Small Firms Poised to Thrive in Today’s Legal Market, 0116 ALBJ, 77 The Alabama Lawyer 20 (2016)

Author:Prof. Pamela Bucy Pierson, J. and Emily Kornegay Price, J.
Position::Vol. 77 1 Pg. 20
 
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Small Firms Poised to Thrive in Today’s Legal Market

Vol. 77 No. 1 Pg. 20

Alabama Bar Lawyer

January, 2016

Prof. Pamela Bucy Pierson, J. and Emily Kornegay Price, J.

This article is dedicated to the memory of our good friend, Tedford Taylor, who saw the future of the legal profession and knew it was good.

Today’s legal profession is undergoing dramatic changes. Attorneys who understand these changes and adapt to them will thrive. Those who do not will struggle. The changing legal market presents opportunities for all law firms. This article focuses on the opportunities uniquely presented to small and solo practices. While there will always be a need for large law firms and the work of the many excellent attorneys at such firms, the legal profession today presents unprecedented opportunities for small and solo firms.

Pyramids, Diamonds And Starfish

The “Cravath” business model dominated American law firms from the late 1800s until the 21st century. Under the “Cravath” model, named for Paul Cravath, a New York attorney, a law firm sought to hire the best new lawyers it could, train its new hires in the firm’s culture, promote from within and reward its associates with the “golden key” to partner status after associates had proven themselves. Clients were loyal to a firm, remaining with a firm as partners passed their clients on to the associates who became partners. Under the Cravath model, partners’ billing rates were roughly the same and partners shared equally in the firm’s profits. The Cravath business model resembled a pyramid, where new associates were plentiful and partnership positions less so.

Beginning in the 1980s and 1990s, several factors contributed to the erosion of the pyramid business model. Businesses began growing their in-house counsel offices and keeping more work in house. Clients became more cost-conscious. Because of available metrics, clients could compare law firms' billing rates, expenses, resolution outcomes and time-to-resolution and, accordingly, began shopping around among law firms for the best value. Some practice areas became commoditized, leading to inequities in the profitability of lawyers and practice groups within a firm.

In response to these market realities, law firms created multiple tiers of staffing: equity partners, non-equity partners, of counsel, senior associate, associate, contract lawyer. The stability of the Cravath model gave way to the diamond business model with a small group of equity partners at the top, a small group of associates at the bottom and a greater number of lawyers, of multiple staff designations, in the middle.

Today, the successful business model of law offices is a starfish, with a small group of equity partners in the center of the starfish, and "arms" of the starfish consisting of associates and contract lawyers, of counsel and non-equity partners, outsourced legal and support service, administrative staff and paralegals and affiliate law firms. The starfish model is apt. A starfish grows back an arm if it loses it. If a law firm no longer needs an "arm" of services, it "sheds" that arm, only to "grow" it again when the firm needs these services. Unlike the pyramid or diamond business model, the starfish business model is lean and nimble. Such versatility is essential in the legal market of today and the future.

There are at least three reasons small and solo practices are poised to thrive in a starfish business model: technology, cost savings and the advent of multiple support services. After reviewing why this is so, this article addresses the startup checklist for any budding small or solo firm and highlights resources available.

Technology

With the advent of electronic storage, e-discovery, social media platforms and "back office" support services, technology makes it possible for small and solo practices to handle large and complex cases that previously and exclusively were the domain of large firms. Utilizing cloud-based storage and document-sharing, a firm can accomplish complex tasks by hiring remote contract lawyers, creating work-sharing arrangements with other firms and outsourcing document analysis. When a task is complete, a small firm can pivot to the next case, unencumbered by overhead expenses and salaried support staff. Technology enables small and solo firms to embrace the starfish business model. As noted by Oscar M. Price, IV, who recently opened his practice, Price Armstrong LLC:

"If you take the time on the front end to set up the technology for your firm, you don't need a lot of staff, a big office space with a lot of conference rooms or a library full of books. It is easier than it's ever been to go out on your own, be very professional and do a very good job for your client."1

Cost Savings

Clients increasingly shop around for the best value in legal services. They need to do so and are able to because of cost and efficiency metrics allowing them to compare law firms on billing rates, expenses, case resolutions and time-to-resolution. Small firms can excel in such comparisons. Whereas larger firms are often locked into high overhead costs resulting from expensive office space, payroll, unprofitable practice groups and lawyer salary structures, small firms can support complex cases with lower overhead cost and their greater ability to “ramp up and ramp down” depending on case load.

Clients can, and are, replacing large firms where attorneys charge a high billable hour rate with smaller firms where attorneys can deliver high quality service for a fraction of such rates. Eric Kobrick, deputy general counsel for American International Group (AIG), Inc., for example, spoke of small firms’ rate flexibility when discussing AIG’s decision to leave large firms for smaller firms: “Small firms, in general, are more flexible. They’re able to use rate flexibility, and still provide excellent service.”2 Corporate Counsel, a publication by and for corporate counsel, reported on the trend of retaining smaller firms, noting that corporate counsel had “come to think that they were throwing money away by sending all their work to big firms.”3

Support Resources

The advent of available support resources allows small and solo firms to compete as never before. Access to the Internet and free case law databases like Casemaker allow even the smallest firm to conduct sophisticated and in-depth research that previously could be done only by large law offices with their unlimited budgets for Westlaw or Lexis and armies of associates. Social media platforms allow firms of any size to create sophisticated websites and reach out to potential clients nationwide. With such access, a savvy solo practitioner can market herself as effectively as the largest law firm.

Today, production and analysis of metadata is a best practice in many cases. The need for such production has led to the growth of specialty firms with sophisticated predictive analysis programs that perform document analysis faster, cheaper, more accurately and safer than humans can possibly provide.4 The growth of such firms has, in effect, made it possible for small law firms to handle complex cases they never could have handled in the past. The ability to outsource document analysis allows law firms of almost any size to take on complex cases that previously were beyond their manpower bandwidth.

The Alabama State Bar, through its Practice Management Assistance Program (PMAP)and its director, Laura Calloway, provides innumerable resources to help small firms and solo practitioners on topics including setting up a law firm, managing a practice, establishing fees, avoiding conflicts of interest and budgeting, as well as recommended resources (often with discounts negotiated for ASB members).5 In 2015, the Alabama State Bar created the Solo & Small Firm Section. The section’s listserve provides the mentoring and guidance of the equivalent of a virtual statewide...

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