The next few years are going to be remarkable and incredibly fruitful, long-term, for those law firm partnerships that navigate the waves of change into safe harbors rather than sit still at the breakers and get pounded. Several fundamental business-altering changes are upon us, with the major moves related to four letters – P, E, A and I. While many partnerships view Private Equity (investments) and Artificial Intelligence as two independent challenges, I think it’s time to speak of them as being HIGHLY intertwined and related.
In our travels, we experience a fair amount of skepticism with respect to private investments in law firms. We also hear of reliance on bar association and ethics rules as a strong defense against these unwelcome incursions. Meanwhile, we know that investment deals are being signed and many more are in the works with firms of all sizes via the use of the Management Services Organization deal structure, which is geography-agnostic. Investors have a proof-of-concept for this model from similar deals in other countries, so confidence levels are high and their money is in search of sound opportunities.
Meanwhile, on the Artificial Intelligence front, we hear of many firms investigating, evaluating the application to routinized tasks, strategizing how it can be used to expand market share, and estimating overall ROI. Concurrently, they are asking, “How will we pay for this?” and “How will we monetize this?”
If we view AI as a differentiating, cost-prohibitive tool that can lead to taking market share from competitors while a new, proven financing vehicle has emerged, don’t these issues meld together nicely? For a forward-looking, risk-taking industry they do in a heartbeat. In the law firm world, the precedential nature of the training each lawyer receives, when applied to the business of law, begets the innovation-crippling question, “who has successfully done this before?” These six words, which have been valiantly used to slow the progress of all significant changes in the legal industry, must be successfully addressed for any hope of progress. The stakes are simply too high now.
The path forward into this abyss of profession-altering uncertainty requires two parallel conversations – a) the external planning and evaluation of each option with the fund managers and AI developers, and b) the internal change management conversations that, if handled well, will lead to a pivot from past perspectives and boldly toward the future.
To assist with these internal conversations, let’s pose two increasingly relevant questions to ourselves – one from a defensive posture and the other from an offensive posture. Let’s start by going on the offensive –
- What would you do with a significant private equity investment in your firm?
Here are further details to help frame this discussion –
You’ve been approached by the key executives from the LGRT (let’s get rich together) fund and they see great promise in your firm. They are willing to invest a significant amount in your future – for discussion purposes, let’s say it’s the equivalent of 15% of profits (which, for apples-to-apples comparisons, include the compensation of all owner-equivalents of the firm for you corporate-structured firms). Of course, prior to investing in your firm, these eager check-writers want to know how you would use this money to generate a proper level of return for the fund AND for your Partners. What would you propose?
Hints –
- If your group’s general attitude is that this is a silly exercise, please proceed to question 2, below. If you then do not want to return to this question, I offer you good luck and best wishes as you bet the future of your firm on the status quo prevailing in the end.
- If your plan is to spend these funds in a manner that propagates the existing business model – say, on recruiting laterals with books of business – then you need to demonstrate a clear path toward a practice or industry-specific, fee-insensitive monopoly/juggernaut. Otherwise, you can safely assume that the LGRT fund will move on to the next best option. They don’t want their new money to be used for old strategies.
- Break the mold. Push limits and boundaries. Here’s the direct link between P.E. and A.I. – how can you apply this tool to develop methods, processes, services that you don’t currently offer? Can you keep fee-sensitive matters that you currently send to other firms while, of course, generating the proper level of profits? Can you make your firm’s knowledge base accessible to clients in a manner that protects your IP while you are getting paid?
Of course, this is not just about AI. Can you partner with, or acquire, market leaders in other professional service areas required by your key clients? Develop a groundbreaking internal professional skills development program/university that will be a guaranteed magnet for the very best talent? Something else?
Remember, the LGRT folks aren’t doubling down on where the industry has been. Come up with some incredible ideas that you historically ignored due to the price tag as cost – as traditionally viewed – may no longer be a barrier.
- As you consider these developments, look at them through multiple lenses – your practice, your practice group/industry team, and your firm. For now, it’s fine (and actually quite useful) if your responses don’t align.
- Once you come up with your great ideas – which is a fine exercise in a vacuum – you can then determine if you need external investments to develop and implement your concepts. Making these moves without adding another seat to the ownership table would be an amazing outcome.
Now, let’s look at this from a defensive posture –
- How worried would you be if you learned that a primary competitor was about to sign such a deal and gain access to some serious investment funds?
Here are further details to help frame this discussion –
Every firm has a modestly lesser competitor with which you compete for talent and clients. This lesser competitor has been trying for many years to do something to level the playing field with your firm. The same old tactics continue to produce the same old results – no ground gained. Then, the LGRT fund managers show up to offer a pathway to a disruptive, market-leading competitive position.
How worried would you be? How worried should you be? Which of your competitors is aggressive and crazy enough to go first? What if they do?
If I’m advising a frustrated firm that cannot gain ground, I’m exploring opportunities for them to shake up the marketplace via a difficult-to-replicate move.
To be clear, my goal here is not to drive everyone into Private Equity to fuel AI investments. That’s not remotely possible, which adds more urgency to these conversations. Rather, my goal is to get you into these inevitable discussions on YOUR terms, instead of waiting for someone else to be disruptive, which will happen. These are firm-specific choices but, to make these choices, one needs to have the appropriate conversations about the future now.
The pace of change is about to become unprecedented and equally uncomfortable. A catalyst is those four letters. Link them, start the needed internal conversations now, develop some innovative and disruptive ideas, create your tailored solution, fund it, and hopefully have fun while doing all this brainstorming.
Ice hockey fans know the famous quote attributed to hall-of-famer Wayne Gretzky, who said, “I skate to where the puck is going to be, not where it has been.” This attitude and perspective have never been more important. Here, at LawVision, we strive to do as our name and brand suggests – to help you look forward. We are obsessed with the future (see the titles of the prior blogs – https://lawvision.com/industryinsights/ ), and we want you to be as well.
On behalf of the entire LawVision team, we wish you an innovative 2026 that is full of exciting conceptual conversations that lay the foundation for a prosperous future based on going to where the industry is headed…not where it has been.
