Can your law firm survive the changing legal ecosystem?

By Andrew Neill

Cloud forests are rare expanses of rainforests found all around the world. They are each unique islands of rarity, often superficially similar, but fundamentally different to even their closest neighbours. Evolution has worked to make each mountaintop an island of diversity, separated from other peaks by altitude and rapid changes in climate.

The clouds form only at particular altitudes, and species that specialise at those heights cannot survive without the moisture and coolness which they have adapted to. Mountains with cloud shrouded tops are host to insects, trees, mosses, birds and beasts that cannot venture down the slopes. Like the famous finches on the Galapagos Islands that inspired Darwin, each clouded mountain is surrounded by an impassable barrier.

Now consider the market for traditional law firms. Each has carved out an economic niche; a place in the pecking order with a particular combination of resources, cost, brand, skills, capability, reach and pedigree that meets the particular needs of a specific group of clients – whether that is retired couples on the high street, first-time buyers looking for cheap conveyancing online, government departments looking for cutting edge procurement advice, or an international jet-setter with a family business to restructure.

Each successful firm successfully meets the needs of a group of clients, and less successful firms survive on slimmer pickings. In a healthy, booming economic ecosystem there is generally enough to keep everyone fed.

We are not, however, in a healthy economic ecosystem for traditional legal work. Although there are signs of a wider economic expansion – indicated by figures in The Lawyer that suggest increasing revenues for many firms – it is a different world to that of the boom years that ended with the great financial crash of 2007/08. Profit margins have been squeezed, despite headcounts being reduced. Where revenue has increased in line with headcount, margins are flat and profit per lawyer has dipped.

Many of these changes in the profitability of the legal industry can be laid at the door of new entrants to the market – the RiverViews and Brilliant Laws – who are carving out once profitable niches. Parabis, Slater and Gordon, RocketLawyer, LegalZoom and start-ups like Wevorce and LawPal are the new, agile competitors who intend to win business away from the traditional firms, or create entirely new markets where traditional firms cannot (or will not) compete. This is how disruption happens: the incumbents consider the newcomers to be irrelevant and not competitors – until the market switches and, suddenly, the old marketplace is empty. Who wants to be the best horse-buggy maker in town when Henry Ford is setting up shop next door?

Within their cloud world at the top of the mountains, species there can resist newcomers because they are beautifully adapted to their surroundings. Each cloud forest is a unique environment where a particular set of capabilities suits a particular niche of circumstances; a niche that has existed for hundreds of millennia. But what happens when the climate changes?

With a warming world, the cool, damp cloud ranges are rising as warmer air forces cloud levels to rise. The cloud forests shift up the mountainsides and lowland species move in; the area available decreases and competition intensifies. At some point, the changing climate will cut off the cloud ecosystem from the clouds, which will rise above the mountain sides and float away, never to return. Those species that rely on the peculiar and particular environment within the clouds will die – they cannot compete, and it is too late to adapt. Beautifully adapted creatures – like the Arabica coffee plant – cannot grow in any other environment. They are the last specialist survivors – the pinnacle of mountainside evolution – but that cannot save them. Their niche is no more, and they are wiped from the earth.

When we look back at the legal market, can we see a mountainside of market opportunity, with firms at all altitudes? The Magic Circle at the peak, serving the rarest, richest, most discerning customers; the base serving the vast masses whose broad but basic needs barely justify a qualified legal expert at all – perhaps some reading material and example forms, provided by a bank, a supermarket, a customer advice telephone service or an online self-help forum.

The ecosystem looks healthy, but the temperature is rising. Those near the bottom are migrating upwards, and those at the top are looking down at the hungry faces coming their way.

Is it too late to adapt, and learn how to live in the lowlands, or spread to a nearby higher peak? Or are our traditional law firms – even the most successful ones at the top of the marketplace – doomed by their successful past to continue on their way to extinction?

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