Apparently law firms are getting squeezed on costs. The big name-brand firms in NY or LA cost a lot; the smaller ones more out of the way cost less. As a result, midsize law firms have been growing, nearly doubling their share of litigation work from 22% to 41%, while the largest firms slipped in their percentage of overall billings from 26% to 20%.
This is unsurprising. As law firms have continually inched (or “miled”) up rates, firms always pushed back. Instead of fighting over the rates, however, corporate clients are simply taking much of their work to firms who are happy to take lower rates. After all, having a headquarters in expensive NY, Washington or LA does not make the lawyer any better.
My favourite line, though, was the one from legal consultant Kent Zimmerman: “the losers are the big firms that aren’t migrating to high-rate work.” Clayton Christensen must be hearing bells ringing.
One of the key elements of Christensen’s disruption theory is that smaller entrants come in with a bare bones product that is just good enough to capture non-consumption, then slowly improve it to grab some low-profit market share from the existing players. The incumbent providers are, paradoxically, comforted by the loss of the less profitable end of the market, happy to leave it to them and move up-market, to the “high-rate work.”
Eventually, the low-end product gets better and better, without a linear increase in price, and takes away all of the existing expensive market, except for a few high-end custom work niche players.
For a long time, the law market has been ripe for disruption. Work is repetitive yet expensive; services that should cost $1,000 cost $10,000 or more. While there is always room for niche players at the very high end of the market and for consulting, the bulk of legal work is something that has been done before and will be done again.
To be fair, lower cost players out of Atlanta or Charlotte are not true disruptors; they are doing the same work for the same effort, but at lower cost. But the willingness to pull away by customers indicates how ready they are to consider changes to make unnecessary costs go away.
When an existing high-cost high-profit provider says the key is to move upmarket and leave the lower-end to others, you know they are ripe like a good banana.