The legal industry has operated as a seller’s market for so long that some lawyers don’t know how to handle the recent trend towards accommodating clients. In this episode of The Digital Edge, hosts Sharon Nelson and Jim Calloway talk to Jordan Furlong about what has driven the shift to a consumer-focused market, the new players that are breaking onto the scene as a result, and how law firms, both big and small, should react to the changes. Their conversation also includes three ways to respond to these market forces as well as how client services, competition, and culture should affect potential business strategies.
Jordan Furlong is a speaker, author, and legal market analyst who forecasts the impact of changing market conditions on lawyers and law firms. He is also author of Law is a Buyer’s Market: Building a Client-First Law Firm.
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The Digital Edge
Is Law Really A Buyer’s Market? And If So, Now What?
Intro: Welcome to The Digital Edge with Sharon Nelson and Jim Calloway, your hosts, both legal technologists, authors and lecturers, invite industry professionals to discuss a new topic related to lawyers and technology. You are listening to Legal Talk Network.
Sharon D. Nelson: Welcome to the 113th edition of The Digital Edge: Lawyers and Technology. We are glad to have you with us. I am Sharon Nelson, President of Sensei Enterprises, an information technology, cybersecurity and digital forensics firm in Fairfax, Virginia.
Jim Calloway: And I am Jim Calloway, Director of the Oklahoma Bar Association’s Management Assistance Program. Today our topic is, Is Law Really A Buyer’s Market? And If So, Now What?
Sharon D. Nelson: Before we get started, we would like to thank our sponsors. Thanks to our sponsor Clio. Clio’s cloud-based practice management software makes it easy to manage your law firm from intake to invoice. Try it for free at HYPERLINK “http://www.clio.com” clio.com.
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Jim Calloway: Thanks to our sponsor, Scorpion, which delivers award-winning law firm website design and online marketing programs to get you more cases. Scorpion has helped thousands of law firms just like yours attract new cases and grow their practices. For more information, visit HYPERLINK “http://www.scorpionlegal.com/podcast” scorpionlegal.com/podcast.
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We are very pleased to have as our guest Jordan Furlong. Jordan is a speaker, author, and legal market analyst who forecasts the impact of changing market conditions on lawyers and law firms. He has given presentations to audiences in the US, Canada, Europe and Australia over the past several years, including to law firms, state bars, courts, and many legal association.
Jordan is a Fellow of the College of Law Practice Management and a member of the Advisory Board of the American Bar Association’s Center for Innovation. He is the author most recently of the book, ‘Law Is a Buyer’s Market: Building A Client-First Law Firm’. And he writes regularly about the changing legal market on his website HYPERLINK “http://www.law21.ca” law21.ca. And I will also note, he is an all around great guy.
So thanks for joining us today, Jordan.
Jordan Furlong: Thank you very much Jim and Sharon for having me. It’s a huge pleasure to be with you today.
Sharon D. Nelson: Well, we are delighted to have you. And so I need to ask you first, what does it mean when you say Law Is a Buyer’s Market, what are you telling us?
Jordan Furlong: It is a pretty good question. Sharon, the short answer is that it means that the balance of power between lawyers and clients in the legal market has shifted and it has shifted in favor of clients, and it couldn’t shift any further towards lawyers, right, because we have always been the ones who are in control of the market.
We have had exclusive access. No one else has ever been allowed to offer legal services. We have all the information and the expertise and we know how the system works and all these things.
And our clients have traditionally known almost nothing about the legal system. They don’t know anything about the legal solutions available to them. A lot of times they don’t even have like a very clear grasp of the problems they have got. And I think most importantly, they have never had any option except you have got to go to a lawyer for whatever you need and accept whatever terms of the relationship that the lawyer or the law firm feels like imposing on them.
And that’s now changing. There is competition in the market now. People who aren’t lawyers and entities and companies that aren’t law firms, and they are offering legal services at different price points and quality points than has been the case in the past, and in more convenient, affordable ways.
And when I say quality points, I mean to be clear, I don’t necessarily mean lower quality than what lawyers offer, although sometimes it is lower quality and that can be fine. I mean, I think that is an important point we often overlook. You can offer services at a level below lawyers’ quality and yet still be above a baseline level of competence. I think that that’s a fairly large gap and that’s a gap in the market that’s going to get filled.
But at the same time, I am also talking about difference in quality which is higher level, and these are the technology driven services for routine, repeatable, kind of drudge work and that machines are inherently better at and humans tend to be more hit and miss and error prone.
So it’s a range of options, range of price points, different sectors, different levels of quality, and all these options are now available. And there are other aspects as well, which we don’t have time to go into; regulation, changes in the regulatory system and other types of technology and so forth. But the basic idea behind Law Is a Buyer’s Market is that clients have choices now and they have access to more information and knowledge than they have had before and they are in ascendance. The gap is closing between lawyers and clients. Clients are feeling more powerful. They are just sensing a change in the wind and they are acting on it, that’s basically what it means.
Jim Calloway: Jordan, you mention a bunch of market forces that are very important, but what’s the big picture, how did this all happen, we were in control, and is this somehow the lawyers’ fault that this has all changed?
Jordan Furlong: Oh gosh, no. Well, not exactly. It’s not the fault of individual lawyers and law firms. This is a point I try to make when I give presentations I say, look, you shouldn’t feel that this is something that everybody here has somehow missed, or it’s a failure on our part individually, because as lawyers we are particularly sensitive to that.
But the point to make is, no, these things are for the most part happening as a result of forces way beyond our control. These are like microeconomic and social forces at work here and we are not the only profession to whom this has happened.
I like to say ask the journalism profession or what’s left of it about the impact that globalization and the Internet and the changing nature of work, it’s all of a piece, across multiple industries. So it’s reigning everywhere, not just on our particular patch of lawn.
But at the same time, speaking more broadly as a profession, yeah, I actually do think we bear some responsibility here, and this is primarily because of just the ruthful state of access to justice. Lawyer serve only about 15%, 20% of the total population of legal problems. There are several studies across multiple jurisdictions that have established that, and I call that the tip of the iceberg, it’s that 50% just above water.
And if you, as a client or as a buyer, if you have the money and the inclination to hire a lawyer, then great, you are above water, you are free, and clear, and dry, and in the sunshine and that’s great.
And if you don’t, well, then you are down there under the water and you are holding your breath. And that’s what I call the latent legal market, the people and the businesses who are underwater, they have legal and law-related problems, but they either can’t find a lawyer to help them because they don’t have any money, or their problem is relatively minor from the lawyer’s point of view that it’s not worth a lawyer’s time and effort to handle it. But these are still real people, with real problems, and we all know them. We know them in our families and amongst our friends, and they deserve a solution too.
And all these new competitors that I just mentioned, all these new players in the market, they are more than happy to give those solutions to these people, to fill that gap I talked about between baseline competent and lawyer — we used to call it the Cadillac solution, I guess it’s like the Lexus solution or something, but that’s where these new players are.
And this is the key point I try to make to lawyers too, once these new players get the hang of these lower value matters, once they have really established a beachhead in the market, they are not going to stay there. They are going to move up, they are going to move in, and they are going to come for the higher value matters that lawyers have traditionally considered their exclusive inventory, and I think that’s the trend we are seeing right now.
Sharon D. Nelson: So what do you tell those in smaller law firms about how to deal with a buyer’s market?
Jordan Furlong: Well, Sharon, it’s interesting because there’s two ways of looking at it. In one sense smaller firms have specific kinds of challenges that the bigger firms don’t have. Generally speaking, they don’t have the depth of resources and the money available. More and more of the lawyers in the firm are caught up in day-to-day works and it’s harder to find people who are able to, not just do the management and the leadership and everything else, but the long-term strategic planning that’s required to keep an eye on this sort of a thing. So in one respect — in that respect at least, yeah, it’s a bigger challenge, you can also flip the lens though and say that an advantage that small firms, and especially, I think solos or very small firms have is that degree of flexibility.
If anybody who has ever tried to get anything new done in a large law firm or anything of significance in any kind of shift in direction knows just how hard it is, and so in that respect it’s probably a little bit easier.
But I think — and for me this is the more important point; I think regardless of what size of firm you have, whether you are like a solo or a national firm, I think the real problem is the traditional business model, the traditional law firm structure, and the reason is that structure evolved and developed in a very different kind of market than this one, right? And the traditional law firm — and we all know this because we all — kind of grew up in these firms and practiced in these firms, you get work done by giving it to a lawyer, and the lawyer goes through it, sequentially, plotting along one thing after another, and you start everything from scratch or from a basic precedent, and if you have to reinvent wheels, that’s totally fine, and you get it done at whatever pace is reasonable and then you count up all the hours it took and you build a client for those number of hours, and that’s crazy.
I keep trying to make this point to law firms, that’s a nineteenth century system, never mind the twentieth century one, and I think most lawyers if they put themselves in the position of their clients with a buyer’s point of view, I mean, we wouldn’t put up with that, right? We don’t like it when we get it from, like auto mechanics or other service providers. So I don’t know why we think our clients would want it from us, and they don’t want us, but they have never had any other choice before, so now they do.
So I guess my advice to small firms in particular, because again, if you want to make those mass investments in technology, in Artificial Intelligence, fine god speed, I don’t think it’s particularly necessary, and if you’re a smaller firm, that’s not really an option, but you don’t need to be a big firm to rethink how you run your business and how you sell your services. And the one thing I’d like to say to lawyers is, we have to lose this idea completely that we are selling our time or we are selling our expertise, because we really not, right? We are selling outcomes, we’re selling results because that’s what clients are actually coming to us to get, right? They don’t want their hours or best efforts, they want a specific outcome, something – what accomplished or avoided or solved.
So about stable lawyers and I think this specially applied from smaller practices, you need to think like you are running a legal solutions firm, right? I know solutions is a totally overused term, we hear it in technology all the time, but I think it has real resonance because that’s what again people are coming to us for; generally speaking, they have problems and they need solutions, and if you are a legal solutions firm you don’t sell hours or efforts, you sell outcomes, and if we start pricing our work that way, if we start figuring out the value of the results we are providing to our clients, we make that our inventory, then I think we are in a whole new ballgame and we’re in a far better position to compete in the market that’s coming. If we start pricing our work on the basis of solutions, if we start compensating people for solutions rather than hours, that would be nice. Just take time spent out of the deal altogether, I think that will be an excellent way to start.
Jim Calloway: You talk about substitutes for lawyers and law firms in your book, what exactly do you mean by that, and could you give us some examples?
Jordan Furlong: Sure, a substitute in like pure economic terms, a substitute is any product or service that so closely resembles a similar product or service in terms of its cost and its experience and its outcomes, that it’s immaterial whether you use one or the other. In my book I used a little flippantly, but I used the example of McDonald’s and Burger King, right? If you consider them to be completely interchangeable and I certainly do, but if you consider them to be basically the same thing then you go to McDonald’s if Burger King raises its prices, or if Burger King is too far away to drive too quickly and conveniently.
Now there are no perfect substitutes for lawyers in a market. I doubt there ever will be. I don’t know anybody is going to develop one, frankly, but there are already partial substitutes, and by this, I mean, a product, or a service, or a person who can provide some aspect of what lawyers do to a level or a degree that is in practical terms indistinguishable from how a lawyer does it; such that, if the lawyers are more expensive, and generally speaking, the lawyer is always going to be more expensive then you will use the substitute for that particular function, and the best examples here are technology based, whether it’s like electronic discovery or technology assisted review, due diligence software, which is driven by a various artificial intelligence algorithms, expert applications that are out now that can answer really basic legal questions. These are substitutes that in these specific niche areas they do basically as good a job as lawyers do at a lower cost, and by cost I don’t just mean in terms of money, which obviously is a big issue, but in terms of what you call, friction, the ease of use and the accessibility, the affordability.
If it’s 11:00 p.m. on Saturday night and you need access to some kind of a legal solutions engine, you will not find a law firm in the world that’s going to help you out, but you can find these substitutes and they will. So the way I describe it, it’s like little armies of little substitutes, little mechanical mice is the picture I draw and they are scurrying into the market and they are cutting off little bits of lawyers’ inventory, piece by piece, an hour here an hour there and cutting them off, and I think that for a lot of lawyers that’s kind of the reality of where we are right now or where we are heading very rapidly.
Jim Calloway: Well, on that happy note, before we move on to our next segment, let’s take a quick commercial break.
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Sharon D. Nelson: Welcome back to The Digital Edge on the Legal Talk Network. Today our subject is, Is Law Really A Buyer’s Market? And If So, Now What? And our guest is Jordan Furlong who we’ve introduced to you previously.
Jordan, what should the law firms do to respond and to adapt to all the turmoil that we have seen shifting this over to a buyer’s market? What are their options?
Jordan Furlong: Yeah, Sharon, I think that’s a key question and the response that I tend to give to lawyers is, look, there’s two ways you can deal with this. There are these new ways of delivering legal services; you can adopt these legal services in some way, I mean, to your own practice, you can augment them to some degree, add your own particular unique bells and whistles, or you can say, you know what? I can’t compete in this practice area anymore I need to go do something else. Higher value, something the machines can’t imitate.
And I think, fundamentally, those are the three principal ways to respond to a multiplayer market. Recognize that the basic work, the routine everyday legal stuff forms and contracts which has kept a lot of law firms going, right? That’s going away. Someone else is going to do that work. That might be you the lawyer, right? If you kind of radically reshape your practice and be a very commoditized process-driven law factories what Ron Friedman calls I think accurately, and that’s great, nothing wrong with that, but I think that’s the only way that work is going to get done.
So it’s not going to be economically feasible to do it i any other way. So if you don’t want to adopt these new methods now coming into the market, you’ll need to find something else to offer to the market that is going to be more resistant to automation or substitution.
Jim Collaway: In your book you talk about choosing your markets and your clients, how do you square that with being in a buyer’s market, and don’t we have to take whatever we can find or as lawyers around here say, whatever walks in the front door?
Jordan Furlong: Yeah, absolutely. I know what you mean and I know it’s tempting. And you’re right. There’s a lot of lawyers who for years have been practicing Door Law. If it comes on the door, it a client, if it’s a factor where someone wants to pay me at the market, that’s great, and it’s even more — we feel more compelled to that direction in tough times, but I think the problem is, because the market is so much more competitive now, I think lawyers need to be choosy here. I think we need to be smarter and more selective and say to ourselves where are the markets or we can really be dominant? What are the kind of clients that we’re going to serve better than anybody else?
I talk about this at more length in the book, to sum up, what I kind of say there is that there’s markets that are going to have advantages for you. They are going to be complex. They are not going to be easily often amendable or substitutable or what have you, they are sustainable.
I think you want to take a long term view of a market and say, “Is this market going to be around in five or ten years’ time?” Right? And if your market is people who die before they give away all their stuffs, and yes, you are a wills lawyer, you are probably fine, right? But if you are serving in the oil and gas industry then maybe you need to take a closer look at alternative fuels and what that’s going to do to your client base. And so, these are the kind of aspects you need to think about.
Take a look and say, “Where do we fit in best?” We have this long-standing idea in law firms that were all things to all people, we are “full service law firms”, but I really don’t think that’s going to be a viable option going forward. What can you do as a lawyer or as a firm better than almost any other firm or lawyer in your area? Where do you fit almost perfectly? Those are the places you want to look for, those are the places you want to devote yourself to serving.
Sharon D. Nelson: Well, you outlined three separate types of law firm strategies in your book and you named them client competitive and cultural, can you briefly explain these?
Jordan Furlong: Oh, well, I can explain these. I am not thinking too briefly. I’ll try my best. Basically what I say in the book is that I think a law firm needs to have a strategy in three dimensions and they are all related to each other and one of those is around client service which I don’t mean in like, the cliché sense, all client services are so important to us. I mean, very actionable ways, very deep entail about the client, enforceable client service protocols, let’s say that everybody in a firm, every time a client gets served he or she can expect to be served according to these standards.
We have been looking at the user experience of your firm and then something that kind of blows me away that I know very few firms actually do this, actually monitor and track and act on the results they actually deliver to the clients. The outcome of the retainer which I say to them, it’s kind of the entire point of the firm’s existence is to do this. Why are we not tracking this with a nearly the amount of attention of focus we use and we give to billable hours.
I then talk about the competitive strategy and a lot of that is differentiation. How do you really stand out from everybody else who is trying to serve your markets and your clients? But I think this is important. How do you stand out in ways that turn on the client’s purchasing decisions? The jokey way I put in the book is that, you could differentiate yourself by saying, we are going to be the nicest law firm in the world. We’re going to be the sweetest people. Oh my gosh, people are going to love coming to us and we are going to be delight to deal with, which is to say, it’s not a — terribly a high bar to pass, but again, that’s fine. People may like that, but are they going to switch their work from other firm to my firm because I am really nice? Probably I’m not. So why do clients actually purchase the services they do from the suppliers they do? I think law firms needs to have a very accurate answer to that question, and the only way to know it is to actually ask the clients that you are serving.
And the third dimension is around culture, which I think is, in many ways criminally under-rated in law firms. The culture, what kind of behaviors are tolerated and what kind of behaviors are enforced around here? And if you are listening to this in a law firm and you can sit back and think, what falls into those two categories? What do we put up with around here and what do we expect from people around here? And I think the answers and I suspect everybody listening to this can make a very short list in a very quick period of time. That’s the culture of your firm. And I go on at some length in the book about what I call the pillars of a good culture which just to name them are concerns for the client, respect for your colleagues, service to the community, and care for oneself. I think this last one is really important, talk about under-rated. We don’t make it as part of our culture in law firms that lawyers take care of themselves, mentally, and physically, and emotionally we value this idea, we make 23:58 out of how hard you work and how many hours you put in, and we just wreck people, we wreck them physically and emotionally, and I think that’s got to stop as well.
So these are the elements to my mind of a really strong culture. You put these three strategies together, you come up with various tactics to advance them, and I think that is a far more robust. I think it’s a far better balanced kind of a culture and kind of strategy that law firms want to have right now.
Jim Collaway: Before we move on to our next segment, let’s take a quick commercial break.
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Sharon D. Nelson: Welcome back to The Digital Edge on the Legal Talk Network. Today our subject is, Is Law Really A Buyer’s Market? And If So, Now What? And our guest is Jordan Furlong who has been giving us some wonderful advice here.
Jordan, you go so far as to say that law firms in the future won’t have partners or associates, now what the heck does that mean? What’s that all about?
Jordan Furlong: Yeah, that one is kind of a Hail Mary pass in fairness. That’s more of my sort of long shot, but in a way it’s also — it’s kind of where we are tracking right now in law firms. Law firms really today make partners primarily because they need the investment of capital to get the firm to work; otherwise, firms would be entirely associates, maybe entirely employees. And I think that without going into this in any detail at all, I think that inevitably law firms are going to be taking equity from sources other than lawyers within the next 10 years or so even in the United States.
But even if not, the question you have to ask yourself is, who do we really consider essential around here? Who is indispensable to our firm?” And the fact of the matter is that if you took your entire population of partners and apply that question to them, who is utterly indispensable? I think most departments wouldn’t fall into that category and I think we need a better term. We need a better term for the indispensable essential people, the people we cannot afford to lose but we would move heaven and earth to bring into our firm if they weren’t here then partner. I don’t know if that’s director or if it’s like chief shareholder or something like that, I don’t know, but we need to rethink our whole notion of how equity is created, how power and influence are shared and exercised within law firms.
And as if we are associates, I think that 27:30 probably closer because we are already seeing I think the slow death of the associates in law firms. Hiring in firms is down of new lawyers, we are definitely seeing narrowing bands of associate classes and cohorts every year, primarily because the leverage model that once sustained the pyramid model of law firms, because of all this new technology, because of new outsourcing and off-shoring and automation possibilities, we don’t need as many people to do this work anymore. And so, the leverage model isn’t going to make as much sense. So what I basically see in the firms, and it’s almost been of a thought experiment but picture a future where you don’t have partners or associates, but you do still have lawyers, what function do these lawyers carry out, why are they there? What value do they bring and what tasks do you expect them to perform? I think that’s the real question firms want to ask.
Jim Calloway: Jordan, for our final question, I want to ask you to look into the future and predict, will we ever go back to a seller’s market in law or will it buyer’s forever?
Jordan Furlong: Well, forever is a long time, and it’s beyond my forecasting scope. But I’ll say this, when I talk to clients, and this is like corporate clients or consumer small businesses who have had a chance to sample the market as it now has evolved, who have access to these options and these choices and to have this sense of, oh my gosh, I have influence. I could push back. Clients push-back on law firms and law firms give away.
There is a classic case of a GC who began pushing back on law firm rate increases every year and said to the law firms, I will pay you rate increase if you can explain to me how you are increasing the value in impact of what you do? And every single one of them just said, forget, we will drop the rate increase. And the more that happens, the more that client say, you know what, we don’t have to go back to the way things work, I don’t want to, I have options, I have choices, I have influence. I’m not giving it up, and I don’t see those options going away. I don’t see anyway the genie gets back in the bottle, I’ve been saying it for a while, unauthorized practice of law has a very short life span left in practical implementable terms, forever I don’t know, but for the forceable future, yeah, I think it’s going to be a buyer’s market.
All that having been said, the pendulum always swings back and these things always rebalance. Lawyers are going to figure this out, law firms are going to figure this out. We will rebalance, we will reassert ourselves and find other ways to deliver value. New types of scarcity will emerge that only lawyers can provide, and then yeah, it will probably swing back a bit more towards the sellers, but at least the pendulum will be swinging. For years, for decades, it’s been stuck up in one end, now it’s going back and forth, and that’s the way it should be. That’s the way markets ought to work. And I think we should welcome that. We should welcome it as lawyers and I think we should welcome it as people who have fundamentally our client’s best interest in mind.
Sharon D. Nelson: Well, that’s a super happy note to end this podcast on, Jordan. We sure want to thank you for being our guest today. I would certainly urge people to take a look at your book, which is wonderful, and we really enjoyed your insights and wisdom about the state of the market today, which has certainly shifted. And that pendulum is swinging and for a lot of lawyers, it’s the wrong way, but you’ve given us a lot of illumination. Thank you so much.
Jordan Furlong: Thank you Sharon and Jim, both.
Sharon D. Nelson: That does it for this edition of The Digital Edge: Lawyers and Technology. And remember, you can subscribe to all the editions of this podcast at HYPERLINK “http://www.legaltalknetwork.com” legaltalknetwork.com or on iTunes. And if you enjoyed our podcast, please rate us on iTunes.
Jim Calloway: Thanks for joining us. Goodbye Ms. Sharon.
Sharon D. Nelson: Happy trails, cowboy.
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