In the latest episode of “The Geek in Review” podcast, co-hosts Greg Lambert and Marlene Gebauer continue their series of interviews from this year’s LegalWeek conference by engaging with Joshua Lenon from Clio. As Clio’s Lawyer in Residence, Lenon delves into the insights derived from the company’s Legal Trends Report, emphasizing the data-driven analysis of law firm practices and trends. The report, which leverages aggregated anonymous usage data from tens of thousands of law firms using Clio, offers a unique perspective on the productivity, billing, and technological adoption within the legal industry, particularly among mid-sized law firms.
Lenon shares intriguing findings from the report, highlighting a significant increase in productivity, billable hours, and revenue across the industry over the past eight years. However, a closer examination of mid-sized law firms (defined as those with 20 to 200 lawyers) reveals disparities in matter handling and productivity gains compared to smaller firms. Lenon explains how mid-sized firms maintain a consistent workload per lawyer by adjusting the ratio of lawyers to non-lawyer timekeepers based on demand. This adaptability showcases the strategic management of resources within mid-sized firms to optimize efficiency and service delivery.
The discussion further explores the impact of financial technology (FinTech) on law firms’ operational efficiency. Lenon illustrates how adopting new payment methods and technologies significantly improves firms’ collection rates and client payment experiences. Specifically, mid-sized firms that embrace FinTech and client-centered approaches see notable improvements in their financial health, underscoring the importance of innovation in enhancing legal services delivery.
Lenon also introduces Clio Duo, an in-house AI tool designed to enhance law firms’ access to and interaction with their own data. By providing a chat-based interface for exploring firm data, Clio Duo aims to streamline tasks and improve efficiency, allowing lawyers to focus on high-value work rather than administrative tasks. This development represents Clio’s commitment to leveraging technology to address the evolving needs of the legal profession.
Lenon predicts some of the challenges and opportunities facing the legal profession, particularly in relation to artificial intelligence (AI) and document creation tools. He speculates on the limitations imposed by traditional word processing applications like Microsoft Word and suggests that the future will likely see a paradigm shift towards more interactive and multi-dimensional tools for legal work. This shift, Lenon argues, could dramatically enhance productivity by integrating AI more seamlessly into the legal drafting process, moving beyond the static, page-focused approach of current software.
Throughout the conversation, Lenon’s insights underscore the dynamic interplay between technology and legal practice. As legal technology evolves, so too does the potential for law firms of all sizes to improve efficiency, client satisfaction, and ultimately, profitability. The episode illuminates the importance of data-driven decision-making and technological adaptation in the legal industry’s future. By embracing these tools and insights, law firms can better navigate the challenges of the modern legal landscape, ensuring they remain competitive and responsive to their clients’ needs.
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Music: Jerry David DeCicca
Transcript
Marlene Gebauer 0:07
Welcome to The Geek in Review. The podcast focused on innovative and creative ideas in the legal profession. I’m Marlene Gebauer,
Greg Lambert 0:14
And I’m Greg Lambert and we are wrapping up at legal week and we literally grabbed Joshua Lenon from Clio to come sit down with us, of course, longtime listeners may remember that as a collaborators collaborated on the superhuman law, podcast, and fun times.
Marlene Gebauer 0:36
Stickers probably worth money. No,
Greg Lambert 0:37
it is I still have a handful of as a poster as a poster hanging in my office. So. So Joshua, welcome to The Geek in Review. Thanks.
Joshua Lenon 0:46
It’s great to be here. I’m Joshua Lenon. I’m the lawyer in residence at Clio. So I have the most meetup title in legal technology
Greg Lambert 0:56
paid more in the length of title than and then in salary.
Joshua Lenon 1:00
It might it might be a tie. But I’ve been there a while. I think
Marlene Gebauer 1:04
you were just telling us before we went on air that you recently released, it was a midsize firm survey.
Joshua Lenon 1:10
Yeah, it’s not a survey. So Clio does an annual report called the legal Trends report. And it’s actually based on the aggregated anonymous usage data of Clio, the software, we build and is used by law firms. And so it’s 10s of 1000s of law firms all contributing, not their client files, not not their communications, but really just how they’re logging in, where are they practicing from? What types of features are they using? And we’ve been publishing that since 2016. We recently noticed that we actually are the most widely used practice management solution for mid sized law firms. About one in eight midsize law firms in the United States is using clear right now. And so
Greg Lambert 1:57
just so we know how, how do you define what a midsize is.
Joshua Lenon 2:00
Twenty plus lawyers. And then we did tops out around 200 for our analysis. Yeah.
Greg Lambert 2:07
So it can be two hundred?
Marlene Gebauer 2:09
It’s a big firm, that’s big. That’s a range. That’s a pretty big range.
Greg Lambert 2:13
So what do you find?
Joshua Lenon 2:15
Well, there was actually some really interesting information. So for our just industry wide report that we issued last October, we started taking a look back on the past eight years of data that we published, and we looked at the productivity gains that we’ve seen within law firms. For example, we saw a 25% increase, and the amount of cases that are being handled by timekeeper also a 35% increase in the number of billable hours recorded over the last eight years. And then a ridiculous jump in revenue, it was actually almost 170% Jump in hours billed and amounts collected. When we then apply that same analysis to the mid sized Law Firm, we actually saw some weird discrepancies when we were looking at it by timekeeper, the number the increase in matters, which was around again, 25%. For the everybody together, it’s only 1.2% for midsize law firms. And that just Yeah, Greg’s making a face and raising his eyebrow for for the listeners at home. That we’re not gonna be read at all. So we’re like, okay, we’re obviously looking at the wrong metric here, or we need to parse it a little further. So rather than looking at active timekeeper, we decided to break it down and see, is there a difference in the amount of lawyer to non lawyer timekeepers, that are working on a case. And for smaller law firms, it’s roughly around 30% of timekeepers and non lawyers. For mid sized law firms, it was closer to 48%. Well, it was even more interesting, and you’ll need to read the report to see this is that actual percentages is much more volatile. And so it’s not 48% All the time, but it drops down to 45. It goes up to 49 over the course of those eight years. And what we think we’re seeing is that these mid sized law firms are actually keeping a very consistent amount of workload per lawyer. But then when times get busy, they’re adding paralegals, legal secretaries. And they’re recording more time and doing more work. And then when things slow down, then we see again that ratio drops. So when we then narrowed our research to looking at responsible attorney, which is a field in Clio, every every matter in Clio has a responsible attorney, which in a mid sized law firm is probably going to be your lead attorney, maybe your your practice group lead or the originating attorney, but they’ll have multiple timekeepers In smaller firms, it’s probably just the attorney working the file. And when we limited the research to just responsible attorney, then we actually saw a difference. We saw that small firms have seen an 8% gain in matters over the last eight years, mid sized law firms jumped up to 7% When we look at responsible attorney, but they’re still lagging behind small firms when it comes to matter creation. And that was really interesting.
Marlene Gebauer 5:26
I’m curious when the survey comes out, and you know, your clients are looking at this, you know, what types of comments do they have? And actually, you know, what do you know, what actions do they take based on the data that is there?
Joshua Lenon 5:40
That’s actually a really great question. So I spoke. I spoke here at legal week with one of our customers, her name is Angela Lennon, no relation. And she’s from a midsize law firm called Koenig Dunn, and they spoke is on divorce. And they’re based out of Omaha, Nebraska. They’re a mid sized law firm. And they’ve actually been looking at the legal Trends data over the last several years and actually taking some really concrete steps with their law firms. And what’s interesting is it correlates to some of the things that we found in this year’s report as well. One of the big differences in mid sized law firms is they have a much higher utilization rate, they’re able to on average, Bill about half of their day, around 48% of their day and smaller law firms, it’s down in the 30 percentile. But when we look at mid sized law firms, they’re much more likely to give themselves a haircut that will be called the realization rate, which is the number of recorded billable hours that actually end up on the bill. They’re much more likely to reduce the amount that ends up on the bill. And we’re definitely seeing a big difference emerge in collection rates for mid sized law firms. We’re estimating because not all of December 2023 bills have been paid yet, but we’re estimating for 2023 midsize law firms are only going to have a collection rate of 83%.
Greg Lambert 7:03
How do you calculate and balance the bill time versus like a flat rate? Because I know like
Joshua Lenon 7:11
That’s actually yeah, that’s really tricky. We actually do have to filter out flat rates. Yeah. But something like 90% of all matters recorded in Clio are hourly. And so it really is a relatively small amount of data that gets filtered out. And so all of these numbers that I’m talking about are strictly looking at hourly. Right now. We are digging into flat fees. But that’s not a part of these numbers. Yeah,
Greg Lambert 7:41
Do you have any clients that are subscription, subscription based,
Joshua Lenon 7:46
We do have customers who are offering subscription based legal services to their clients. And that’s a really interesting model as well. And what’s made that possible, and I’m just going to do a call back to Angela linen is there taking advantage of new emerging FinTech options for law firms. So financial technology, like online payments, echecks, tap to pay on mobile phones, the ability for clients to pay using their Apple wallet, or their Google Wallet, all of these different ways now that financial technology is integrating into the consumer experience. What we’ve seen with subscription law firms and firms like Angela linens is that they are leaning into these types of payment avenues, and they’re seeing their collection rate just soar. So Angelou told the audience in our talk that her collection rate for her firm is in the high 90% is percentiles. So they’re I think she said 90%. Yeah, convenience really is king. The other thing that they’re doing that helps with that, as well as they also use those payment options and accept Vance fee deposits into trust. And our own research has shown that when you’re doing that, it actually increases not just your collection rate, but the firm’s realization rate are less likely to give themselves that haircut because they know the money’s there. That’s right. Yeah. And so, but interestingly, you don’t see client pushback on that. When that realization rate is higher, so they get a larger bill. And they’re paying a larger percentage of their total bills. Right, but there’s not seemingly no backlash.
Marlene Gebauer 9:33
Yeah, imagine it’s agreed upon number and it’s like, okay, this is what we’re gonna do. And they ended they, the client plans it in.
Joshua Lenon 9:40
Yeah. And so mid sized law firms and they’re, they’re actually a much smaller percentage of law firms in general, leaning into this financial technology, but in our own data, the ones that are leaning into financial technology and client experience and consumer convenience. They’re actually getting paid twice as fast. Yeah, yeah, yeah.
Greg Lambert 10:00
Time on recovery is very important. Are you guys building some of these? Are you enabling the fintech?
Joshua Lenon 10:09
Yeah, actually, we we’ve actually built our own payment processing solution. We call it Clio payments. And it does a lot of the things that I’ve talked about, like accept fees into into trust. Interestingly, we also have a mobile app for clients. And when mid sized law firms are using that app with their clients, so there’s an app for lawyers, and there’s an app for clients, we find that they’re getting paid faster, too. And they’re even seeing a decrease in their collection lockup, which is the amount of money that’s been billed, but just is locked away and somebody else’s bank account. Yeah. And so we didn’t expect a client mobile app to improve the speed of client payment and collections. But it really did it drops, it was the most significant decrease in lockup for midsize law firms. So there’s a lot to unpack, not just in in our general legal transport, but then when you break it down by firm segment. So this is really exciting for us. We’re going to be doing a solo version later this year as well, taking a look at again, some of the similar similar pieces of information. But now how is it different for a solo law firm?
Marlene Gebauer 11:30
Would you say there are any lessons to be learned for large law based on based on the results?
Joshua Lenon 11:37
I think large law actually is looking at small law and taking a lot of the lessons when we read other research into like the am law 100. And the amount that they’re announcing that they’re going to invest in technology, right? They’re easily eclipsing what’s being spent by mid sized law firms right now per lawyer, right. And when we look at, again, solo small law firms, we see that they are much more likely to leverage all of the features of the technology they have in Clio, rather than just a portion of it. And so I think we’re seeing kind of the middle child of midsize law firms who are successful, there’s no doubt about it. Right? Their revenue has gone up significantly over the last number of years. But it’s not they’re not as good as they can be. Because they’re not leveraging technology, like the smaller law firms to its maximum potential. And they’re not investing in technology, like these big law firms. And so the question is going to be is, is how long can that continue?
Greg Lambert 12:47
Well, I noticed that unlike a lot of companies out on the floor, you did not change your name to clio.ai this year.
Joshua Lenon 12:54
No.
Greg Lambert 12:57
Seems to be a trend. Yeah. But I know that you are looking at integrating AI tools, of course, AI yourself not new. Yeah, the generative AI is kind of what everyone’s thinking about now. So what when people stop by your booth? What are you showing them that’s on the horizon?
Joshua Lenon 13:15
So, we are building our own in house AI tool. We’re calling it Clio Duo. And it’s going to be a chat based interface, allowing a law firm to explore their own firm data. So rather than it being ChatGPT, where you can just ask it anything, right? And then it comes back with these hallucinated answers is going to be a chat based interface. But instead, it will look for answers within your own law firm data, and try and raise things from that. So it could be that you asked a question like, hey, what was that address that my client lived out three years ago? And because you have their their documents loaded in writing go, Oh, here’s a document from three years ago, with your client and an address. It’s just the one you want. Um, you can also ask it about firm performance, like, How many hours did my paralegal build this month? What’s our utilization rate for the firm? And you can give you that type of information back. And as we we learn more about what law lawyers want from that type of chat based interface, then we’re going to take a look at potentially suggestions. Right. So when somebody uploads, say, a tranche of discovery, right, the AI might recommend, hey, do you want me to go in in bait stamp some of these documents? Or do you want me to potentially draft like responses based on the information that we already have? Like, what was that clients address from three years ago? Right, if that’s a question, you could surface that data for you. And I think really excited about that as our future functionality, because I think that’s where we really Start to leapfrog into massive productivity gains to the benefit of the lawyer and the client. So it’s not taking work away from the lawyer. It’s taking drudgery away from the lawyer so that they can work.
Marlene Gebauer 15:15
So I was curious, it’s like, how are you addressing client security concerns about?
Joshua Lenon 15:21
So that’s actually a really great question. The issues with it, have to part it’s part technical. And I’m a lawyer, that’s lawyer in residence. So I will badly explain the technical concepts to the best of my lay understanding. But there’s also contractual and that’s always been the case with legal technology is you need to rely on both contractual and technological constraints on your vendors, in order to protect client confidentiality. So in the model that we’re looking at, there’s basically two portions that are very important for it to function. There’s the LLM the Large Language Models, right. And that is really based on a wider set of data, mostly done by these AI companies, right? They scrape the web. From that they build these predictive models on how to answer questions, how to converse, in that chat, like format, right. And potentially, what type of words string together well, whether or not they’re true is outside the bounds of the LLM. And then on the other side, you have what the people are calling the corpus, which is the body of knowledge that you can direct that LLM at and say, when you answer the question has to be from this corpus. And for Clio’s, AI tool, Clio Duo, the corpus will be the customers files themselves. And so the only people looking at that are going to be the lawyer and their clients, and the LLM, processing it on behalf of them both, right? It’s a directed tool. It’s not something that Clio is doing in the background all the time. And so it’s just like, the search field in any practice management, right? I want to look up John Smith, show me John Smith. That’s a processing, it doesn’t change the data, it doesn’t extract it to be used by another firm. It just finds John Smith for him. And here, we actually see the Clio duo AI tool working very much in that same way. Look at my data, do something with it, but only for me and my client.
Greg Lambert 17:39
So crystal ball question. Yes, Crystal? Ball. Yeah. So I think you know, the drill here, so peer into your crystal ball for us. And over the next two to five years? What are you seeing as a as a change or challenge that people should be aware of?
Joshua Lenon 17:59
I think a lot of AI is going to be limited by the Microsoft Word interface. Explain that. So anyone who has practiced law, I’m going to use it through the Microsoft interface is that you spend the majority of your time creating documents, and the most widely spread word processing tool, by far is Microsoft Word. I’m old school, I still have a preference for WordPerfect. I don’t use it because nobody else does either. Right. And so the need for lawyers to have those productivity gains from Ai, will most often then go into Microsoft Word. Find that clients address from three years ago, right? Okay, so now I put it in the on answer to an interrogatory that I’m I’ve been drafting or now I put it in as part of a fact pattern in a pleading, or now I’m putting that in as proof of an alibi from a crime three years ago, right. But most of those things are gonna be done in Microsoft Word. And there’s only so much we can cram in there. So at some point, we’re going to have to wrestle with the fact that Microsoft Word is limiting productivity for lawyers. And what comes next is going to be, I think, just a game changer. It’s almost unfathomable to see the shift from this blank page that we’re so used to staring out on our screen to something that’s much more interactive, something that’s guided, something that enables you to have multiple data sources open at the same time in a user friendly way. Such that we’re not just scrolling the infinite white page of Microsoft Word. Yeah. So that’s my crystal ball, Microsoft words in the crosshairs.
Greg Lambert 19:47
And the thing that immediately popped in my head is, is Clippy going to be the new copilot?
Joshua Lenon 19:54
I know, right?
Greg Lambert 19:55
I think it makes sense to me clip,
Marlene Gebauer 19:57
we saw the meme could be like, it’s so
Joshua Lenon 19:59
As our other that’s coming back around again, right? The universally reviled Hey, it looks like you’re drafting a letter. Do you want me to help you? Yeah, yeah. But now, we might actually have a tool that can help us. So do we bring back Clippy? Yeah.
Greg Lambert 20:15
I’m pro Clippy.
Joshua Lenon 20:17
Me too.
I think the user experience was poor. I don’t I don’t need a mascot.
Marlene Gebauer 20:22
I was like it.
Joshua Lenon 20:25
Agree to disagree.
Marlene Gebauer 20:27
I know. It was fun. It was fun.
Greg Lambert 20:29
Well, Joshua Lenon, from from Clio, thank you very much for letting us grab you right off the street. And so you down in front of the mic.
Joshua Lenon 20:38
Yeah, just came by to say hi. But this has been a great conversation, think I’d be careful what you do.
Marlene Gebauer 20:45
And of course, thanks to all of you, our listeners for taking the time to listen to The Geek in Review podcast. If you enjoyed the show, share it with a colleague. We’d love to hear from you. So reach out to us on social media. I can be found on LinkedIn or on X at @gebauerm and on Threads at at @mgebauer66
Greg Lambert 21:04
I can be reached on LinkedIn or you can go to X which we were talking about getting less and less on there. But I am there you can reach me at @glambert. So Joshua, if someone wants to learn more about Clio or reach out to you, what’s the best way?
Joshua Lenon 21:19
Oh, great. I’m on LinkedIn as well. Joshua Lenon, l e n o n. I’m actually trying out a new social media site called blue sky. Yes. Oh, again, vendor, Joshua Lenon. there as well. And if they want to learn more about Clio and then legal Trends report for mid sized law firms, please go by clio.com that clio.com/enterprise and that will take them right to our our, we actually have a mini site now focusing on mid sized law firms, and all the great resources that we can provide them as a software company, but also these free reports like the legal Trends Report.
Marlene Gebauer 21:55
Very cool. And as always, the music you hear is from Jerry David DeCicca. Thank you, Jerry.
Greg Lambert 22:00
Thanks, Jerry. All right. Thanks, guys.