The Collapse of Big Law, and the Rise of Small Law Firms

The Collapse of Big Law, and the Rise of Small Law Firms

The Collapse of Big Law, and the Rise of Small Law Firms 150 150 Jason Krause

In the past decade, twelve major firms with more than 1,000 partners between them have collapsed entirely. That’s an unfortunate trend, but one that will likely only get worse.

Noam Schreiber summarized the coming legal conflagration this way in the New Republic:

There are currently between 150 and 250 firms in the United States that can claim membership in the club known as Big Law, the group of historically profitable firms that cater to the country’s largest corporations. The overwhelming majority of these still operate according to a business model that assumes, at least implicitly, that clients will insist upon the best legal talent instead of the best bargain for legal talent. That assumption has become rickety. Within the next decade or so, according to one common hypothesis, there will be at most 20 to 25 firms that can operate this way—the firms whose clients have so many billions of dollars riding on their legal work that they can truly spend without limit. The other 200 firms will have to reinvent themselves or disappear.

That collapse means the rest of the profession will have to find a way to thrive. Law school grads and lawyers from major law firms are starting smaller or boutique firms that charge less for their services. It’s not a new trend – it’s a fact of life that has been written about for several years now. And it is a trend that will only accelerate in the near future.


It’s Hard Out There

Being an attorney has always been a difficult and cut-throat business. Consider the portrait of turn-of-the 20th small law firms in Unequal Justice : Lawyers and Social Change in Modern America by Jerold Auerbach.

…two-thirds of the lawyers in New York City earned less than $3,000 annually and two thousand Chicago lawyers had incomes lower than union brickmasons. As Charles Evans Hughes observed of the New York bar at the close of the nineteenth century: “Those highly privileged firms seem to hold in an enduring grasp of the best professional opportunities….”

The law has always been a closed world in which established, well-connected lawyers and large law firms dominate many practice areas. But consider the portrait of the upstart and insurgent law firms of mid-century America in Malcolm Gladwell’s Outliers: The Story of Success.

In Outliers, Gladwell described the attorneys who succeeded in the hyper-competitive post-war legal world in New York like Joe Flom. Flom says when he started, his attitude to taking new clients was, “whatever came in the door!”

But because Flom took business other firms wouldn’t touch, his small firm eventually became Skadden, the new model of Big Law success. At that time, M&A activity was considered beneath the purview of New York’s white shoe law firms, so a young Joe Flom eagerly took that work.

“For a period of almost thirty years, if you were a Fortune 500 company about to be taken over, or trying to take over someone else, or merely a bigshot in some kind of fix, Joseph Flom has been your attorney and Skadden Arps has been your law firm,” says Gladwell.

Becoming Big Law

What does this have to do with today’s law firms? Every generation is different, and the young Joe Floms of the world are likely going to be shut out of the lucrative M&A game. But there are market inefficiencies that can either crush your firm, or provide new direction.

The law firm that can succeed is the firm that can find inefficiencies and turn those  into opportunity. The obvious market inefficiencies today are built into most types of litigation. The reason law firms are suffering is that clients are not willing to pay the absurd cost of litigation in most cases.

At Nextpoint, we recognized a long time ago that eDiscovery is a commodity, and have offered commodity pricing that delivers predictable and easy-to-understand, pass-through costs to your clients. Law firms have been relying on the same old technology for thirty years that doesn’t scale to meet today’s challenges in a cost-effective manner.

Replacing that with Internet-age technology is just one of the obvious ways in which law firms can slash overhead and stop wasting money. It’s also one way that the next generation of law firms will have to redefine the business of law.