Small Law Firms Face Familiar Challenges (Part 1)
While firms can identify their top challenges, many have difficulty addressing them.
Ed. note: This article is the first article in a two-part series regarding Thomson Reuters’ small law firms study.
Small law firms are an integral part of the U.S. legal market. According to Thomson Reuters’ Legal Executive Institute, small firms — those with fewer than 30 attorneys — account for nearly a quarter of it, a larger share than that boasted by the biggest firms. Smaller practices face a variety of unique challenges, but they’re also buffeted by the changes shaking Biglaw, including fee pressure and the growth of technology. How they navigate those challenges will determine their level of success.
“When it comes to the small-law market, it’s hard to make sweeping statements without a lot of caveats,” says Brian Knudsen, Vice President of Thomson Reuters Small Law Firms and a lawyer with 20 years’ experience. Still, a new study from Thomson Reuters, “How Small Firms Succeed Under the Pressure of Today’s Challenges… or Fail,” shows that small law firms continue to face three common challenges.
In a survey of 300 small law firms, 78 percent said acquiring new client business was a challenge, with 27 percent identifying it as a significant challenge. Sixty-two percent pointed to fee pressure, with 21 percent calling it a significant challenge, and 69 percent cited spending too much time on administrative tasks (deemed a significant challenge by 15 percent of respondents).
“What’s surprising is how frankly unsurprising” the top challenges are, Knudsen says. “For time eternal, firms have had these three flavors of challenge. What is surprising is the fair amount of inaction toward addressing those challenges” — a problem Knudsen says is not unique to smaller firms. “The same challenges are pretty common whether you’re a solo practitioner or a very, very large firm. It’s just a matter of scale.”
While firms can identify their top challenges, many have difficulty addressing them.
New business is the lifeblood of any firm, so perhaps the least surprising result of the survey is that it is at the forefront of small practitioners’ minds. But the study shows that small firms may fail to recognize new and growing challenges from a new type of competitor. Most recognize the threat posed by other law firms: Two-thirds see other small firms as their chief competitors, and almost half are also battling with larger firms. Few recognize the growth of legal self-help and do-it-yourself websites, as aids to potential clients representing themselves pro se, as a threat.
“There’s probably a body of work that should be a do-it-yourself activity,” Knudsen says. “We should encourage individuals to do that. But there is a certain level of practice that requires the advice and counsel of an attorney, and that’s where I think lawyers should start to think about where they can add value and a differentiated experience.”
Adding value is key to the second great concern for small law firms: client rate pressure. Demand that firms deliver more value for less money was seen across the spectrum of smaller firms, from solo practitioners to offices of 29 lawyers. The survey shows more than one-third of firms have already made changes to respond to rate pressure, and another quarter are waiting to implement such changes. Still, 42 percent say they are unsure how to respond to such pressure.
“Cutting costs has always been another name for lack of differentiation,” Knudsen says. “Firms that are not trying to differentiate themselves from their peers are the ones facing tremendous cost pressure and will over the foreseeable future. Trying to do the same thing with less resources is not a recipe for success.”
One difficulty small firms, in particular, face in boosting value for clients is administration. Without an army of non-lawyer support staff to deal with core business functions such as billing, accounting, invoicing and payroll, attorneys at small firms have to do it themselves. Respondents told Thomson Reuters they spend an average of 31 percent of their time on something other than actually practicing law.
The link between success and its absence is also stark in this area: Thirty-one percent of firms calling themselves “unsuccessful” or “neither successful nor unsuccessful” complained of excessive time spent on administration, compared to just 10 percent of self-identified “very successful” and 14 percent of “successful” firms. Small firms also have even more trouble dealing with such challenges: Less than one in five firms have implemented changes to reduce time spent on administrative tasks, with the remaining 81 percent split between those which have developed a plan but failed to implement it, and those which have no idea how to address the problem at all.
The challenges facing small law firms can be daunting. They also present a variety of opportunities—opportunities that are being exploited, with 85 percent of small firms viewing themselves as successes.
View Thomson Reuters, State of U.S. Small Law Firms Study report for insights into building a successful small law firm.
In the second part of our series, we’ll look at what makes them so.
