Blog Post

Too early for lessons for legal market from COVID-19?

Crispin Passmore • Apr 21, 2020

And some predictions for what happens next

It is no surprise that many of my conversations with clients, law firms and legal businesses right now are focused on what is going to happen and what the ‘next normal’* will look like. I am almost certainly wrong to even try and make predictions at this stage but bear with me: I haven’t been out much recently. Though I have been gardening.

I have said before that change happens in two ways: gradually, and then suddenly. That is based on an exchange in Hemingway’s The Sun Also Rises: “How did you go bankrupt? In two ways. Gradually, and then suddenly’. I am sure that we are going to see some law firms fail as a result of this pandemic. That brutal sorting of businesses is one of the features of capitalism – it frees up customers and capital for other business that are better placed to meet customers’ needs and thereby survive. Some of those that fail will feel harshly treated by circumstances, but it is important to ask why some firms fail, others survive, and a few thrive in this environment. I think observing and analysing this is the best route to predicting the future. I identify four (perhaps obvious) themes before making my predictions.


A strong balance sheet is crucial. We all know this, but it becomes stark in a crisis. A strong balance-sheet ensures firms are better placed to withstand disruption to invoicing and payments, to cope when work dries up temporarily, just to weather the storm.

How does this link to firms’ structure? How easy is it to have a strong balance sheet when you distribute all profits every year? Is a partnership a good way of structuring a serious legal business? How does that compare to a firm floated on the stock market with a cash reserve? Or firms with millions raised through external financing?

Perhaps it is easier to build a strong balance sheet within a corporate structure. And while no structure is immune to the fall out of too much debt, poor investment or over leveraging, a partnership model built on overdrafts and bank credit lines appears inherently unstable. Those that thought that external investment in law firms was dangerous may be forced to rethink.

It is interesting that Elevate, Axiom, Obelisk and Keystone are still recruiting lawyers at a time when traditionally solid law firms are furloughing. Which will be best placed to ask staff to step up when demand rebounds? Which is most stable? I a told applications to alternative providers are up significantly.


Tech enabled firms have a head start. By this I am not thinking about AI or super sophisticated technology. Let’s start with the basics: if you are a services business and are not able to work remotely, not cloud based, then you are less resilient. Case, financial and document management all in the cloud has given some firms a flying start. Those without it face real challenges. This is not about scale – small businesses can run on off the shelf software that is operating across our economies. Deploying Office 365 or Google G Suite as the core of your business communications should not have been difficult. Tech enabled firms were already using Google Hangout, Microsoft Teams, Zoom, Webex. If you want to get with this programme start with this blog from Alex Hamilton of Radiant Law

The alternative businesses I talk to use basic tech to maintain distributed teams and coordinate globally dispersed management teams. For these businesses, the shift into lock down has been seamless in terms of internal communication.

Tech enabled businesses are also able to onboard clients without face to face meetings, including ID and source of funds checks, as well as being able to take payments online. Many firms are quickly catching on and firms like Legl are making the running in on-boarding and online payments handling. Managing client accounts online, while reducing the risks associated with telephone payments comes from firms like Shieldpay. There is legal specific tech as well as the generic stuff our economy is built upon.

Firms that use technology to satisfy their customers’ needs – be it contract management, creation of NDAs, writing a will, handling a divorce, or setting up a business – are better placed through the lock down and any partial easing. They are physically distant but socially connected.

Those that entered this pandemic with solid foundations are finding out that they provide better customer experiences, improve cash flow and free up lawyer time for lawyering.


Specialisation? Or, all eggs in a virus edible basket? It must be tough right now to be a law firm that only does conveyancing. Add to that being focused only in your local geographic area. Or relying entirely on your office as a route to market. Businesses that come through this strongly seem to me to be more likely to have a wider range of products and services to meet their customers’ needs. That comes naturally from organising the business around your understanding of the customer.

There are two broad ways to maximise the value of your customers. You can try and limit what you do for them while charging them more (watch from about 4:40 mins onwards – if you think this is good advice put it on your website to demonstrate your brand values). Alternatively, you can try to push your costs down while finding new services that your customers might want to buy and develop products and services that appeal to customers you haven’t reached previously The public already thinks lawyers expensive: proportionate (to the client’s valuation of the problem rather than your expertise) and certain pricing are more likely to resonate.

I think this customer centric approach is what drives businesses like Legal Zoom and Rocket Lawyer and the breadth of their services. They offer a series of products, services, advice around issues their customers might face: they are not bound by lawyer specialisation. Quality of legal advice is a given (who would choose a lawyer or firm that didn’t know the law?) but they set themselves apart on accessibility, customer service and approach to pricing.

Another example is the emergence of multi-disciplinary practices. Are professional services firms, and I include law firms that have expanded into consultancy, HR and more such as Pinsent Mason, more resilient in these turbulent times? It is too early to be sure, but I suspect that it will be one feature of what emerges.

This avoidance of specialisation applies to new law companies too. If all you offer is flexible lawyering then you are instantly hit by any drop in demand (though well placed to respond to pick up too). But if you also have long term contracts to provide managed legal services; the tech platforms and dashboards that provide early insight into business performance, can provide consultancy to in house teams on digital transformation; or, even add regulated legal services into the mix then I am sure you are better placed to survive this storm.

New law companies or enterprise legal service providers may have arrived over the last 20 years with flexible lawyering and outsourcing models, but they are moving up the value chain and that is improving the breadth of their revenue sources and the depth of their customer relationships. Understanding the tasks that your clients want done and having a full toolbox to select the right products, services, channels, and platforms to satisfy that need broadens income streams. It is much better than just trying to charge customers more.


Understanding risk; focusing on resilience. I am not known for being risk averse, (or moderate but that is another blog all together). In the organisations where I Chair Audit & Risk Committees I am known for my willingness to take risk. But I do think that good risk management is at its core about two things: clear lines of sight on risk and the resilience to take bigger risks. I am not sure many law firms have as sophisticated an approach to risk management as their size and complexity warrants.

Firms and businesses can be conservative on risk but aggressive on opportunity. Risk conservatives maintain strong balance sheets, diversify income streams, deepen their relationships with customers, focus on value and excellence and look for tech that increases productivity. They do this because it reduces the risk of failure, increases their chances of success and provides a strong foundation for aggressively seizing opportunities.

Again Elevate offers a good example. Its founder has talked about learning from previous pandemics, seeking additional investment when change looked likely and being set up for a distributed world unable to travel.


Predictions
          1. Some consolidation is inevitable. Whether we look at more US/UK mergers, consolidation in personal injury and conveyancing sectors, or regional firms being swallowed up by top 100 firms, the middle of the market will be further hollowed out.

          2. I expect to see consolidation in the legal tech world too. Those with the financial strength to invest will buy up tech businesses. Enterprise legal service providers are better placed than law firms: Elevate is already doing this and the model will accelerate.

          3. Pressure on fixed costs in law departments will intensify just as the GC is asked to help the business pull out of this crisis. This will intensify the need for flexible lawyering.

          4. Many major law firms will back away from building their own tech and flexible lawyering platforms. Without the balance sheet to support the level of investment needed, some will retreat up the value chain and others will partner with alternative providers. Fewer law firms will be able to maintain the end to end services that they have built since the 1980s. Those that stick with it will need experience - like BCLP that previously built and sold LOD but now has Cubed.

          5. Flexible lawyering will become part of law firms as well as an alternative to them. More law firms will have their own halo of staff that are part of the firm but not employed.  Can firms like F-LEX and Obelisk use their systems to take advantage of that? And relationships with enterprise providers will be a further ring of support beyond that.

          6. The use of tech to support delivery by lawyers will intensify. From client on boarding through to payments, and from cloud storage to software as a service, tech will be normalised as part of the routine of law firms. Like websites and e-mail.

          7. More firms will recognise the value of serving all their customers legal needs rather than organising around their lawyers’ specialisations.

          8. Much will stay the same for those that don't suffer from the virus itself.


The trouble with predictions is that they are usually wrong, but by having a go I hope to offer a starting point. Help me (and others) by commenting on this blog. In a year we can come back and review what we missed and why. Or we may still be in lock down and living off what we planted this spring: that is true resilience.


*hat tip to @LiamjmBrown of Elevate Services who coined this term

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