One of the primary themes of this blog is how the proliferation of legal service providers will challenge the viability of solo and small firm practices. I discussed the UK’s Legal Services Act (LSA) and it’s authorization of Alternative Business Structures (ABS) that would permit private investment in law firms. Law firms will be infused with private capital, creating partnerships between the legal and financial marketplaces. But that was the UK, and yes, there is that thing called globalization, but what were the odds of this thing called the “legal services industry” (not yet defined in wikipedia) seriously challenging US law practice structure? No big deal.
Except it is.
Fast forward to August 2011, and where are we? The legal services industry is on the fast track, nipping at the heels of bread and butter work for solos and small firms, right here in the US, right where you are trying to make a living after three grueling years of law school and passing the monster of all examinations: your state’s bar exam.
Late last year, there was the purchase of Pangea3 by Thomson Reuters. Pangea3, the premier legal process outsourcing in India, now has opened as office in Dallas, Texas, thereby expanding its reach, visibility and level of services offered to assist enterprise law firms in executing standard legal processes involved in transactions and litigation. In response to a post by Jordan Furlong on the purchase, Carolyn Elefant commented:
As you know, I am generally very bullish on solo and small firm practice, and positive about our ability to overcome hurdles. But I agree – this announcement is a game changer – and it scares me a little, particularly the part about Pangea opening up offices in the US. With offices in the US, why couldn’t a couple of Pangea attorneys get licensed here and set up a national, VLO for consumer services? The Pangea lawyers could create forms and processes that the LPOs would handle. They could charge rates competitive to Legal Zoom but with the added value of attorney involvement. If that were the case, I simply do not see how a solo or small, stand alone VLO-only (i.e., without any in-person presence) could compete.
The uproar came and went, and the event had seemingly little impact on the solo/small firm market. But the trend of capital investment into a services industry that usurps the work of lawyers was clearly on the march, anticipating the coming of ABS ventures to serve as models for what can be, and stimulating ideas for work-arounds extending into US markets, such as the hybrid model Clearspire. In New Business Models are Becoming a Reality for UK Law firms, author Chris Bull makes the point that:
While external ownership is headline-grabbing, it is only one example of evolving business models for legal services businesses being used in the UK; which is clearly playing the role of the global legal industry’s
“laboratory” today.
In other words, no one’s waiting around for ABS to kick in, nor are they confining themselves to the parameters of ABS regulations. A bill is pending in North Carolina which would permit up to 40% of a law firm to be owned by non-lawyers. Rich Granat reports that Jacoby and Meyers has filed suit in Federal Courts of New York, New Jersey and Connecticut requesting that Model Rule 5.4, which restricts non-lawyer ownership of law firms, be removed. In his post, he makes an interesting observation:
There is no clear path for non-lawyer ownership or investment in a law firm in the United States, and as a result it is arguable that the legal services delivery system lacks the capital necessary to innovate and create the efficient systems that are necessary to serve not only the “latent market for legal services”, but existing legal markets more effectively. (emphasis added)
Now it’s become apparent that significant value is seen in this segment of the legal marketplace, and that the capital necessary to advance the legal service industry is being tapped. In January 2011, Google Ventures and several angel investors quietly infused capital into LawPivot, “a legal Q&A site where businesses receive crowdsourced legal answers from the right lawyers. ” Most recently, Google Ventures has again joined investors to back RocketLawyer, a self-help site providing legal documents generated through their document assembly system, and access to their lawyer database if you need legal advice to complete the documents.
In his analysis of the RocketLawyer investment, Jordan Furlong notes the significance of the terms used in the press release announcing the investment:
We see a large market opportunity for legal solutions that are easily accessible and affordable to users. Rocket Lawyer’s combination of an intuitive user-driven front-end with a strong technology-based platform uniquely positions the company to scale and deliver the type of “wow” user experience that online customers love. (emphasis added)
and observes that “convenience” is “a fight for which law firms still haven’t even shown up.”
These events do not bode well for solo and small firms, which are still dragging their heels on the adoption and integration of virtual law office technology, document assembly systems and unbundling their legal services. Stephanie Kimbro notes that as a result of investment of this scale,
– Attorneys with virtual law offices must compete even more with the huge marketing budget and power of Google’s control over its SEO algorithms. Solos and small firms will be hit especially hard.
– As a result of that, it may become necessary to join a branded network, such as Rocket Lawyer, in order to get the number of leads necessary to sustain a virtual practice.
In Jim Calloway’s interview with Rich Granat, Granat espouses a harder line:
The legal profession is just the next target of opportunity, no matter what the social cost. The VC funds don’t really care that what they are investing in may be violating existing unauthorized practice of law (UPL) laws, e.g. LegalZoom. They just see an opportunity to radically change the solo and small law firm legal industry sector at whatever costs, in order to create value for the enterprises they invest in and for themselves…Much higher volume work is the bread and butter of solo and small firm practice. If these services are pulled away from the law firm, and delivered by non-lawyer entities, it will completely destabilize the economic model upon which solos and small law firm practice is built.
There is no doubt that any emerging legal document service providers will more carefully scrutinize it’s structure to avoid the UPL claims that are currently plaguing LegalZoom (which recently, and quite wisely, settled it’s Missouri UPL lawsuit, but is facing yet another in Alabama). But the manner in which RocketLawyer provides its services handily serves as a prototype for a viable, and ethical, way to corner this market. If such services continue to obtain big investment dollars, solos and small firms will be seriously disadvantaged.
Now is the time to step up to the plate, integrate the technology necessary to compete with legal service sites into your practices, and market the value of your services relentlessly. Look for opportunities to network with other tech-savvy lawyers and combine your efforts to increase your visibility. The solo/small firm segment of our profession is large and strong right now. Use those advantages before they disappear.
Next week we will take a look at various practice models you can implement to accomplish these goals, and visit ideas about presenting a united presence in the legal marketplace.
