single post

Business of Law



The Business of Law: Is the Mid-Tier Law Firm Dying?

So, should big law be shivering in their boots? No—but midsize firms should.

Last month, the Wall Street Journal reported that in the past year, companies have taken approximately $1.1 billion they used to spend on outside legal in-house to save money. For all but the most complex transactions and litigations, they find that it’s far more cost-effective to hire a bigger in-house legal team that they can scale up with contract lawyers when needed. This phenomenon is known as insourcing, and the trend in law is undeniable.

Axiom successfully predicted the legal market would swing in-house. Their model works by seconding their lawyers to in-house teams, so companies can hire the general and call up the cavalry as needed. The oversupplied legal market has no dearth of skilled lawyers searching for a more flexible lifestyle. The ability to scale up your legal team instantly with experienced lawyers who bill out at a fraction of the rate of first year associates is a win-win for companies.

The Raised Bones of Arlington National Cemetery Photo Credit: Stuck in Customs via Compfight cc

So, should big law be shivering in their boots? No—but midsize firms should.

For the most sophisticated transactions, many companies are still willing to a pay a premium. It’s the midmarket transactions—the real estate lease, vendor contract, the minor acquisition, the small potatoes lawsuit where efficiency demands inward absorption. (Also, PSA, if you are not a Fortune 500 company or a well-funded startup, you will get better service at a lower cost at a smaller firm.)

If I were running a midsize firm looking down the barrel of the next decade, here’s what I would do to stay in business and grow my market.

Specialize. It’ll always be hard to insource specialists, and if you can develop a niche expertise, you’ll succeed. When small companies and startups come to Priori (we connect businesses to lawyers), they are often looking for a soup to nuts legal experience. When larger companies come to us, they want something very, very specific whether it’s tax, customs or regulatory compliance. Unless the company expects to need to consult these specialists every day or can predict exactly when they will, that expertise will remain external. I do predict it is going to be hard to be a general corporate lawyer at a midsize firm in ten years (perhaps with an exception if you’re operating on an outside GC model, which is arguably its own breed of specialization).

Go lean and invest in technology. Law firms are inefficient. No secret there. Private offices, wood paneled law libraries, paralegals, secretarial staff—it’s costly. And business is going to erode from both sides. The small firm practitioners in Priori’s network are providing equivalent services at a lower cost and poaching many smaller clients, and bigger clients are insourcing. If you can’t compete on price, you’re going to lose. You’re running a business, like any other, so I would figure out how to make my operations leaner and invest in technology now because technological innovation can automate rote processes and drive legal costs down.

Alternative fee arrangements. The billable hour cannot survive competition. I would think creatively about how offer alternative fee arrangements. (WilmerHale has a good list of different categories of alternative fees). We meet lots of firms who simply don’t believe there is another way to be profitable. Since law is one of the last highly remunerated professions that relies almost exclusively on hourly billing, what makes law different? My take—mostly inertia. But, like companies are bringing legal in house, ample evidence suggests that these legal departments are also demanding alternative fees. Experiment now, track your data scrupulously and figure out how you can be profitable in a non-hourly world.

The insourcing of legal services is an efficiency, driven in part by alternative legal service providers like Axiom. For mid-tier law firms, the answer won’t be found with your head in the sand or clinging to old ways—but rather finding ways to compete before the crisis worsens.

I want to hear from you! Follow me on twitter, or email me at basha.f.rubin@priorilegal.com with questions, comments or criticisms. Learn more about about what I’m doing at Priori Legal.

>>>>>>>>>>>>>>>>>>>