Living on the Westside of Los Angeles I watched, jaw hanging open, as housing prices kept rising and rising. A 900 s/f tear-down in my neighborhood went from $360,000 to $900,000 in just a few short years. I was one of those doubters who kept saying, “Why would I buy now? We’re in a housing bubble.” Yet, time and time again, the pundits, realtors, bankers, etc. kept trying to reassure us that we were not in a housing bubble. Well, the bubble has burst, and it’s leaking all over everything.
In the legal community, we have watched the billable hour reach staggering rates. While $1,000/hour is still rare, $600-$800/hour is not. I would argue that just as the real estate and financial services bubbles burst, so too will the billable hour bubble. It’s just not sustainable at its current rate of increase.
Paul Lippe, founder of Legal OnRamp, in his commentary Welcome to the Future: Law After the Boom, argues that we, the legal industry, have been operating in boom times, and those days are over. The future in now.
For those of us who’ve spent most of our careers as clients, it seemed pretty obvious that the legal business was in an unsustainable boom. Consider: In a country where most people’s incomes have been flat or declining over the last eight years, and most companies face increasing global competition and flat profits, partners in big law firms generally saw their income double every four to six years over the last 15 years. And the firms have generally grown in profits, staffing, and revenues faster than most of their clients.
Today I’ll be meeting with an Am Law 20 partner who handles a lot of the company’s work. I’ll explain to the partner that every day of the year, every one of my client’s thousands of customers around the world asks, “How can you deliver more value to us for less money?” And every day, my client asks its suppliers, “How can you deliver more value to us for less money?”
At first, the partner will look at me like I am a little crazy and will say, “But you don’t understand, law is different.”
And I’ll reply, “Law is not different. Being in a boom is different, and now the boom is over.”