Tech Teams Should Survive Even As The Economy Slows

One recent estimate suggested that US GDP will drop by around 30% in the next quarter. Usually a 5% drop is considered a major slowdown. The UK and other major economies are in a similar position. This suggests a global recession is on the cards.

Meanwhile a recent survey of law firms by legal tech company Intapp found that ‘74% anticipate a modest to severe impact on legal services demand over the next two quarters’.

But……despite this, there are some good reasons to be optimistic that tech teams will survive any potential cost cutting firms may have in mind if things get worse.

Let’s Be Optimistic

This is all about time.

As mentioned last week, large commercial law firms are very resilient in a crisis as changes to the economic environment generate new work. Deal lawyers become restructuring lawyers, finance experts get involved in emergency funding to keep corporates afloat, employment lawyers are now suddenly in demand to help with all the changes to how staff are working. And big disputes, even if you can’t go to court, will tick over as there’s always plenty to do in terms of case preparation.

But, M&A deals, aside from those driven by the crisis or so large they’ll only take place next year, may be stopped. IPOs? Not likely. Business expansion for most is on ice for now as well.

So, for the next couple of months the surge in new work vs the drop in transactional work will likely balance out. Which means money keeps coming in, which means no need to cut costs and staff.

Inevitably after that things will slow. But will tech and innovation teams face the costs axe? Not likely say some industry insiders.

One well-placed tech company source said: ‘We have seen no sign of firms letting people go at all. Also, remember, law firms are trying to show clients how important tech and innovation are to them, letting these teams go now would not fit that message. And when this is over they’ll need these teams more than ever.’

Moreover, operational IT teams in particular are vital to help the firms manage their far more complex working from home scenario. Some might say it’s the IT teams that are keeping firms going right now. So, they are vital.

Another industry expert from the US added: ‘I haven’t heard of any innovation teams getting let go. [If it does happen] I don’t think it will be too widespread in the States because they are mostly renamed or repurposed KM teams and in uncertain times with a dispersed and disjointed workforce KM (and innovation) will be more important to law firms.’

In fact, if there are major changes, one law firm source noted that some firms are now looking at ‘issuing hiring freezes and possibly looking to defer the intake of junior lawyers like they did in the 09/10 year’.

That said, Linklaters did let go most of its Nakhoda tech development team, although that strategic move was not Covid-19-related and in fact started late summer 2019. Meanwhile the Innovation team has been folded under the wing of the firm’s new Legal Ops group in a sign to clients of a more integrated approach. In short, that move had little to do with what is happening right now and the firm’s commitment to tech remains strong, even if it’s now more connected to other parts of the business.

So, for now, this is not a picture of doom and gloom for tech teams. In fact, when a large and complex business is atomised it needs all the tech and innovation help it can get to keep going and find new solutions to novel problems that arise from the strains of the situation.

Artificial Lawyer has also contacted some of the firms running incubators, with one saying they haven’t decided one way or the other yet if theirs will happen. Perhaps they could operate remotely, but obviously you can’t run an incubator inside a firm when everyone is meant to be at home. Even so, this is a small impact and probably a welcome reduction in things to worry about.

Impact on Legal Tech Companies?

Artificial Lawyer also contacted some tech companies this morning to gauge the mood. One company stated: ‘Our clients need us now more than ever!’

Their bullish view is understandable in this climate, but for now it’s likely based on reality. Clients do need a lot of help right now with everything from contract review to data rooms to legal research.

Another company was a bit more open and admitted that the main challenge is that new client leads have been hit by the lack of conferences, while software deals that were in negotiation have been pushed into Q2. This is understandable, but they didn’t see a drop in demand, rather that firms were just totally manic right now.

Also, one other theme was that among tech companies that are well-financed there is a big opportunity to pick up talent to help their long term expansion. ‘We are still hiring,’ one company told this site.

So, if some companies are slowing, others are still expanding.

Will there be some shakeout? Possibly. If a startup is close to running out of cash due to a lack of clients providing revenue, then the downturn isn’t going to help it much when it talks to VC funds. But, the number of companies in that position remains small – and we’ve seen several go under without the need for any added impacts from Covid-19. I.e. the companies that were already failing earlier this year will fail in any case, virus impact or not. Those that are not in that position will carry on.

Conclusion

It’s better to be realistic about what’s happening, but also remain optimistic, than assuming things will all magically stay exactly the same.

However, for now, the mood is ‘we are busy, letting people go is really not what we are looking at’, and to which we can add ‘and of all the business support functions we need, tech is not something we can do without right now’….or, one might add, ever.

Aside from a handful of already failing startups, the people most likely to face problems are going to be new intakes of junior lawyers who could face deferrals, but even that is so far all up in the air and firms have not yet started to do this en masse because they don’t know how long the Covid-19 impact will last.

Overall, cautious optimism. And, of course, as things evolve, so too will the scenario for everyone. But, if your job is helping (directly or indirectly) a law firm to keep working and keep making money then one could guess you will remain very much in demand.

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