Clearly with all the financial turmoil rocking our country, those who have been tracking why we are where we are today refer to the bursting of various sector bubbles. Some even refer to our economy as a ‘bubble economy’ driven by six major bubbles which include real estate, stock market, private debt, discretionary spending, government debt, and the U.S. dollar bubbles. They’ve historically not only inflated almost simultaneously but are linked. As such, it is responsible for the past decade’s earlier prosperity but is also the reason we are in financial decline. When one bubble bursts it puts downward pressure on each of the connected bubbles threatening to burst them all.
It’s also very hard to see a bubble while we’re in it and much easier to play Monday morning quarterback after one has actually burst. More importantly, it’s impossible to re-inflate a bubble which has burst.
What has this got to do with the legal profession? Well, I’m currently reading a book called ‘Aftershock’ discussing the future of our economy and as I was reading it I began to wonder if what we are witnessing these past couple of years is the bursting of the legal profession bubble? Here is how the authors describe the real estate bubble – which we should all be familiar with if not directly feeling its impact – and why it burst:
For example, real estate prices are typically driven higher by a growing population (increasing demand) and the growing incomes of home buyers (increasing ability to buy). When populations increase and incomes increase, home prices also increase. On the other hand, if you see home prices increasing, let’s say, twice as fast as incomes, then that could mean something unsustainable is happening to the value of real estate. Why? Because home prices that high are not sustainable without a similar rise in the ability of buyers to keep paying those prices.
The United States has lost almost every single job created during the housing bubble – no jobs, not much demand for homes. Source: Bureau of Labor Statistics Total Non-Farm Jobs 2000 – 2011
When the downward pressure is too great on unsustainable pricing (or another metric)…the bubble bursts. Well, back in 2009 when Big Law imploded it was just coming from an over-inflated pricing binge that was unsustainable. Associates were coming on board with annual salaries of $200,000. Partner hourly rates tipped the scales at $1,000. Clients were rebelling because of their inability to keep paying those dramatically increased fees relative to the value of the services received and what they could afford. The bubble burst. ( This, of course, was a smaller bubble linked to much larger bubbles within our economy). The principle, however, is the same.
Our clients live in this evolving economy. Traditional law firms (and law schools, for that matter) with pre-bubble- bursting pricing structures such as the billable hour are struggling against client rebellion (DIY’ers) and the rise of the Legal Zooms of this world because they have not recognized their pricing has escalated at an unsustainable rate relative to what their clients can afford (and are willing) to pay.
Also, if one expects the legal market to revert to what it once was, consider this: the only way a bubble can reinflate is if the previous drivers of that bubble remain ready, willing and able to do so. Those previous drivers are gone.
It is also why lawyers and law firms who recognize this and get creative will survive against the $69 wills currently being advertised by Legal Zoom in their latest TV campaign.
More than two years ago I wrote we are entering into a ‘new economy’* and kept insisting we are in unchartered waters. In Aftershock the authors validate my assertions:
We are not in a typical ‘down market cycle’. With so many linked bubbles now on the descent, the impact of their combined future collapse will be far more dangerous than any downturn or recession we’ve experienced in the past. Unlike in a healthy economy, in this falling multi-bubble economy, the usual strategies for returning to our previous prosperity no longer apply. We have, in fact, entered new territory.
What this means to lawyers is, if you believe we have in fact experienced the bursting of the legal profession bubble, it is now time to rethink your whole approach to building your practice including your pricing strategies. What other lawyers are doing in their practices (including finding out what they are charging to some extent) is less and less relevant to the foundational principles of how you create and build YOUR practice.
With a hat tip to Lawyerist, we’ve learned about one enterprising lawyer , Alex Bajwa, who took the unusual step of committing himself to one month of letting his clients fix their own fees and to determine if at the end of the representation they were even going to pay him. The reason I was so impressed with this is because he decided to cut through all the rhetoric and advice of others and talk directly to his clients. By doing so he in essence found out what was a sustainable price for his services based upon what his clients could afford. It was a one month focus group. This is how one should respond to a bubble-burst to build a sustainable solo practice for the future.
I have said numerous times that when things come crashing down it is a once-in-a-lifetime opportunity time to build upon the ashes of what was with something innovative and new. We all know we are in for rough times in this new economy yet in so many ways the playing field will never be more level than it is today. It will also unleash some of the most creative legal minds of the newest generation of lawyers and I can’t wait to read about their innovative practices.
We all know Legal Zoom looks pretty on paper but fails to deliver what the clients actually want and need. Take the time to learn directly from your clients what they want and what they need.
In a Special Report published in April (2009), The Economist looked ahead (to today) and saw that “In the next couple of years the businesses that thrive will be those that are miserly with costs, wary of debt, cautious with cashflow and obsessively attentive to what customers want.”
If these companies turn a mirror to their customers and prospects, they may see the exact same traits.
Once you find out what your prospective clients want and can reasonably afford, feel free to create a brand new way to deliver your legal services while building ‘the’ solo practice of the future. Remember, legal problems are not going away. There is plenty of work to be had. As a matter of fact the need for legal services is actually increasing because of this economy and because of the complexity of our lives. It is the delivery of these services which will be forever changed as well as the price clients are willing to pay.
The rules we are obliged to follow should be seen as a foundation upon which to build your practice, not a box to enclose and stifle your ingenuity. The sky is the limit.
If you’ve been innovative and seriously thinking outside the box, contact me at susan (at) solopracticeuniversity.com and maybe we’ll share your story!
*(If you’d like to catch up on my blog posts regarding the impact of demographics and the economy on the legal profession – particularly solo practice – you can do so here.)