Why law firms are starting in-house incubators
Why law firms are starting in-house incubators

Law firm incubators are mushrooming all around the globe.

In the last two years alone, as per my knowledge of the industry, there have been at least 150 law firms that have opened up in-house initiatives towards innovating legal delivery and making the legal process more efficient.

Perhaps unsurprisingly, the ‘first movers’ in this space have been the Goliaths in the traditional law firm circles – Allen & Overy, Dentons, Clifford Chance, Latham & Watkins, Reed Smith, Mischon De Reya, Slaughter & May, and many other established players – who have all set up their own incubators, accelerators, platforms, strategic partnerships, and even VC investments.

In India too, this trend is picking up steam. First, India’s largest law firm Cyril Amarchand Mangaldas announced its incubator in Feb 2019 from which the first batch of legal tech startups graduated in October 2019.

Similarly, Algo Legal, a tech-driven law firm founded last year in August by ex-Sequoia India GC, also announced its in-house incubator from which Centre for Online Dispute Resolution and TrustIn graduated earlier this year.

Here’s a bit of my analysis on why I think this trend is picking up.

I believe that most of the efforts in legal tech that were carried out in the last decade will start coming to life in this one, and will integrate themselves much deeper in the day to day legal operations.

The long-established paradigm of the profession’s monopoly in the industry is changing. The legal ‘profession’ used to be synonymous with the legal ‘industry’, but it is now becoming a profession-within-an-industry.

The forward-looking law firms have been quick to recognize this, and are jumping on the bandwagon to leverage the opportunities that are popping up in the legal market. Law firms are arguably the most important and the most affected market segment in the industry, and realize that they need to shift the impetus from fierce competition (for instance, from ALSPs and New Law providers) to increased collaboration between players in the market.

What do they stand to gain?

I believe law firms’ initiatives in this regard are more than simply efforts to position themselves as harbingers of disruptive innovation. Below are a few reasons that explain the reasons for this trend:

Cracking client success

Law firms have faced agonizing demand-side pressures since the downturn of the global economy in 2008. Ten plus years down the line, the market expectations – of better, faster, and cheaper services have not only NOT been met – they have escalated a counter-movement from in-house corporate teams, leading them to set up vast resources in-house.

The price of doing business with law firms has been just too high.

While most law firms have responded with a linear approach towards resolving these issues – by investing in better training of human capital, reducing their legal fees, not billing associate hours, and commoditizing their services – the leaders in the space have looked for more lateral solutions that don’t just help them survive, but thrive by taking advantages of their competition’s inability to crack the problem.

I believe law firms realize that there is an easier way for them to achieve the end goal and keep everyone happy than by developing their own technology from scratch (or by acquiring technology solutions or by partnering with them). Naturally, they are looking towards the market, scouting for innovators and entrepreneurs who are already working on developing solutions that can improve client experience, and are then leveraging their infrastructure to support those startups with what they need (capital, access to legal knowledge, market understanding). In return, they are able to develop highly differentiated and custom tech solutions for themselves, passing on the benefits to their clients and potentially even creating a better business model in the process.

Tapping the best talent

Initiatives such as incubators and accelerators also give law firms ability and the market positioning to be able to tap the brightest minds out there working on cutting – edge legal technology. The traditional industry already has a looming skills crisis – with more and more lawyers becoming homogenous and hard to differentiate from the others. Bringing in the latest skills and modern thinking opens up significant avenues for law firms and can have a strategic, financial, and cultural impact on their own future.

The brand play

Another driving factor is a long-term business development and ‘image’ play, if you will.

This alone can have major strategic advantages for a firm in the long future; a little investment that they can easily afford today could turn in massive ROI, simply because the firm took the decision to position its brand to take advantage of the market sentiment when the opportunity was ripe.

Their deep dive into legal tech helps position themselves as technology-friendly firms (as opposed to being change-resistant and risk-averse). It helps their self-image, and it becomes easier to show to the clients they are indeed a partner who’s on their side, not their adversary.

Trust is a currency that the law firm market is remarkably short of, and has therefore never been more valued. If a firm is able to alleviate its brand from the reputational hazards malignant in the rest of the industry, it has already differentiated itself from a massive majority of its peers.

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