Ever since we have been working intensively on the digitization of law and legal tech, we are encountering phrases like these all the time. In setting up and building the Munich Legal Tech Student Association and SFS Legal Tech Consulting, we talked to countless partners and lawyers from law firms about Legal Tech. Here we reveal which options law firms will remain if they want to survive on the changing legal market.
Does Legal Tech affect the high-end sector?
The impact of Legal Tech on the high-end legal services market has always been a much discussed topic in these discussions. Apart from very few exceptions, it has always been argued that the digitalisation of the right to enforce consumer protection rights is “quite nice”. However, lawyers have described their own legal work as “so complex and individual” that digitization would not have any significant impact, even in the long term, according to many law firms.
Disruption from the inside!
We would like to oppose this view with a thesis: The digitization of law will also put massive pressure on classic “high-end” advice through a new type of law firm. The genuine disruption of legal advice does not necessarily have to come from outside, but can come from within, from the world of law firms themselves.
Parallel to the financial industry: Disruption by fintechs
A parallel can be drawn here to the financial industry. The financial industry is heavily regulated and high entry barriers make innovation difficult for new companies. Nevertheless, some of the fintechs have prevailed over classic old banks in recent years. Just this summer, the technology and financial services company Wirecard was rated higher than the Deutsche Bank and has taken the place of Commerzbank in the DAX.
Wirecard is not a typical startup, but a full bank regulated by BaFin. The disruption of a section of the financial services industry was thus not achieved by an unregulated external company, but by a company that has built up part of the classic banking business differently, new and digitally from the outset.
Legal market today: a competitive market with increasing demands
The legal market today is highly complex and competitive. The costs (“Less for More”) as well as the quality of the advice are always higher. At the same time it is increasingly difficult to find suitable young lawyers.
Regulatory – How long can legal tech startups be held back?
In addition to the described drivers, the regulation of the traditional legal market has also been a kind of protective shield, keeping “real” legal tech out of the market. Thus, only consumer claims can be enforced through genuine collection structures or debt collection services licenses. Law firms that offer classic legal advice in a new way on the market are currently extremely rare.
The startup law firm
But what would happen if a group of young, digital-affine and highly-qualified lawyers set out to found a new law firm in a classic consulting field of major law firms, such as capital markets law? Together with developers, designers and business economists something new would emerge: The first real startup law firm would be born. With regard to the degree of digitization, 100 percent on the level of today’s possible, without any technical legacy and at the same time highly specialized.
New, better processes for more quality
With new, significantly better processes and using all the technical possibilities of our time, this startup firm could operate – an interdisciplinary approach to standardizing legal solutions and with a different business model than most other law firms currently living it. Such a firm could provide a higher quality of advice at a lower cost and would be much less dependent on the availability of many highly skilled professionals within the business model. Because the new economic lever would not be to let as many associates and other employees as possible to work for as long as possible for a mandate, but to generate considerable added value for the clients through standardization and innovative processes, regardless of the time spent the clerk would be remunerated. The new lever would be excellence in efficiency.
Which options remain for the law firms?
But how can such a future scenario be dealt with? The result is four options for action, of which the first two are passive and the last two are active.
Option 1: Do it like the ostrich: Put your head in the sand
This option is certainly quite attractive, especially for older partners: the changes simply sit out and slowly get out of the market.
Option 2: Adopt and Pray
Of course, there may also be the hope of simply taking what the market offers in terms of already established technical solutions. However, the firm that chooses such an option would rely on having enough left over.
Option 3: be a first mover
Being active would be a first mover or a pioneer! Through learning and testing, the digitization of the legal market could thus be shaped.
Option 4: Invest
Next to all these options is the fourth: Invest. Because investments can also be part of this exciting market.
Conclusion: acting instead of dreaming!
Important in all these considerations is one thing above all: that they are made. Digitization is, as the saying goes, “here to stay”. So let’s not close our eyes and let’s not be robbed by Robo-Lawyer, but we’re actively shaping the future of law in all areas.