Service businesses are hard to scale. Lawyers know this better than anyone. Income is intrinsically linked to time spent, even when working on a fixed fee, and cash recovery is lumpy.
Lawyers cannot do two things at once. They are either advising client A or drafting document B.
That is the nature of professional services, and it is why there is an upwards pressure on hourly rates and internal efficiencies, and downward pressure on overhead.
The same is true for any service business. The oven cleaning man can only do one job at a time, as can the mechanic and optometrist.
Law firm scale is traditionally achieved through leveraging people. A sole practitioner gets too busy and takes on an associate to handle the less complicated work. Then another lawyer and an administrator. Once you start adding support services, the modern law firm starts to take shape.
But leveraging people only goes so far. Yes, you can build a much bigger organisation, but it is always going to be made up of non-scalable parts. And the overhead will closely track the increased income.
Another way to scale
The beauty of product businesses is that they don’t rely on this time-for-income trade. Income is directly related to how many widgets you sell. Which means that sales and marketing are a core part of the business.
Even better, there are some types of leverage which do not need more people. Crudely, these include:
Capital – If you know that every £1 spent on Google Ads generates £2 in sales and service capacity is not an issue, you would pump more money in and let the sales system work its magic. Law firms can access external capital in a number of ways, including through conversion to Alternative Business Structure (ABS).
Media – small businesses and individuals are able to reach massive audiences through media channels, increasingly online. In days gone by, this was only available to big players. Now anybody can build a valuable newsletter list or social media following.
Code – sometimes referred to as the ultimate leverage. ‘Build it once, sell it a thousand times’ is the mantra of software development. There is a reason why tech companies are valued so keenly.
How can we translate this to legal services?
To sell a service as a product, it typically needs to be standardised. If you buy two cans of beans they will be identical. The same is not true of tailored legal advice.
‘Productisation’ will never work for highly technical, fact-specific professional advice or representation. Unless you could truly crack the artificial intelligence nut, which would bring us back to the leverage of code. And it would also mean the end of human lawyers.
But there are certainly elements of legal services that can be standardised.
A good way to start thinking about this would be to look at your template letters and documents. What is often the same for each client, and what needs to be tweaked for each individual? That should give you a clue about where you could start to standardise your offering.
The next step is to apply leverage to your standardised product. People, capital, media or code.
‘Unbundled’ legal services
‘Unbundling’ is a way to describe breaking a full legal service into its constituent parts, and selling part of the service on its own.
A client (or customer, as we should probably call them if thinking of this as a product) can buy only the part of the service that they need, without having to instruct a firm to provide all the bells and whistles.
The regulators are very keen to explore whether unbundling can plug the access to justice gap. A pilot programme has been launched by the SRA.
This works really well in family law (e.g. just a consent order required) and pre-litigation e.g. debt recovery (drafting letters before action). Many more legal services could be broken down into distinct parts.
Unoriginal example: drafting letters before action
You know the law and could take on each new debt recovery client in full, giving them bespoke advice and representing them up to trial if necessary. That’s likely to be expensive for the client and it limits how many clients you can take on.
Alternatively, you could supply the means for the customer to produce their own letter before action through software. They answer some simple questions and the system spits out a letter and some generic information about the debt recovery process. Payment is taken through the app, meaning there is no WIP lock up.
The client gets an efficient on-demand and value-for-money service. They are likely to come back if things get difficult, or when they next need legal advice.
The law firm gets to sell multiple versions of the same service with negligible unit costs. Build it once, sell it a thousand times.
By applying additional leverage (let’s say capital in the form of digital advertising spend), then Facebook or Google is working to promote your thing even when you are on holiday or asleep.
- Video recorded advice – what do you find yourself having to tell clients over and over? Employment or data protection advice might be near the top here.
- Courses – could you put together a programme with an element of assessment, to improve your customers’ knowledge of an area of law? Think about targeting in-house lawyers, for example.
- Premium newsletters – do you have access to valuable information or insight? For example, a complex or emerging area of law (Web3, for example). Commercial clients might be prepared to pay to be in the know.
- Templates – it’s easy to sell contracts, precedent letters and other legal documents online.
- Software – can you put together a tool to help your client base in ways that are complementary to the law? For example a HR platform or learning management system.
- Diagnosis questionnaire or audit – is there an area of law where a set of questions could determine the advice given? The client effectively self-serves while the software provides the value.
- Legal ‘bots’ – can you develop code to help clients solve a specific problem, like claiming compensation for delayed travel or submitting an LPA without any errors?
What else can you think of?