based on intense focus, and there are opportunities for practitioners who apply that focus to their practice.

So these are two potential angles from which to view a hyperlocal lawyer: geography and practice area. But for me, the really interesting potential of hyperlocality in the legal profession is from the client perspective. Let’s go back to Mark Josephson’s definition of hyperlocality, but this time inserting legal references rather than media ones:

Hyperlocal is defined by the client, built from the ground up; that is, legal information and services that are personalized by you and YOUR situation. Hyperlocal law is unique to every client: what are the legal issues, challenges and opportunities that are important to you.

What we’re talking about here, I think, is the evolution of the client-defined lawyer: hyperlocality not of region, or of practice, but of client.

Think of  it this way: for many years, first in their brochures and then on their websites, law firms described their services in terms of “practice areas”: the litigation department, the trusts and estates department, the taxation department, and so forth. These are all jurisprudential, lawyer-centered terms — departments named after law school courses, basically. It was a “top-down” approach to selling legal services, and many firms still take this approach. Over the past decade, however, we’ve seen gradual movement towards practice and industry segments within law firms: the banking group, the oil and gas group, the wealth management group, and so on (there are even client groups within some law firms, better again). These are all legal services defined according to client needs, not legal knowledge — and indeed, most of these departments are cross-disciplinary, bringing in lawyers from several different backgrounds to serve a particular industry or type of client. This has been a welcome change, I think, from an inward to an outward focus on lawyers’ part, allowing a law firm to be described and defined by its users rather than by its members.

Extend that thought a little farther, and you come to lawyers described and defined by their clients. We already know what clients want from their lawyers: they want us to work closely with them, understand their needs, keep them alert to and updated on things that matter to them, look out for their overall well-being from a legal perspective, and be ready to respond to developments in ways that will meet their needs. Right now, clients hire lawyers who they hope will meet some or most of those criteria, some or most of the time, in between our other numerous obligations. What if a client had the opportunity to customize a lawyer who’d meet all of them, all the time — a lawyer “personalized by you and your situation”? What would that look like?

Well, of course, we already know what that would look like — there are thousands of lawyers who serve only one client and whose skills and knowledge are designed to meet that client’s needs. They work for government and in-house corporate departments. They have exactly one client, they align their skills to that client, and they focus all their efforts to maximize its interests — they’re client-defined hyperlocal lawyers.

But it’s extremely rare for private-bar practitioners to have just one client. Normally we have dozens, and sometimes we have hundreds, and the more we have, the happier we seem to be. We maintain a balance between keeping our knowledge and skills focused enough to deliver competent services in our area of practice, but general enough that we exclude as few clients as possible from our purview. There are costs to that approach, of course, and most of them are borne by the client: the inability to reach your busy lawyer when you need her, the time and cost required for your lawyer to refocus on your situation, the heightened potential for disqualifying conflicts of interest, and the lawyer’s relatively shallow appreciation of all your needs and circumstances. Really, when you stop and think about, having scores of clients is kind of an odd way to run a trust- and relationship-based professional practice, isn’t it?

So think about this: a hyperlocal private bar. A legal profession in which having dozens of clients is the exception, not the rule. Most lawyers have only a few clients, and some have just one. A lawyer’s overall professional profile is shaped, yes, by his interests and his acuity in certain areas — but the details of his knowledge and expertise and the day-to-day affairs of his working life are shaped by his clients or client. The client sees in her lawyer everything she needs, no more than she needs, and nothing that she doesn’t need — just as a hyperlocal media user gets all the news that matters to her, everything about that news, and none of the news that doesn’t matter to her. These are user-defined lawyers, providing holistic, 24/7/365 legal services to their new clients: legal health checkups, problem anticipation and avoidance, advice and judgment when needed, all on a monthly retainer basis with special fees for special events. These lawyers have far fewer clients than most lawyers have today — but they do much more for them, and on a wider and deeper scale.

Designer lawyers? A profession that surrenders a degree of its self-determinacy to its clients? Whether that sounds like a dream or a nightmare is up to you. But I think it might end up describing some of the legal profession, and much of the solo and small-firm bar, a few short decades from now, and maybe sooner.

If you happen to subscribe to my Twitter feed, you’ll notice that I regularly post links to stories of interest in the legal press. If you look closely, you’ll notice that a great many of those stories relate to developments in very large law firms. That’s not because I’m fascinated by BigLaw or because I think my subscriber base is either. It’s because that’s what gets published. The legal press pays a disproportionate amount of attention to large law firms — as do we all.

The best-known legal periodical, The American Lawyer, is so tightly intertwined with large firms that the 100 biggest are referred to as the AmLaw 100. ALM’s web-based publication, law.com, is heavy with large-firm content (though in fairness, it does have a Small Business page too). The UK has two periodicals that closely follow BigLaw, LegalWeek and The Lawyer. In Canada, it’s Lexpert. In Australia, it’s ALB Legal News, and so forth.

But even purportedly general-interest legal periodicals also devote a substantial amount of space talking to and about lawyers in large operations. I’ve spent the last ten years editing a bar association magazine whose readers are mostly in firms of ten lawyers or fewer — but a look back over those issues would probably reveal a lot of coverage given to big firms.

If a periodical intentionally focuses on BigLaw, generally it’s because  large-firm lawyers traditionally make a lot of money, so they’re attractive both as subscribers and as advertising targets. But why do many other legal publications over-emphasize big firms, relatively speaking? Mostly, it’s because those firms have both the motivation and the resources to engage with the media.

Large firms have marketing directors, PR experts, website personnel, even a growing number of social media mavens, all paid to raise the profile of the firm and its lawyers. So when your average overworked legal journalist goes out to search for story ideas and contacts, he or she finds the big firms all over the place — they’ve established a powerful presence on the landscape. Not only that, but their PR professionals handle all the work of media relations, leaving their lawyers free to focus on client tasks. Small-firm lawyers and solos, by contrast, generally leave a much smaller footprint in the places where journalists search for ideas and leads, and few can afford to devote otherwise billable time to engaging even the mainstream media, let alone the legal press. The end result is that the rich, so to speak, get richer.

But I think there’s more to it even than that. If our professional media outlets spend an unusual amount of time mooning over big-firm lawyers, it’s because the profession does too. The prevailing culture of the bar, for many years, has been to attach an unusual amount of prestige to big law firms and the lawyers who practise there.

Whether we like to admit it or not, we often tend to think that a lawyer in a large firm with a well-known brand and spacious offices in a big building downtown is somehow a superior product.  There’s no rational basis for thinking that the size of a law firm has any bearing on the quality of the lawyers within it — yet that belief has infiltrated the way many lawyers think and behave. (Not the popular imagination, though. Atticus Finch didn’t work for a large firm. Neither did Perry Mason.)

Now, my point, as I hope you’ll appreciate, is nothing so hackneyed as big firms bad and small firms good. It’s a much narrower observation that small firms and solos are underrepresented in our professional media — and that this is not a good thing.

It’s not good for law students, reading Above The Law in class and thinking that the fascination with large firms and their payrolls is normal and healthy. It’s not good for new graduates who read legal magazines and newspapers and come to believe there’s something less admirable and prestigious about working in a smaller firm (or, heaven forbid, in a public-sector or law department capacity). It’s not good for the profession as a whole that the interests, priorities, cultures, and business habits of large-firm lawyers are presented as the default setting for private practice. And it’s not good for smaller practices, which count the majority of all lawyers among their ranks, that they don’t get to hear their stories told, their concerns addressed, their best practices circulated, and their career choices validated in proportion to their presence in the profession.

If there’s a solution here, it’s going to have to emerge from the ranks of these smaller-firm lawyers themselves — waiting for institutional publishers to change their editorial focus is not a good plan. Smaller practices need to find a way to amplify their voice and multiply their narratives within the profession as a whole. Maybe they need to help create their own media channel, pooling resources and enabling advertisers to find and support them. Maybe they need to harness the power of social media in ways that big firms haven’t figured out yet, to create the first truly online legal periodical through some innovative combination of blogs, RSS, Twitter and LinkedIn, and focus it on their issues. Maybe they need to figure out what the small-firm equivalent of Legal OnRamp would look like, and start recruiting their clients to join.

In any event, I’m inclined to think  our current fascination with the size of a law firm will eventually start to fade. As someone pointed out at the College of Law Practice Management’s Futures Conference last month, “big firm” and “small firm” are increasingly specious and distracting distinctions. To the extent we need to divide the bar — and it’s not always clear to me that we do — we should divide it along the lines of whether a firm serves a consumer client base or a corporate/institutional client base, because those really are very different types of businesses. That would be a lot more useful than adding up how many lawyers use the firm’s stationery, and drawing unwarranted assumptions from the result.

The lawyers operate remotely, but they tap into a larger infrastructure with centralized billing, IT support, marketing, and recruiting efforts. They also share work frequently, communicating through video chat or e-mail as needed. Technology companies and startups were early converts, but the firms have added lawyers with varying expertise, including employment, real estate; FSB has even started a litigation practice.

Answering the article’s eponymous question in the negative was Patrick J. Lamb, who operates a bricks-and-mortar but nonetheless highly innovative firm at Valorem Law. He suggests that virtual firms suffer by comparison to boutiques thanks to one key difference.

The difference?  The ability to aggressively collaborate. Even with the best communication hardware, there is something lost when you can’t go next door and bounce ideas off someone who may have nothing to do with the case but who is vested in its outcome. I’ve experience firsthand the accelerated evolution of ideas from really good to extraordinary when several experienced minds combine their talent and judgment and work through a problem.

Speaking for myself, it’s not clear to me how a partner in a virtual law firm differs meaningfully from a well-connected high-tech sole practitioner. Both run their own practices in a highly personalized and streamlined environment, often rely on cloud-based infrastructure to manage their practices, set their own rules for client relationships, and operate with an unusual degree of autonomy. I think virtual firms aren’t cyberspace versions of traditional law firms so much as they’re loose aggregations of like-minded solos under a common banner that happens to be hung on the internet.

So I don’t think virtual firms are the future. But I do think they’re a future. More specifically, they’re one of a growing number of law firm models that will all be able to flourish in the next couple of decades. That’s because what we’re really seeing here is the demise of the traditional cookie-cutter law firm as the default setting for legal service enterprises.

One of the great things about the current upheaval in the legal marketplace is that the old expectations and parameters of law firms are losing their iron grip on the profession. Look, for example, at FutureFirm 1.0, a two-day competition this past April to take a tired traditional law firm called Marbury Madison LLP and overhaul it for the 21st century. Hosted by Prof. William Henderson at the University of Indiana Maurer Faculty of Law, FutureFirms attracted some of the most innovative minds in practice, the corporate world and academia. The event produced a blueprint for redefining large law firms that includes alternative fees, merit-based compensation and risk-sharing with clients — and they’ll do it again next year.

Or take a look at a forthcoming article in the CBA’s National magazine (which, full disclosure, I edit) titled “2020 Vision,” written by lawyer and Legal Post blogger Mitch Kowalski. It looks back from the year 2020 at the development of a very different (and hugely successful) law firm called BFC Law Professional Corporation that abandoned most of the trappings of the traditional firm. Of particular note for our purposes is the future firm’s “hub-and-spoke” approach to its physical premises:

The Hub
We maintain meeting room space downtown (the Hub), equipped with staff, computers and the like. This space also contains hoteling niches where lawyers have workspace and telephone/internet access. Remember, all our systems are cloud-based, so lawyers and staff can work anywhere. Office management handles all boardroom and hoteling niche bookings.

The Spoke
BFC’s day-to-day legal work is done at a public transit-accessible location outside the downtown core (the Spoke). Not only is rent much cheaper there, our staff and lawyers find the Spoke to be closer to their homes,  which reduces their travel time and increases their quality of life. In the Spoke, we have moved away from separate offices for lawyers,  which allows for the efficient use of smaller rentable space with better HVAC flow (further reducing costs). Small meeting rooms throughout the Spoke accommodate privacy as needed.

What the virtual law firm, Marbury Madison, and BFC Law all have in common is that they’re different and quite realistic visions of how lawyers can come together to offer legal services to the marketplace. They reject, or at least test severely, the standing assumptions about how a law firm should be constructed, both physically in terms of its premises and organizationally in terms of its clients and employees. In doing so, they reflect our evolving understanding within the profession of just what a law firm is supposed to look like.

We have this funny little idea in the law that the nature of your work and the quality of your practice are heavily influenced by the physical environment in which you operate. Are you on the 40th floor of a steel and glass tower in an urban center? You must be doing intricate, high-end, bespoke work for multinational clients. Are you in a nice but inconspicuous brick building with a wooden front door and creaky floorboards in an exurban community? You must be doing basic, commoditized work for unsophisticated clients. Lawyers love to judge people, and the people we love judging the most are each other, using criteria that reveal more about our own assumptions and biases than anything else. What the rise of the virtual law firm really signifies is that those assumptions, at least in terms of law firm structure, should soon be fading away.

In fact, if the form that a law firm takes will be influenced by anyone, it’s going to be clients, not lawyers. Both clients and lawyers — but especially lawyers — are very used to the idea that “they” come to see “us” in a place and at a time of our choosing. That simple unconscious assumption sets the tone for all relations that follow between the two parties. Lawyers have always had home-field advantage over clients, and we like it that way.

Now, the gravitational pull is starting to run the other way. As clients’ influence grows, so too will their ability to draw us to them, rather than vice versa. That doesn’t have to mean house calls — although it might — but it does mean that law firms will feel more obliged to arrange their physical availability in ways that increase convenience to clients. “Lawyers on demand,” a little like time-shifted TV shows? It’s not a preposterous result, and even thinking about it prepares us to better adjust to future client relationships where we don’t get to set all the ground rules from the start.

Yesterday’s law firm selection was a boxed lunch packed by lawyers; tomorrow’s is going to be a lavish buffet with clients standing in line next to you while you choose. For all that we still need to work on diversity within law firms, it’s going to be nice to have a little diversity of law firms as well.

I try not to talk about books I haven’t read, and Free is still on my to-get list. But I did read the lengthy excerpt published in Anderson’s magazine Wired last February, and it seems to capture the book’s arguments nicely (and for free, no less). The gist is that technological advances have made the cost of creating one more copy of many products (the marginal cost) and the cost of distributing those products so small that they are effectively zero. Content that can be rendered digitally (almost all of it) is accordingly “too cheap to meter,” which in any kind of open marketplace means that competition will cut the price of those products to virtually nothing.

Of course, not everything falls into this category: products like shoes and TVs aren’t heading towards free. And even for products whose marginal costs are nearly nothing, that’s not the end of the story, as the Times review notes:

More precisely, the marginal cost of digital products, or the cost of delivering one additional copy, is approaching zero. The fixed cost of producing the first copy, however, may be as high as ever. All those servers and transmission lines, as cheap as they may be per gigabyte, require large initial investments. The articles still have to be written, the songs recorded, the movies made. The crucial business question, then, is how you cover those fixed costs. As many an airline bankruptcy demonstrates, it can be extremely hard to survive in a business with high fixed costs, low marginal costs and relatively easy entry. As long as serving one new customer costs next to nothing, the competition to attract as many customers as possible will drive prices toward zero. And zero doesn’t pay the bills.

Interesting as all this is, what does it have to do with the legal profession? Potentially, a great deal, as some legal bloggers have noted. Carolyn Elefant and Doug Cornelius both point to innovative new offerings from two well-known US law firms: Wilson Sonsini has set up an online term sheet generator, while Orrick has created a start-up forms library on its website. Both of these products (or are they services?) are entirely free, to anyone (client, non-client, other lawyer) who wants to use them. They’re also products from which these firms and others have traditionally made money. “But there’s a method to Orrick’s apparent madness,” Carolyn writes:

Orrick’s freebies help it capture a segment of the market which either couldn’t afford to hire Orrick or if they could, would not have  been worth Orrick’s time.  Consider the example of a small business — typically the type of client outside of biglaw’s demographic.   The business might download and fill in Orrick’s incorporation form and then say to itself “I’ve already filled out the data.  How much could it cost to pay an Orrick attorney to look this over?”  Likewise, Orrick could charge far less to eyeball a completed form which it prepared itself than if the firm were to begin the incorporation from scratch (in which case, it would have to invite the client to the office, interview the client, gather the data and prepare the incorporation papers).

Meanwhile, Doug points out that many law firms have already adopted the philosophy of Free, in their own law firm newsletters and “client alerts”:

When you had to mail these alerts, there was a dollar cost associated with that distribution. To better phrase that, there was a stamp cost associated with distribution. Now distribution are costs are minimal. The costs are the same whether you email it to 500 people or 50,000 people. The same is true with viewing it on the law firm’s website. … Lawyers and their firms are giving away this valuable legal insight in the hopes that you will hire them to represent you in a matter related to the information in their publication. They use the publications to showcase their expertise, but in the process give away some of their substantive knowledge.

Giving away something for free or ultra-cheap in hopes you’ll entice users to buy your other services is not a new phenomenon, even in law: smaller firms have been using items like wills as “loss leaders” for years. What’s significant here is what’s being given away.

Legal forms aren’t matchbooks or Bic pens — or at least, they didn’t use to be: they were once important elements of the lawyer’s inventory that required a lawyer’s skills. The fact that they’re now customizable and downloadable on the Net tells us that the skill to produce them is now available widely. That implies a lack of scarcity and a consequent inability to charge much of a price. Legal knowledge, as Doug points out, is already being given away free by law firms; now, it appears that legal processes like document creation are following suit.

But it’s not law firms like Wilson and Orrick leading the charge and blazing this trial; it’s non-lawyer entities. Companies like LegalZoom sell forms for low prices; start-ups like WhichDraft give them away for free; most tellingly of all, services like JD Supra encourage lawyers to donate them to the profession at large as, among other things, a marketing tool. “Lawyers need to recognize,” Carolyn notes, “that we are fast reaching a point where the kinds of forms that companies like LegalZoom offer – such as contracts, leases, incorporations and wills – may be available online to all for free.”

Lawyers’ marginal cost of document preparation has always been low, but in the absence of other alternatives for clients, document-focused products could be sold at a profit. Now, thanks to the Free effect, the marketplace value of these sorts of products — their price, in other words — reflects their marginal cost. That’s great for clients; it’s bad for a lot of lawyers. Specifically, it’s terrible news for lawyers whose practices depend on the creation and sale of documents, contracts, agreements and anything else that can be digitized, templated and algorithmed. In other words, for many general practitioners.

Think of the services your typical general practitioner provides: wills, incorporations, divorce papers, leases, standard contracts and so on. If all these things aren’t yet available for little or for nothing on the web, they soon will be. How will the lawyers who rely on this kind of work survive? If they can offer more in-depth services in a given area, they could give away the documents in hopes of attracting that higher-end paying work. Jay Flesichman explains:

Would you prepare the divorce paperwork if you could make the money in another fashion? Say, on a new estate plan for the client? Would you draft bankruptcy petitions at no cost if it would cause the client to pay you for post-petition services and give you the chance to handle all of the lucrative fee-shifting adversary proceedings that come out of the bankruptcy case? … [In bankruptcy,] the consultation is often free as a way to get the prospect in the door.  Maybe the credit report is free.  Perhaps credit counseling is built into the price, making it free.  But not much else.

The thing of it is, though, if you could provide these in-depth services, by definition you wouldn’t be a general practitioner. That’s why the future for GPs looks incredibly grim: there’s just no profit to be had in providing a wide range of basic legal services. And I’m not talking just or even exclusively about solos: urban office towers are filled with lawyers whose working days are spent creating and reviewing corporate forms and documents. They might be exquisitely complicated forms. They might involve huge sums of money. But they’re still forms and documents, and if the wave of this kind of work heading to India wasn’t a big enough clue as to its marketplace value, the people at Wilson Sonsini and Orrick are making it crystal clear.

Inevitably, the term “commoditization” is going to enter this conversation, and Jay Parkhill makes the connection from Free to Richard Susskind. In The End of Lawyers?, Richard is careful to mark five stops on the route from bespoke to commoditized work, including standardized, systematized and packaged work. For legal tasks, he wrote, a commodity is “an IT-based offering that is undifferentiated in the marketplace (undifferentiated in the minds of the recipients and not the providers of the service). For any given commodity, there may be very similar competitor products, or the product is so commonplace that it is distributed at low or no cost.” We seem to have reached the point where legal document work is becoming entrenched in the packaged and commoditized areas.

What this all comes down to is this: if your main source of value is your ability to craft a legal document — if you rely heavily on products with a very low marginal cost — you could be in serious trouble. And it may only have begun: recall the NYT review of Free that noted: it can be extremely hard to survive in a business with high fixed costs, low marginal costs and relatively easy entry.

Law firms have traditionally had high fixed costs — expensive lawyers and prime real estate, principally. Many practice areas have low marginal costs — once you’ve drawn up a prospectus for one client, you’re 70% of the way to drawing one up for the next one. What’s missing from the equation is the relatively easy entry: lawyers still decide who can offer legal services, and we prosecute for the unauthorized practice of law those whom we decide can’t. If that barrier ever falls, look out.

Looking down that road are the good people at The American Lawyer and Legal OnRamp who, with the assistance of consultant Rees Morrison, recently conducted a survey of in-house counsel members of Legal OnRamp. The survey (disclosure: I made small contributions during the design process) asked in-house lawyers about their relationships with outside counsel and their predictions about how those relationships and in-house practices will evolve over the next five years. Topics of inquiry included client satisfaction surveys, value billing, outsourcing, commoditization, automation, consolidation, and social networking.

The thrust of the results is that in-house lawyers aren’t especially happy with outside counsel in terms of service, partnering and communication — nothing new there — but are surprisingly tentative about predicting major change in how they go about acquiring services from these law firms. Very surprising, actually, as Michael Grodhaus says in reference to another study “in which 32% of 600 corporate executives predicted significant changes in law firm billing practices over the next two years. … So in the face of what is likely to be the worst financial crisis in this country since the 1981-82 recession — two-thirds of these corporate executives expect to continue to be billed by the hour for legal services just as they have always been? Where are their shareholders?”

The AmLaw/OnRamp survey results are here, the analysis by Rees and AmLaw’s Aric Press  is here, and Paul Lippe’s analysis at Legal OnRamp is here (members-only on that last one). All insightful stuff, and worth your time. For me, though, the takeaway is found in Aric’s introductory AmLaw editorial, summing up the big-picture view of the changes underway in the legal services marketplace. He identifies, correctly I think, four trends driving change — client pushback, talent upheaval, technological disruption and the Legal Services Act — and forecasts both fundamental change (farther down the line) and disaggregation of legal services (probably a lot sooner) to come. He closes with this concise but powerful state-of-the-nation on change in the legal marketplace (emphasis added):

No one doubts that there will always be room for a trusted adviser who can find new ways to bend a statute, or a white-collar specialist who can save the hide of a business leader or two. Rather, this discussion seems to be about examining what firms do, finding the tasks that really aren’t worth their bespoke costs, and developing new systems or methods for doing this work more cheaply and efficiently. How big a problem would this be for firms? That will depend in large part on how much of their work can be fairly judged as routine. At least some law firm leaders estimate that half their tasks fit that description. Ouch. They will have to hope that no one notices, change their operations, or die.

It’s not that the work would go away, just that it would be handled differently. New organizations would develop that could handle the routine searching, filing, and drafting; the change scenarios imagine technology swooping in to provide these methods. Strings of law offices, filled with well-trained but lower-cost labor — from Bangor to Bangalore — would take on these tasks, passing them up the value chain to more expensive providers in due course. With much of the fat pared away, real specialists, the law firms and lawyers with reputations as high-cost providers worth the higher cost, could be even more successful than they are today. And general counsel would come to resemble the other sort of GC — the general contractor who would have to manage the many functions that were once performed, in the olden days, by a single law firm.

It’s remarkable to see, in the Bible of BigLaw, large-firm leaders’ acknowledgement that half of what they sell is routine work. Because it’s probably safe to say that that work is neither conducted nor priced in ways that reflect its routine nature: partners doing work associates could do, associates doing work professional staff (the ones they’re laying off at the rate of 18% a month) or outsourced lawyers could do, and staff doing work that computers or online databases could do. From due diligence to document review to legal research and more, many law firms assign knowledge- and process-heavy work to people higher in the talent and experience chain than those tasks require, keep that work a safe distance away from knowledge management and other workflow efficiencies, and sell that work at rates higher than which it would otherwise be priced.

Aric isn’t overstating the potential impact on firms if routine work  does get diverted to other entities or processes: firms’ entire business structures could be at risk. That’s because of that funny little thing law firms call leverage: often defined as the ratio of associates to partners, but maybe better understood as the degree to which partners can extract fee-generating work from non-partners. I’ve never fully understood how the financial term “leverage” came to describe non-partner fee generation, but a lot of firms rely heavily on it for their profit margins. You don’t actually need to be a Marxist to appreciate that past a certain point of the year, associates pay for themselves and their subsequent billed hours go directly into partners’ pockets.

More and more signs are pointing towards a future profession in which law firms simply can’t get away with selling routine non-lawyer work at lawyer prices. Richard Susskind identifies the change as legal work shifting along the customization spectrum, from bespoke to standardized to systematized to packaged and finally to commoditized: down the road, he believes, legal work in those categories will break down roughly as 15%-15%-20%-25%-25%. Bespoke work can be charged out at full rates, commoditized work is essentially free, and the fees you can realistically charge for the others decline as you move to the right. Today, a lot of law firms are selling work in the middle and on the right of the spectrum at prices more appropriate to those on the left.

As Aric  points out, the middle-to-right-side work isn’t going away, but it will be done differently, through the use of technology, systematization, and outsourcing. Law firms can employ all these tools themselves, if they so desire, but they can’t continue to charge lawyer rates for it and use it to keep their younger lawyers busy. Inevitably, that will force a major restructuring in how firms make money. They used to be able to leverage associates’ time on basic tasks through billable hours;  they’re soon going to have to come up with something new, and they don’t seem to be brimful with ideas.

The answer, as is often the case, can be found at the other end of the law firm spectrum, with sole practitioners. Specifically, it’s laid out extraordinarily well in a post by Carolyn Elefant that I think qualifies as one of the year’s best. In “Solo, Leverage Thyself (and Diversify Too); Biglaw, Take Heed!“, Carolyn describes this new post-leverage world facing law firms and contrasts it with how leverage really works in a sole practice (her post goes on at greater and even more interesting length about diversification of a law practice, but I’ll save that for a future article):

See, because we solos don’t have an army of associates against which to leverage our hours, we learn very quickly to leverage ourselves.  What that means is rather than rely on costly, highly paid labor to amplify our billable time (not hours, time – which is my second point), we solos use technology and outsourcing to extract more value out of each hour of work we perform.  With a virtual assistant (and I have an excellent one), I can hunker down and focus on client work that demands my unique expertise, while my assistant can keep my trade association (another revenue maker) up and running or ensure that I’m constantly submitting proposals for work from new clients ….  As a result, even while I’m working on one project, I’m generating or at least stirring up the potential for revenue from others, so I’m super-charging the value of my time.  Just as partners do with associates, only that comes at a much higher cost.

This is the future that awaits many lawyers in all sizes of firms — amplifying their billable time. “Extracting more value out of each hour of work we perform” will be the key to profitability from here on in. KM systems generate legal knowledge and client information in a fraction of the time it would take a lawyer to do it, giving that time back to the lawyer to perform and sell higher-value work for clients. Side businesses or parallel projects can be operated by para-professionals working under lawyer supervision or by sophisticated software programs. One of the reasons firms like Blake Dawson Waldron and Holland & Hart put together online compliance training programs for their clients is so that in any given hour, their lawyers could be producing two streams of income: one from the work occupying their present time and one from the online machine that hums happily away 24/7 serving clients and generating revenue.

Systems and processes that automate predictable tasks and retrieve established know-how. Multiple revenue streams flowing simultaneously from a lawyer’s applied expertise. Work assigned not to the costliest performer you can manage to foist on the client, but to the most efficient performer or system that can produce cost-effective accuracy. This is the future of legal work, configured not to be an end in itself (a profit center for lawyers) but as a means to an end (better service for clients).

Lawyers, conditioned from their earliest days to maximize billable hours, are about to develop a new appreciation and a proper degree of reverence for what they should have valued most and used best from day one: their own time. This is the new leverage.

But the most essential thing law firms do for their lawyers is to share their brand — to give their lawyers the boost in personal prestige and profile that comes with being associated with a respected name and identity. Set aside all the recruitment and retention pitches — the overriding reason why lawyers stay with a firm for the medium-term or beyond is that the firm’s brand evokes confidence, lends legitimacy, and enhances the lawyer’s personal brand. (For an example of what happens when a firm’s brand collapses, watch the unhappy tale unfolding at Heller Ehrman).

That, at least, has been the traditional way things have gone. More recently, though, in the age of the lateral hire, we’ve seen firms acquire lawyers in the hopes that the lawyer’s personal brand and reputation will reinforce or even enhance the firm’s brand. We’ve also seen the rise of lawyer free agency — rapid lateral movement among firms by lawyers at all career stages, such that it gets harder for firms to base their brands on individual lawyers or practice groups. Most importantly, the combination of associate fungibility, hard economic times and partners’ determination to protect PEP at all costs has resulted in recurring waves of lawyer layoffs, making an indelible impression on lawyers that loyalty to employees is not a law firm characteristic.

These and other phenomena mark the rising importance and influence over the last decade of the lawyer’s personal brand, something that was once foreign to all but a very few outstanding practitioners. Individual lawyers have less need to be associated with a law firm’s brand, at least beyond the first couple of years of practice, because they have become more adept at fashioning their own reputations and taking charge of their own careers.

Now, add two more recent phenomena to that mix: the arrival of millennial lawyers, who don’t stay in any one place very long and place high importance of personal definition and fulfillment; and the growth of the Web a personal brand platform through the use of blogs, podcasts, LinkedIn, Twitter and other forms of self-promotion and brand definition. The result, I think, is a fundamental power shift away from the collective firm brand and towards the individual lawyer brand.

Firms are going to have to cope with this, and in a longer essay later this month, I’ll go into some detail on that point. But for you, the individual lawyer, this means that starting now, you have both the responsibility and the requirement to take full control of your career and your personal brand. You need to assume that no other entity will make a long-term investment in your own success, and that you have to forge an identity and skill set independent of any firm or other legal employer.

If you need a model for that task, look at sole practitioners: this is the life they lead. From day one of their practice, they couldn’t content themselves with simply knowing the law and waiting for the cases to come up the elevator shaft. They had to learn everything about attracting clients, which meant marketing themselves, defining their niches, building their reputation, writing and speaking where clients could see them, and making client service the #1 priority. It also meant understanding the finances of a legal business: overhead costs, lease payments, cost identification, profitability calculations, accounts receivable, bill collection, tax and pension liabilities, and much more.

As all but a few law firm brands decline in importance, and as clients increasingly buy legal services based on the lawyer, not the firm, you’re going to have to add “full-time brand management” to your list of duties and skills. You have to be prominent and persuasive when showing up on Google searches, fully capable of running a small business, and able to keep one strategic eye on the short- and long-term evolution of your markets. Because you won’t be able to rely on law firms to do that kind of thing or share some of their brand power with you.

From now on, we all need to take charge of our brands and our careers. From now on, we are all solos.

There’s a lesson here for lawyers who work in smaller operations, from midsize firms all the way down to sole practices: taking on your bigger competitors on their terms is a losing strategy. Either avoid their strengths or capitalize on their weaknesses, but at all times remember that you can’t do business the way they do and you shouldn’t try. Recent news items offer three examples that bear this out:

1. Technology: The 2008 ABA Legal Technology Survey Report sent out some highlights in a press release, including this one: 37% of respondents use case or practice management software. But what’s interesting is that smaller firms have better uptake: 24% of large-firm lawyers use the software, versus 33% at firms with 10-49 lawyers, 50% of respondents from firms of 2-9 attorneys and 40% of solos. If you’re in a small practice, you absolutely must capitalize on big firms’ unwillingness to adopt these programs, which pay for themselves almost immediately in terms of increased productivity and efficiency. Biglaw’s failure in this regard is a gift to its smaller rivals, one that won’t last forever.

2. Receivables: The Daily Business Review reports on a raft of firms that, in the face of a weakening economy, are cracking down on overdue receivables and getting their cash flow pumping harder. Firms could ignore outstanding bills when times were good, but now they’re motivated to collect those debts — or at least, judging from the article, the midsize and smaller ones are: the only large firm in the story says it “touch[es] base periodically” with clients whose lack of payment suggests the firm has “fallen off their radar screen.” Small firms can and must take cash flow seriously, because it adds an extra layer of profitability that some larger firms still feel, for some reason, they can ignore.

3. Exclusivity. Your ABA reports on a session at its annual meeting in New York on how solos can get referrals from large firms. The critical feature, as is always the case for smaller practices, is focus: develop a specialized niche that offers a complementary, not competing, profile to firms that could send you work. True enough, but the greater point is that large firms seek to be as many things as possible to as many clients as possible. You need to do the opposite: be very few things to a limited selection of people, so that you can own that cross-sectioned block of work and clients. Large firms think constantly about their fellow big-firm competition; your goal should be to have as little competition as possible.

Taking an asymmetric approach to strategy allows you to think of other big-firm weaknesses that you can turn into small-firm strengths:

* Overhead: One of the two biggest expenses for large firms, which feel compelled to occupy tony premises in expensive locations, can be a competitive advantage for you. Take steps to reduce your real-world footprint by going wireless and mobile, accessing caselaw and precedents online, sharing office space, or working from home or outside urban centers.

* Payroll: Here’s the other major expense for your huge competitors, whose business models assign many highly paid young lawyers tasks that have them punching below their intellectual weight. Hire experienced lawyers on contract, or let them work from home, and try to send at least some work offshore every month. The big firms have made salary a weakness for you by driving up market prices, so compensate by offering the flexibility and satisfaction that they can’t. Which brings us to:

* Women: Large firms’ inability to retain women past their sixth year of call is well-known, thanks to an economic model that pretends women don’t carry a disproportionate amount of child and home responsibilities. Women lawyers are an undertapped source of talent, a Moneyball-esque market inefficiency. Take advantage: find out what women lawyers are looking for in a legal employer and shape your workspace accordingly.

You can adjust and add to this list based on your own community, practice area, talent pool and client marketplace. What it comes down to is: don’t try transplanting a large firm’s business model to your more modest tract of land. Identify your bigger rivals, figure out their vulnerabilities, and make the appropriate changes to your own smaller firm’s profile.

But one final note of caution; beware of focusing too much on your competitors and not enough on your own strengths and vision. David was smart enough to use a sling and stone against a giant. But he was also adept enough with that weapon to take the giant down with one shot.