Smart Growth Strategies for Law Firms: Essential Investments in an Evolving Industry

As the ground shakes beneath their feet, law firm leaders must be prepared to jettison bankrupt business practices in favor of smart growth strategies.
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Law firms today are resting on a fault line. A cluster of transformative trends is set to rock the legal industry, with some firms poised to enter the next decade on solid footing and others likely to crumble. Consider these emerging demographic, professional and technological trends as you evaluate strategies to safeguard your firm’s growth.

Demographic Trends in the Legal Industry

Baby boomers are departing the legal profession in growing numbers, leaving gaps in leadership, business development and ownership roles. This trend will continue to affect law firms: Almost 14% of lawyers are now 65 or older, in contrast with a roughly 7% share of all U.S. workers. And by 2030, today’s youngest baby boomers will reach age 65.

Just when the legal industry needs an infusion of next-generation talent, the pool of younger lawyers is contracting. Low college enrollment rates are predicted from 2025 through the late 2030s, while law school enrollment has dropped since 2010. Further, Major, Lindsey & Africa survey data indicates that Gen-Zers have less interest in long-term career paths at law firms than their older counterparts.

Trends Shaping the Legal Profession Today

Steep attrition rates are compounding law firms’ talent challenges. The share of associates leaving their firm in five years or less reached a record high in 2023, according to the NALP Foundation for Law Career Research and Education. While a serious problem throughout the industry, attrition rates tend to be highest for women and people of color. Given the profession’s diversity goals and the steadily climbing proportion of women and people of color in its ranks, this disparity is troubling. From a business of law perspective, firms pay dearly for attrition. Lost revenue plus replacement costs when an associate quits can easily exceed $200,000. Financial losses are even greater when partners and their clients walk out the door. Also problematic are the resulting high workloads, low morale and disruption of the leadership pipeline.

Meanwhile, law firms have been confronting a punishing price war. Median first-year associate salaries reached $200,000 as of 2023, with spikes seen among firms of all sizes. In firms with 100 or fewer lawyers, median first-year salaries rose from $120,000 in 2021 to $155,000 in 2023. For a small law firm, these challenges are even more pronounced, as they often lack the resources to compete with larger firms in terms of salaries and benefits.

Firms are also continuing to adjust to the hybrid work phenomenon. Employees resoundingly demand hybrid and remote work options, yet a hybrid model demands a more deliberate approach to training the next generation of lawyers and building a sustainable workplace culture. High attrition rates and hybrid work models also pose challenges to maintaining strong client relationships, which are crucial for a firm’s growth and success.

Technology Trends

Generative AI will play a powerful role in shaping law firms’ fortunes, offering a competitive advantage to legal practices that adapt quickly. AI will soon be able to perform a large slice of traditional associate-level and paralegal work. And AI’s capabilities will only expand. Going forward, AI will place a premium on training, adaptability, alternate fee arrangements and new value propositions. For talent-strapped law firms, AI may prove a saving grace.

Smart Growth Strategies for Law Firms

For firms looking to shore up their business model in the face of these evolving trends, yesterday’s strategies will fall short — especially for midsize and smaller firms that lack deep bench strength and deep pockets. In particular, reliance on catch-and-release talent models, sink-or-swim professional development programs, speculative poaching strategies and obsolete billable hour-driven revenue models will not sustain tomorrow’s law firm needs or the needs of clients.

Instead, smart growth is the answer to securing lasting financial and professional success. Smart growth does not necessarily mean upping lawyer headcount to grow your law practice. Rather, it entails adopting a suite of strategies that enable the law firm business enterprise to scale its business model to ensure that revenue growth outpaces the cost of doing business. Key to adopting an effective smart growth strategy is a commitment by law firm owners and leaders to learning, growing and investing each day in the future of the firm, its talent and its clients.

Firms should invest in the following essential smart growth strategies:

Leveraging Generative AI in Law Practice

As generative AI reshapes the business of law, firms must adapt to remain competitive. AI tools will offer unprecedented efficiencies, allowing firms to automate routine legal and operational tasks. This shift can free up attorneys to enhance client service revenue growth by focusing on more complex, high-value work. To capitalize on the opportunities, lawyers must develop new skill sets, including a strong understanding of AI technologies. Law firms also must overhaul their professional development initiatives and business operations as AI takes over entry-level legal work and routine administrative tasks. Last, firms will need to shift away from traditional hourly billing to more flexible revenue models that leverage technology, including wider use of fixed fees and value-based pricing.

Prioritizing Professional Development and Career Advancement

Law firms have historically relied on hands-off, one-size-fits-all professional development programs, dedicating insufficient partner-level time and other resources to building up the next generation of lawyers. Today, lack of career development and advancement is a primary reason employees leave their jobs, whether legal professionals or business professionals. So traditional approaches are a losing bet. Furthermore, clients are increasingly unwilling to foot the bill as associates learn their craft by performing entry-level work that AI instead can complete. Robust professional development initiatives, therefore, should be viewed as essential investments in the future of the firm, its lawyers and staff, and its clients. Law firms can achieve this mindset shift by adjusting compensation models to reward valuable attorney time dedicated to training and learning, instituting deliberate mentorship programs, and promoting lawyers’ ownership mentality.

Reimagined talent development initiatives should be coupled with career advancement strategies that offer transparent career progression guidelines, sponsorship initiatives, leadership development programs and more.

Embracing Nontraditional Career Paths and Flexible Staffing

The proportion of women in the legal profession continues to climb. Since 2016, over half of students at ABA-accredited law schools have been female. Yet women continue to exit law firm jobs at alarmingly high rates, and firms are failing to help those who stay reach leadership and ownership roles. To better serve the needs of women lawyers and all caregivers while building sustainable bench strength, firms should adopt nontraditional strategies that provide, for example, part-time and flex-time work options alongside off-ramps and on-ramps for lawyers who leave the practice for family reasons and later have interest in rejoining a law firm. These strategies can be particularly beneficial for small law firms, which can leverage flexibility to attract and retain top talent.

Exploring Talent-Driven Mergers and Acquisitions

Given the shrinking talent pool, high attrition rates, the growing need for partner-level legal capabilities and generative AI’s transformative potential, law firms will feel increased pressure to secure a stable supply of highly productive talent. This is especially important given generative AI’s transformative potential. Traditional organic growth strategies have proved insufficient, however. Poaching lateral hires is a speculative strategy that portends disappointing attrition rates due to inflated expectations about candidates’ portable books of business and unfulfilled promises by acquiring firms. As an alternative, firms should consider merging with other like-minded firms to build the strong bench of highly productive lawyers needed to meet the expectations of clients and talent.

Fostering a Magnetic Workplace Culture

Law firms can best position themselves to navigate evolving legal industry trends by cultivating magnetic workplace cultures that attract and retain top-notch talent. This entails doubling down on existing talent by adopting robust professional development and career advancement strategies, personal well-being initiatives and reimagined compensation models, while embracing principles of diversity, equity, inclusion and belonging. These measures can foster an environment where affordable, productive employees are committed to the long-term success of the firm and its clients.

As the ground shakes beneath their feet, law firm management leaders must be prepared to jettison bankrupt business practices in favor of smart growth strategies. Stay tuned to Attorney at Work for my upcoming series of articles that will detail the smart growth principles vital to lasting financial and professional success.

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