Despite law school enrollment figures being at an all-time low this year (with the exception of Harvard and other elite schools) and the economic downturn making careers in law less appealing to would-be lawyers, not everything is as bad as it seems.
Law is still the second largest professional services sector and the industry estimation of more than $300 Billion has made it an attractive destination for entrepreneurs. The market has an oversupply of legal labor and consumers are constantly on the lookout for competitively priced legal services. This, coupled with the fact that technology is still underdeveloped and not as widely spread as it is in other industries has made law a hotbed for legal innovators. CB Insights reports that venture capital investors completed over 30 deals to legal tech startups – a figure suggesting that there’s more than enough space for new players to join the fray.
Here are just a couple of trends that you can expect to see as entrepreneurs are entering an industry ripe for innovation – and profits.
Start-ups will reduce the cost of traditional legal services
Even though each legal matter is widely different from the next one, start-ups are now offering “do-it-yourself” services for legal tasks that lend themselves to standardization. Things such as incorporating and drafting short contracts can now be done for a fraction of the cost you would find 10 years ago. Lawyers that offer these services are forced to compete on price and lower prices have always been a sensible issue with lawyers. It’s common for small businesses who are on a shoe-string budget to opt for “do-it-yourself” services on the internet versus investing in experienced legal counsel. The cost-benefit analysis is driving more and more people to choose this option and lawyers who want to stay in business will have to adapt their prices to meet the many internet sites who offer the same at lower costs.
The traditional law firm model continues to shift
Would-be entrepreneurs have many opportunities to provide solutions to existing problems in this industry. From the way people find lawyers, to how firms attract talent, to how lawyers operate and provide legal services, there are many areas that can be improved in law. As more solutions appear, law firms have to adapt in order to stay ahead. The recession has made clear the cracks in the system: starting from the oft-despised billable hour being replaced with low-cost, efficient offshore work to the pyramid scheme of Big Law firms giving way to new model firms (like Axiom) which eschew the overhead associated with the traditional partnership levels, such inefficiencies are no longer tolerated in a new financial landscape. The rivers of gold that Big Law has enjoyed in past decades are visibly drying out but even though law firm managers are aware of this fact and are allegedly trying to get on with the program – their efforts to change from the traditional ways have mostly failed.
Disruptive change is right around the corner but it won’t come from the big firms. This leaves newcomers and start-ups to cut into a market that is looking actively for alternative solutions. Software companies and electronic discovery services have already stolen much of the low-level litigation work of bigger firms. Compare today to what it was like 10 years ago and it doesn’t take a genius to figure out that we are at the beginning of a revolution.
Industry consolidation is looming
Technology that allows for advanced legal research and document review has made routine work faster and cheaper to do. The money that was spent on training junior associates to handle low-level work can no longer be justified when such cost-cutting technology is available. This leaves fewer junior associate positions to be filled and this in turn makes the traditional pyramid structure of law firms shift. While people will still want to pay for the counsel of a true legal expert, they won’t be inclined to pay by the hour when most of the low-level work can be automated and is automated by competing legal tech start-ups. The old billing by the hour is falling out of favor and with technology that reduces those hours, the traditional financial stability of the law profession is no longer stable. It’s very possible that the industry will consolidate in the next 10 to 20 years, just like it happened in accounting – an industry that had to change with new technology in place.
In today’s social media-heavy environment, lawyers have to master not only their respective subject matter but also keep an eye on sales, marketing, financing and hiring other experts to keep the practice successful. Running a start-up law firm is proving to be very similar to running a tech start-up firm. As entrepreneurs recognize problems and come up with innovative solutions for law consumers, it will be interesting to see how the law and entrepreneurship fields converge. One thing is certain – if you’re headed to law school, don’t forget to at least take a course in entrepreneurship – it will pay off in spades.
photo credit: woodleywonderworks