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Law firm management

Where is the pressure coming from for small US law firms?

William Josten  Senior Legal Industry Analyst, Thomson Reuters

William Josten  Senior Legal Industry Analyst, Thomson Reuters

Small US law firm survey

In a recently completed market analysis, the Thomson Reuters Legal Executive Institute, in partnership with experts on small and solo law firms, sought to identify what attorneys and law firm leaders in small and solo law firms viewed as their greatest challenges and sources of competition. What emerged is an interesting look into the mind-set of these practitioners.

Small law firms can vary widely in key aspects, although it sometimes serves to discuss small firms in terms either of size, e.g., solo attorneys, firms with 2-6, 7-10 or 11-29 attorneys; or by type of practice, e.g., general practice, litigation boutique, business boutique, etc. Helping such a large and growing segment of the legal marketplace identify areas of concern that deserve attention and thoughtful consideration is daunting. Yet without some indication of the challenges facing them and their peers, these lawyers may never reach that critical stage where they take meaningful action.

Given the need for solid information in a widely varied set of law firms, Thomson Reuters embarked on a study of practitioners in firms of fewer than 30 attorneys. Here are a few key findings from that research.

New competitive and disruptive pressure is on

Regarding competition, fully 67% of respondents viewed other law firms of similar size as the key source of competition. While this finding in general is not surprising, the uniformity of this response across sub-segmentations of the market was. Whether viewed in terms of attorney head count or practice makeup, better than 62% of respondents across all classifications agreed that this was a key source of competition.

In contrast, there was a wide dispersion when it came to competing with significantly larger law firms for the same clients. Among firms with 7-10 attorneys, 71% of respondents saw this as an area where they experience stiff competition, as did 60% of firms with 11-29 attorneys. This contrasts markedly with the 36% of solo attorneys who said they experienced similar competitive challenges. The same division held true when firms were segmented by the type of practice. Among those respondents identified as litigation firms, 60% saw this as an area of stiff competition. But only 25% of general practice firms said the same.

Some groups also reported feeling more pressure from legal self-help, or DIY, services. Twenty percent of solo attorneys said that they felt significant competition from these disruptors. In terms of practice mix, an identical percentage of general practice firms agreed. But these were the highest reported results for this particular source of competition, and by a considerable margin.

These results show that, despite much of the concern surrounding online legal service providers like LegalZoom, small law firms generally aren’t feeling the pinch from them just yet. Firms are much more likely to be concerned about competition from similarly sized shops down the street, or, in some cases, from larger firms competing directly for the same client. That is not, however, to suggest that small law firms can or should disregard the influence online providers may play.

In fact, pressures from these disruptors may already be asserting themselves, just not in a way that is immediately  recognizable.

But client pressure is most apparent

In one relatively infamous statistic from the annual Altman Weil Law Firms in Transition survey, leaders of large and medium law firms are notorious for responding that they are not making more concerted efforts to change how they deliver legal services because “clients aren’t asking for it.” This response comes from the very same leaders who also report that clients are increasingly taking work in-house rather than hire a law firm, or that clients continue to put increasingly restrictive guidelines around billing practices.

A similar phenomenon may be at play in the small law marketplace. A relatively small number of attorneys and law firms identified online legal service providers as a source of significant competition. Yet 78% of respondents said that acquiring new clients presented a challenge, with 27% saying it was a “significant challenge.” For firms with 11-29 attorneys, the percentage of respondents stating that acquiring new clients was a significant challenge jumped considerably, to 37%.

Firms are much more likely to be concerned about competition from similarly sized shops down the street…

Similarly, 62% of respondents said that client rate pressure posed a challenge to how the firm currently does business, with 21% of respondents saying they faced a significant challenge from clients demanding the firm do more for less.

Here, as with larger law firms, we may see indications that clients may not be directly voicing their dissatisfaction with the delivery model law firms use, but they may be voting with their feet and dollars. While few law firms today view online legal service providers as stiff competition, it will be interesting to watch the progress of that statistic over time as the influence of online providers continues to grow. Coupled with continued pressure from peer and larger firms, small law firms may find themselves in an increasingly tight spot in the relatively near future.

The findings here are just a small sample of what the full survey has to offer as small law firms seek to understand the state of their marketplace. As with the public at large, consensus as to appropriate action will prove impossible. But, hopefully, these findings, and those discussed in other works about this research, will help to better identify areas in need of attention. The challenge then becomes recognizing that knowing what’s going on is not enough if it does not lead to thoughtful consideration and action.

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