This guest post is by Dr. Silvia Hodges. She specializes in international legal marketing and assists law firms to grow revenue through sustainable business development and marketing initiatives. Silvia teaches at Fordham Law School, where she has pioneered courses in law firm management. For more information please visit her online bio.
In a world without the protection of being a profession, fates can and do change quickly. Think of the companies that were praised in the book Good to Great. Where are Fannie Mae and Circuit City now? The space next to some Wal-Marts is still vacant. Factors that led organizations to greatness yesterday might not help in the future. And new competitors pop up and take over.
In the legal profession, you might say that such examples are far and few between. If we take profits per-partner (PPP) as the yardstick, Quinn Emanuel, a 500-lawyer business litigation firm, would be such an example. In 1998 it was not on the scene, in 2010 the firm ranked number 2 in the US, right after Wachtell.
New competitors have emerged
If we leave the elite and cast the legal net wider, the picture changes, however. Entirely new competitors have emerged. The three leading legal process outsourcing companies (LPOs) may still not scare traditional law firms, but their market share has significantly grown at a time when most law firms painfully felt the downswing of the economy. Industry sources believe that the market size of the LPO business is between $500 million and $800 million. Bullish forecasts guesstimate the size of the industry to reach $15 billion in 2015. And their client lists have significant overlap with any leading law firm’s. Just for reference — in 1998, only CPA Global was already existent, Integreon was founded that year, and Pangea3 just recently came into being in 2005.
Again not a likely competitor for top global law firms, Legal Zoom, founded in 2001, is gnawing away business from small law firms. A recent Forbes article warned:
“Just as Craigslist decimated the newspaper industry by taking away its low-end but profitable classified-ad business, LegalZoom targets the high-volume, low-cost business of providing basic consumer and business documents.”
And most recently, Rocket Lawyer was launched by Google.
“Traditional lawyers may not like it, but venture capitalists are pouring money into one of the last industries to resist commoditization on the Web. Google Ventures today announced it is part of a group that infused $18.5 million into Rocket Lawyer, which bills itself as the ‘fastest growing online legal service.”
Traditional lawyers will definitely not like it: For $19.95 a month, you can have your documents reviewed by a real lawyer and even get legal advice at no additional cost by Google’s Rocket Lawyer. Try that retainer suggestion with any traditional firm.
Add another: The Big 4 accounting firms today employ more lawyers globally than behemoth Baker & McKenzie. One can assume that not all of their lawyers focus solely on tax or act as internal counsel, but do substantive legal work.
Where failure starts
Snubbing at those competitors misses the point. Many traditional law firms still argue that they offer high quality legal services that these new competitors don’t. And many a partner has told me that once the economy bounces back, everything will go back to normal – as it always does. I then like to mention an article I read in The Economist, arguing that failure starts when firms attribute their success to their own superior qualities and become dogmatic about their specific practices, failing to question their relevance when conditions change.
Does that sound familiar? It goes on saying that things become worse when firms overreach and deny threats.
“Warning signs mount, but the firm’s headline performance remains strong enough for bosses to convince themselves that all remains fine. Problems are invariably blamed on external causes.”
Funnily, in these times when law mergers are du jour again, the article continues that it does not help to gamble on supposedly transformational acquisition either.
I’m not a doomsayer, but the legal profession can only ignore the signs of the time and protect itself from incumbent and future competitors for so long. The American Bar Association tried to corral newcomers, notably, Legal Zoom, but the Federal Trade Commission warned that the proposal could represent restraint to trade. McKinsey cautioned:
“The legal industry is losing its immunity to the macroeconomic forces that have propelled consolidation and stratification in other industries. Of the world’s largest law firms (measured by revenue), all but the most profitable are in some peril.”
Across the Atlantic, the framework is already changing. Lawmakers in England and Wales have proactively addressed trade restrictions. Since October 6, the profession there is more liberalized. It remains to be seen how this will influence the market, how much venture capital will be pumped into new competitors in the legal market. But I’d take any bet there will be McLaw franchises, perhaps at your local Wal-Mart? Let’s not forget – clients vote with their wallet. They determine the fate of firms, and who will remain great.