Downfall of the “Up-Market” Strategy

Topics: Business Development & Marketing Blog Posts, Client Relations, Law Firm Profitability, Law Firms, Leadership, Legal Innovation, Legal Managed Services, Midsize Law Firms Blog Posts, Practice Engineering, Process Management

Up-Market

“I am sorry, but your services are focused on very standardized low-value work, and our strategy is to move up-market.”

As a legal tech salesman, I have spoken with more than 500 law firm executives over the past 18 months, and this is the argument that keeps coming up. The hypothesis of the up-market strategy is that by hiring more experts, leveraging tools that focus on complicated matters, and dedicating more staff to high-tier legal work, a law firm can drop the standardized, low-tier legal work, and the client will still come to them when they need help for complicated matters.

The hypothesis may be wrong.

In the world of legal services, the up-market strategy certainly can appear appealing. You get interesting cases that require expert knowledge and are billed at the highest rates. In many cases, price is not even an issue as long as the case is won. That is a dream scenario for most law firms — something they are striving to do and pride themselves on doing.

For the average business owner and legal services consumer, however, if their legal services provider spurns innovative problem-solving and instead chooses to end delivery of repetitive and less-glamorous work, it may not endear that provider to the client. More troublesome for law firms, many may decide to cut back or even discontinue their focus on standardized work in the unfounded belief that clients will nevertheless come to them with more profitable matters.

Finding Simple Solutions

One of the products I sell, for example, is a client-facing document drafter that essentially helps clients generate simple documents by answering dynamic questionnaires in a white-label universe, guided by tooltips, videos and guides. The value of this service is that it enables clients to exercise some self-service when it comes to repetitive legal tasks. In recent research published by Ernst & Young, 73% of in-house counsels responded that the function they are most keen to outsource is contract management. In a logical world, this should mean that law firms who essentially wants to help out their clients, would be looking vigorously for technological solutions to take over the contract management function from clients.

However, there are several elements that undermine this hypothesis. Clients are already tired of the reluctance to innovate that they experience when working with many law firms; and a significant amount of these clients will have no problem switching their legal service providers if the clients’ simple day-to-day tasks are not met with new solutions that help them cut cost and increase their efficiency.

The legal industry has a lower industry Net Promoter Score — a measurement that gauges the loyalty of a firm’s customer relationships — than airline companies, so law firms cannot simply expect client loyalty. If the firm’s services become insufficient, its clients will find a new provider that offers them what they need.

It is ironic, that while law firms are branding themselves as being more client-centric and offering a better understanding of the client’s business, a large amount of them are apparently willing to sacrifice the weekly touchpoints they have with the client when offering low-tier legal work, just because this work in its current state is not as profitable as higher-tier matters.

Furthermore, when legal counsel starts contemplating using a lawyer for complicated matters, all research suggest that they choose as the first point of contact someone who i) they trust; and ii) has helped them before. A law firm offering solid technological solutions to meet the needs of the client every day are significantly more likely to be chosen for high-tier legal work, especially when compared to the one who abandoned the client to only perform the high-tier work which is more profitable to the firm itself.

Addressing Clients’ Needs

More troubling for the legal industry, is that there is one particular type of legal services provider that is truly embracing clients’ request for low-tier legal work, and that is the Big Four accounting and auditing firms.

And what has Deloitte, EY, KPMG, and PwC all have in common? They’ve all successfully established one-stop-shops for clients’ repetitive legal work.

While the Big Four are not allowed to directly offer traditional law firm services in the United States yet, they have established technical solutions to provide clients with exactly what they need to run their day-to-day business. The Big Four has even figured out that these technological tools are usually scalable solutions that can be sold on subscriptions to create reoccurring revenue for the firm itself.

Further, the Big Four have begun to form partnerships with law firms, so when complicated legal matters are to be taken care of, they are easily sourced to a partner law firm.

Seeing other law firms and legal service providers successfully establish the type of solutions that help clients with the problems clients are actually facing on a day-to-day basis, the hollowness of the up-market strategy becomes apparent.

The up-market strategy then simply becomes an excuse for not spending the time and money necessary to deliver value that benefits the client rather than the law firm. Instead, administrative personal in law firms are telling the partners what those partners want to hear: The firm will focus only on bigger-dollar, top-tier legal work, and that this will never be digitized and automated.

They might be right, but the firms that engage in that thinking may not be awarded those cases anyway.