Winning in legal services and legal tech

The legal sector has historically been slow to adopt technology, despite being seen as a staff-intensive industry, ripe for disruption. 

Those attempting to lead that disruption range from start-ups, to more established mid-market firms, or even the Big Four accountancy firms shifting services to support legal houses. Broadly though, there has been significant funding behind initiatives, especially from VC firms, meaning we’re currently seeing a proliferation of tech tools and service providers in this space.

As legal firms or corporate legal departments look to invest in less people-intensive and time-intensive ways of working, they generally are looking towards both outsourcing and tech to solve those questions. But where are we seeing growing trends and who will be the winners within this space? 

Junior positions at law firms are impacted by outsourcing and automation.

The winners in legal services 

Junior employees in law firms undertake several repetitive, low-value tasks, such as writing contracts, document review or case management. Outsourcing some of these more mundane tasks frees up junior lawyers to focus on billable contributions with a higher-value. 

This legal process outsourcing is either done through larger law firms, who have wholly-owned operations often located in lower-cost regions, producing process work at a high volume, or through smaller scale independent firms offering the same services. 

So, who is going to win in this space? While pricing is important to win in legal outsourcing, a key differentiator is customer service. For example, truly understanding your client’s stance on certain commercial points can reduce back and forth with the client, saving time and money. 

The other key factor to bear in mind is the quality of the work output. Law firms and legal counsels will be asking whether the quality of the outsourcing is enough to not need further investment in junior talent, so the legal knowledge and quality of output needs to be there.

In terms of who is going to be servicing the growth in this space, there are two quite different customer needs that will need to be served. For some firms their primary aim is ease of use, so there has been a growth in companies outsourcing all their legal services to a single firm with an ongoing managed services fee – these include players Riverview Law, Axiom Law or Elevate amongst others. Services can also be offered in niche areas. For example, Citation, a previous portfolio company of ECI, provided employment law solutions (alongside other products) to the SME market. For some firms, they are driven more by the need for flexibility, so want to contract lawyers without having to engage a firm on a more permanent basis. Flexible resource providers like Lawyers on Demand fill this demand effectively.  Another model is train-and-deploy, with providers such as F-Lex providing corporates with trainees without them having to engage in lengthy hiring and onboarding process. These trainee schemes can also give companies access to a more diverse range of talent, as providers can generate those connections with with universities and social mobility schemes.

An interesting development in the market has been the rise of consultancy network models that are disrupting the legal services market. Businesses like Keystone Law, Nexa Law, Setford Solicitors and gunnercooke are offering lawyers a central service platform, brand and infrastructure from which they can work remotely and flexibility, something that has never been more relevant than it is today. These businesses have started to attract high quality talent away from traditional law firms, especially from mid-market and high-street firms, and it looks likely to be a successful business model going forward. 

What is clear amongst all of these offerings is that, because legal matters are incredibly important for businesses, having a strong bank of lawyers so that you can provide customers with high quality work will be essential.  

The winners in legal tech   

Legal tech firms sell into a broader end market than legal outsourcers, including law firms, corporates, consumers, or most likely, a combination of all three. No matter who their end user, there are key considerations when assessing the growth potential of legal tech firms and who will win in this space: 

  1. End market adoption: Is the business targeting a receptive market? For example, large law firms understand the importance and opportunity of tech, with many investing in their own legal tech seed funding schemes, but corporates who aren’t always high-volume users of legal services might find it harder to see the ROI. 
  2. Complexity: The more value-add the tech can bring, the higher the ROI for clients. A good example of this is case predication technology which uses predictive analytics to assess the likelihood of winning cases. This solves for a problem which is highly complex and time-consuming for customers. 
  3. IP: How unique is the product in the market? There is no exaggeration in saying that there are thousands of tech businesses offering similar solutions to its end user, so a key to understanding a business potential is how differentiated is its proposition, and how resistant is it to future competitors? For example, if the tech uses AI/Machine learning is that on proprietary data or publicly available sources? Is its technology subject to a patent? Is it the leader in a niche area of the market, like Opus 2’s software offering is in commercial litigation preparation? 
  4. Tech platform: It may feel obvious to state that a good quality tech business needs a good tech platform, but with so many legal tech businesses still fairly immature, they will need to pass tests around UX, UI, seamless integrations with other applications, and crucially having a platform capable of scale. 
  5. Thematic growth in market: There are key themes at the moment within business compliance, particularly around data protection, compliance, and regulation support. Businesses that can support firms in growing areas of the market, may find themselves with more opportunities for growth. 
  6. ROI: Tech that can help lawyers to deliver more efficiently will be highly valued. There is a significant opportunity around AI, with the likes of Allen & Overy introducing a Chat GPT style tool to remove some inefficient tasks such as contract analysis. Firms that can help lawyers apply the tech to their needs and implement it effectively will be able to demonstrate a proven ROI. However, there will be ethical questions over how much outputs can be trusted, so it will be those that can effectively join up tech-surfaced outputs with human input that will be able to scale.
  7. International: Tech that can be used across multiple geographies and different legal regimes will be more valuable and have access to a wider buyer pool. There are many of the same drivers for legal tech in the UK and in Europe, but companies need to be able to adapt to the different nuances of legal framework to make the most of that opportunity.
  8. Tech implementation: As mentioned at the start of this article, despite a plethora of legal tech, adoption has been slow. This is in part because the landscape is complex and implementation can be difficult. Firms such as Syke Legal and Pinnacle can support here, helping businesses to select and implement the right technology to drive long-term efficiency benefits.

Sales and marketing 

The final piece of the puzzle to winning in this market is having a successful sales and marketing strategy. In such a competitive market, no matter how good your service or product, you will need successful customer acquisition and retention to win. Providers must consider whether their brand differentiation is clear and easy to digest, how effective their sales team is, and how well they understand key channels to market and the lifetime value of their customer. Firms or tech providers that offer multiple solutions will have an advantage here, being able to cross-sell to existing customers who hopefully see them as a trusted brand. Understanding customers problems and feeding that back into a product and service development lifecycle will help drive future growth potential.

Much of this will also come down to how successfully firms can demonstrate and prove ROI. Those who can articulate it well and provide evidence of successful client ROI will give their sales and marketing teams the biggest resources to go to market – and ultimately, drive the most growth.

About the author

Toby Fitzherbert

"I am a Director in the Investment Team at ECI having joined in 2018. My role involves meeting and investing in exciting, market-leading, high growth businesses and their great management teams, as well as supporting that team throughout the investment journey."

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About the author

Richard Chapman

"I enjoy leading deals at ECI and have invested in lots of different areas including healthcare, restaurants, business services and tech-enabled services, to name a few. A large part of my role is post-investment, helping companies continue their growth organically and through acquisition, both in the UK and internationally."

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