I had my fifth anniversary as a licensed attorney in June. I have spent my entire five-year career at firms that most would consider non-traditional, “virtual,” or “21st century” law firms. I recently realized that I may be relatively unique as a lawyer who has spent their entire career, albeit a relatively short one, at two firms that would not have existed a few years ago. Here are some observations from my experience that may reflect on the future of the law and of law firms:
1) Training is expensive regardless of your firm size.
2) Firm camaraderie is not necessarily dependent upon a physical working location.
3) Competing solely on price is a losing proposition.
What makes my firms so special?
Before jumping into my thoughts, however, I want to quickly discuss what makes my firms unique from firms of the past.
First, clientele. Both firms exemplify a new breed of small, nimble firms with an unusually strong client roster. Both firms were small (less than 5 lawyers each) but both firms’ clients have included multiple fortune 500 companies. Moreover, billings from those large clients made up more than the majority of those firms’ total revenues.
Second, business structure. The firms where I’ve worked have emphasized a low-cost, low-overhead model. This low-cost economic model differs from the traditional firm in many ways but here are three quick examples: the model rejects traditional emphasis placed upon high-priced overhead such as office space and legal staff – our offices were either cheap or non-existent and both had no secretaries and just one admin each. It also allows the firms’ employees to keep a much large portion than the “one-third” of their hourly rate that is common at traditional firms. Finally, our rates are very reasonable particularly when compared with the rates at our BigLaw competitors. For example, even five years out I have a lower hourly rate than some more expensive paralegals at BigLaw firms.
As a final note, both firms have been women-owned and run. No doubt that women-owned firms were rare twenty or thirty years ago but those with the clientele my firms have enjoyed were probably not found. Today, women outnumber men in law school. It’s quite likely that women-owned firms will be the wave of the future as the increasing female lawyer population works its way through the ranks of practicing lawyers to ultimately become managing partners.
Now, the observations:
1) Training is expensive. Despite our competitive rates my firms faced basically the same barriers to training that exist at traditional firms. In any firm regardless of size, every six unbillable minutes that an inexperienced lawyer spends learning something is six minutes of lost revenue to the firm. Additionally, every six unbillable minutes that a more experienced lawyer at the firm spends teaching a less experienced lawyer how to do something is actually twelve minutes lost because the more experienced lawyers can’t bill that time and neither can the less experienced one. Beyond this, we have also found at my firms that we face a similar obstacle to using work to train associates only for different reasons. For traditional firms or BigLaw, clients are increasingly unwilling to subsidize large firms’ costly training of new lawyers and therefore don’t want to see a more experienced lawyer training a less experienced lawyer on their matter. Our clients tell us that they don’t want two of our lawyers on their matters because two of our lawyers cost as much or more than one BigLaw lawyer.
2) There is such a thing as “Virtual Camaraderie.” Firm camaraderie is not necessarily dependent upon having a physical working location. I have worked at two different firms. At one firm we had a small inexpensive office that served as a place where we could work so that we didn’t have to work from home. The other firm did not have an office; we were entirely “virtual” in that way. The culture at the “physical office firm” was fine, even good. However, I felt a particularly strong camaraderie at the entirely virtual firm. There are many things that could explain my feelings about the virtual firm that are not necessarily related to the fact that we did or did not have a physical office. For example, perhaps those running the virtual firm were aware of the shortcomings that a lack of common physical space created and were therefore overcompensating for that deficiency. It’s also possible that others at the entirely virtual firm didn’t feel the same closeness with the firm that I do, or that those at the physical office firm thought everything was just peachy. Hard to say. I do know that I felt as much or more camaraderie at the all-virtual firm where I actually saw my colleagues much less often as I did at the physical office firm where I saw them regularly.
3) You Can’t Compete on Price Alone. Competing solely on price is a losing proposition even for lean firms. First, consumers of legal services, just like all consumers, equate price with value. Second, there is always someone cheaper than you.
Price creates a perception of value in consumer’s minds. Because my firms have competed at least partially on rate, each time my rates have increased I have worried that my existing clients won’t want to continue to hire me. While some clients do come and go as fees increase, most clients understand that your fee is a reflection of your experience and they are generally willing to bear the increase because they realize that they are getting a “better” product, a better value. This dilemma is common to most lawyers but I emphasize it here to underscore that the model doesn’t change for attorneys at a “new law” firm.
There have also been times that our firm has lost work to “cheaper” alternatives. In one case a client indicated that they were going to use law students or interns to handle most of their work. In other cases, clients have either developed automated processes that alleviated the need for attorneys or trained an in-house contracts manager or paralegal to handle the work that they were previously outsourcing to us. Those situations taught us that while our rates are very attractive we cannot compete on price alone. We have to rely upon our ability to be nimble and lean as well as the depth of experience and knowledge that we bring to the table for a given price to demonstrate that we’re a good value, not just “cheap.” There will always be a cheaper option than our competitive rates. We have to sell the client on a compelling value proposition in order to keep our services in demand. As a final note, the limitations of competing solely on price also underscore the importance of relationships. Most of our success at both firms is attributable to the relationships that we had with our clients. I couldn’t possibly do this topic justice here in a few sentences but I bring it up because it’s too important not to mention.
Why does this matter?
OK, so, you’ve read through these observations and now you’re thinking, “Yeah, so what? Most law firms have already identified these problems.” There are two key takeaways here for law firms thinking about the future.
First, training has been a significant issue for law traditional firms and it will continue to be a big issue, if not a bigger issue, for both traditional firms and 21st century firms. While larger law firms struggle now to train their young associates, they have, to date, had greater resources and deeper pools of work into which to dip to train their associates. The small, nimble firms of the future probably do not and will not have the vast resources nor the deep pools of work with which to train young lawyers. In short, the training need is now unmet in both environments. The lesson: should firms new or old desire to continue to hire law school graduates directly, they will have to think more creatively about how to train those young lawyers.
Second, law firms must begin and continue to think critically about pricing. While larger firms may struggle some to price their work today, they can generally just track their competition’s rates. Firms of the future will not be able to price their services based upon the competition because (a) there may not be directly equivalent competition and (b) even if a competing firm can be identified, the competing firm’s business model may differ so significantly as to make the comparison useless. Indeed, firms of the future will likely vary so widely in subject matter, clientele, and overhead that they must put greater thought into how they price their services and justify those prices/rates for two reasons. The first is the need to stay competitive by not charging too much. The second is the need to stay profitable and avoid leaving money on the table given what will be their increasingly thin margins.
In short, the most vexing challenges to 21st century firms may not be new unknown challenges but instead the same old challenges in new packages. While my limited career does not give me nearly enough experience to assert that I have solutions, there are a couple of things I think I can say. First, I am pretty sure that even though these look like yesterday’s problems, they will require tomorrow’s solutions. Second, if we don’t start trying to fix these problems now we do a great disservice to the next generation of lawyers who will almost certainly grow up in law firm environments that are much more “virtual” than the ones I knew.