Lessons on law firm growth

A renewed confidence at independent firms sees nearly two-thirds of firms planning to grow organically over the next five years, a 57% increase from 12 months ago.

The 2024 LexisNexis Bellwether survey of 250+ leaders and associates at small- and medium-sized legal practices found that 63% of firms plan to grow through organic means, up from 40% in 2023.

To fuel their growth plans, firms have placed investment in technology at the top of their priority list, outranking hiring more lawyers or marketing and business development activities.

More than a third (35%) plan to increase their spend on technology in the next 12 to 18 months, while one-fifth (21%) already have. Only 26% said they had no plans to increase investment.

Almost half (56%) of firms have either spent or are planning to spend more on technology in the next 12-18 months.

Hiring more lawyers was also high on the 2024 agenda, 40% plan to do so soon, and 16% have hired new lawyers already. Other key areas of investment include growing their marketing (49%) and business development functions (43%).

Can technology help drive revenue?

Encouraging your lawyers to make use of time-saving technology might seem counter-productive for an industry still wedded to the billable hour. A separate LexisNexis survey conducted earlier this year found that 76% of small law firms are still reliant on the billable hour pricing model. Although, alternative models are also widely used, most notably fixed fee by matter (57%), fixed fee by phase (37%) and flat fees (36%).

Yet independent firms are under mounting pressure to respond to clients in real-time (83%), be more transparent about how they're spending their time (44%), improve their flexibility (31%), and provide more value-added services (29%).

83% of small firms say clients now expect responses in real-time.

All of these challenges could be addressed by the use of technology tools. The right platforms can reduce the amount of time spent drafting documents, finding answers to legal queries, sourcing relevant precedents or citations, streamlining business development or administrative tasks and a myriad more.

If an associate is expected to bill approximately 1,200 hours a year, this breaks down to around five hours per day (excluding holidays). Yet the average working day for an associate sits at just over 10 hours, according to Legal Cheek.

It's also commonplace for lawyers to understate the time spent on a task when they are nearing the higher end of an estimated range, in order to protect client relationships, according to the American Psychological Association.

Time-saved using technology could allow your team to bill more, work less, bring in new business and strengthen client relationships.

Anthony Earl, the chair of the Law Society’s Small Firms Network Committee, says technology helps small firms reduce the time taken by qualified staff to do administrative and regulatory tasks.

"This means your staff can concentrate on actually practicing law and improving the client experience."

However, the biggest difficulty firms have is sourcing the right technology.

"Small firms cannot afford to get it wrong and start again," he says, advising firms to ensure they have maximised their existing technology before investing in new systems.

Stephen Roper, a small business advisor and professor at Warwick Business School, believes technology, when deployed effectively, can drive more revenue opportunities and cost-savings for small firms.

"Digital technologies, when implemented well, can yield significant productivity benefits, most notably by making non-billable activities more efficient."

Just under a third of lawyers (32%) said their firms will invest in more technology due to artificial intelligence (AI), and 29% said their firms will be more profitable as a result of using it.

Legal technology and innovation expert, Rachita Maker, who is the Global Head of Legal Ops, Tech and Consulting at legal giant DWF, believes generative AI will be a very reliable assistant for lawyers from all backgrounds over the next few years, as do many other experts in this field.

"Generative AI can be used for legal research, such as preparing notes for arguments. It can also be used for regulatory compliance, highlighting regulatory changes and the potential impact it could have on an organisation's policies and processes."

While DWF is one of the world's largest firms, this shift is impacting firms of all sizes. In fact, the majority of smaller firms are eager to take advantage of the time-saving benefits of AI.

A generative AI survey conducted earlier this year by LexisNexis identified that drafting legal documents (90%), researching legal matters (88%) and writing emails or other forms of communication (78%) were the top AI priorities for small law firms.

Nine out of 10 independent firms say legal research and drafting are their top AI priorities.

The time-saving benefits of this technology are significant. Three-quarters (74%) of a group of legal professionals using Lexis+ AI in the US estimated they would save up to 7 hours a week for legal research, and four-fifths (84%) anticipated saving up to 6 hours a week for legal drafting.

The biggest tech opportunity for law firms is leveraging their client and billing data, says Ben Giaretta, Partner and Head of Dispute Resolution at medium-sized firm Fox Williams.

"Firms that purchase technology in a way that makes the best use of their data will fly in the next decade. Firms that fail to do this may end up buying costly systems to no advantage – and they will probably end up being left behind by competitors."

Growth is on the agenda for most firms

Today's economy has done little to deter the growth ambitions of small law firms, with 70% aspiring to grow over the next five years.

Growing organically was the favoured approach by most, with 63% planning to achieve growth through their own means. This is a sharp rise from only 40% of firms in 2023, although on par with findings from 2022 and 2021. This suggests the dip in organic growth ambitions seen last year was a knock-on effect of the economic crisis, and hints that small firms are hoping for stability over the next 12 to 18 months.

63% of small law firms plan to grow organically over the next five years.

Achieving growth, however, can prove challenging for even the savviest of small business owners. Two-thirds (67%) said attracting new business listing it as a significant challenge over the next 12-18 years.

In 2024, the percentage of small law firms reporting growth sat at 48%, with a further 40% reporting stability. This is roughly on par with recent years, with the exception being 2021's post-lockdown boom which saw two-thirds (66%) of firms declaring growth.

Firms with 10+ fee-earners are 47% more likely to experience growth than firms with fewer than 10.

Firms with between 11-20 fee earners are the most likely to experience growth, with the average sitting at 67%. Solo practitioners were harder done by, with one in five (20%) saying their firm's performance has declined in the last three to four years.

The best techniques for driving new business

Unsurprisingly, word of mouth is the most successful way to attract new work, 69% say they generate new work this way.

There is a huge gulf between word of mouth and the next most used tactic, cross-selling opportunities from colleagues, at 35%. Cold calling is the least successful tactic for respondents, with only 3% having had success.

69% say they've generated new business through word of mouth

One Founding Partner of a small firm says that referrals are his main source of business generation, but it requires a lot of effort.

"You need to build a big network and regularly feed it with new client results," he says.

While referrals have been the most effective drivers of new business to date, many are hopeful that other channels could bring in new leads.

Almost half of firms (49%) are increasing their marketing spend. This pales in comparison to the 79% we saw in 2023 , although approximately double what we saw in 2022 and 2021. A further 43% said they're increasing their investment in business development.

Jon Walters, a founding partner at the specialist law firm, Northridge, which represents some of the biggest names in the sports industry, says he's most excited by the marketing opportunities that automation and AI technology bring to the table.

"The legal sector has always preferred an ad-hoc, relationship-based approach to marketing and business development," he says.

"But technology can now track, enable and deliver highly-personalised and automated client marketing campaigns, saving firms huge amounts of time and effort."

Frequently using marketing channels is also useful for raising your profile, says Zoë Bloom, co-founder and partner at AFP Bloom, particularly for niche areas of the law with fewer repeat clients.

"Digital channels enable a constant drip feed that reminds people you exist," she says. "I like the lacquered table example – one coat of lacquer makes little difference, but put a coat on every day for a year and you will have a beautiful table."

Read practice notes on creating a business development and marketing plan

Appetite for M&As is waning

The number of firms considering growth through merger or acquisition (M&A) has dropped from 13% to 10% in the last year.

Firms on the smaller end of the market have the biggest appetite for M&A driven growth. A third (33%) of firms looking to grow this way had between 11 and 20 fee-earners, while 28% were solo practitioners. None of the firms with 20+ fee-earners were considering a merger or acquisition.

Roper from Warwick Business School suggests cash constraints and weak market growth have likely impacted this decline in interest.

"Many firms are still feeling the financial legacy of the pandemic including the repayment of COVID-19 loans, a situation made worse by the 'cost of doing business' crisis," he says.

"Interest rate uncertainty and weak market growth are also likely to be making firms less willing to take new risks."

In today's uncertain environment, firms might be more cautious of committing their time, energy and capital to mergers and acquisitions, says Giaretta.

"There are a limited number of firms that have the size, reach and desire to do mergers, and most of those have already done at least one," Giaretta says.

Walters also believes the considerable amount of consolidation that has taken place across the sector in recent years has impacted firm acquisition appetites. However, he did say there's increased interest from outside the legal sector.

"We are seeing a continued growth of interest in the legal sector from funds and investment companies who may have ‘dry powder’ to invest," he says.

When we asked all respondents what the most important factors would be when considering a merger or acquisition, almost half (49%) said growing their client base, while 36% expressed an interest in increasing their overall profitability.

When we turned the focus to the biggest risks of an M&A, the most common concerns were finding the right partner (54%), the financial risks (53%), and the loss of autonomy (41%).

The biggest risks of an M&A are finding the right partner (54%) and the financial risks (53%).

Earl from the Law Society says these results indicate that firms prefer to grow organically rather than merge to "avoid job losses, internal disputes and costly and timely negotiations."

Are we saying you're not already working smart? Of course we're not.

But as a business that's been around for 200+ years, we know a thing or two about the need to innovate.

Investing in information

Lawyers at smaller firms often lack the luxury of restricting their legal expertise to a specific area of the law. Instead, there is an expectation that they're experts in, well, everything.

So quite understandably, the most commonly cited challenges were keeping up to date with changes in the legal industry and the law (70%) and meeting compliance regulations (69%).

The biggest challenge facing smaller firms is keeping up to date with changes in the legal industry and the law.

In addition, a third (34%) of firms said they lacked the diversity of skill to solve client problems.

One of the downsides of working in a smaller firm is having fewer colleagues to consult about specific areas of the law, says Mark Briegal, founding partner of legal advisory firm Bennett Briegal LLP.

One of the potential challenges of working in a smaller firm is having less of a support network around you, says Mark Briegal, founding partner of legal advisory firm Bennett Briegal.

"You need good general legal knowledge as well as being a subject matter expert,” he says.

To keep up to date with legal and compliance news or to conduct legal research, one-fifth (22%) of lawyers are turning to the open web on a regular basis. The majority (65%) only do so sporadically between one and five times per month. Of course, Google, legal blogs, public access to-use AI tools like ChatGPT or legal forums often contain inaccurate or out-of-date legal information, which puts both the lawyer and the client at unnecessary risk.

Only one-fifth (22%) of lawyers regularly use the open web for legal research.

A legal director told us she regularly reads weekly legal updates in order to discuss key legal changes in her weekly team meetings. However, keeping up to date with everything is challenging.

"Time is often the biggest barrier to keeping up to date with changes in the law," she says.

Lexis+AI gives your team fast and accurate generative legal AI. Find out how it works here.

According to Bloom of AFP Bloom, keeping ahead of the law is key to providing a sting in the tail of any strategically prepared case.

"You have to read the case law and the commentary around the case law at source," she says.

While public access AI tools or other platforms can be useful, Bloom says relying on the commentary without source is incredibly dangerous.

Rayner, from LexisNexis, says keeping track of the many changes to the law and its practice is an ongoing challenge for those in the legal sector.

"There's so much information to sift through, laws are changing quickly and our legal system is becoming increasingly complex. Lawyers need to be able to jump from one specialist area of the law to another in moments, otherwise they will struggle to keep pace."

There is a clear preference for subscription-based legal research and guidance tools. We can see increases or planned increases in investments in practical guidance (34%) and legal research (29%) coupled with increases in firms’ AI related technology spending.

Client communication is still critical

No matter the size or scope of the firm, there is one overarching rule that dominates private practice: the client always comes first.

Yet client expectations are evolving, and there is a new set of requirements that smaller firms are expected to meet.

Briegal from Bennett Briegal says smaller practices stand out in the market for their client service.

"Smaller firms are nimbler and can offer a highly personalised service, as the person you speak to is predominantly the person who does the work."

Smaller practices also often offer a quicker turnaround on client queries, says the legal director – or they are expected to anyway.

Yet smaller firms are facing a sharp increase in client expectations, with 83% saying clients are demanding a quicker response time than before.

"The close client relationships you get to build in a small firm can be really rewarding," she says, but the lack of capacity means meeting client expectations can be high-pressured.

While most believe they can continue to provide a good or excellent client experience (84%) and excel at providing one point of contact for clients (78%), the downsides of doing so are evident.

Four-fifths of firms believe they provide a good or excellent client experience.

Finding ways to streamline client communication and straight-forward tasks is critical, says Rayner, as client expectations are only going to increase.

"Your team shouldn't be spending half their day researching answers to client queries, or rehashing old legal documents. Legal tech, such as AI, can do this in a matter of seconds."

This will free up more time for client work, and for generating new client work, he says.

Get imaginative with your overheads

There are some investments that firms simply cannot avoid. Legal technology is one of them.

But firms could do better at managing their overheads, with 42% suggesting average or poor performance.

42% of firms could do better at managing their overheads.

Roper from Warwick Business School advises firms to better manage overheads by focusing on the most costly first and filtering downwards.

"Focus on the larger cost items – perhaps energy and office space, for instance – and explore options which may save or spread the costs."

Cloud-based accounting and management software may help save costs for many firms and also provide better management information, says Roper.

Giaretta from Fox Williams says technology offers firms new opportunities to use physical spaces differently and to encourage greater collaboration. This can allow overheads to be reduced or at least remain relatively flat.

"The challenge for firms is to be imaginative enough to see the possibilities in the new technology, and to enable a culture change that is not too disruptive," he says.

"It will require vision for firms to achieve this, and a fair degree of nerve, to depart from working practices of the past that law firm leaders themselves have grown up in."

However, Walters from Northridge Law cautioned that there is a necessary level of investment required to maintain quality of service, fee-earners, effective business development and culture.

"Staff morale can quickly be damaged by the perception of cost savings," he says.

Instead, Walters says the focus should be on driving revenue opportunities.

"Does your firm incentivise fee earners to increase output or contribute to winning clients?" he suggested. To drive growth, he also highlighted the importance of investing in the latest time recording software, annually reviewing charge-out rates for key clients, and ensuring the firm strategy is understood by the whole team.

Another area where lawyers felt there was room for improvement was their firm's ability to be agile in response to change, with 33% saying they were average or poor performing.

Small firms are generally more agile to change than larger firms, as seen during the pandemic, says Earl from the Law Society.

"Firms need to be reviewing their expenditure every quarter and investigating less expensive alternatives, or determining if the service is even needed."

Don't take unnecessary cybersecurity risks

Cyber attacks are becoming increasingly advanced, and many small firms are falling foul.

Two-thirds (66%) of lawyers see cybersecurity as a significant challenge over the next year.

Most are moderately confident their IT systems are secure from cyber-attacks, with respondents rating their security a seven out of 10.

Cybersecurity is a top threat to law firms in the next year, according to 66% of respondents.

The biggest concerns are data breaches (78%), ransomware (62%), phishing (55%) and reputational damage (48%).

A key factor in combating cyberthreats is to embed good cybersecurity practices with employees. A lack of awareness of these practices in colleagues and clients (32%), along with a more general lack of expertise and understanding (24%) are the two biggest risk factors.

Allison Wooddisse, the head of In-house, Compliance and Practice Management at LexisNexis, says phishing remains the leading cause of cybersecurity breaches.

"It’s estimated that up to 80% of cybersecurity breaches could be prevented by implementing basic good practices - phishing only works if someone is hoodwinked by a scam email."

Your staff are your biggest risk and your first line of defence, says Wooddisse, who previously worked as a partner at Shoosmiths.

"Train, educate and reinforce, reinforce, reinforce. Phishing simulator products will engender a culture of constant vigilance. One of the most common mistakes is forgetting the core stuff, technical measures such as firewalls, enforced password hygiene, software patching and deleting dormant user accounts."

Avoid unnecessary data protection risks

LexisNexis has a range of tools, templates and guidance that can help you in its Cybersecurity topic.

Take a look at our:
- Cybercrime risk assessment
- Information and cybersecurity questionnaire
- Cybercrime prevention strategy and incident management plan
- Cybersecurity training materials.

There's a widespread belief amongst leaders of smaller firms that their lawyers aren't satisfied being (or aspiring to become) a big fish in a small pond. They worry that lawyers would much rather be at larger, more well-known firms, they believe, and are using smaller firms as stepping stones in their career.

LexisNexis' Disloyal lawyers: has the partner track lost its lustre? report, released earlier this year, revealed two-thirds (68%) of small law firm leaders believe the current generation of associates are less loyal to their firms than previous generations.

Yet this perception of disloyalty might be more reflective of firm owners' fear of losing talent than anything else. The time, resources and costs that go into training and supporting a new associate is monumental. A loss can be devastating for firms, particularly those with only a handful of employees.

Our research found only 10% of lawyers at smaller firms want to eventually move into roles at larger firms within the next five years. The majority (62%) plan to remain with their current firm in five years' time. A third (32%) said they hope to get promoted in that time, while the remainder (30%) would like to stay in their existing role. Four-fifths (80%) intend to still be working at a small-sized practice.

Almost two-thirds (62%) of lawyers plan to still be at their current firm in five years' time.

In fact, most had a preference for working at a smaller practice. Two-thirds (66%) said they had worked for a medium- or large-sized firm in the past, while more than half (53%) said they had worked for another small firm or as a solo practitioner.

Our survey also found job satisfaction in smaller firms is high, with 90% feeling average or above average about their work.

Lawyers are loyal, but only when it suits them

Despite the constant pressure, resourcing concerns and fears, small firms are doing well at retaining their existing talent.

However, that's not to say your employees will have any qualms leaving if your firm fails to meet their needs.

One associate from a medium-sized firm says his peers are always talking about taking the next professional step.

"People are so desperate to upgrade, they will very much consider leaving if they can’t. And they do."

"The law offers little by way of self-esteem nowadays," he believes. "As a profession, it is becoming squeezed, cheapened and de-skilled. So one of the sources of self-esteem and autonomy is up-ranking."

An apprentice solicitor based in Wales says job-jumping is very common in her generation.

"There is less stigma around changing firms in general, especially if you can validate your reasoning. For example, if an opportunity arises on the exact same terms as your current role, you will still have a positive work-life balance, but the pay is higher, why wouldn’t you go for it?"

What's more important? Salary vs. work-life balance

One solicitor, with two decades of experience working in human rights and civil litigation, says junior lawyers simply follow the dollar.

"In my experience, in the early stages of their careers, very few favour experience and knowledge over remuneration," he says.

If this were true, then law firms should expect an imminent wave of resignations. Our survey found only 29% of lawyers had received a salary increase over the past year, while over a third (35%) said there had been no change. Yet this is most likely not the case for the majority, with the two-thirds planning to stay where they are.

Only 29% of lawyers received a salary increase in the past year.

However, our research told us that work-life balance is now more important than salary when looking for a new role, at 71% and 69% respectively.

Concerningly, 34% of lawyers say their firm offers a poor or average work-life balance, while 32% said their firm has a weak culture, the Bellwether report found.

"The model of earning as much as you can usually comes with gaining weight, making no progress outside of work, and becoming depressed and stressed," said an associate working for a medium-sized firm.

"Then you need to spend all the extra money you have made on remedies to these effects. It is somewhat nonsensical."

Bloom from AFP Bloom says small firms need to be particularly careful that new hires do not damage existing team relationships.

"Teams in a small firm are carefully curated and the interrelationships are nurtured, so changes can be more keenly felt."

Lawyers are also moderately worried about burnout, both of themselves and their co-workers, with 51% citing this as a significant challenge over the next 12 months.

Half of lawyers said burnout is a significant challenge over the next 12 months.

Having a work-life balance is essential for today's generation of associates, says Rayner, but firms can easily overcomplicate it with lengthy lists of office perks and initiatives.

"All most people want is a fair compensation package and enough time to spend with friends and family outside of working hours," says Rayner.

Succession planning

Firms also have a lot to think about when it comes to their future leadership.

More than a tenth (12%) of lawyers from small law firms plan to retire in the next five years.

For firms to continue growing, they will need a steady pipeline of partners coming up the ranks.

But our Disloyal lawyers: has the partner track lost its lustre? report found only 29% of associates at small law firms want to make partner in the next five years.

Firms may have to make changes to their workplace culture, work-life balance policies or overall structures to appeal to the next generation of lawyers.

See legal guidance on succession planning.