Look outside the bubble for new opportunities
The technological revolution can help law firms reach more companies if they are able to see beyond the large bubble they are in
Let’s face it – law firms live in a bubble. It is a large bubble, almost $1 trillion of annual revenues for the legal services industry. So, law firms are feeling wonderfully comfortable in that bubble. But it is a bubble nonetheless that prevents them to see a whole world of opportunities outside of that bubble.
It is a strange situation to observe, especially for an outsider like me. On one hand, according to various reports, between 77% and 85% of citizens of even the most economically developed countries cannot afford paid legal services (or do consider them too expensive). On the other hand, according to Clio’s 2020 Legal Trends Report, 80% of law firms see it as their top priority to find new clients.
Let’s take the US market as an example – you can apply the logic to any other country. Let’s further assume that on average every adult citizen has at least one legal issue per year. Those don’t have to be complex legal problems that require professional help by experienced lawyers. In fact, most of those problems are small issues that a traditional lawyer would not touch with a large stick, like traffic tickets or trouble with a utilities bill. So, for the US, that are over 200 million legal problems every year, out of which 84% (the percentage of people with no access to legal services in the US) go entirely unsolved, or at least don’t come before the eyes of a lawyer.
There are no statistics on the average dollar amount of a legal problem, but I think we are safe to assume it to be not less than $100. Considering the percentage that B2C platforms charge for their services in Europe, customers are ready to pay 20% of the amount recovered or saved. At 168 million cases (84% of 200 million) that amounts to $3.3 billion of revenues per year. That is what the best-earning law firm in the US, Kirkland & Ellis, generates in revenues. So, there is a Kirkland & Ellis right outside that bubble in the US alone. In fact, it might be even more – according to some US statistics, every adult in the US is ready to spend on average $250 per year on legal help. I agree, this all might look like naïve fallacy to you. But whether the actual amount it $1 billion, $3.3 billion or $30 billion, it is a pretty large amount of money.
Even with a much simpler mathematical approach it should be obvious that when 20% of the total addressable market generate $1 trillion in revenues, then the amount that may be generated by the remaining 80% is substantial. But how to bridge the gap between the $250 the average person is ready to pay per year and the average hourly rate of law firms of, according to the Laffey Matrix and USAO, over $400? I cannot be done without technology.
Technology-based digital transformation has changed industries like telecommunications, entertainment, or retail trade for the last 25+ years. Remember the times when we paid a lot of money per minute to talk to somebody on the other side of the globe or went to a physical location to rent a movie? When we went to "record stores" where we had to buy 10 songs to listen to just one hit? These times are gone, and soon this kind of change will come to the legal industry. The revolution has already started, but you may not hear the barbarians storm the gate from within your comfy bubble.
Technology, if applied correctly, can make the practice of law sufficiently more efficient to reach the level of rates some businesses are ready to pay. Not all the 80% that go unserved are customers without any financial means. According to the Legal Services Board of the UK, British small and medium enterprises have legal issues that are valued at about £100 billion per year. But only 13% of those SME consider the value proposition of law firms to be adequate. A study in Germany in 2013 revealed that 70% of potential customers of legal services with the financial means consider the price level of such services to be not attractive enough to spend money on it. That sounds like an opportunity to me.
If you are enterprising enough to go for the pockets of those who have little or no money to spend on legal services upfront, technology can make this happen. Automation can turn your expertise into products that can scale easily. Take the compensations that airlines must pay customers in Europe for delayed or canceled flights as an example. To recover the average amount of €250 compensation, clients would have to pay upwards of €400 to a lawyer, without any guarantee.
Nobody would do that. Enter B2C platforms that automated the whole process from start to end and packaged their lawyer’s knowledge and expertise into a product that could be sold to millions. They created a multi-billion market by solving a problem that traditional law firms would not or could not solve and made millions in the process. Think about the millions of traffic violation tickets issued each year with errors, the fraudulent eviction notices, or the unlawful terminations of labor contracts - those are legal problems waiting to be solved by lawyers with technologies.
So instead of tirelessly trying to slip the patron, who just had truffles with his Wagyu beef steak, some black caviar with Cristal, get out of the bubble and try to sell some sandwiches on the side.