“[Legal Services’] intrinsic growth rate more or less tracks global GDP growth…”

Bruce MacEwen

I recently read Bruce MacEwen’s book “Growth is Dead: Now What?”  Bruce’s fundamental premise is that the legal profession has excess capacity, which when coupled with stagnant demand and client pricing pressures, will lead to many law firms finding themselves “relatively marginalized and, yes, irrelevant.” Granted, Bruce’s focus is “Big Law,” but is this true for all lawyers let alone for Big Law? Are legal services in today’s world a zero sum game with all lawyers and firms fighting over a fixed or barely growing market for their services?

When I think about the market for legal services, I have a very different view.  I’m actually upbeat and and see a ton of untapped opportunity.  The challenge is that in order to be able to tap this potential, lawyers and their firms may need to adjust both their mindset as well as their business model.  Here are my top three areas of growth for lawyers and their firms:

Growth Down the Demand Pyramid  — It is well documented that there is a huge unmet demand for legal services, with many estimates stating that as much as 85% of the U.S. market may be unserved.  As Jordan Furlong likes to state, the legal services market is like an iceberg, with the portion of the market being served that portion of the iceberg above the waterline.  The 85% below the surface is unmet need, or stated differently, untapped opportunity.

So, how would a lawyer or a law firm go about serving the unmet demand below the “waterline”?  First, understand that you don’t need to dive to the bottom of the iceberg, or perhaps more germane, figure out how to handle divorces in Des Moines for people living below the poverty line.  Rather, begin by looking just below the waterline to understand the people and companies that could be using your services, but currently aren’t.  In almost all cases, it is not because they can’t find you or that you don’t have the right skill set.  It almost always comes down to a matter of cost — they simply can’t afford to hire you on an hourly basis for what they see as an unpredictable costs.  The answer isn’t to wait until this group of consumers has more income and can hire you; instead it lies in figuring out how to deliver to deliver your services for less cost, and where possible, for set fees.

Looking down the demand pyramid was Henry Ford’s big realization.  Rather than wait for disposable incomes to rise to the point average American’s could afford a car that cost over $2,000, Ford determined that a host of American families would purchase a car for around $850.  He then worked hard to figure out how he could produce a car for that price, while also generating a comfortable profit. Ford launched the initial Model T at $850 per car, and then aggressively worked to further lower its price to create even more demand from a broader market. Within five years,  the Model T’s price dropped to $600 and Ford watched his sales grow from 18,000 cars a year to over 168,000.  Still not satisfied, he worked to drive the price of the Model T down even further to $550, which made his product available to the overwhelming majority of American consumers.

The same opportunity exists in every area of legal services.   I see this personally in my role as an entrepreuner as well as in my conversations with other startups in the Seattle area.  For a small or new business, there is a bundle of legal services required (or advisable) to get a company off of the ground, often including: (i) incorporation documents; (ii) financing documents; (iii) employee and independent contractor agreements; (iv) stock option plans; (v) shareholder agreements, etc. The law firm that figures out how to flat price that bundle of needed documents and services and then works to lower their production costs over time, will win the legal work of the overwhelming majority of the entrepreneurs I know. As the firm lowers its product costs of those documents, they can then decide how much to keep for additional profit, versus how much to drop their price to consumers to keep or gain market share.

Such a firm won’t need to advertise; its satisfied clients will handle promoting them to the rest of the entrepreneurial community.  While we might want to flatter ourselves that it is our or our firm’s reputation and personal attention is what these clients want, when push comes to shove for a lot of legal work, it really is just about  getting basic documents for a low, set price. And while we may want to see each of these documents as unique works of legal art, the reality is in almost all cases they are standard items just like the basic Model T.

If you can put your ego aside, think like Henry Ford, work to standardize your legal “products,” and then aggresively figure out how to accomplish that work for less and less each year, you will not only grow your client base, but will have the potential to also expand your income.  And perhaps equally important, keeping these new clients happy on their basic legal work will keep them around when they need higher end legal work for an hourly fee.

Growth through New Companies and Industries — Another fallacy in “growth is dead” philosophy, is that it looks for growth in all the wrong places.  While it is true that world GDP is growing around 3% a year, there are a ton of companies and industries growing at multiples of this rate.  If you focus your legal work on the companies in your community that are just the well-known players in established industries and ignore the “up and comers,” your growth will indeed be limited if not negative in nature.  As I look around Seattle today and see Costco, Microsoft, Amazon, Starbucks, Expedia, REI, T-Mobile, F-5 Networks,  Corbis, Getty Images, Intellectual Ventures, Dendreon, Seattle Genetics, The Gates Foundation, Tableau Software, Concur Technologies, Zillow, and Zulilly — all companies or organizations that weren’t around (or if around, at anywhere near their current size), when I came out of law school in 1981.  Of the approximate 80 companies around the Seattle area that are publicly held, over 60 of them started within the last 30 years.

In the 1980’s when I started practice,  Seattle law firms were scrambling to work for Boeing (now headquartered in Chicago), SeaFirst Bank (absorbed by merger years ago), Rainer Bank (absorbed by merger years ago), Weyerhaeuser (around, but far less dominate), Stimson Timber (around, but far less dominate), UNIVAR (headquarters moved then returned but far less dominate), Rainier Brewing (gone), and Frederick and Nelson (gone), John Fluke Manufacturing (around, but no significant growth), PACCAR (around, but no significant growth) The Bon Marche (merged into Macy’s), and Intermec (around, but no significant growth).   Needless to say, if the Seattle law firm I practiced with had continued to focus on just the big players of the day and ignored the new companies and industries growing in our backyard, that firm would still likely be a 25 person law firm.

My point being, there will always be growing companies and new industries arising in your community.  You and your law firm just need to seek these clients out.  And, just as in  your stock portfolio, be willing to take some risks.  It only takes one Microsoft or Starbucks in your stock portfolio (or on your client list) to position  for great future growth.

Growth in the Overall Need for Legal Services — Over the course of the last 30 years, our personal lives as well as that of our businesses and non-profits, have become more legal intensive. The introduction of whole new categories of products and services (computers and computer software, web-based services, mobile telephony, mobile payments, online sales of goods and services, etc.) have all brought new legal agreements and often new regulation, all of which drive increased demand for legal services.  This is nowhere more evident than by looking at the number of practice groups or specialties promoted on law firm websites, courses taught in law schools, practice sections of bar assocations and blogged about on websites.

It should go without saying, that as society and its technologies grow more complex, so does the demand for legal services.  By way of example, just look at the introduction of email.  It launched a host of new legal service opportunities and demands ranging from privacy advice, to e-discovery services, to document preservation issues, to name just three. This trend will continue as even more areas of legal specialty (and associated demand for services) develop in coming years. The trick is to spot them early and become your community’s leading expert.

Growth in Margins — Finally, if it is growth in your income you are worried about, you might begin by taking  a new approach to that age old lawyer problem.  Historically, lawyers and law firms see their incomes as being determined primarily if not soley by two things — the hours they work and the rates they charge.  The only way to increase your income under this view, is to either work more hours or increase your billing rate.  The former creates a host of work/life balance issues and the later runs into a host of resistance in today’s market.  If instead, you are able to change some of your work to fixed fee or project based billing, you now have a new way to grow your income — namely by improving your efficiencies  and growing your profit margin.  The days of “cost plus” pricing for basic legal services are coming to an end.

So what do you think?  Is growth in the legal services arena dead or are we just looking in all the wrong places?

 

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