Exclusive Survey Results: Small Firms’ Greatest Challenges And What They’re Doing To Address Them

Recently in my column at Above the Law, I provided an overview of a new survey of small-solo law firm management conducted by Thomson Reuters Solo and Small Law Firm group. I promised to follow-up with subsequent posts here in order to drill down deeper into the data, to which Thomson Reuters has given me exclusive access.

Today I am going to focus on what the survey – which covers firms of fewer than 30 lawyers – found about the challenges small firms face and how they are addressing those challenges.

Small Firms’ Greatest Challenges

Let’s start with challenges they face. The survey asked lawyers to indicate the degree to which certain issues are a challenge for their firms. Lawyers could identify each issue as a significant challenge, a moderate challenge, or not a challenge.

The issues lawyers identify as the top four significant challenges would surprise no one who has worked in a small firm:

1. Acquiring new client business (27 percent).
2. Clients demanding more for less or rate pressure from clients (21 percent).
3. Spending too much time on administrative tasks and not enough practicing law (15 percent).
4. Cost control and expense growth (13 percent).

I was surprised, however, to see that lawyers rank as their fifth greatest challenge the increasing complexity of technology (12 percent). This is particularly true among firms of 7-10 lawyers, where 20 percent rank it as their greatest challenge, and among solos, where 16 percent do.

The rankings change a bit when we look at the top challenges overall, factoring in the issues ranked both as moderate and significant challenges. Then the top five results are:

1. Acquiring new client business (78 percent).
2. Spending too much time on administrative tasks (69 percent).
3. Increasing complexity of technology (63 percent).
4. Cost control and expense growth (62 percent).
5. (Tie with 4) Clients demanding more for less or rate pressure from clients (62 percent).

The rankings change again when you break down the results by firm size. For solos, the top four issues they rank as significant challenges are:

1. Acquiring new client business (25 percent).
2. Spending too much time on administrative tasks (22 percent).
3. Clients demanding more for less or rate pressure from clients (20 percent).
4. Increasing complexity of technology (16 percent).

I stopped at four because there was a three-way tie for fifth place among succession planning, information overload from growth in legal documents, and lack of internal efficiency.

For firms of 11-29 lawyers, they rank their most significant challenges as:

1. Acquiring new client business (37 percent).
2. Clients demanding more for less or rate pressure from clients (22 percent).
3. (Tie with 2) Succession planning (22 percent).
4. Cost control and expense growth (14 percent).
5. (Tie with 4) Information overload from growth in legal documents (14 percent).

Other Challenges Identified

The survey also included an open-response question asking firms to identify other significant challenges they face that the survey did not list. Here are the answers provided by those in 1-3 lawyer firms:

• Area of specialty has become almost obsolete due to electronic/internet: i.e. check fraud not occurring because no one writing checks; on-line fraud detection systems alert customer to fraud within 30-day reporting period.
• Associate attorney productivity, willingness work hard, willingness to build a practice and quality of training/ability.
• Being able to modulate workloads so that we have a steady workflow. Because we handle complex construction litigation, we seem to have either an overwhelming workload or we lack sufficient work to cover the overhead.
• Client prejudice and reluctance to retain my law firm based upon my age, gender, ethnicity, religion, and location of my birth and prior residence.
• Collecting receivables; clients unable to pay bills.
• Competition from organizations in India that offer prices that no US firm can match.
• Developing a good marketing plan. Currently marketing is done haphazardly.
• Health insurance costs.
• Narcissistic opposition lawyers, and opposing parties with lawyers who do not care their clients are narcissistic.
• Number of lawyers in the state of Florida where we practice.
• Pure case load size per attorney just continues to outpace the abilities to fully staff quick enough. As soon as we are properly staffed we have a jolt in intake cases causing us to ramp up or stress on additional work hours.
• The high cost of receiving timely information of case updates and changes in laws and regulations.
• Trying to keep ahead of technology and trends in the legal profession is a challenge for any small law firm. I spend a lot of time studying the future of the profession and speak about it regularly around the country.
• Younger people are limited by debt on student loans and have unrealistic expectations for pay.

Here are the answers by those in 4-29 lawyer firms:

• Efficient and successful marketing on a reasonable budget.
• Employee issues….
• In-house legal firms.
• The advance of Legal Zoom and other DIY models creates a challenge to traditional professional services.
• We need to expand into emerging areas of environmental law.
• Increasing costs of doing business, e.g. credit card processing fees, subscription fees for research services, billing and accounting software, etc.
• Lack of solo/small firm pricing structures from requisite legal goods and services providers.
• New, burdensome, expensive and ridiculous regulations imposed on firms closing loans. It is forcing us to unnecessarily spend money and forcing many out of the practice.
• Work life balance expectations.
• Places like Avvo or Lawyer.com and other lawyer referral companies that force you to buy space/ads so that you can even get found on the internet!

How Firms Are Addressing Their Challenges

After asking lawyers about the challenges their firms face, the survey asked them how well their firms are addressing those challenges.

Let’s start with the challenges that firms identified as their top five overall (from above). How have firms done in addressing those challenges? This chart shows what the survey found.

As you can see, the majority of firms have not implemented changes to address their major challenges. While acquiring new business is small firms’ number one challenge, barely more than a third of firms have implemented changes to address this challenge. Two-fifths of firms do not even have a plan for how to address it.

The most positive finding here relates to the challenge of cost control and expense growth, where 46 percent of firms have implemented changes and another 25 percent have a plan in place to address the challenge.

Watch for additional posts as I continue to drill down into the survey results. In my next post about the survey, I plan to explore what firms say about their goals and priorities, how they measure success, and how successful they consider themselves.