Tuesday, May 18, 2010

Latent Legal Market Revisited—A Rare Win-Win

Law firms want high value "bet-the-business" work, where no effort is spared and legal fees are not questioned. As many commentators have pointed out this market is shrinking and the number of law firm specializing in this type of work is dwindling.

Ever since I picked up a computer and started programming, I've thought about the other end of the market: the low margin business. I've pitched the concept to many firms with very limited success. And, described in terms of "let's go after low value business" lack of interest is hardly surprising.

From the Law Firm's Perspective

First, the desired high margin business is also very low volume. The seemingly less desirable low margin business is high volume. I suspect the total value of low margin business is at least as large as high margin work.

Second, another rationale for avoiding routinized work is that it may be perceived as less intellectually challenging. However, I would point out that what a simple individual representation may lack in challenge is more than supplemented when the goal is to meet the needs of all present and future clients in a systematized and packaged legal service.

Third, standardizing lower value work (NDAs, employment agreements, sales agreements, etc) is an excellent training vehicle for associates, employing underutilized lawyers.

From the Client's Perspective

General Counsel is challenged not only to reduce their outside legal fees—more likely than not comprising the non-standard, high value work—but also their internal costs. And, for every merger agreement executed by a business, they are likely hundreds of employment agreements. In order to reduce costs and increase quality, many, in-house departments, for example Cisco, have invested in standardization projects. But, such efforts still represent a small fraction of the overall volume of work.

Combining Interests

Rather than describe the opportunity as "low value" business, there are better marketing approaches. Employ law firm associates to build standard forms and document assembly systems for their clients, using the expertise of the firm's senior attorneys to ensure adherence to best practices. The law firm bills for its legal services, the client benefits from reduced cost. Moreover, if law firms fail to assist business reduce their day-to-day costs, will in-house lawyers invest in document standardization forever cutting outside counsel out from this line of work?

How large is the low-margin, high volume market? In order to estimate the cost-benefits of document standardization, I've built an ROI calculator to weigh the cost of building standard templates compared to time required to draft documents using the "last draft" method. Here's a link to the calculator. If I'm right then the cost savings to businesses are very significant and scaled up to the entire market, it's a huge opportunity for law firms.

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