The number one reason for this lack of ownership mentality is that “most lawyers aren’t raised to think of the practice of law as a business,” says Elaine Fitch, of Kalijarvi, Chuzi, Newman & Fitch. “They become lawyers because they want to be lawyers, not business owners.”

This in turn leads into the personality traits of the kind of people who select law as a career. Many lawyers become lawyers precisely because they do not see themselves as future business owners, but rather as practitioners of a craft. “Their personal commitment to their craft is what often allows them to be great at what they do,” notes Joshua Driskell of Lagerlof. “When stepping into an ownership role, they might often feel as though they have a less intimate connection to their practice.”

Another obstacle to developing an ownership mentality is lack of training. Most law schools do not include any education or training in the business of law, and that is unfortunate. “The consequences of the lack of this training often shows up down the road,” says Brian Temins of Minden Gross. “Making the transition to owner isn’t as easy as just changing a title — training and preparation need to go into it.”

Indeed, adds Bijal Vakil of Allen & Overy, having business acumen “is just as important for obtaining work and retaining it.”

“Most lawyers aren’t raised to think of the practice of law as a business. They become lawyers because they want to be lawyers, not business owners.”

Often firms are not intentional about exposing their lawyers to the business side of the firm. And this problem starts early because many law firms encourage young attorneys to focus on developing their legal skills, rather than on developing a book of business. As their practice builds, these lawyers tend to focus on getting their legal work done, and perhaps never develop and understanding of why they do what they do. Instruction on why the work matters to the client, and how lawyers’ time is billed and collected, as well as how new work comes to the firm, may broaden attorneys’ focus beyond the day-to-day legal work.

Another possibility to consider is that an attorney may, in fact, already have an ownership mentality, but the more senior attorneys are not allowing him or her to express that. If senior partners insist on doing things the way they have always been done, or are not welcoming toward new ideas, other partners will have little incentive or opportunity to demonstrate an ownership mentality.

What’s a firm to do?

Many law firm leaders that were interviewed emphasize “drawing back the curtain,” and involving more attorneys in the business of the firm. This approach requires transparency and education at all stages. Tom Segars of Ellis & Winters recommends starting early by “involving young lawyers at every step of the initial client intake and billing processes, including conflicts checking, initial consultations, discussing terms of engagement, preparing an engagement letter, and editing invoices.”

David Lackowitz of Moses Singer, agrees, saying that transparency means sharing information. “Just like in other industries, [the attorneys] should be provided with data about lawyer productivity, revenue, expenses, hiring and firing, strategy, goals, etc.,” says Lackowitz, adding that such information given to attorneys at the beginning of their careers is the first step in creating an ownership mentality.

Too often, however, firms keep financial information within a small, tight circle. In some larger firms, even seasoned partners may not have access to important financial information. Instead, firms should share as much information as possible to encourage ownership mentality among their lawyers. “When people understand the mechanics of the business and feel like they have skin in the game, they are more likely to work harder for [the firm] rather than just themselves,” observes Sean Dolan of Evans & Dixon. Information is power and can lead to open discussions and improvements to the overall firm.

Law firms should start this process early by involving associates in the client relationship. This simple commitment goes a long way towards instilling an ownership mentality. When associates see how clients use and value their work — including knowing that the client has paid the bill for the work — associates then feel a sense of ownership to the client relationship.

Involving associates in the entire project creates a sense of ownership, while simply assigning tasks insures they develop purely a task orientation, explains Mickey Maher of Hecht Solberg. “If a younger lawyer hasn’t experienced the opportunity to take ownership of matters or some piece of client relationships, the lawyer will be less likely to take ownership in the enterprise of the firm over the course of his or her career,” Maher adds.

Indeed, firms should take this one step further — let younger lawyers play significant roles in hearings, depositions, trials, and more, especially as they become more senior. Introduce them to clients and encourage clients to contact senior associates directly with questions.

Heather Linn Rosing of Klinedinst observes that “the things that law firms can do to instill an ownership mentality in those up for partnership are the same things that firms can do to promote retention.” These include fair compensation, wellness programming, a commitment to the community, and a mechanism for employees to express their opinions and participate in the betterment of the organization.

Many of the leaders interviewed also emphasized the importance of active mentorship by senior lawyers, as well as active sponsorship for attorneys, and especially for women and diverse attorneys.

Promoting teamwork

While it is often challenging to motivate lawyers to participate in activities beyond their normal billing hours, firm activities that promote bonding, teamwork, and cross-selling are valuable in reinforcing ownership mentality. Involving lawyers on firm committees, such as recruiting, can help to instill an ownership mentality within them, says Heidi Yernberg of Jayaram Law. This activity brings “[the] entire team into operational issues from the beginning, involving associates in a wide range of areas, from project management and workflow to reviewing bills and budgets, to fostering business development relationships, encouraging thought leadership and more,” Yernberg says, adding that group activities, no matter what they are, instill a connection and sense of responsibility to others in the firm.

Developing a strategic plan, with the input of all attorneys and staff, is a way to encourage involvement and ownership. The plan should be consulted and reviewed on a regular basis, so that all stakeholders can see how it is being utilized to determine the direction of the firm.

“When people understand the mechanics of the business and feel like they have skin in the game, they are more likely to work harder for [the firm] rather than just themselves.”

Indeed, Mary Vandenack of Vandenack Weaver encourages her lawyers to develop their own practice plan and “that plan should be incorporated into the firm plan.”

At Ellis & Winters, a North Carolina-based litigation and commercial real estate firm, they take it further by having their director of Client Services & Business Development work with each attorney to develop an individual plan for business development, focusing on the lawyer’s interests and strengths, while holding each lawyer accountable for implementation.

And finally, accountability is a large part of this process — and often, it is the hardest part of the equation as managing partners often have difficulty holding their partners accountable. “I would give them actual business responsibilities,” says Marco Antonio Gonçalves of Veirano Advogados in Brazil. “A make them accountable for [those] responsibilities, as well as for what is expected from them as a firm partner in the long run.”

To reinforce what it means to be a partner, Fairfax, Va.-based patent law firm Harrity & Harrity conducts partnership skills training that requires new partners to meet with the managing partner on a bi-weekly basis to review scenarios, such as hiring or firing an employee, or how to deal with a potential malpractice issue. When a partner has an ownership mentality, they hold themselves accountable because they want their firm to improve and succeed in every way possible.

Clearly, creating an ownership mentality among firm partners is not easy. Often, all a law firm can do is provide training, resources, opportunities, and support. It’s up to the individual lawyers and partners to fully embrace being a law firm owner and all that it encompasses.

Click here to download a copy of the 2022 Report on the State of the Midsize Legal Market.

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Despite this contraction, however, it seems that midsize firm leaders have leveraged themselves to meet growing demand by choosing to sustain staffing levels. Evidence of this alignment can be seen when we look at demand leverage and full-time-equivalent (FTE) leverage.

For the purposes of this blog, demand leverage is defined as the sum of hours worked by non-equity partners, associates, of counsel, and other lawyers divided by the sum of hours worked by equity partners. In other words, this formula tells us how many hours that all other lawyers (excluding equity partners) work for every one hour worked by an equity partner.

FTE leverage, on the other hand, analyzes headcount. It tells us how many lawyers (excluding equity partners) are employed for every one equity partner.

Ideally, demand leverage should be greater than FTE leverage. One reason for this is that equity partners’ additional responsibilities, like building client relationships and networking, are more likely to shift their focus away from billable hours, while lower-ranked attorneys can strive to be as productive as possible.

In theory, the more time equity partners devote to those additional responsibilities, the more demand a firm generates; meaning that a higher ratio suggests partners are putting time in drumming up new business and growing the firm, rather than simply billing hours at a higher rate. Beyond that, when demand is growing, the gap between these leverages becomes especially important because it correlates well with profit margins. By pushing work down to less expensive lawyers, demand leverage increases, and revenue grows relative to stable direct expenses. Essentially, when a firm’s lawyers bill more hours than their equity partners it means they are adding further revenue to the “profit-pie” in which equity partners partake at the end of the year.

Another reason why these types of leverage are so important is that they can give an indication of how well-prepared law firms are to meet future growth in demand. While in the short-run firms have incentives to cut excess capacity (i.e., underutilized lawyers), this can come back to bite firms later. Hiring lawyers is not a quick proposition; consequently, firms that cut headcount for short-term concerns risk finding themselves with a lack of capacity to meet client needs once demand returns.

This battle of concerns has played out over the last few quarters with the balance between demand leverage and FTE leverage reversing recently in the midsize segment.

 As the chart demonstrates, FTE leverage surpassed demand leverage in Q4 2021, with a wide gap remaining throughout the year thus far. Admittedly, part of this widening can be attributed to seasonal trends. Equity partners often join firms in the first quarter, and other lawyers often leave firms at the same time. However, this seasonal trend does not account for the scale of this year’s disconnect. Potentially, the main reason for this imbalance was fear of heightened associate attrition and the risk of repeating the post-2008 under-capacity blunder in which the average law firm cut associates by 10% during the Global Financial Crisis. Then, when demand returned, firms found themselves unable to hire attorneys back quickly enough to keep pace.

Fear of repeating that past mistake and having to pay the increased salaries required to lure back experienced associates likely contributed to the decision of today’s firms to hold onto their lawyers. Indeed, many seem to have opted to weather slowing demand with an eye towards brighter times ahead.

Data from the second quarter seems to vindicate this decision. The difference between demand leverage and FTE leverage within midsize firms started trending towards a more normal state as demand leverage grew, equity partner attrition resumed, and newly hired associates began contributing in a more productive way.

Yet despite midsize firms experiencing a negative difference — in fact, the largest gap of all the segments we tracked — they still ended the first half of the year with the smallest YTD productivity contraction compared to their Am Law peers. Productivity shrank by only 1.8% at midsize firms compared to an all-firm average of 2.3%. Although this figure may be explained by midsize firms’ FTE growth being the slowest of all the segments, the gap between FTE and demand leverage suggests that lawyers still have plenty of room to grow and midsize firms will probably contract slower than their larger competitors. If this trend continues, demand leverage is likely to overtake FTE leverage and provide that extra layer of profit discussed earlier.

The sticky part of this strategy is that it rests on the assumption, or hope, that demand growth materializes. While on a YTD basis midsize firms did outperform their Am Law 100 competitors in demand growth, the second quarter continued a decelerating slide of four consecutive quarters, ending with a mere 0.1% growth. A reasonable explanation for this unimpressive figure is last year’s growth. At 7.7% year-over-year growth, Q2 of 2021 was one of the largest demand growth rates ever recorded for the midsize segment. And that means the rest of this year has to contend with elevated baselines, which will make it increasingly difficult to justify current FTE levels as demand and productivity continue to struggle.Firms may be looking towards a more demand-rich future as they resist making cuts to their ranks, but they must also understand that this could be a long haul. For now, the gap between demand and FTE leverage looks to be heading towards a more profitable direction, but it should be noted that even if the leverages realign themselves, it doesn’t necessarily mean that the firm will increase profit margins.

Rather, it means if firms grow demand at a healthy rate, they will add additional revenue to the pool from which partners pull at the end of the year. The success of the second half of the year hinges on that “if”, and on whether midsize firms have leveraged themselves properly for the future.

The global changes experienced in 2016 saw many clients turn to the perceived safe harbor of larger firms — a trend that has held up for quite some time. Then, the global pandemic-related events of 2020 only sharpened the perception that clients needed safety and solidity, and that those would be found among larger firms.

Then came 2022 — global fears of recession, rising inflation, and clients rapidly seeking more cost-effective solutions to their legal questions without sacrificing quality. Law firms, too, have experienced these changes, and with them has come a sort of reversal of fortunes for many midsize law firms.

To be sure, the midsize law firm segment has not been immune to the volatility experienced broadly in the past several years. But the average midsize law firm seems to have staked a position going into the latter half of 2022 that finds them in a better position relative to the market.

You can access the 2022 Report on the State of the Midsize Legal Market here

Much like their position at the end of 2015, in which the average midsize law firm outperformed its Am Law 100 counterparts in terms of demand growth, the same is true through the mid-point of 2022. And while other trends such as dramatically increasing overhead expenses and associate compensation are placing a drag on the financial results for midsize law firms, many other fundamental markers are looking quite positive.

The latest edition of the Report on the State of the Midsize Legal Market, published by the Thomson Reuters Institute, offers an in-depth exploration of a number of factors contributing to a generally bullish picture for midsize law firms. It is also worth noting, however, that numerous challenges remain.

For example, midsize law firms have generally fared well in terms of attorney attrition. In fact, research from the Thomson Reuters Institute indicates that midsize law firms make up a disproportionate percentage of what has been dubbed “Stay” law firms, those firms with lower rates of attorney turnover that may be indicative of those firms being a desirable place for attorneys to work. For obvious reasons, this is a positive finding, particularly in light of the fact that midsize law firms tend to have lower associate compensation scales and generally offer smaller raises. The clear implication is that for at least some lawyers, a good working environment is about more than just money.

However, the competition for associate talent has unquestionably impacted the ability of midsize law firms to recruit and retain talent. Sparked by large salary increases by major international law firms, midsize law firms have similarly found themselves needing to raise salaries in order to stay competitive. The Thomson Reuters Institute’s 2022 Report on the State of the Legal Market, published in January, discussed the research of Frederick Herzberg, who in the 1950s posited that paying employees less than what they think they’re worth creates dissatisfaction, but paying them what they think they are worth is not sufficient to make them satisfied employees — a sort of “necessary versus sufficient” line of argument.

In this way, midsize law firms with lower pay scales must be careful to create firm cultures that provide satisfaction in ways other than cash compensation. There may be a plethora of necessary conditions to create a favorable working culture, which if present, can possibly overcome the allure of a higher salary. Absent these necessary conditions, however, it becomes increasingly likely that a higher salary will be sufficient to draw lawyers away. And particularly in today’s marketplace, every vacancy which must be filled represents a substantially more expensive endeavor than in years past.

Yet, even in the face of some factors which will give wise law firm leaders pause, midsize law firms are on a generally favorable footing upon which to continue their venture into whatever the future may bring.

But law firm profitability does not end with that portion of the analysis. Of equal importance, of course, are the concepts of client expectations, data and metric capture and analysis, and ultimately, the positive outcomes that law firms can experience by meaningfully examining the full spectrum of their profitability.

Client expectations

A lawyer has clients, and not customers, and for very good reasons. There should be nothing more important to a lawyer than the tasks that their clients have given them. Lawyers owe a fiduciary duty to their clients; however, this duty often has been distorted to justify the pricing of legal services. And while clients cannot always be right in the attorney-client relationship, the relationship has been far too one-sided — the lawyer is not always right, especially when it comes to pricing and methods.

Legal practitioners tend to overlook another key variable that drives profit in nearly all other businesses — customer expectation and satisfaction.

A persistent myth regarding the practice of law holds that lawyers cannot manage these outcomes because the results are simply the results: clients will go to jail, get divorced, pay money damages, not receive enough damages, or feel they paid too much for a transaction.

In reality, the intangibles of client satisfaction, regardless of matter outcome, are key to finding more profit. For example, satisfied clients are more likely to pay the bill, return for more services, refer a friend, and even promote “their lawyer” in casual conversation. Most lawyers consider customer satisfaction anecdotally, i.e., sometimes former clients refer new clients. However, client referrals and the business they generate can be more than just an unintended happenstance. Just as with the other key areas of law firm profitability — costs, pricing, and revenue — customer care must be systematically measured with an eye toward intentional improvement.

How to capture the variables of profitability

While law is a mental exercise, how the practice manifests and grows (or not) can be measured by data, such as client demographics, net promoter scores, client satisfaction scores, conversion rates, return rates, billing & collection rates, in-depth time analysis (not the billable hour), and analysis of fixed and variable costs.

How to gather and measure this data seems like an impossible task to most lawyers, especially those in smaller firms or solo practices. And to be frankly honest, most lawyers do not have the aptitude. They went to law school to help people or because they were fascinated by the operation of law and politics, but not data and economics. The old attorney adage has been said often: “If I was good at math, I wouldn’t have gone to law school.” Yet, it is also true that one of the clearest paths to higher profitability is found by collecting and analyzing that data, then acting on the findings, no matter how small the law firm.

For lawyers pressed by time and budget constraints — in other words, everyone in the legal profession — the only solution is collaboration with technology, even if the lawyer is a proud Luddite. The investment of time and money into technology may be a barrier for some smaller outfits; however, the return on those investments can be seen throughout the legal industry.

Fortunately, technology on the whole is getting cheaper. The right investment in the right technology will quickly recoup the cost. And yes, there is risk in choosing the right technology, but not making a choice is guaranteed to put the technology-inept lawyer behind as more lawyers shift to these more innovative methods.

Profitability analysis is good for lawyers, clients & the profession

Merely raising hourly rates, as has been done for decades, is generally good for no one other than the lawyer, assuming the lawyer or the firm can collect.

Yet, after taking a long hard look at the firm’s profitability — and possibly taking steps towards improvement based on this analysis — who might benefit then?

• • • The client might get a lower bill, resulting in a higher likelihood of paying promptly and being a happier customer. And even on a lower bill, the lawyer’s profit and margin could ultimately be higher.
    • After a critical evaluation of the inputs, the bill could be higher but still be paid by a happy client because now the client better understands the value of the work.
    • Through management of firm costs, a higher bill may result in even higher profit and margin due to the firm’s efforts at budgeting and improving efficiency.
    • Work performed more quickly and efficiently frees up time for more lifestyle choices for lawyers, and whether they choose to find and do more work or head home to family and hobbies, there is a clear benefit to lawyers’ well-being.
    • The firm can produce better work product because the work is created with efficiency and therefore more uniformity. Plus, legal malpractice risks are reduced.
    • Finally, lower bills and a better presentation of value encourages more lawyer engagement, which in turn allows for more lawyer availability to protect the fundamental rights of clients.

If your law firm is not engaged in profitability analysis, you’re falling behind. It does not all need to be done at once, and nearly any effort should move the needle in the right direction. And once that momentum begins, the positive results will be obvious.

In the end, however, it is a change in mindset that is more important — lawyers must be taught to seek profitability, not billable hours.

These effects have been happening globally, with law firms from far-flung markets like Sydney and Johannesburg joining voices with those in Europe, Canada, and smaller markets in the United States to discuss how to combat the ripples started by major law firms in New York and London.

Much has been written about what firms might be able to do to staunch the loss of talent who are leaving in search of a higher paycheck, but relatively few firms seem to have figured out what really works.

In the latest podcast available on the Thomson Reuters Institute Market Insights channel, we speak with a midsize law firm partner to discuss those steps that have been thus far successful for law firms looking to recruit and retain talent without having to rely primarily on increasingly higher pay scales.

You can access the latest Thomson Reuters Institute Market Insights podcast, featuring a discussion with Shannon Boettjer of Jaspan Schlesinger, here.

Shannon Boettjer is a partner with the Garden City, NY-based law firm of Jaspan Schlesinger, a full-service, 50-attorney firm celebrating its 75^th year serving clients. In addition to being a highly experienced litigator, Boettjer works closely with the firm’s recruiting and retention efforts. She also brings the perspective of someone with a background in a major international law firm, so she knows well the type of firm with which she and her partners are competing.

Also featured on the podcast is Danielle Rivner, a Thomson Reuters client manager who works closely with many New York City-area law firms, advising on a wide variety of business management topics. Rivner’s broad spectrum perspective brings insight into the successful strategies employed by a wide variety of law firms in competing for talent against larger players. This too pairs well with Boettjer’s deep experience in confronting those challenges personally.

What makes this podcast discussion particularly interesting is that, beyond the pressures that practically every law firm is feeling relative to today’s talent shifts, the experiences shared in this podcast come from firms where the primary driver of a lot of those shifts — large New York City law firms — are no more than a short subway ride away, so the effect of the competition for talent is not only acute, but highly local.

With that in mind, the insights shared about what has proven effective for these smaller firms in such direct competition can be seen as strong examples of those strategies which any law firm can look to capitalize on, particularly when the source of the challenge isn’t in the backyard.

Most important, according to Boettjer, has been Jaspan Schlesinger’s ability to sell itself as a place where attorneys can build not only a book of business, but a career balanced with a full life. Having come from a major law firm earlier in her career, Boettjer remembers well the tradeoff that was expected, sacrificing balance for the sake of the higher paycheck.

By providing greater opportunity for balance, as well as quicky progression to more meaningful work, Boettjer’s firm has been able to successfully find the talent they need to sustain meaningful, strategic growth while mitigating at least some of the risks associated with attorney attrition. These same attributes are what Boettjer believes will help make her firm, and firms like hers, into very attractive places at which lawyers could land should the draw of a large pay day start to dim for those seeking better balance.

While there are no simple answers to the questions related to how law firms can compete for talent against law firms offering what are often substantially higher salaries, the strategies shared in this podcast will hopefully give listeners some messages they can deliver to their talent pools, or priorities on which to focus within their firms’ strategic plans.

Episode transcript.

This annual report is one of the few reports in the legal landscape that focuses exclusively on the thoughts and opinions of the allied business professionals who are leading midsize and large law firms — those professionals occupying the finance and operations roles within law firm leadership. Without the duality of purpose that often comes from trying to manage a law firm while also maintaining a book of client business, these firm leaders bring a different perspective to the strategies of running a law firm.

Unsurprisingly, last year’s survey found that many of these business professionals were concerned about the broader economy and the impact it may have on future firm profitability. But after many firms posted strong results at the end of 2020, and with 2021 shaping up to be another banner year for many law firms, their concerns over the impact of economic shifts has abated.

Instead, this year’s survey found that concerns related to talent have skyrocketed into the front of firm business leaders’ minds. In fact, four of the top five areas rated as “high risk” to future firm profitability relate directly to talent considerations. The top five high risk areas identified by respondents were, in order:

1. 1. 1. 1. Lawyer recruitment and retention
         2. Poaching of staff by competitors
         3. Associate salary increases
         4. Underperforming lawyers
         5. Competition among law firms over fees.

And concern over these issues is being borne out in market realities.

According to the most recent Thomson Reuters Peer Monitor Index report, for example, law firms have been experiencing heavy turnover among their professional staff, particularly among associates. Associate salary increases, which have become strikingly common in 2021, have driven record growth in law firm direct expenses. And per lawyer productivity — when compared to 2019 (the last “normal” baseline year) — continues to slip.

You can download a copy of the 2021 Law Firm Business Leaders Report here.

Yet despite these risky areas, law firm business leaders remain bullish on their firms’ prospects. A majority of respondents said they expect moderate to high growth in nearly every key metric of law firm profitability and have similar expectations for demand in nearly every practice area. Perhaps this buoyant mood reflects a more general sense of optimism that the waning of the pandemic-induced struggles from the past 18 months or so will lead to better days ahead.

As firms prepare for what the future will bring, many firm business leaders report that they will be re-evaluating their firm’s use of real estate, both to accommodate a hybrid working model and to continue to take advantage of some of the expense reductions experienced in the past two years.

Lateral hiring and increasing billing rates will also be key strategies many firms will likely employ, along with a greater emphasis on improving efficiency through innovative technology.

The strategies around technology are worthy of a closer examination. For the first time, this survey bifurcated the question of greater use of technology to explore the portion of use that is designed to cut costs, as opposed to the portion of use for purposes other than to cut costs. Thus, we learned that more firms said they plan to increase their use of technology for purposes other than to cut costs.

So, in what areas will tech be leveraged if not to cut costs? Looking at the firms whose leaders said they plan to either upgrade or purchase tech solutions, most uses relate to either facilitating new ways of working or enabling greater efficiency in producing work product. Firms are most likely to look at purchasing or upgrading technology for remote working, financial management, internal collaboration and client portals, market analytics, legal project management, and eBilling. On the whole, firms are most likely to upgrade their technology as a means of providing better value to clients.

Indeed, technology also provides the most fertile ground for potential law firm outsourcing, as cloud and server infrastructure, electronic discovery, and IT support were among the areas firms were most likely to either be outsourcing currently or looking to outsource in the future.

The report also details findings relating to firms’ plans for potential expansion domestically, concerns over firm culture brought on by managing a workforce split between in-person and remote workers, and how firms are trying to drive collaboration in an age of hybrid workforces.

Brett Spooner formed Gravis fresh out of law school in 2013 and was soon joined by Asa LaMusga. Their ambitions soon encountered what many before them had discovered — that scaling a midsize firm is fraught with challenges. “There’s a lot of 5- to 6-attorney firms across mid- to rural America and the behemoth big law that vertically integrate major markets — with no middle territory,” says Spooner. “A lot of our peers were struggling with the business infrastructure, because it just doesn’t scale.”

But growth — whether organic or by acquisition — has its own challenges. To combat these, Gravis has systematically developed what Spooner describes as almost a “franchise” model, a finely tuned combination of processes, technology, and strategies. Having grown to more than 50 attorneys, the firm expects to more than double its attorney and office count within three years.

Gravis’s 17 offices currently stretch from the Pacific Northwest to Michigan and Florida and are strategically located mostly outside of high-cost major metropolitan areas. While the firm has offices in Seattle, Spokane, and Boise, they are staffed only with a few senior advisors and sales people. Matters in those offices are mostly handled in the firm’s lower-cost branches. “We do a lot of work out of Seattle and other major markets, but at a fraction of the price of classic big law firms in those markets,” explains Spooner.

Having the bulk of its attorneys and support staff in communities remarkably similar to the Tri-Cities — such as Whitefish, Mont., and Muskegon, Mich. — enables Gravis to offer competitive wages that provide comfortable living while avoiding the billed hours pressure of what Spooner describes as “the hamster wheel of death of Big Law.”

But the favorable cost model is only part of the story.

“Everything is agile,” LaMusga says. “We systematize everything — our onboarding process, marketing, IT, communications, all of the back office. We developed our own case management software to suit our needs, and all of our software is highly integrated — CRM, finance, business analytics.” This not only reduces costs and improves efficiency, but it provides a more consistent experience for clients across Gravis Law’s network.

The firm combines cutting-edge digital marketing with high-touch client services and community involvement, tracking every dollar of marketing spend from budget to conversion and ROI through advanced analytics. Understanding those costs and investments is clearly a priority, says LaMusga. “We make it a point to know our marketing data better than most major corporations can.”

Despite its ability to compete for big city business, Gravis stresses its hometown roots and commitment to its communities, and its website proudly proclaims the firm’s investment in each local community. Even with the rapid industry-wide adoption of remote working, having a brick and mortar presence in these communities still matters to the firm, and attorneys are heavily involved in community events and civic boards.

“I think the end result is empowering trusted advisors with the tools and infrastructure to be a real partner to the client,” says Spooner. “They can be more involved with the client and it’s not just about the document or the transaction. At the same time, we’re empowering lawyers with the technology, software, and infrastructure to do their best work.”

Gravis Law’s motto is Law: Uncomplicated, which applies equally to its client-centric focus as well as its streamlined approach to everything from its lean back office operations to its aggressive growth strategy — identify the right markets, adopt a highly systemized approach for talent and operations, provide a consistent customer experience staffed with attorneys and back office operations in lower-cost locations, all stitched all of it together with an advanced technology backbone.

Spooner and LaMusga firmly believe this creates a strong win-win for all involved: their clients, communities, and their attorneys. “We have corporate counsel teams that would look familiar if they worked in downtown Seattle, making as much or more than they did before, but with a better work-life balance,” says LaMusga.

Spooner and LaMusga say they hope Gravis Law’s model and similar models can disrupt the entire middle of the law firm market. “The truth is, we see a lot of firms lacking a viable pathway to either grow or pass the firm on to the next generation or both,” notes Spooner. “This segment needs to find new ways forward or it could wither and fade.”

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Now, we have the advantage of being able to consider the financial results for the first quarter of 2021, and they point to a very timely conclusion: the market continues to shift rapidly, and those law firms that wait to address these shifts risk missing out.

As discussed in the Midsize Legal Market report, midsize law firms spent a large portion of 2020 reacting to the pandemic, and understandably so. The report likens 2020 to a play in three acts: the first act opens 2020 strongly; the second navigates the depths of the pandemic’s challenges; and the third brought a slow and steady recovery through the latter part of the year.

The results from the first quarter of 2021 show that the third act not only continues, but that the first quarter served as a crescendo of a sort. For midsize law firms, corporate practices posted strong performance; and this is noteworthy given the general sense through much of 2020 that corporate work, and M&A in particular, would face strong headwinds coming out of the pandemic. And though not specifically discussed in the Q1 report, I can share with you that several key practice areas — including litigation, bankruptcy, and tax work — all improved their performance in Q1 compared to preceding quarters, with particularly strong showings in March.

I share all of this to highlight one of the key takeaways from the Midsize Legal Market report — the changes sparked by 2020 can mean great opportunity for those midsize law firms that can take advantage of their own agility.

As I wrote in one of my previous posts: “Massive shifts in expenses, investments, and headcount, coupled with resilient rates, created short-term cash that shored up law firm profits” last year. That same strategy is unlikely to be as successful this year.

We’ve already seen signs of law firms starting to grow attorney headcount again. For midsize law firms in particular, this is likely a necessary step, as the confounding facts of a lack of leverage and challenges in succession planning due to partner-heavy staffing have not abated. At the same time, firms are exploring what to do with their real estate portfolios, how to balance the desire expressed by many attorneys to continue the benefits they’ve experienced during remote working with the advantages to the firm of having people in the office, and how to strategically respond to the likelihood of increased pricing pressure from clients.

All of these factors will make it difficult to repeat the lucrative results many firms ultimately experienced in 2020, particularly if those firms wish to stick to their 2020 strategies.

Each of the factors I just mentioned will bring with them increasing pressure on the 2020 profit model. Expenses will grow, and rates will likely be under pressure. At the same time, demand for law firm services is growing, and some of the investments made in 2020, particularly with regard to technology, are proving popular with clients.

In a recent interview, Michael Gerlach from RSM US opined, “without challenging how firms operate, their top lines will begin to slow, and expenses will creep back to pre-pandemic levels.” Gerlach also noted that “risks to firm profitability fall solely on the shoulders of the attorneys who continue to be given the same training, tools, and resources the attorneys before them were given.”

He goes on to talk about the new types of thinking that are pushing law firms to address technology questions. These are critically important conversation for law firms to have. The specific solutions that address any given law firm’s needs will, of course, vary. Firms may want to explore different solutions based on whether they want to save costs, improve efficiency, or optimize matter management. But the time to have those discussions is now.

The results from 2020 show that midsize law firms successfully met the challenges brought on by the onset of the pandemic, evidenced by their increasing profits for the year. But the financial insights evident so far this year demonstrate that 2021 is shaping up to be a very different year, indeed.

Last year demonstrated that midsize law firms are capable of successfully responding to seismic shifts in the market. Now, it’s incumbent on law firm leaders to take the agility exercised last year and apply it to today’s reality.

Firms that either hesitate or look to last year for successful strategies risk being left behind.