Edward Poll, The Daily Record Newswire
Upheaval is the “new normal” for law firms of all size, and many observers wonder if the solo and small-firm practitioners will survive this kind of current and future turmoil.
However, there is considerable potential for these firms to thrive by serving the “99 percent” of our society, the small to midsize businesses and individuals whose legal concerns will continue as long as people need lawyers.
The fundamentals of the law firm business model for serving them will remain the same: marketing (secure and maintain clients), production (do legal work efficiently and effectively) and collection (get clients to pay).
Many factors affect these fundamentals, and they are changing rapidly. New competition, new technology and new billing pressures are creating a new cost-benefit dynamic that defines the small firm’s three-dimensional future.
Marketing and competition. In the “99 percent” world of today, a firm’s competition is not just the other law firms in the Yellow Pages. Competition now comes from “onshore” legal staffing companies that hire lawyers in lower-cost areas in the United States and pay them less compensation for repetitive work, as well as the many “do-it-yourself” websites purporting to offer advice, research and forms in such areas as family law, probate and patent filing, among other sources. Against this kind of competition, the successful firm must market by adopting technology to reduce cost.
Production and technology. What kind of technology impacts the production function? The real need is not cost-cutting; it is efficiency. And that means using technology as a competitive tool — not just for word processing, but in areas such as case management and document analysis for discovery. Using software for these tasks is the model for the future production function. It reduces overall legal cost, not the lawyer’s
hourly rate, and affords savings to the client.
Collections and realization. Collections and thus cash flow are impacted by the heightened competition for reduced-price services. Small firms must fixate on their realization rate. Low realization remains the biggest financial problem for most lawyers. Failure to have a 95-percent realization rate means that, even as the firm pays expenses at 100 cents on the dollar, it is earning less. This is lost cash flow, and it leads to disaster if it continues. The antidote is to charge other than a strict hourly rate for greater efficiency. Being able to maintain billings while becoming more efficient requires changing the billing system to embrace alternative fee arrangements. Using contingent, fixed, capped, value fee approaches where time is not the relevant issue to determine the fee is essential to make the most of the leverage from technology.
The fundamental survival equation for small firms and solos remains to get the work, do the work and get paid for the work. Business schools call this marketing, production and finance. Every business needs them. The small firm that adopts the three-dimensional efficiencies outlined here will enhance its ability to be more efficient and professional in serving the client. That is the path to survival in the “new normal” legal services environment.
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Edward Poll, J.D., M.B.A., CMC, is a law practice management thought leader and contributor to this publication. His website is at www.lawbiz.com.
