Virtual Is The New Boutique

The virtual law firm revolution is a new take on a familiar theme.

The way a lot of people tell it, virtual law firms are a brand-new category of firm, one that offers a savvy, efficient alternative to the traditional full-service firm. This is true in part — and there’s much Biglaw and mid-sized firms can learn from the model. But virtual firms didn’t completely reinvent the wheel. In this second part of my examination of the new breed of technology-based firms, I learned that this fast-growing segment of the legal industry actually has a pretty obvious ancestor. They’re the 21st-century version of the legal boutique

Same Problems, Different Decade

Travel back in time with me to that simpler era when clients paid their bills, associates spent all day in the law library, and the demand for legal services was on the rise. You’re a senior associate or young Biglaw income partner contemplating your future. You’ve built a decent book of business, but not enough to make it to the ranks of the handful of equity partners at the top of the pyramid. Maybe your firm’s compensation system is lockstep or seniority-based — making that payday you’ve been waiting for feel like it’s an eternity away. You’ve become exhausted running in the wheel of a 2000+ lawyer machine, where balance seems impossible and “family time” means looking at the picture of your significant other on a bookshelf.

Historically, these are the lawyers that left Biglaw for more balanced mid-sized firms like the one I’m at, or went even smaller to so-called “boutique” firms. In these small shops, lawyers could pool their expertise, cross-sell with one another, and share the costs of overhead and firm resources. By staying small, and focusing on a few areas of expertise, the firm could keep its overhead down. This, in theory, meant attorneys could keep working the same hours and possibly make more money, or work less without taking a pay cut — or getting the side-eye from senior management.

Today, the same formula that created the traditional boutique is driving virtual or “distributed” firms. During my interviews of the heads of several major players in the VirtualLaw space, time after time they cited these same drivers as the impetus behind their own firms. Dissatisfaction with the longstanding problems of the Biglaw model was mentioned constantly.

Michael Moradzadeh of Rimon Law cited his frustration with the “old paradigm” of his white-shoe firm experience. “The attorneys here are great, the work is really cutting edge, we get paid a lot of money, [but] why are people so unhappy?” Kelly Culhane of Culhane Meadows first felt the itch to leave Biglaw when she knew she wanted to start her family. “Three babies in four years and partnership at a large national or international law firm” at the time didn’t seem practical to her. Back in 2002, “I saw a lot of women do it, and do it really well, but the way I wanted to do it, how I wanted to be home with my children and practice at that really high level, I couldn’t do it” in Biglaw.

These are hardly new complaints. These same problems have been around for decades, and for decades some lawyers have jumped to boutiques in search of solutions.

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Squaring the Circle

Boutique law firms endeavor to solve the problems of Biglaw by sizing down. Am Law 100 firms need huge infrastructures. They need to be all things to all people. They need to shock and awe with their location and office decoration. Biglaw can be lucrative, but you spend a lot to make that money back. And to cover that overhead and make the infrastructure investments necessary to compete with the rest of Biglaw, huge chunks of revenue need to be diverted to the firm as a whole.

Boutique firms run smaller, leaner, and meaner. They can focus on the resources they need, and just worry about marketing to the industries they service — not to the world as a whole. By scaling down and keeping numbers low, they avoid the bloat that can come with larger firms. But the need to stay small is also limiting for the boutique. How many 25-lawyer shops have you heard of that represent Fortune 500 companies in bet-the-company litigation or billion-dollar transactions? If it exists, it’s exceedingly rare. Smart lawyers like doing sophisticated work, and the challenge at some boutique firms is they don’t have the perceived horsepower or bench strength to land the major deals.

Virtual firms claim to have found a way to square this circle. They aren’t defined by their size, but by their technology. By relying heavily on tech to cut costs and overhead while remaining connected to the firm as a whole, these virtual outfits may have figured out a business model that scales up with far less friction and added cost than a traditional brick-and-mortar boutique. Virtual firms don’t generally need to take on new office space for their new hires, and if the new hires want office space they pay for it themselves. Some firms avoid taking on permanent staff unless an attorney is paying for it. Others, like Rimon Law, keep their attorneys distributed but maintain their back-office staff in a single, low-cost location for far less expense than a traditional office. Virtual firms are experimenting every day, figuring out ways to scale up in size without sacrificing their efficiency. FisherBroyles, for instance, is now up to 230 lawyers.

How Far Can They Go?

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So if virtual law firms can offer the advantages of a boutique structure at potentially the scale of traditional Biglaw, does that mean the rest of the brick-and-mortar legal world is done for?

Don’t crack open the casket for Biglaw just yet. For as many strides as VirtualLaw may have made, it may already be too late for it to break through to the top tiers. As we’ve discussed in this space previously, Biglaw has found itself increasingly stratified by market forces. High-stakes, existential matters for large publicly traded companies are generally reserved for the Am Law 25, which only really compete with each other. I think even the biggest of virtual firms are unlikely to crash the Am Law 25 party any time soon. To paraphrase Marc Taylor of Taylor English, GCs are under pressure to hire performers, and no GC of a Fortune 500 ever got fired for hiring Kirkland & Ellis. For the foreseeable future, there’s still probably a ceiling on VirtualLaw’s ability to steal work from the biggest kids on the block.

But the threat, and promise, of VirtualLaw is real. The managers I spoke to believe they were responding not just to demands among the attorney class, but that they’re also responding to unmet needs of their clients. Clients have been complaining for years that they aren’t receiving the value or cost certainty they need. These managers think they’ve found an answer.

The VirtualLaw story may have started with the classic boutiques, but the ending has yet to be written. With the power of scale and technology, the new wave of firms may have found a way to get bigger, stronger, and faster than the traditional small firms ever could. VirtualLaw is growing faster than any other segment of law firms, and Biglaw and Midlaw should be taking notes and stealing any innovation they possibly can to stay relevant. Whether they can or will is another story we will examine in an upcoming column.


James Goodnow

James Goodnow is an attorneycommentator, and Above the Law columnist. He is a graduate of Harvard Law School and is the managing partner of an NLJ 250 law firm. He is the co-author of Motivating Millennials, which hit number one on Amazon in the business management category. You can connect with James on Twitter (@JamesGoodnow) or by emailing him at James@JamesGoodnow.com.