Is Tech-Driven Scalability the Future of Law?aderantuser
Perhaps not surprisingly, firms are facing increasing pressure from legal startups seeking to “commoditize” certain elements in the practice of law. E-discovery companies, for example, are already a well-established segment of the growing legal tech market. Most attorneys, and most clients for that matter, still view the practice of law as a customized skill that requires specific expertise to solve very specific problems. However, the forces of change are steadily limiting the scope of these customized solutions in favor of more broad, scalable legal applications.
The degree to which law will ever be “automated” is still very much up for discussion. In a post titled Law as a Commodity, the Attorneys Creative Roundtable argued that a radically different future faces many of today’s lawyers. They wrote that “The traditional notion of a lawyer using [their] skill, expertise and experience to provide a customized solution to a client’s situation is being replaced, in some cases, by these simple one-size-fits-all online forms. This commoditization of legal services is affecting the solo practitioners and small firms that serve the shrinking middle class. And large law firms are not immune to the changing marketplace.”
Fortunately, the same technological advances that are behind the commoditization of law also offer firms new opportunities for efficiency and process improvement. Legal technology can help firms be more scalable through optimizing their practice areas, case and matter management. Plus, being more tech savvy helps firms scale out and be more effective in their growth strategies.
AFA’s, for example, can use technology to lower the costs of commodity work. Firms can then be more confident in their pricing models, and more certain of what their costs and profit margins will be. Properly utilizing this tech can help build that certainty within the firm and pass it along to the clients as well. In effect, legal tech has adapted to the fee-earner’s custom skill sets, allowing firms to scale out more quickly.
The tech publication Venture Beat recently noted that in 2009 only 15 legal startups were listed on AngelList, but there are now more than 400 startups with nearly 1,000 investors. The funding amounts for legal tech companies are also growing rapidly, with $450 million invested in legal startups in 2013 – a whopping 350% increase over the prior year. As Venture Beat indicated, “Entrepreneurs and investors are focused on helping lawyers do their work better, faster and cheaper, making the law more accessible and/or cost-effective for clients, and eliminating the need for lawyers altogether, where possible.”
What’s more, legal startups are appearing in nearly every segment of the legal market. Legal tech companies already exist that cover legal research, legal self-help, online dispute resolution, contract automation, electronic discovery, practice management tools, legal marketplaces, legal education and analytics. These businesses can now scale because they are able to do more with the same (or fewer) resources. And the technology provides more predictable costs for firms, and better efficiency translates to higher profit margins.
On the other hand, most of the startup growth thus far has been on the low-end, commodity side of the work product spectrum. Companies that offer quick and easy incorporation or contract documents, for instance, are often serving customers who might not have hired a lawyer for that task. Any legal startup with a strong consumer-oriented focus is essentially tapping a new client market, the so-called latent legal market covering mostly middle class consumers.
Attorney regulations and pushback from firms will also likely slow the growth of startups who try to poach a firm’s clients. And lawsuits have already bogged down some of the legal startups. The ABA Journal reported that venture capitalist Jason Mendelson warned in 2013 that most legal startups would fail due to the industry’s complications and barriers.
The issue of scalable solutions in the legal industry is closely linked with Business Process Management (BPM). Using BPM, firms are taking custom expertise and building it into the technology so they don’t have to utilize higher-cost resources (i.e. partners and higher-level associates). This approach also allows them to better leverage their lower-cost resources. Many firms have taken this step in their administrative processes such as new business intake and billing allowing the firms to scale and do more with the same amount of people. The same step would apply to scaling fee earner services and work product.
The global legal industry is massive and arguably still inefficient, and tech investors have only recently taken notice of the opportunities. It would be naïve to think that legal startups and investments won’t continue to grow aggressively in the coming years. The most successful firms will likely need to integrate scalable legal tech into their daily practice, especially when clients start demanding it. Firms are also learning that scaling means more business and revenue, not necessarily more lawyers.