GRC: Signs of Brittle Growth For The Legal Economy
Growth in legal is noticeable in the earning reports by public companies and the funding patterns in private ones. What are the signs?
Recap: Growth in legal is picking up, but it relies on only a few areas in Governance, Risk management, and Compliance ( GRC). This growth is fragile and depends on the price of energy.
Our latest chart on Artificial Lawyer, paints a depressing picture. To help us understand the pain, we answered some questions in our Capitals & Conflict. Essentially, the legal economy is a pendulum, which swings from deals to disputes. Between both destinations lies a string of risks the world wants to weigh. Those risks are the less sexy revenue boosters for both lawyers and legal technology. These boosters appear in funding and earnings. Let’s look at two of them.
Case in point: investment in procurement and legal spend analytics for corporate counsel is steadily increasing
Legal Tech Funding Continues to Decline — Artificial Lawyer
We recently ran a report for a customer on the state of European Legal Tech. One of their requests was to show the new growth areas. First, you need a history of data to compare earlier funding with current ones. The algorithm then captures areas that see sudden rushes of fresh capital. Geeks will recognize these principles as standard deviation or variance. They are tools to tell us what suddenly goes up or down. And they told us that managing supply chain spending was a top priority for everyone. Supply chain means goods, services, and labor we need to produce. Supply chain impacts the legal economy because many want to:
- Curb unpredictable spending like on legal support;
- Draft better terms of services to receive supplies faster and cheaper;
- Improve labor relations with better agreements.
This results in more demand for solutions that help you manage the above risks.
That sounds great, but why should we believe Legalcomplex? Fair question and one we asked ourselves every day. If you have data, you should rely on it. Are you scrappy, like us? A free resource you can tap into is the public stock market. We shared our top seven of the 31 stocks we tracked. Since we don’t want to anger the purists, we keep companies like Coupa, outside the thirty-one. This business spend management stock popped after reporting record earnings despite inflation. This Yahoo Finance video reports the Coupa surprise and the UiPath free fall. UiPath is a legal automation challenger and growth area according to some purists. Fun fact: UiPath gave Icertis a shout-out on their Q2 2022 earnings call.
What is Icertis? That is the #3 private legal tech company in the USA based on total funding raised. See more global rankings on Spark Map.
Public earnings are a late indicator of trends. The nuggets are usually hidden in how those earnings came about. This brings us to another surprising report by Australian Family Lawyers. This insider reported a 68% growth in full-year earnings. Not all growth is the same. Organic growth comes from a natural increase in demand, as opposed to cutting costs. The few publicly listed law firms provide us with this unique glimpse into what drives their growth. As previously mentioned, we can not share their deck, so we’ll just condense their tailwinds:
- New (marital) legislation expanded the client base;
- Economic pressures lead to more disputes;
- The pandemic has reformed courts to process more disputes.
The AF Legal Group also elaborated on the use of technology for business development. Specifically, how they use behavioral analytics. AF has optimized its sales pipeline to capture customers based on their behaviors. In plain English: if someone needs legal support, they have the tech to reach them. Let’s be honest, the area lawyers would like to be more efficient, is how they can bring in more business. Let’s be realistic, the cost of acquiring a customer in legal is the most expensive for any industry. If you can not bring those costs down, any business is doomed.
If either one of these escalates, we will be in for some really tough times by February 2023
All the above insights are free for everyone to find. Like the glimmer of good earnings, DocuSign reported this quarter. Those numbers can change based on whatever is happening in the world. The one clear factor that is pressuring us all is our need for Energy. No need for fancy dashboards to watch inflation, go to any store and check the price of real meat. Vegetarians and climate-changers already warned us for different reasons. Price increases ripple throughout our lives, and legal is no exception. Essentially, legal is a luxury that can only raise prices when it has tailwinds. And the economic climate can change those tailwinds into headwinds.
In a world where the essential becomes expensive, luxury is the first casualty. This delicate growth the legal economy enjoys will evaporate once energy prices edge higher in Europe. This means: take out your economic compass and navigate towards growth. Currently, growth is visible in GRC, and you’ll see it in the second part of the video below.
They say: seeing is believing.
Originally published at https://www.legalcomplex.com on September 13, 2022.