The Legal Balloon Goes Pop

Another story in the ABA Journal predicting the already  in-progress turmoil and diminishment of the legal profession.

One thought that always rattles around in my head: the profit margin of the average business is, in a good year, 20%. Grocery stores operate on a margin of 2-3%. Law firms operate on an average profit margin of 45-55%, yes, even the pretty good local and solos. Let’s not talk about the margins for some PI firms.

The legal profession has never had  a focus on efficiency and process because of its immense “slop” factor. Even poorly-run, inefficient firms could make barrels of money because they were keepers of the secrets, gods of the law. But technology and the web is stealing the bottom layer, at the same time as hordes of young lawyers are wandering homeless, willing to do whatever work they can find for whatever the client will pay.  And you’ve read, I’m sure, about how technology is now being used to do the kind of complex discovery that associates used to do – and better than they did, because computers don’t get tired or distracted – and also the massive analysis of contracts and agreements to identify key issues. Like all technology, such is now being brought down to the retail level and being made available to smaller firms.

Frankly, all of this is why today I am working with more attorneys and firms than ever – not simply on “marketing” or “operations,” but on transformations – rethinking firm directions, structures, target markets and niches.

The profession is in the process of deflating — until 80% or more are operating like businesses, with similar margins. Law firms in general have no idea how to do that, and senior lawyers will be horrified to see their share of that 45-55 percent profit disappearing.

Law is becoming an business, an industry – at least 80% of it is. And yes, one with high standards. But no longer a high priesthood. And only a few sharply focused superstar lawyers and firms will be left making those amazing profit margins, while thousands of others will be joining the middle income brackets, or less.