Law Firm Business Models

John McDougall:  Hi. I’m John McDougall, President and Founder of McDougall Interactive. I’m here today with Jim Matsoukas of Pierce Atwood. He is the Director of Marketing and Business Development. We’ll be talking about law firm business models and web marketing for attorneys.

Jim, let’s start off with the amazing changes in the industry, in relation to law firm business models. What are the current trends with business models for law firms given all the recent changes the web and economic downturn have created?

Jim Matsoukas:  One of the things you’re seeing is a division into small and large firms. The medium firms are having a lot of difficulty hanging in there, only because they’re caught between people that have a lot of different services and a lot of attorneys all over the place. Both the country and the world, and on the other side, people that are very focused and have a lot of energy behind what they do.

They pick off a lot of different markets, just by virtue of how they operate. What you’re seeing is more and more people are either boutiquing it, or they’re conglomerating it, if you want to think of it that way.

John:  That’s really interesting. What’s that mean for the middle‑size firms?

Jim:  It’s really tough, quite frankly. They can’t compete with the big boys because they don’t have enough coverage to do so. They really don’t have enough depth within a particular practice, or usually not.

There are exceptions, of course. I’m talking in generalities. They don’t have as much depth as a boutique would to focus on a particular market, particular industry. What you’re finding is a lot of the mid‑size firms are either being swallowed up, or you have people leaving in chunks to create boutiques or practices where they feel they can be more successful.

John:  That’s really interesting, certainly, some tumultuous change. How have the expectations of customers changed about billing for different types of services?

Jim:  Price has obviously become more important. That’s obvious to most everybody. The days when the legal services consumer was really price‑insensitive are gone. Even the larger clients operate that way to some extent.

It doesn’t mean that price is the all‑important variable, but it means that it’s much more important than it used to be. They’re also looking for people to accept more rate risk, the firms themselves that is.

Instead of just saying, “I’ll do the work,” then bill hourly to do the work, and then keep billing hourly as you do the work, they expect to have some knowledge of what you’re going to be doing, that you can manage a project effectively. That you can come in on a budget that you estimated, that you can present justifications for going over budget.

There’s more billing software in play. There are more basic services that they expect to be done more cheaply. There’s more fixed pricing, interest, more activity and value analysis type stuff that goes on. What you’re finding is when you put all that together, you have more price‑sensitivity and more expectation that the firm you’re working with really has their act together.

John:  That’s interesting. Not totally dissimilar from our world of Internet marketing. We’ve always done a lot of monthly analysis, analytics, and reporting for our clients. When the economy gets tougher, people want even more level of scrutiny. For law firms, that’s a fairly intense change because of the level of economic pressure.

How big of an impact will LegalZoom and Rocket Lawyer have on the legal community? What percentage of firms do you think will be affected, roughly?

Jim:  In my opinion, a very significant impact, quite frankly. It affects all firms, regardless. Really, what these new services do is they remove that bottom level of services from the pot. They can pretty much snatch a lot of basic legal services that need to be performed on a routine, continuous basis and do them very cheaply. As long as they keep their quality up, which is still an open question because of the nature of the beast…

Contract attorneys come and go. You’re not sure how good the quality control is when they hire and maintain these people in their organizations. If they’re able to pull that off, I would think they’re going to be affecting firms of all sizes, especially at that…

We’ll call it a “commodity market.” The more commoditized market is going to be very competitive. It makes that small and mid‑market customer a much harder customer to compete for because they’re going to be looking for services like that. It’s not that relationships don’t matter. They still matter. Especially when you’re doing legal‑service work, relationships are still key, but for the bottom‑level, more commoditized market, I think they’re going to have a tremendous impact.

John:  What are a few of the practice areas, like trusts, estate planning, certain things? What are some of the things you’re seeing being most sharply affected by that?

Jim:  Those are two good examples. I think, if you think about services like estates and divorces and personal injury, and even slightly more complex things, like trademarks and copyrights, some aspects of the employment services, patents, immigration, if you think about some simple real‑estate transactions, they might even qualify. There’s a lot of startup activity.

John:  Right. It’s not just certain types of firms that will be affected, but a lot of different types of firms, with their lower ‑‑ commoditized, if you will ‑‑ types of things that Legal Zoom and Rocket Lawyer can pick up on.

Jim:  I think so. I really think it’s going to be a major change to the industry.

John:  OK. Will firms need to reduce prices on the commodity stuff and/or use the Web to find even more clients for some things and sell them at a lower rate? How will the Internet play into this? As firms are losing some of that business to Legal Zoom, et cetera, how will the Web help to maybe balance it out, or is that even possible?

Jim:  I think, yeah. The answer is yes, to the first part of that question. I think the firms do need to reduce prices. They’re going to have be competitive, and I think they’re going to have to manage that part of the firm differently than they manage other parts of the firm.

If you think about the old, traditional product‑development curve, where you’re trying to stay at the complex end of that curve and create more complex services and be trusted by your clients to do more complex things, more consultative‑type things.

I think firms are going to have to be more creative in developing services on the high end of that continuum. Then, as the services slide down the curve, like we all know, as things get more repetitive. They slide back down into commodities, you have to worry about the pricing again.

I think that’s the effect it’s going to have. They’re going to have to reduce their prices, and they’re going to have to be more creative in product development to make up for that.

The Web, it allows for more direct marketing, which helps. I think, on the flip side of that, the Web allows even larger firms, competing with these, I wouldn’t call them commodity firms, but more straight service‑type firms that they’re offering. The direct‑marketing abilities of the firm allow you to compete with that pretty directly. Then, as long as you can package your services, that’s the crucial part.

If you can find legal services that you can package and articulate properly to the audience as they’re reading it, as opposed to talking to you, you can compete pretty well. The only issue is you have to find a way to manage that part of the business a little differently.

John:  Those are some great insights. Do you see a rosy future for law firms moving forward, or is there a slightly more complex outlook, given all these things we’re talking about, compared to the past ‑‑ the good old days, if you will?

Jim:  I’m in the minority there, because there’s a lot of people that think it’s a catastrophe and the legal industry is in decline and the law schools are closing up and all that kind of… [laughs]

I’m pretty rosy about it. Well, it’s a big “if.” If the firms adapt well and if they really define what they do that’s complex versus simple or subjective versus objectively defined, I think they can really grab this and run with it. I mean, it’s just a question of stratifying the services in your firm and understanding what’s what and then using the technical capabilities very efficiently and effectively.

I think it’s a very exciting time. It’s actually a very rosy time for those firms that really grab it and run with it.

I think what you’ll find is a lot of the more traditional firms and the firms that like to think of their service as something different than an industry. Like the old idea of a profession and a guild and that kind of thing.

I think if you’re going to hang onto those concepts and those ways of doing things, I think you’re in trouble.

John:  No, that makes sense. There is a lot of opportunity for firms that are willing to adapt and it’s going to weed out some of the people that have been holding onto the past. I think there’s a rosy outlook for the right people.

That is really helpful Jim. I think we’re going to move onto the next segment and thanks.