January, 2025 | Article
Strategic Growth in the Legal Services Market — What’s Next? How Do We Cope?
“Life moves pretty fast. If you don't stop and look around once in a while, you could miss it.” – Ferris Bueller, Ferris Bueller’s Day Off.
[This is Part One of a two-part series on Strategic Growth in the Legal Services Market and the foundation for the first half of my September 2024 keynote address at the Alberta Civil Trial Lawyers Association’s Masterclass conference in Calgary.]
In 2008, a global financial crisis considered the worst since the Great Depression of the 1930s marked the end of the traditional law firm’s 20-year bull run.
Since then, life in the global legal services market has been accelerating with ferocious speed.
Because both life and business change fast, you owe it to yourself to stop and look around once in a while. Otherwise, as Ferris Bueller would say, you could miss it.
What’s Next? How Do We Cope?
Several accelerating evolutionary factors are currently impacting the business and practice of law. The four most daunting:
1. Post-pandemic business recovery – or not – for clients and legal service providers
2. Culture shock affecting associate churn, partner transfers, and succession
3. AI’s influence for better and/or worse
4. The billable hour on trial for its life
Despite these and other concerns, growth can be realized by expansion or contraction. Either strategy—when well-considered and tightly customized—enables exponential growth provided that business, and not practice, is the primary consideration.
Four Evolutionary Juggernauts
While it’s possible to list a slew of factors that are impacting both the business and practice of law right now and which will continue to take a serious toll in years to come, the following four are evolutionary juggernauts.
1. Post-pandemic business recovery – or not
All you have to do is look around. Many businesses—and not just small ones—remain in transformation, are throttling back, or are shutting down.
In Canada, annual interest of five per cent began being applied in January 2024 on outstanding Canada Emergency Business Account (CEBA) balances. And outstanding balances on those CEBA loans, plus fees and interest will be called in at the end of 2026.
While December 2026 may sound far off in the future, many businesses that have been relying on government financial lifelines since the pandemic crippled their commerce have been struggling ever since to remain afloat.
In the legal field, many corporate law firms enjoyed a financial bonanza during the pandemic while firms in other areas of practice, such as personal injury, folded like lawn chairs. This was, in part, the result of both people and vehicles remaining safely parked at home. The upshot was that smaller size firms with WIP and financially structured for contingency were in danger of outright collapse. Instead, many quietly sold to larger firms able to absorb them.
We will be paying for the pandemic in many ways for many years. Without financial support and commerce resurgence, outcomes for businesses of all descriptions will remain a sink or swim scenario.
2. Culture shock affecting associate churn, partner transfers, and succession
At the junior level, it has become glaringly clear that the kids aren’t alright. In traditionally structured firms, junior to mid-level associates do yeoman’s work. Billable targets and stress levels continue to be high while grinding out the work that must get done is the stuff of apprenticeship slog.
At the senior level: Remember when a young lawyer would enter a law firm, climb the ladder to partnership, and then retire in celebratory fashion or exit on a board? Not now. Now it’s a blend of culture be damned, and the buck revered. The upshot is that lateral transfers in the partner ranks—particularly in the last 10 years—have become a high contact, big money sport with programs to tell the players along with team jerseys becoming almost a necessity.
That is unless senior associates accept becoming partners in name only. Even with a nice-to-have title, the non-equity partnership tier is exactly what it purports to be – a glass ceiling. Non-equity partnerships retain senior associate talent without enabling individuals to fully partake in the profit pool. The question is why senior associates are not trained, mentored, developed and expected to bring in business—and measured accordingly—and then obligated to buy into the firm to gain admittance to the partnership. After all, in a true partnership structure, you have to give to get.
At this rate, it’s fair to expect lawyers in the non-equity ranks to eventually shun the lesser-than “pretend partner” title and do what the firm should have had the grit and financial fearlessness to do in the first place – invite them to leave. And therein lies a problem that could cripple if not crater a firm: When this cohort leaves, the firm will need to manage deeper risk and greater vulnerability since departures will happen on the pretend partner’s timing and terms leaving equity partners holding a bag that’s attached to fewer purse strings.
Speaking of departures, succession, which has been a tender topic within many law firms since time immemorial, remains even more tender if not outrightly taboo today. Planning for and management of passing the batons of both clients and credits to successors remains grasped in hands that may, literally, be cold and dead before these critical issues are dealt with. Worst yet, by the time it happens it may be too late for everybody since legal talent and clients will have departed—if not the mortal coil—then, perhaps, refugeed elsewhere.
And then there’s the ongoing tug of war between work from home and return to office in which there will be no clear winner. While not being in the office on a regular basis is upending the apprenticeship model, the most fortunate members of the Gen X and Millennial demographics will be recipients of a Canadian wealth transfer currently estimated at $1.6-trillion that is expected to change hands by 2030 with even more wealth inherited after the last of the Boomers have died off. So, while it’s possible that wealth recipients in these demographic tiers may wish to work, they may not need to.
Culture shock is and will continue to be just that – shocking to the point of flexibility or instability. Either way, the working world is changing with the speed of summer lightening and will remain in flux for decades to come.
3. AI’s Influence for better and/or worse
Lawyers are predisposed to avoid risk and trained accordingly. As a result, they flex their worry muscles like the legal equivalents of Charles Atlas, Arnold Schwarzenegger, and The Rock combined. A fret factor that recently surfaced in an annual KPMG study, revealed that 50 per cent of global CEOs report concern over the race to embrace generative AI.
More worrisome in the legal industry is the question about whether AI will replace lawyers. In some instances, the answer is “yes” and in others, “no”. Artificial Intelligence is a technology tool like any other in the collective toolkit, but it won’t replace humans.
Yes, horses and carriages were replaced by automobiles and paper maps have largely been replaced by GPS, but while electronics have made vehicles smarter and, allegedly, safer, any fool who is fully reliant on GPS is apt to find themselves either occasionally lost or almost driving off a cliff. The same can be said for AI in that even though it can provide on-point information and various lenses with which to view it, human traits of interpretation, nuance, and judgement mean we will still need to think.
Even so, concern about how AI should or should not be used within legal services, and confusion and discussion about how AI’s influence on legal practice will evolve—and into what—will rage until we have a solid sense of this becoming more apparent. (If you’re reading this now, you’re apt to be dead by the time that happens.)
In the meantime—and while most of us remain alive—the effects of AI will enable better and deeper brain exercise with less grunt work.
4. The billable hour on trial for its life
The bottom line is called that for a reason. Yet the sticker shock of invoice bottom lines experienced by so many clients is because a slew of lawyers continue—either out of habit or structure—to bill for time rather than brains.
Clients buy outcomes. While outcomes cannot always be guaranteed, oftentimes clients don’t care what it takes—or how long it takes—to find solutions leading to results. However, they’ll sure as hell care if it takes too long and culminates in the bottom line on their invoice looking like the national debt.
Because solutions and outcomes aided by speed and predictability have enormous value, lawyers who provide solution or value-based pricing have an instant inside track to earn client trust and trounce the competition.
Value-based or solution-based pricing is about determining the cost relative to the value that the solution provides to realizing desired outcomes for a client and their business.
Successful solution-based pricing pertains to pricing that is particular to each and every client on each and every matter. This means that clarity around scope is critical, managing scope creep is vital, and delivering small, medium, and large pricing options is a point of expectation each and every time.
Alternatively, pricing a solution as a service turns it into a commodity, which is not a bad strategy either depending on the mechanics and repetitiveness of a service. Although commoditizing a service enables scaling due to volume, commodity pricing can get beaten down very easily. Still, commoditizing repetitive, volume-based services should happen as often as possible because it provides predictability and underscores trust.
Is the transition from hourly rates to solution-based pricing easy? No. Is it do-able? Yes. Doing so makes for better business and less stress for all involved. I can testify to these benefits from experience. I transitioned my practice to solution-based pricing during the pandemic and haven’t looked back. With grit, determination, and the right structure, so can many of you.
Four Horsemen
Evolution in the global legal services market has been upon us for well over three decades. Even with change happening in fits and starts, shifts within the staid and traditional legal services industry have been accelerating more fiercely over the last 10 years in particular and with jet-like propulsion of late.
Much of this speed has been the result of the legal industry finally having a fire lit under it due to these four evolutionary juggernauts that are global in nature and universal in impact. And, as a result, it’s entirely possible that the cumulative outcome may have the same scorched earth effect as the Four Horsemen of the Apocalypse.
On that formidable note, key questions needing answers now are: What will growth in the legal services industry mean and look like in the very near future and years to come? And will exponential growth be triggered by the intuitive reaction of expansion or the counterintuitive strategy of contraction?
These tough questions will be examined and answered in Part Two of Strategic Growth in the Legal Services Market: Expansion or Contraction?
Watch this space.
[This is the first in a two-part series on Strategic Growth in the Legal Services Market. Part Two, an examination of the exponential growth strategies of expansion and contraction will appear here in a future edition.]