3 things legal marketers can learn from Tesla’s rise

First, let me summarize ABA Rule 5.4. In short, the rule protects the professional independence of a lawyer by limiting the influence of nonlawyers on the client-lawyer relationship. Further, the rule dictates that a lawyer or law firm shall not share legal fees with a nonlawyer.

No one argues that the professional integrity of the lawyer is something that should be upheld. However, a counter-argument says that Rule 5.4 creates a regulatory “barrier to entry” that prohibits new, nonlawyer parties from entering the market and creating a healthy competitive arena for legal services.

The session on Rule 5.4 at LMA was well timed given that EY and Thomson Reuters announced on April 3 that the former would acquire TR’s Legal Managed Services business, previously known as Pangea3. This marks a major move by a Big Four firm to provide legal services to the same corporate legal departments currently served by Big Law firms. In addition, the LMA presentation discussed that since 1997, corporations have been adding in-house legal staff at a rate more than 6x that of large law firms, choosing instead to in-source work rather than continue to pay the high cost of outside legal services. In the face of this data, it’s safe to say that consumers of legal services are “speaking with their wallets,” and a whole new set of well-capitalized and scaled professional services organizations are poised to make a go at the traditional legal services market.

Looking at the current state of the legal marketplace, it’s hard not to draw parallels to the threat Tesla has made to the traditional auto manufacturers and their distribution model. For years, the big auto manufacturers enjoyed regulatory barriers to entry that thwarted competition, slow-boated innovation and generally created less than enthusiastic customers. And then came Tesla, who, in a little more than a dozen years, became the most valuable U.S. automobile manufacturer. Here’s what a legal marketer can learn from Tesla’s rise:

Innovating on your premium products can lead to higher margins in non-premium offerings.

Tesla’s first large-scale product offering wasn’t an electric “econo car” targeted at the masses. Quite the contrary, Tesla used its pricey Model S sedan to prove to the market that an electric car could beat the traditional luxury sport sedans at their own game. Along the way, Tesla enjoyed high margins on the Model S, enabling it to invest in building a scaled platform to deliver the more modest Model 3 sedan. The Model 3 will make profit up in volume while expanding the Tesla brand into the middle market.

So, what can a legal marketer or managing partner learn here? Too often, innovation is synonymous with delivering something cheaper. For example, in the halls of many law firms, I’ve heard more than once, “Let’s throw AI at that commodity service and charge clients less for it.” What I don’t hear as regularly is, “XYZ is our flagship practice; let’s see if we can disrupt ourselves, and do it better.” Sure, innovating at the high-end of the margin can be scary, but why not innovate at the very place where clients are already proven to spend more?! The benefits of such a strategy may just trickle down to the commodity services as it did for Tesla.

Genuine innovation is its own best marketing.

Traditional automobile manufacturers spend millions – if not billions – on advertising to convince you to visit their dealers. Tesla, on the other hand, spends nothing on advertising and has tens of thousands of customers reserving its cars with $1,000 deposits, having never taken the car for a test drive. What’s the point? The point is that when you’re truly developing something new, customers not only want to be a part of it, they’ll even forgive you the speed bumps along the way. The legal profession is famous for its “zero defect” obsession. But no truly ground-breaking product or service was ever launched without its snafus. Co-opting clients into the innovation process itself could very well be the best means of developing breakthrough progress.

Model 3 was top-selling car in US by revenue despite no advertising, no paid endorsements & no discounts. Competitors spent billions on marketing. Model 3 was product alone.

— Elon Musk (@elonmusk) October 25, 2018

Customer experience matters.

A recent Deloitte study found that 60% of car buyers want to remove the dealer from the car buying experience. Said differently, a majority of consumers do not want to purchase vehicles in the same way and from the same channels through which they have procured their vehicles for the past century. It turns out that mis-incentivized salespeople, hours spent at the dealership filling out paperwork and a lack of price transparency don’t make for the best customer experience (see any parallels here?). What did Tesla do? It reimagined the process from the ground up. You can purchase a car using your smartphone and have it delivered to your door with just a couple of clicks. Further, if you don’t like the car upon delivery, you can return it. Mark Cohen, a contributor to a recent Forbes article noted “Tech alone will not drive legal transformation; new business models will. Those models will extend management and compensation parity beyond licensed attorneys to tech and business professionals. Failure to do that has a chilling effect on the impact of technology and process.” The opportunity for legal marketers is to own this transformation of the customer experience. Utilizing the tools of their trade – design thinking, creativity and customer insight – legal marketers have, perhaps, the biggest opportunity they’ve ever had to make an impact on their firms.

In my twenty years advising the legal industry, I have never been more certain that change is around the corner for the legal marketplace. Market pressures from the Big Four, insourcing, alternative legal service providers and technology are all gunning to be the legal market’s next “Tesla,” and the window for firms to disrupt themselves is starting to close.