BigLaw has a Big Problem. Really Big. Big Big. Pull the plug Big. End of an era Big. Okay, enough already, we get it. Just tell us what the problem is. Sure. It’s simple really, but oh-so-unsolvable. Ready? BigLaw can’t compete on price. A five word death sentence.
The Golden Era of BigLaw is el finito. The cat is out of the bag. Informed clients now know (and this news is spreading exponentially) that the lion’s share of BigLaw work can be, and currently is, being competently done by NewLaw for $60 an hour or less. There’s no amount of secretary buy-outs, back office outsourcing, summer associate program cutting, or partner de-equitizing that will get BigLaw’s billing rate anywhere near that “new normal” market rate.
Start building the gallows and find me some rope, because if you can’t compete on price, the party is over, right? One would think, but let’s not forget who we are dealing with. Burying BigLaw is harder than trying to get my wife’s cat into the crate for her annual vet visit. The old coots just won’t give up! Heck, I wouldn’t either if I had a bunch of Fortune 50′s writing me open-ended blank checks to keep my armies of associates churning away. Who’s gonna willingly walk away from that money tree?
So, if you can’t compete on price, you’re left with your old tried-and-true trump card (trumpets blaring) QUALITY! (voice-over by James Earl Jones). The standard pitch invariably goes like this:
- The best we can do is a blended rate of $650 per hour (after discounting our inflated rack rates to make you feel like we care), but our work is of clearly of superior QUALITY compared to that of our competition, who use a bunch of non-Ivy League lawyers, or worse yet <wink-wink>, foreigners for their work. Heck, some of these law factories might even be using non-lawyers (!) on some of their projects. What else can we say, you get what you pay for.
Dang. Maybe we all got a little overexcited with this New Normal Coronation Ball. Maybe Law is different than the rest of the world, maybe only BigLaw can do all this important stuff, and we’ll just have to suck it up when we get those sphincter-puckering bills. Sure, we can keep the C-suite off our back by handing out some non-essential work to a couple of these cheap shops, but we better keep the important stuff with the guys who provide QUALITY, no matter what the cost.
Deal. But before we hand over the keys to the company coffers, it couldn’t hurt to take a look at the objective proof BigLaw has for substantiating their QUALITY claim. No problem, this should be a piece of cake.
Great! Let’s start with the AmLaw 100 rankings? What better way to prove QUALITY than key metrics like gross revenue, revenue per lawyer, and profits per partner. Wait, I’m a little confused here. How do metrics focused on law firms’ bottom lines, rather than any outcome or value provided to clients, have any reflection on quality? It seems that these metrics actually measure how successful firms are at maximizing hourly billing, rather than meeting their clients’ needs. I get it. The firms that turn the screws the hardest on billable hours deliver the best QUALITY to the client? Big means best? Under this theory, Walmart would clearly be the highest quality retailer. Tough luck, Nordstrom’s and Bloomingdale’s.
Perhaps then, it’s that BigLaw attracts and develops only the “best of the best” talent? Yet, there is almost universal agreement that the first few years of BigLaw lawyering is occupied by incredibly long hours on the most mundane and mind-numbing of tasks. Very few young BigLaw associates ever get near meaningful work or a plum assignment. Most leave from exhaustion before ever gaining any real lawyering experience. Do we really need summa cum laude Harvard Law grads on due diligence and document review? Does mundane work magically become QUALITY work when billed out at $300-800 per hour. Even if you buy into this elitist blather, how then does BigLaw differentiate itself from many of the New Law providers that are run by, and staffed with, those same Harvard Law and Stanford Law grads? Must be that those newbies had poor GPA’s and graduated near the bottom of their class? Or maybe they could only get into lower-ranked law schools, like Michigan State or UCLA. Slackers. We all know that Ivy League credentials and high GPA are prerequisites to QUALITY; how else can you explain the genius of Steve Jobs, Bill Gates, Richard Branson, and my personal favorite, Abe Lincoln. Oops, the first two never graduated and the latter two never went to college. If these four went into law, they couldn’t sniff a BigLaw job. The rest are screwed. Book a ticket to India and hope for the best. Maybe Gates, having Harvard on his resume, could get a job at a regional firm back in Boston. So much for the “best of the best.”
But . . . then . . . uh . . . what objective proof is there to back BigLaw’s boast that only it can deliver QUALITY?
To say that our ability to assess the quality of a lawyer is noisy is the understatement of the century. We have very fuzzy notions of who’s good and who’s bad. If you can’t choose on that point, other factors become your point of differentiation, and a lot of times they’re much easier to detect.
Those other factors include better technology and well-designed processes. Hmmm, who does those better, NewLaw or BigLaw?
Let’s see. BigLaw gets smoked on technology and process. It gets blown away on cost. It has no objective proof that it provides better quality. For exactly how much longer can BigLaw count on BigClient to keep paying a huge premium for it’s “fuzzy notion” that it does higher quality work than NewLaw?
My answer. Not much longer. The bread and butter of their dizzying success – hordes of leveraged associates grinding away on grunt work at premium prices – is a thing of the past. Their last bastion – truly high level work - keeps getting chipped away at with every success racked up by the NewLaw providers.
Yep, BigLaw, those buzzards eyeing you and your clients aren’t mirages, they’re your real NewLaw competition, and more and more of them are on the way.
Many have heard the old adage, “If you can’t beat them, join ‘em.” Makes sense. If your adversaries are stronger than you, it’s probably better to join ‘em. But that kind of rational response isn’t something that Big, Bad, BigLaw is going to swallow anytime soon. BigLaw marches to its own macho beat, much like Lil Wayne in “A Milli” (paraphrased very loosely because of the incredibly explicit lyrics):
If you can’t beat them, then you aren’t fighting dirty enough!
So, instead of accepting the inevitable rise of NewLaw (or BetterLaw as suggested by Ken Grady), Adam Smith, Esq. channels his inner rapper, with a spoken word stanza in his recent post/rap “How much how fast?“:
Nowadays, when I observe client behavior, I see two thoroughly opposed, but quite consistent, trends: A flight to quality and a flight to value. No single law firm can durably respond to both sets of client demand, which means many who aren’t already at one pole or the other will need to choose, and to change.
A little less explicit than Lil Wayne, but equally incendiary when you think about it. Quality OR Value. BigLaw equals quality. NewLaw is the thrift store. Sure you can get a deal and save some money, but you do realize, BigClient, that you-get-what-you-pay-for, i.e., allegedly lower-quality services from these bargain-basement providers. But not so fast, MackleMacEwen, what your rap lacks in rhyme, it also lacks in truth. Your little “Quality OR Value” riff, which I’m sure is a big hit on the BigLaw Oldies station, is what logicians call a false dilemma, or black-or-white thinking, or an either-or fallacy, or the fallacy of the excluded middle. Whatever you want to call it, a false dilemma is:
A type of informal fallacy that involves a situation in which limited alternatives are considered, when in fact there is at least one additional option.
The presentation of a “false choice” often reflects a deliberate attempt to eliminate the middle ground on an issue.
Uh, Big Boi Bruce, there’s a HUGE middle ground here that you are slyly trying to hip hop past: how about Quality AND Value. Think Tesla. Or my Neuhaus Labs T-1 integrated tube amp. For $495, it makes my iPhone sound better than most esoteric hi-fi systems (priced 10 to 20 times as much) and it can do it wirelessly. I’ll take Novus Law for document review over any of your Tier 1 first-year associates at $800 an hour. So would you:
The founder and head of one of these firms, which is in the business of applying Six Sigma processes to document review, and which has demonstrated consistently and convincingly that their quality is immensely superior to that produced by BigLaw associates working on the same document sets, remarked fairly casually to me not long ago that “for every dollar of revenue we gain, BigLaw loses three.
Before you tell me that Novus can’t do the sophisticated, high-level work that is needed, I’d recommend you read a couple of the recent profiles (here and here) that highlight how clients now are now requiring that their BigLaw firms use Novus, or Axiom, or Clearspire, for all their meat-and-potatoes work. Sounds like a whole lotta BigLaw firms are actually having to join ‘em, rather than fight ‘em. Need more examples? How about Riverview Law and DMH Stallard doing M & A deals together at 30% less than traditional BigLaw. Or the new deals between LeClair Ryan and UnitedLex, and Seyfarth Shaw and Neota Logic. Quality AND Value. Win AND Win. BetterLaw.
Or, as the real Macklemore sings:
We press play, don’t press pause. Progress, march on!
The good ol’ days are over, Bruce. It’s a new century. BigClient finally got their groove back, and they’re increasingly marching on to the BetterLaw beat of quality and value.
Just in case you missed it, there is a no-holds-barred cage fight going on over in the “comments” section to Dr. George Beaton’s lightning-rod of a post, “The rise and rise of the New Law business model.” A veritable “who’s who” of legal thought leaders have taken sides in the “Great BigLaw vs. NewLaw Debate.” In my own recent post, I argue that regardless of who ultimately wins the war — BigLaw, NewLaw, or a combination of the two — the real winners are clients, who because of the fierce competition, now have more and better options to meet their legal needs.
But with a multitude of options comes uncertainty, and if we know one thing about BigClients, its that they loathe uncertainty. Combine this with the power of the status quo, and far too many BigClients continue to fall back on the “tried and true,” rather than bravely forging ahead into the New Normal of 21st Century Law.
The BIG problem, however, with that “tried and true” method, i.e., continuing to blindly use the same ol’ BigLaw firms and their best friend, the billable hour, is that clients are likely overpaying by at least 30% to 60%. Now, if you are okay with that, no need to read any further; instead you may want to skip to my post discussing the “Battered Client Syndrome.” For the brave clients still reading, I realize that you have many pressures making change difficult, so I will offer a few “baby steps” that can be accomplished at little or no cost, and that carry very little risk. For, as the ancient Chinese Taoist philosopher Lao Tzu famously said:
A journey of a thousand miles must begin with a single step.
Step One – Educate Yourself
Here are three quick steps that will get you up to speed in the least amount of time.
- Read “Tomorrow’s Lawyers” by Richard Susskind and “The Lawyer Bubble” by Steven J. Harper. You’ll see the future and understand “the horror, the horror,” of the BigLaw world.
- Get acquainted with a couple of key blogs/sites:
- Get on twitter. Follow @ronfriedmann. Great curator of timely information. If Ron’s not tweeting it, it’s likely not important.
Step Two – Kick Your Old Habits
Repeat after me. I will not blindly hand over any new legal matter without requiring proper scoping, legal project management, and legal process management. Say it over and over until you have broken this highly addictive, dangerous and expensive habit. If you need liquor and cigarettes to help you conquer these demons, just remember that you are temporarily accepting the lesser of two evils. A little bender on booze and the tar sticks will hurt you far less than continuing to write blank checks to your outside counsel. Besides, you’ll have saved a ton of money by kicking your BigLaw habit, so you’ll have plenty of cash for a quick stint at the Betty Ford Center.
Step Three – Take Action, Any Action
Okay grasshopper, take a couple of deep breaths, and channel your inner Lao Tzu, because you are about to leave your comfort zone. I know it’s going to feel sketchy at first, so we we’ll start with some easy lifting and slowly work our way up from there.
a. Choose a progressive BigLaw firm for your next new matter
- This is a BigClient’s “safest” choice as you get the CYA of BigLaw with the not-so-BigLaw-like use of LPM and LPO.
- The problem here, of course, is that trying to find a progressive BigLaw firm is about as hard as getting to see a wild Kiwi in the New Zealand rainforest. I’ve been looking hard for a while now and can count the contenders on one hand.
- My first choice here is Seyfarth Lean. They’re way ahead of the competition (program started in 2005) and by using their substantial tools and experience, they can deliver a great outcome at a better price than the majority of their BigLaw competitors. Once you see what LPM and process optimization can do, you’ll be far less likely to relapse into your prior bad habits discussed above.
- Chief downside: You’re likely to pay a premium for all those fancy downtown offices and highly-paid lawyers, who still have big billable hour quotas to hit, but at least your in the game. Go ahead, pat yourself on the back, you’ve just taken your first step to legal enlightenment.
b. Rethink your current firm selection process for new matters
- Prior to engaging a firm for any matter, sit down and determine what you value and develop a simple and straightforward Request for Proposal. This doesn’t have to be complicated rocket science, just a common sense, client-based, value determination.
- Invite 3 to 5 firms to bid, including at least one new firm offering upfront fixed fee pricing, like Valorem Law.
- Any firm that does not offer hard budgets and LPM/LPO should be immediately eliminated.
- Once a firm is selected, write a win-win fee agreement, including success bonuses and/or holdbacks. Better yet, make it an upfront fixed fee (which you would get from Valorem).
- Other options:
- Consider AdvanceLaw, which helps its client GCs match their matters to select firms that it has vetted for quality, client service and efficiency.
- Another “safe” option with big returns would be to require any of your current firms to use Novus Law for all the document discovery and management work, as discussed here.
c. Tweak your panels
- Most larger companies have favored firms/panels they work with. Many times the 80/20 rule applies. If you have 5 firms doing 80% of your work/spend, it’s likely that 1 firm is great, 3 are good, and 1 is lagging somewhat behind. Slowly move work from the bottom to the top. Just concentrating on these top five firms is manageable and can deliver a major return on investment.
- Other option:
d. Stay in-house
- One of the best ways to optimize legal spend is to keep as much work as possible in-house. This option has become much easier with the emergence of new firms that provide any type of specialized expertise on an “as needed” and/or secondment basis. Examples include, Axiom Law, Conduit Law, Bliss Lawyers, Lawyers on Demand, etc. Almost all of these (if not all) offer fixed pricing, without BigLaw overhead and/or company overhead.
e. Hire a legal spend strategist (or team, depending on the size of your legal spend)
- The four action plans outlined above are just the tip of the iceberg of ways clients can bring about better outcomes at the right price. Changes in the legal field are moving incredibly fast, and no legal department can be expected to keep up with this change while simultaneously doing their “day jobs.” Simply put, legal spend management is a full-time job. Further, every dollar wisely-spent on LSM will be rewarded with a large return on investment. As a general rule of thumb, spending 1% of the total legal spend budget on LSM should deliver at least 10% of total savings. Thus, a company with an annual legal spend of $100 million, who invested at least a $1 million in legal spend management, should be able to lower overall spend by $10 million. $10,000 spent on a $1 million case should save at least $100,000. If anything these numbers are conservative at present, because of BigLaw’s almost pathological refusal to adapt to the post Great Recession environment.
There is simply no excuse not to take action to capitalize on the current client-friendly changes sweeping the legal industry. Each of the actionable steps outlined above can be implemented by any client, at very little cost and with little risk. All of them will deliver a substantial return on investment and will result in better outcomes at a far better price. Time’s a-wastin’, grasshopper, take at least one of the above steps today.
The legal blogosphere is all atwitter predicting the winners and losers of the mighty battle being waged over who is going to provide 21st Century legal services. At this point in the battle between BigLaw and NewLaw, no one knows who the ultimate victor will be, although many have strong opinions. Conflicting reports are streaming across the newswires from the numerous firefights on the front lines. Below is a brief summary of the various camps and their views:
The “Keep Calm & Carry On” Camp
The safe pick many feel is to bet on the status quo. BigLaw has had quite a run and its demise has been wrongly predicted many times before. The 3 Geeks (Not So Fast…) and The American Lawyer (Will Law Firms Adapt — or Go the Way of the Dodo?) are reporting that the rebels, despite some small successes, are not a real threat to the combined firepower of the BigLaw regime, at least not anytime in the foreseeable future. The latter concludes that BigLaw, as a whole, is safe for one fundamental reason — BigClients need them:
Are law firms, particularly big law firms, the dodos of the professional services sector? The short answer is no. And the reason is pretty simple. Big clients need them. And unless and until a substitute provider of legal services at the high level appears, big law firms will have a future. Here are the caveats: The future of any particular firm is not guaranteed—it never was—nor will this future be free of change.
Under this theory, BigLaw exists to represent and defend “big blocks of power and money.” BigClient is not about to hand over the keys to the new kid on the block when billions are at stake. In fact, this may just be BigLaw’s best defense. No matter how wonderful the NewLaw alternatives, at present, none of them can come close to meeting all of a BigClient’s needs. While BigLaw may not be perfect or efficient, it has one thing NewLaw doesn’t – a proven track record with BigClients.
The Geeks (or at least one geek, Toby Brown) argue that the NewLaw bandwagoners need to rein in their “irrational exuberance” that the Johnny-come-lately rebels are anywhere near to overrunning the well-entrenched BigLaw positions:
Instead watch for steady, incremental changes in the way law firms function and deliver their services. Next generation providers will continue their growth, law firms will merge and things will generally keep changing.
Toby compares the NewLaw Express to the coming of the railroads to 19th Century America. Despite the initial exuberance and wild speculation in the potential of railroads, it took at least 50 years for the “revolution” to become “business-as-usual.” While Toby thinks it won’t take 50 years for the legal industry transformation to play out, he expects change to proceed in a civilized and orderly fashion. Another Geek generally agrees with Toby (in a comment), but also notes that:
Change always takes longer to get here than you expect, but when it happens, it happens faster than you would otherwise believe possible.’
The proverbial $64,000 question then hinges on exactly what stage the current NewLaw invasion is on the change curve? Are we still early in the curve, which leaves BigLaw plenty of time to dawdle, or have we already reached the tipping point?
The “Man the Lifeboats” Camp
Recent posts by Dr George Beaton (The rise and rise of the NewLaw business model & Last days of the BigLaw business model) and myself (What Clients Want and Why BigLaw Can’t Deliver) believe that the BigLaw ship is taking direct hits from the NewLaw gunboats, and is perilously close to sinking. Dr. Beaton bases this conclusion on a variety of factors, including his modeling showing that firms’ high PEPP numbers are likely to fall substantially in the near future, and that at least “two-thirds to three-fourths of the revenue of BigLaw firms . . . is under threat from New Law.” (see his reply to comment #7.) Recent proof of these trends are evidenced by the 30%-and-up growth of Axiom Law, Riverview Law and Novus Law, and the recent reports in Legal Week that Berwin Leighton Paisner’s (BLP) 2012/13 PEPP fell 40%, while their Lawyers on Demand services rose 28%. In other words, the NewLaw business models are “being rewarded by clients.” So much so, that Dr. Beaton predicts Axiom Law could be the largest legal service provider in the world by 2018. Hard for BigLaw to “keep calm” in the face of those numbers.
The “Feast or Famine” Camp
Dr. Beaton’s post has elicited a large number of high quality comments on both sides of the debate that are simply too varied to adequately summarize. While all of the comments are great, one in particular (comment #13) stands out. Jordan Furlong notes that:
Growth is not dead — it’s just changed addresses. Law firms are suffering not from a drop in demand, but from a drop in demand for what they sell, at the price they sell it, in the way that they create and deliver it.
(A similar sentiment was recently posted by Jason Moyse [Growth is Dead? for Who?] on Slaw.)
Further, the larger problem facing BigLaw is not surviving the crisis caused by the Great Recession, but rather surviving the fallout the Great Recession created:
I don’t think it’s necessarily this current downturn that’s the major issue; it’s that this downturn is effecting and ushering in a new set of market conditions that make the environment essentially unsuitable for the traditional law firm business model, and that most firms lack the wherewithal to adjust to the new environment without tearing themselves apart in the process.
In the end, Jordan’s analysis may help us make sense out of the conflicting results being reported. Certain firms may be safe because of the reasons set forth in The American Lawyer – the biggest deals still need high-level lawyering that none of the NewLaw contenders can yet provide. The same can’t be said, however, for for the the majority of firms, i.e., the AmLaw 11-200, who are at serious risk of going the way of the Dodo:
But if I were in a firm from AmLaw 11-200, I would be concerned, and as I go down that list, my concern would edge into panic. These firms are like houses of cards, impressive to look at from the outside but extremely vulnerable and structurally unsound at their core. They may survive the crisis — most are stumbling through alright — but I don’t see them surviving the change process that’s to come.
Even worse, a recent article from the Harvard Business review suggests that even the AmLaw 10 may be at risk of losing business. In Why Law Firm Pedigree May Be a Thing of the Past, the authors discuss a recent survey of 88 GCs of major companies in which 74% responded that they would be willing to move “high stakes” work away from the “most pedigreed law firms” to a good lawyer at a “non-pedigreed” firm, assuming a 30% savings could be delivered (A counter argument was recently posted here). While saying you are going to do something, and actually doing it are two different things, these types of survey results are become increasingly common in the New Normal, and are causing sleepless nights for all but the most myopic of BigLaw partners.
The “If You Can’t Beat ‘Em, Join ‘Em” Camp
While the status quo is usually a pretty stable place to set up camp, in the free-for-all environment that has emerged in the wake of the Great Recession, resting on your laurels is a very dangerous place to be. Unfortunately, as both Jordan Furlong (Law firm innovation: From idea to implementation & Comment #13) and Pam Woldow (Adventures in Magical Thinking, Part I) have shown, bringing about real change in a law partnership is an incredibly difficult proposition given the unique cultural environment of traditional firms. As I discussed in my last post, a couple of traditional firms, Seyfarth Shaw & Akin Gump (Jordan adds Littler Mendelson to the mix), appear to be embracing the new normal, and are either developing their own LPM and LPO programs (Seyfarth Lean), or are joining forces with the rebels (Akin and Novus Law). Ron Friedmann (The Speed of Change) recently summarized Addelshaw’s future vision that the 2020 legal market “will have 25% fewer lawyers and 20% fewer firms, with new business models and disruptive legal technologies sitting at the core of the provision of legal services.” Thus, rather than one or the other model, BigLaw or NewLaw prevailing, the future may be a conglomeration of both.
The BigLaw vs. NewLaw battle continues to rage, and only time will tell who will ultimately prevail, and which of the prognosticators best read their crystal balls. There already is, however, one surefire winner, and that is the client. The seismic changes that the legal industry are undergoing are all providing clients with better value options than they have ever had. The vast majority of 21st legal services, whether delivered by BigLaw, NewLaw, or a combination of the two, will be delivered with a higher predictability of better outcomes at a fairer price than ever before. Win-Win-Win.
What modern legal clients want, or should want, is obvious. We need look no further than the ACC Value Challenge which prefaced it’s 2013 ACC Value Champions with the following motto, essentially the win-win-win holy grail for clients:
Reduced spending • Better Outcomes • Higher Predictability
Worthy goals. I think if push came to shove, most corporate clients would actually be willing to pay more for better outcomes with higher predictability. When clients perceive that they are receiving real value, they have little problem paying the providers of those solutions.
The good news for clients is that there has never been a better time in history to obtain the right legal services at the right price. The bad news for BigLaw is that their current, long-entrenched business model can’t deliver the right level of service at a competitive price. Worse, they can’t even come close. Think Blockbuster during the rise of Netflix. Borders right before Amazon. Tower Records when iTunes took off. Poof. Gone. Powerhouses that simply disappeared overnight. Their traditional business models didn’t have a chance against their better positioned new competitors. People watch just as many movies, read just as many books, and listen to just as much music, but now they just get it from different providers. BigLaw is facing an equally grave threat from a slew of alternate service providers, whom Dr. George Beaton, has recently labeled as “New Law.” While BigLaw growth has remained mostly stagnant, some New Law providers like Axiom Law and Novus Law are growing at the speed of light. They aren’t doing this through smoke and mirror mergers or accounting tricks (Swiss Vereins), but rather through organic growth.
Big Law, with its reliance on the inefficient billable hour and the leveraged pyramid, are in real danger of ending up on the scrapheap of obsolete business models. The BigLaw Union has been broken by New Law. BigLaw got very rich selling the snake oil that the vast majority of the work it did could only be accomplished by its high-priced lawyers. For years, clients enabled this false assumption by vastly overpaying teams of associates to toil away at mundane and commoditized work. No one, other than truly-in-denial blue-haired equity partners, believes this self-serving fantasy anymore. In fact, Stephen Mayson, during his recent COLPM conference keynote, estimates that perhaps only 20% of all legal work performed in the UK is work that must be performed by traditional lawyers. I doubt you can find many investors willing to bet on a business model staring down an 80% loss in market share. BigLaw’s problem is no better on this side of the pond as evidenced by the ABA’s recent article ”Who’s eating law firms’ lunch?.” A few highlights:
- Using Novus Law instead of BigLaw associates to do document review saved Fireman’s Fund Insurance “an estimated 15 to 30 percent per case on outside counsel fees.”
- Fireman’s considers Novus Law “better than any contract review attorney and most junior associates even at well-known firms.”
- Novus Law claims that nearly 80% of the work it does is work large law firms would otherwise do.
- While traditional lawyers focus “on inputs, number of people, hours and so forth, which is important if your revenue is driven by the billable hour,” the Novus model is based “on outputs – how much [they] can produce in a given period of time while minimizing the cost of inputs and achieving world-class levels of quality.”
- For every dollar Novus receives, outside counsel loses four dollars.
What rational client faced with a complex litigation is going to choose a traditional BigLaw firm who responds “It Depends” to pricing requests, when Novus will do a better job at 15 to 30 percent less. Short answer – none. Long answer – uh, none. Novus Law, like many New Law providers is delivering win-win-win value to clients. Game, set, match to New Law.
So how does the traditional law firm model survive against this type of lower priced, better value competition? Adapt very fast, or be lead to the slaughterhouse. Unfortunately for BigLaw, adapting quickly is almost impossible for mini-fiefdom partnerships. It’s simply not enough to fire some legal secretaries and cutback on summer associate programs. They are going to have to cut to the bone, and then some. BigLaw’s real problem, and it may be unsolvable, is that the leveraged pyramid model used by most firms can’t compete in the newly hyper-competitive free legal market.
To their credit, at least a few firms have realized that the old ways aren’t going to get it done, and “if you can’t beat them, you better join them.” Seyfarth & Shaw, which began Seyfarth Lean way back in 2005, now have at least 18 dedicated Legal Project Managers and 5 Legal Solution Architects (tech specialists who are also JDs). Akin Gump, who were required by Fireman’s to take on Novus for a complex litigation project, now proactively offer to team up with Novus to provide better value to clients. Both of these firms should be on any large client’s short list, especially so if the client is contemplating switching over to New Law providers, but wishes to hedge that move with a “CYA” brand name.
While I applaud the evolution being shown by Seyfarth and Akin, even these steps may not be enough to weather the storm without significant further changes. The fundamental problem, even for the most forward thinking firms, is their massive overhead when compared to the new competitors. The going rate for a BigLaw first year associate is $160,000 per year. If that associate bills out 2,000 hours, his or her hard cost is $160,000/2,000 = $80 per hour. Unfortunately for BigLaw, that number alone is above the current market rate for most types of commodity work, which is $60-or-less per hour. When overhead is added to the mix, which has been estimated at BigLaw to be between $200K – $300K per associate, the hard cost of the lowest-priced associates is around $200 per hour. Hmmm, New Law at $60 per hour vs. Old Law at $200 per hour -those are the price differentials explaining why New Law could soon be adding BigLaw’s “breakfast and dinner” to their menu as well.
Seyfarth and Akin, at a minimum, have bought themselves more time by embracing newer pricing models, LPM and LPO. Those steps should win them, at least in the short term, new corporate clients who will pay a premium for a name brand. The remaining question for even the fastest evolving BigLaw firms, however, will be whether those moves will be enough in the long run. I’m not so sure that the even the fastest evolving traditional firms can compete against the Axioms and Clearspires, who both have far less overhead and can thus offer far better pricing while maintaining healthy profit levels. I can also foresee a future where the Novus Laws are so in demand that they recommend which lawyers to use for the remaining 20% or so of high-level lawyer work. Wait, isn’t that already happening on the other side of the pond with Riverview Law & DMH Stallard teaming up on M&A deals at 30% savings? Did I mention they reduce the fixed fee by half if the deal doesn’t go through? I’d be willing to bet that if Riverview brings Novus into the mix, they can squeeze at least another 10-20% savings on their deals.
Welcome to 21st Century law, an ecosphere that rewards agility and new thinking, but is a rather hostile and dangerous place to be for old, lumbering, 20th Century legal dinosaurs.
Update: While indirectly linked to above, I highly recommend Dr. George Beaton’s recent article, “The rise and rise of the New Law business model,” which discusses similar issues and has inspired lively debate in the comments.