Small Firms: Get Ready for the Coming Boom

01/29/2013
Published in Lawyers USA, January 29, 2013

Are lawyers an endangered species? If you read the headlines, it's easy to reach that conclusion based on news like this:

  • The list of once-large, now-defunct firms keeps growing: Dewey & LeBoeuf, Howrey & Simon, Heller Ehrman, Thelen Reid, Brobeck and others.

  • Well over a dozen law schools face lawsuits by former students claiming that the schools misled their graduates about employment chances at major firms.

  • Law school applications are down by as much as 25 percent.

  • The ranks of entry level lawyers at large law firms have shrunk by as much as half since 2008, while compensation has remained flat.

  • Partner de-equitization at large firms continues – a top Wall Street firm offered to pay older partners 50 percent of their previous five years' partnership draw to leave.

These headlines, however, all focus on the large corporate firms with many hundreds or even thousands of lawyers. While doomsayers proclaim that the legal profession's problem is too many lawyers, those who attended a California State Bar task force hearing last year heard a different story. Testimony pointed out the imbalance of supply (jobs at the big law firms) and demand (still very large among the Main Street folks who can't pay $1,000 an hour for legal fees). That imbalance promises a bright future for small, efficient law firms.

Serving the ‘other 99 percent'

The bulk of the legal profession, perhaps as much as 80 percent, consists of sole practitioners and small firms that provide most of the legal services. Yes, there is corporate America, a small but disproportionately powerful group serviced by big law firms. But the rest of the profession provides the legal work for the "other 99 percent" of the population.

This large, under-served customer group includes individuals, families and smaller companies. These customers offer a lot of work to firms with costs flexible enough to be affordable.

Affordability depends on the use of technology. In essence, technology has freed small firm lawyers to do more even as it has empowered clients to ask for more. That requires small firm lawyers to partner with their clients and work to reduce client legal costs through efficiencies that bring in more work and revenue and thus maintain overall profitability.

That must be done within the formula that defines all business success: Profit equals revenue collected less expenses. Using technology to provide efficiency is essential to collaboration, while demonstrating value received is essential to trust.

Small firms can use case management software, client relationship databases, knowledge management databases, e-discovery software and more to improve legal service efficiency and quality, at the same time as lowering legal costs to their clients. It is the overall legal cost, not the hourly rate, that the client cares about. And only technology can reduce the cost of operations and thereby allow firms to pass on to the client some or all of those savings.

More causes of action

What work will these lawyers do? It has been said that there have been more causes of legal action created in the last six months than in all of recorded history. That may be an exaggeration, but it's an undeniable fact that as society becomes more litigious, lawyers must deal with new causes of action all the time, and these affect the lives of everyday people.

Here are three recent examples:

  • In Los Angeles last year, the owner of a Honda Civic hybrid won an unusual small claims court lawsuit against the auto giant for misleading statements about the high mileage her hybrid was supposed to, but did not, get.

    Experts say this judgment could transform product liability litigation nationwide for informed plaintiffs with a good small firm lawyer. While this decision was overturned on appeal, it's clear that product liability lawyers will learn from this disgruntled customer.

  • Several cities have passed laws allowing bicyclists to file civil suits against auto drivers or pedestrians who commit assaults and attacks on them and collect treble damages plus attorney fees.

    The idea is that the potential for high damages will act as a deterrent against cyclist abuse, while the potential for high compensation will make attorneys more likely to take on cyclists as clients.

  • New Hampshire has enacted a law that permits lawyers to help clients with their mortgage foreclosure issues.

Renegotiating mortgages, dealing with foreclosures and otherwise advising clients about their financial difficulties used to be standard fare for many lawyers. But because of the illegal actions of some lawyers, many states enacted rules of professional conduct and penal code provisions prohibiting lawyers from accepting fees in advance or even in trust to handle such matters.

Naturally, that meant the death knell for such representation. No lawyer could afford to accept such a case with only the hope the client would pay the fee at the end; after all, the client was already in financial trouble.

New Hampshire is the first state to reverse course in this area.

The point here is that these causes of action affect the everyday lives of hundreds of thousands, if not millions, of people around the country. Such people will need lawyers to help them.

Rather than bemoan the economic pressures on the small firm lawyer, we need to realize that the mega law firms with many hundreds or even thousands of lawyers may serve the 1 percent of the corporate world that is relentlessly pushing them for fee and overhead reductions. But there will also be a large group of customers/clients who are underserved and need the help of sole practitioners and small firms.

There is plenty of work available for those small firms that are flexible enough in their cost structures and nimble enough in their legal analysis. Legislators continue to write new laws, providing work for lawyers to interpret these laws and advise their clients on how benefit from them. Clients still look to lawyers when they need help or want to right a wrong. And technological efficiencies combined with solid legal skill allow lawyers to make a real difference in people's lives. Will you be ready when such clients turn to you for help?

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