Emerging Legal Market
Current Legal Market
Legal services is currently about a $437B industry in the United States .[i] However, the legal needs of roughly 80% of low-income Americans and 40-60% of middle-income Americans go unmet every year.[ii] No matter how you do the math, that leaves a lot of revenue on the table.
There have been many studies of the unmet civil legal needs of low-income Americans (and a few studies of the needs of middle-income Americans). However, calling for more altruism from the legal sector has not closed the gap.
Charity is not a sustainable business model.
The solution, then, must be a market-based approach.
This is an open letter to innovators; let’s get to work.
In a 2017 ABA publication, Justice Steve Gonzalez of the Washington Supreme Court discusses unmet needs, the future of legal practice, and legal services from nonlawyers.[iii] He quotes an Irish judge from a century ago that said justice in England is open to all, like the Ritz Hotel. While law schools and legal aid providers have tried to fill this gap, the need is still great. On the other side of the problem lawyers have historically opposed (and continue to oppose) allowing nonlawyers to provide legal assistance. He then goes through Washington State’s attempt to open this market through Limited Legal License Technicians (LLLT), a program to license and monitor nonlawyers and allow them to provide limited legal services. However, the program was limited to family law at the outset and between 2012 and 2017, only 9 such professionals were licensed.
In their 2017 opinion article for the Washington Post, Jennifer S. Bard and Larry Cunningham make a case for deregulating some legal services to fill the gap.[iv] Jennifer S. Bard is professor of law and medicine and the former dean of the law school at the University of Cincinnati. Larry Cunningham is vice dean and professor of legal writing at St. John’s University School of Law.
They emphasize the fact that altruism cannot close the gap in legal services. “We do not expect charities and generous doctors to provide 80 percent of the medical needs for low-income patients, so why do we think this is possible for our legal needs?” They propose a common sense approach. Step 1: recognize that not every legal has is brain surgery (I’d argue that very few are). Step 2: adopt a tiered system of legal-services delivery that allows for lower barriers to entry (e.g. pharmacists giving vaccines and nurse practitioners diagnosing and treating ailments). Step 3: create an educational system to support the tiered system that both protects the profession and makes economic sense (e.g. because of my student loans, I cannot afford to hire myself right now). The end result is similar to Washington’s LLLT program. While some lawyers will resist this expansion of legal services, we’ve got to realize that this doesn’t lower the quality of the “pie,” but has the potential to double or triple the size of the “pie.”
In its exhaustive 2018 Report on the State of the Legal Market, Thomson Reuters lays out a compelling case why the current legal market is failing.[v] In short, law firms remain committed to once successful strategies even as evidence mounts of their failure.
Six mutually reinforcing biases explain this escalation of commitment. The sunk cost fallacy causes people to focus on the investment already made in a particular causer of action and hope that , if the approach is continued, invested costs will be recouped and the prior investment decision vindicated. Loss aversion causes people to prefer to gamble on the future success of a previous commitment to a currently questionable strategy, even if it means the investment of addition resources, rather than to insure an immediate loss by changing direction. The illusion of control causes people to regularly overestimate their ability to control future events, thus reinforcing the prior two biases. Preference for completion biases people toward completion of tasks, such as seeing a particular course of action through. Pluralistic ignorance causes people that disagree with a particular course of action to remain silent because they think they are the only dissenters and that everyone else is on board. Personal identification causes people to perceive that their identities and social status are tied to their commitments so that withdrawing their support would risk loss of reputation status.
Collectively, these biases lead an organization to “consensual neglect” as firms ignore strong indicators that their old approaches are no longer working. While many firms tout the advantages of leveraging legal technology advances,[vi] the real inclination is doubling down on current strategies rather than risking the change that would be required to respond effectively to evolving market conditions.
Ultimately, the report concludes that there may be a shrinking market for law firm services. Clients have been demanding for at least a decade increased efficiency, predictability, and cost effectiveness. When traditional firms have failed to deliver on these metrics, clients have been more than willing to switch to more responsive firms, take more work in house, or transfer work to alternative service providers. Firms that proactively address the value proposition from the client’s perspective (e.g. implementing alternative staffing strategies, pursuing flexible pricing models, adopting work process changes, making better use of innovative technologies) have a greater chance of significant success. Additionally, successful firms are investing more in business development and legal technology to find the value gap and deliver what clients want.
The provision of legal services is changing; the pace of change is increasing. Keep up.
If we assume that legal needs are evenly distributed among wealthy, middle-income, and low-income people, then roughly 46% of all legal needs are going unmet. That could represent a $372B market that is relatively untapped. Even assuming those calculations are wrong, and the potential market is only half that size, exploration of capitalization opportunity is warranted.
While I commend traditional firms apparently committed to innovation, where are the doers?
Where are the experiments?
Where are the failures?
Where are the results?
As cliche as it sounds, the future is wide open. The legal industry is facing major technological shifts that can, should, and I argue - will shift how consumers receive legal information and legal services. To me, the question is simple: do you want to fight to provide value that clients are seeking, or fight to protect your bottom line? I’d go as far to say that those seeking to protect the bottom line in a misguided sense of history or reverence are missing the big picture. Those pushing the boulder of tradition up the hill of innovation don’t see that the market opportunity is nearly double the revenues.
This is a golden opportunity for innovators, and while I’m excited for the innovation around the edges that I have seen, I haven’t seen anyone taking this opportunity to its full extent. Let’s go do something big, change the game, and bring real value to clients - on their terms.
[i] “How Big is the U.S. Legal Services Market?” (Thomson Reuters © 2015) (last accessed 1/31/2019 http://www.legalexecutiveinstitute.com/wp-content/uploads/2016/01/How-Big-is-the-US-Legal-Services-Market.pdf)
[ii] Bard and Cunningham, “The legal profession is failing low-income and middle-class people. Let’s fix that. “ (last accessed 1/31/2019 https://www.washingtonpost.com/opinions/the-legal-profession-is-failing-low-income-and-middle-class-people-lets-fix-that/2017/06/02/e266200a-246b-11e7-bb9d-8cd6118e1409_story.html?noredirect=on&utm_term=.1d3a533d9962)
[iii] Gonzales, J. Steve, “Unmet Needs, the Future of Legal Practice, and Legal Services from Nonlawyers,” (last accessed 1/31/2019 https://www.americanbar.org/groups/young_lawyers/publications/tyl/topics/law-practice-2050/unmet_needs_future_legal_practice_and_legal_services_nonlawyers/)
[iv] See note ii.
[v] 2018 State of the Legal Market, Georgetown University Law Center and Thomson Reuters Legal Executive Institute and Peer Monitor® (last accessed 1/31/2019 http://www.legalexecutiveinstitute.com/wp-content/uploads/2018/01/2018-Report-on-the-State-of-the-Legal-Market.pdf)
[vi] Alber, John, “The Missing “E” in Legal Innovation” (last accessed 1/31/2019 https://www.linkedin.com/pulse/missing-e-legal-innovation-john-alber/)