Why Innovation Dies In Law Firms

Even the most established firms need to think like startups.

The only constant in this world is change, and thanks to the onward march of technology, the changes we face are getting bigger, faster, and more irrevocable all the time.

Have you ever heard of a startup called ByteDance? It owns TikTok, a goofy little app that kids use to make videos lip-syncing to popular songs. TikTok debuted in September 2016, a grand total of 29 months prior to the writing of this column. Most adults wouldn’t have any reason to be aware of it save for one thing: that young, fresh company ByteDance is currently worth an estimated $75 billion. Billion, with a B. An app that’s barely old enough to be potty trained is worth that much, and all because it perfectly married a popular product to the right cutting-edge technology.

Tech startups are the poster children of companies seeking to employ cutting-edge technology for financial gain, yet there’s no reason why the startup mentality can’t be applied to traditional businesses. The essentials of the startup culture are universally useful. At their best, startups are hungry, creative, willing to take chances, and dedicated to changing the status quo.

Just like Biglaw, right? Not quite.

Law Firms: Innovation’s Kryptonite

The Biglaw mentality and the startup mentality are anathema to one another. Biglaw is founded on a model of precedent and continuity. Too often Biglaw stifles its most creative voices, remains complacent instead of hungry, and focuses on staying the course rather than acknowledging that the very foundations of our industry are in flux.

The path from innovative new company to major power is shorter than ever. Think about how many of the dominant companies in the business world were young, hungry startups just a short time ago. If they were people, Google and Alibaba wouldn’t be old enough to drink. Facebook and YouTube wouldn’t be old enough to drive. Companies like Slack, Snapchat, and Blue Apron were all topping billion-dollar valuations before they made it into kindergarten.

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That compression in the time it takes a company to rise has a “dark side,” though, in that it’s now easier than ever to find your market scooped out from under you. The consequences of failing to shift with the times can be devastating. Small, hungry law firms are increasingly niching in deep, commoditizing their practices, and leveraging small overhead into stiff competition for Biglaw. When a boutique can offer premium service at a wholesale price, it’s hard for even the biggest, grandest, most mahogany-lined names to compete. And when they fail, they fail harder and faster than ever.

Add to that the fact that alternative legal service providers are increasingly biting into our market share, and that the Big Four accounting firms are angling to take over our traditional lines of business. Then consider that our largest clients are dragging more work back in-house, and overall decreasing their outside counsel spend whenever they can.

The pie is shrinking, and more players are angling for a piece. Biglaw needs to get hungry, or face going hungry.

The Innovator’s DNA: A Roadmap for Biglaw

For any Biglaw leaders looking for an excellent primer on getting into that startup headspace, allow me to enthusiastically recommend The Innovator’s DNA: Mastering the Five Skills of Disruptive Innovators, by Jeff Dyer, Hal Gregersen, and Clayton Christensen. It’s a well-researched, thoughtful, yet easy-to-read treatise on the basic traits associated with innovative minds and organizations.

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In brief, the five traits Dyer, Gregersen, and Christensen focus on are:

  • Associating – finding the links and harmonies behind disparate ideas
  • Questioning – reexamining even the most basic assumptions
  • Observing – seeking, finding, and analyzing the correct data
  • Networking – if you need this one explained, I can’t help you
  • Experimenting – prototyping, iterating, and just plain trying something new

This is as good a rubric for evaluating a firm’s innovation level as I’ve seen. Firm leaders looking to develop some of that tech startup mojo for their own companies could benefit from regularly bringing their practice heads together to assess how well they are integrating these traits into their own strategic plans. Some topics of discussion could be:

Associating – How are we doing at cross-selling within the firm? What are we doing to mingle our attorneys together into combinations that might not be intuitive, but might open up new areas of practice or new target markets we hadn’t previously identified? Outside of the purely legal practice, can the firm marry its skills with other, non-legal concepts to offer their clients a better service? For example, some firms, such as Wilson Sonsini and the firm I’m lucky enough to practice at, have married their corporate formation practices with venture capital consulting models to form accelerators for their startup clients.

Questioning – What is our firm’s basic model? What is its mission statement, and what is its plan to fulfill that mission? Do those models and plans still make sense? Can they be improved? If we decided to throw everything out and radically remake the firm tomorrow, where would we start, and how? For example, a Chicago-based boutique called Actuate Law questioned whether part of its practice even needed to be housed within the law firm, and ended up spinning off a non-legal subsidiary called Quointec to develop legal AI tools.

Observing – What data are we tracking, both within the firm and in the larger market as a whole? How accurate are our tracking methods? How valuable is the data we’ve chosen to track? Do we need to put more resources into tracking firm metrics? Less? Are we actually using the data we’re putting together? It’s all well and good to know what your accounts receivable stands at, but can you break down the ages on those accounts? The legal sectors and practice groups with the biggest AR? Have you measured AR as a percentage of actual realized income?

Networking – Are our attorneys making links with the larger business community? Is our firm supporting those efforts? Is our firm making efforts to establish a larger general presence in the community? Are there strategic partnerships, at the firm-wide level, that would help us drive business to our partners and bring business back into our waiting arms? You don’t have to reinvent the wheel. There are plenty of off-the-shelf networking opportunities for lawyers. Consider Vistage, for example, which puts business in small groups to serve as a personal board of directors. Vistage tries to limit membership to one person per industry. So if you’re the only lawyer in the group, you might find yourself with some good ideas — and new clients.

Experimenting – What are we actively trying to do right now that we haven’t tried before? If we’re not trying new things, we’re failing. Where are we underperforming and in need of renovation? Where are we excelling, and can we afford to play around to try to pad our lead? Where do we have hungry young associates and partners willing to take a risk for the sake of building their practice? Workers at Google famously spend 20 percent of their time on experimenting with new ideas (although Marissa Mayer says the 20 percent is more like 120 percent). Whatever the percentage, the concept is right. It takes time and initiative, grit, and time to come up with new ideas and to experiment.

The Clock is Ticking

The change of pace in the business world is only accelerating. Failure to innovate now may mean failure to continue doing business in the future. TikTok isn’t just a billion-dollar app; it’s the sound of time running out on law firms that are content to phone it in.


James Goodnow

James Goodnow is an attorney, commentator, and Above the Law columnist. He is a graduate of Harvard Law School and is the managing partner of an NLJ 250 law firm. He is the co-author of Motivating Millennials, which hit number one on Amazon in the business management category. You can connect with James on Twitter (@JamesGoodnow) or by emailing him at James@JamesGoodnow.com.