The more things change… the state of US small law firms in 2020

Topics: Business Development & Marketing Blog Posts, Client Relations, Efficiency, Law Firm Profitability, Law Firms, Leadership, Legal Innovation, Small Law Firms, Surveys

small law

Small law firms are agile, adaptable, resilient, and yet, hesitant to change. Or so it would appear from the results of the 2020 Report on the State of U.S. Small Law Firms from the Thomson Reuters Institute.

Not only has the current economic uncertainty been felt by small law firms, these firms also continue to face additional strong headwinds that have remained largely unchanged — and now are intensifying — over the past several years. The three key points here include:

1. Small law firms continue to face a number of significant challenges in critical areas like business development, many of which have remained consistent year to year — As has been the case in previous versions of this report, the most frequently cited example of a significant challenge for small law firms is acquiring new client business (26% of respondents rated this a significant challenge). This is followed closely by spending too much time on administrative tasks (17%) and not enough time practicing law (17%).

2. Most small law firms have yet to take meaningful action — Despite several years of reporting that they are facing a near identical set of challenges, relatively few small law firms report actually implementing a plan to address them. For example, of those firms stating they face a challenge either acquiring new business or managing administrative tasks, fewer than one-third have actually launched a plan to deal with the problem. This, too, is a trend that has held consistent through the various editions of the report over the last four years, demonstrating that despite consistent real pain and need, these challenges have not compelled meaningful responsive action.

3. And yet there is a real opportunity for those firms willing to make the first move — At a foundational level, real opportunity and advantage exist for those first movers. While it is undoubtedly true some small law firms have already taken a leading role to innovate their service delivery models, there remains ample fertile ground for other firms to implement similar changes — whether by improving business development acumen, creating optimal internal efficiencies for managing their law firms, or adopting technology to streamline their practices.

Facing the challenges

Leaders of small law firms clearly understand the challenges that business development and a lack of internal efficiency can create for their firms. However, they are not certain about how to best meet those challenges.

In this new series of posts, I hope to help outline some steps that leaders of smaller law practices can take to help move past the current pattern of relative inaction.

For me, the concept behind relative inaction rejects the notion that law firm leaders face a binary choice: Do something or do nothing. Doing something may not be sufficient if that something isn’t directed at a specific, measurable, and attainable goal to resolve at least part of the problem the firm faces. And therefore, actions taken for the sake of doing something can easily become relative inaction.

The next post in this series will look more specifically at the problems posed by business development. Small law firms are used to existing in a competitive market, with the majority of respondents to the State of U.S. Small Law Firms report recognized the competition they faced from other similarly sized firms and larger firms in the same practice areas. As I’ll discuss in the next post, however, there is also emerging competition from attorneys moving into the small law space and direct-to-consumer legal service options.

To compete effectively in this shifting market, it will be imperative for small firms to reach potential clients where they are. Relying on “what we’ve always done” to reach clients will likely fall within the category of relative inaction. It also runs the risk of placing a given firm among the majority of small law firms that have yet to implement a plan to improve their business development.

And we will wrap up this series with a final post that discusses the risk of inaction as it relates to how small law leaders manage the business and operations sides of their practice. I’ve previously described many small law firm leaders as “reluctant business owner-operators.” Indeed, we went to law school to practice law and help our clients, most of us did not choose to pursue a law degree because we wanted to be business owners.

Yet, a small law firm is a business and needs to be managed as such. Lawyers in small law firms spend only about 60% of their working time actually practicing law; most of the rest is spent managing the business. Not only are we spending a lot of time on the part of the legal business that likely isn’t our favorite, it’s also the part that no one is paying us to do. Meaningful actions that address improvements to the business management of a law firm then can free up time for adding additional billable work and improving firm profitability.

The State of U.S. Small Law Firms report outlines a good news/bad news story for small firm leaders. The bad news is that today’s challenges will likely only increase, and few firms have taken steps to confront them. But the good news is that there is plenty of opportunity for meaningful action that small firms can begin to take that can rapidly accelerate their chances for best outcomes.

More importantly, those small law firms that move the fastest toward meaningful action will stand the best chance of getting the most beneficial results.