These uncertain times make an economic recession a growing probability. If a downturn is imminent, here are three practical steps to ensure survival.
I witness the highs of the late nineties and 2000. Then the Dot-com bubble burst and the Great Recession hit. Working at companies at the receiving end of both events gave me a close-up experience. I got a couple of pragmatic lessons being inside a startup and an established company during these storms. Here’s my balanced view within this spectrum.
Economists usually monitor consumer optimism for signals of a slump. There is another clear sign which is the mood of entrepreneurs. Their mission turns from growth at all costs towards surviving at any cost. They are the first to see orders slip, deals delay and their pipeline dry up.
To stave off insolvency, businesses start looking at where to cut costs. Low hanging fruit in cost-cutting are ‘nice-to-have’ subscription services. Especially “innovation” services that promise to deliver savings in the future suffer first. Here’s where the legal industry is specifically vulnerable since contracts are just that: a promise of future safety. Litigation will also take a hit as more businesses will try and steer clear of unpredictable costs in dark times.
The Intellectual Property market, especially patents and trademarks, will be considered luxury expenses for most companies. Across the board, cost-cutting will eventually influence every layer of legal work. Business owners will look at their core operations and customers to evaluate every dollar they spend. With this backdrop, let’s explore 3 measures Legal Tech companies can undertake.
Become a Benefit not an Expense
Being a cost-efficient company is a no-brainer but being perceived as one by your customers is more important. If your customer is doing everything it can to stay afloat, they may want to see the same. Remember when American automaker CEOs flew in on private jets to beg the US government for a bail-out? Once you see it, it’s hard to forget.
Even when you offer a high-value subscription product, the service will get customers fleeing in a recession if the price is too high. Lowering the price or offering discounts will see you enter a race to the bottom with your competitors. One way I saw some survive is switching to a freemium model whereby churning customers may opt to stay with a lighter version. There are two upsides: you maintain your customer in another capacity, and they become cost-conscious about your product.
Make Friends not Foes
The freemium model was also a suggestion by Mary Meekers as we reported earlier. According to her data, the cost of acquiring a customer is already at an impossible threshold. This is especially true when trying to acquire a new legal service customer.
If a freemium model is not an option, then a strong relationship with your best customers is essential. First, figure out which customers are able to pull your company out of an economic apocalypse. Those customers should get exceptional customer care to the point they consider you a friend. When the costs cutting decisions are being made, there is always an emotional connection to the vendors that provide more value than is being paid for. Having been part of both ends of this conversation, I have witnessed this first hand.
Discover your Diversity
Remember, some of the most successful companies were started during a recession like Microsoft and FedEx. Some even thrived during a recession such as Amazon and AirBnB. Which brings us to the final and most pivotal point. The survival of a legal service provider like a law firm depends on two factors: one is the health of their customers and the other is the demand for their legal expertise.
For Legal Technology companies these factors work out slightly different. Usually, law firms heavily rely on specific expertise to service a certain set of customers. If altogether new expertise is required, they will struggle to fulfill that need. Example: if Thomas Cook was your biggest customer, and you aren’t into Bankruptcy Law, you’ll probably join them.
Therefore, smart legal technology should resist becoming too niche and stay flexible to fulfill new needs. Amazon is the most powerful example of this approach. They quickly scaled from selling books to selling virtually everything with the same platform.
To find out which outcomes to consider all you need is some data and your intuition. There are data-driven tools available to help scope sectors, segments, types of customers and evaluate similar products in other sectors.
For example, Legal Design studios normally focus on law firms and designing contracts. A rudimentary CAT scan suggests, that serving corporations in designing compliance is a 5x larger market. Legalpioneer discovered one design company operating in RiskTech which raised $10 million in venture capital.
To summarize this survival guide:
- Be cost conscience;
- Care for your customer;
- Diversify your portfolio.
The legal industry now has the luxury of having their own data analytics providers. So if your intuition tells you to brace for impact, there is data to deploy your airbag.