Ride the Lightning

Small Firms See Challenges But Persistently Fail to Act

March 26, 2019

Bob Ambrogi's blog post yesterday really resonated with me, both as a consultant to small law firms and as the Chair of the Virginia State Bar's Future of Law Practice Committee. Bob's post covers the results of the 2019 State of U.S. Small Law Firms Report released by Thomson Reuters (TR).

In essence, the report's conclusion is that solo and small law firms face many challenges — from getting paid to managing time to keeping up with technology — but they do little to address them.

This is the third year TR has surveyed firms of 29 or fewer lawyers, and the results are consistent in showing that, while small firms recognize the challenges they face, they engage in surprisingly little movement in taking action to address them.

The survey’s authors describe the situation as a “persistent lack of action.”

Over the three years of the survey, the challenges small firms identify as their most significant have remained pretty much the same. Their top challenges are acquiring new clients, time spent on administrative tasks, and the increasing complexity of technology.

Asked if they had implemented changes to address the challenges, those who had were in the minority. For example, three-quarters of firms (73 percent) say acquiring new business is a moderate or serious challenge, up from 69 percent two years earlier. But less than a third of firms (31 percent) have implemented plans to address the issue — a percentage that has hardly changed over the last two years.

That said, at least some firms have made some changes over the past two years, the survey found. Among them:

• 45% of firms have adopted new technology. Here I have a comment – I think firms that have consultancies advising them really do seek to find new budget-friendly technology that will allow them to work more efficiently and increase their productivity and profitability.
• 27% have changed their marketing strategy. This does not surprise me. They are squeezed for money in the first place, and marketing is not #1 on their list.
• Fewer than 20% have changed staffing ratios, practice workflows, or billing practices. This is consistent with my observations as well.

The survey asked small firms about the technologies they use. The most popular, it found, were:

• Time and billing.
• Conflict checking.
• Case/matter management.
• Financial management/accounting.
• Document drafting tools.

Certain technologies have not been widely adopted by small law firms. These include:

• Rules-based docketing and calendaring.
• E-discovery.
• Client relationship management.
• Collaboration.
• Knowledge management.

When asked about the technology they had adopted during the last 12 months, the most common overall was case/matter management, followed by time and billing, document drafting, and document management. I am happy to say that we are seeing the same adoptions – and they all make sense, though implementation – and getting everyone to participate – remains a headache.

The survey asked small firms about how they measure success. And as in past years, the top measures are client satisfaction ratings and overall profits. Others include repeat business and work-life balance. Notably, among small firm lawyers, solos are most concerned about work-life balance.

A puzzling finding of the survey is that there is a disconnect between what firms say matter to them and what they measure. While 80 percent or more of every segment of small firms said that client satisfaction ratings were a key part of how they measure success, barely 40 percent actually track that metric. This does not surprise me. Tracking any sort of metrics other than monies billed is rare. They are not even good about tracking where their clients are coming from.

When small firms were asked where they are most likely to invest additional funds in the coming year, the top areas they listed were business development/marketing and technology/infrastructure.

To the extent firms are making changes (or understand the need to do so), the primary motivators are to improve the quality of the services they offer, to respond to the overall legal climate, and to reduce their costs. Small firms see their primary sources of competition as other firms of similar size and significantly larger firms that compete for the same clients. Relatively few see pro se consumers or do-it-yourself websites as primary sources of competition, although solos are the most likely to consider these as competitors. Here, I think the solos are more perceptive!

While this finding is consistent with the survey’s findings in past years, the survey’s authors say it seems to be at odds with the findings of another TR survey of how consumers search for legal help. It found that only six in 10 potential clients even contact a legal professional, instead handling their matter pro se or through a DIY site.

The survey underscored a fact that small firm lawyers well understand — that only a portion of their day goes to billable work. Overall, small firm lawyers spend 60 percent of a day doing legal work. The percentage is slightly lower for solos and slightly higher for those in larger firms.

The remainder of a small-firm lawyer’s day is spent running the firm, managing finances, and going after clients. That means, the report says, that a lawyer working a 10-hour day will have, at best, only six hours for which they might eventually get paid. The last statistic I saw said that lawyers only collected 82 cents of each dollar billed. Dismal.

Most lawyers will tell you that it is highly unlikely that they will actually collect money from clients for each of those potentially billable hours. By the time you account for leakage due to poor timekeeping practices, discounts and write-downs offered by the lawyer to address perceived client concerns, and client pushback on the final invoice, the actual amount paid dwindles quickly.

There are many good consultants across the country who will offer solo and small firms free assessments to help them understand (in particular) how technology can help their productivity and profits. Generally, the lawyer only needs to spend an hour or so of time with the consultant and allow them to collect some data so they can make recommendations, frequently with estimated costs – helpful so the firm can understand what is and isn't feasible from a budget standpoint. As Nike would say, just do it.

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