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by Melissa Rogozinski, Chief Executive Officer
A version of this article first appeared in the May 24, 2022 issue of Legaltech News.
After two long years of being brought to our knees by a global pandemic, leading to near-debilitating inflation, we are now facing rumors of a recession. Turn on any news feed, and the conversation either starts with, winds into or ends with igniting public fear about an imminent recession.
Like many of you, I have been listening to podcasts, videos, and a reading from a few other, reliable sources to learn more. An inbox message on Tuesday from my good friend, Raymond Blijd of Legalcomplex, was the flip that switched the light on for me, and I was able to see how all the pieces of this puzzle fit together.
What is a recession, and are we really facing one? If so, what does it mean for law firms and legal technology companies in 2022?
In this special edition of the Lift Your Sales series, we take a look at the elements of a recession, unemployment rates from 2019-2022, and the impact to the legal industry as it relates to business objectives, obstacles, strategies, and solutions to help your business grow.
Elements of a Recession
According to American economist and Masterclass instructor, Paul Krugman, the elements of a true recession are two subsequent quarters of negative GDP growth and the following:
- Rise in unemployment
- Rise in bankruptcies, defaults, or foreclosures
- Falling interest rates
- Lower consumer spending and consumer confidence
- Falling asset prices, including the cost of homes and dips in the stock market
At least two of the five indicators of a recession have not taken place.
Unemployment is not an issue. In 2019, the US Bureau of Labor Statistics reported unemployment of 3.6%, which later spiked to 6.7% as a result of the pandemic in 2020 but fell to 3.9% in 2021 and finally back down to 3.6% as of April 2022. Job postings and hiring also seems hyperactive since January 2022 – just take a look at the frequency of posts in your LinkedIn feed where someone is announcing a new job they just accepted.
Another strike against true recession is that interest rates aren’t falling. The Federal Reserve already issued a .25% rate hike in March, a .50% rate hike in May, a .75% bump is anticipated for June, and some experts are expecting rate increases up to a full 3% by the end of the year. And we should expect more of the same in 2023 to combat inflation. Aggressive rate increases are, however, a trepidatious balance between defeating inflation and starting recession.
Business Objective: Raising Capital
What do the crashes of the stock, crypto, venture and private investment markets have in common?
According to Raymond in his recent post, , “Investors see no path to sustainable organic growth.”
Those companies who spent 2021 raising capital and growing revenue thru acquisition must now get back to the raw hustle and grit of hunting, prospecting, and selling product and services again.
Business Obstacle: Investors and Banks Pulling Back
As I write this article, the famous line from Jerry McGuire, “Show me the money!” echoes in my mind.
But whose voice is it: legal tech, law firms or investors?
LinkedIn Monday Wrap Up – News You Need to Know in 60 Seconds reports, “The tech startup boom is starting to bust. The decade-long era of low interest rates that allowed venture capitalists to make high-risk bets is over,” says The Wall Street Journal, “and consumer sentiment is changing.”
Banks are also calling loans, demanding personal collateral and are not willing to give any more money.
“One VC said, ‘This is a proper correction. The end of a cycle.’”
Business Strategy: Profitability and Sustainability
The podcast episode, As a Founder, Should I Focus on Profit or Growth?, is not just a message for startups. It is a must-hear for any business planning to navigate and survive a potential recession.
The answer, according to Startup Therapy, is to “Focus on profitability, efficiency and operations.”
Now is the time to think like a bootstrapper. Go back to the drawing board and update your client personas for more relevant, buyer-centric content; review marketing analytics to make adjustments to email and social media campaigns; reevaluate your business’s products and services for expanded offers and entry-level pricing; set up integrations, automations and workflows for every marketing, sales and operational process that you can; and keep a careful eye on expenses and income so that you do not spend more than you make.
“There is value to bootstrapping and scaling within means. Operational excellence with limited budget is a highly valuable skill.” (a LinkedIn Member)
Business Solution: Growth by Aligning Marketing with Sales
Your product or service isn’t going to sell itself.
Marketing won’t do it. Sales won’t do it. They must do it together.
On the podcast episode, How to Grow and Optimize Your Business by Financially Free Journey, guest Rachel Anderson, observes, “You’ve got to have a great relationship between your marketing and your sales team. If you’re not getting good, quality feedback from your sales team, then you can’t really make good decisions in marketing.”
Marketing generates leads through acquisition, tech stack sources (website, Google Ads and pay-per-click campaigns), call-to-action (CTA) conversions as well as open and click-thru rates. The problem with MQLs (marketing qualified leads) is that they’re not generally a direct path to growth and revenue.
Sales, however, qualifies leads through methods like BANT, CHAMP or MEDICC. When a sales qualified lead (SQL) is set for a discovery meeting, a true sales executive will also research and write out a strategic account plan (SAP) that helps them get to know the prospect and how to offer solutions they will want to buy.
Both teams should bring their knowledge together and collaborate on buyer personas, educational content, sales enablement collateral, lead scoring and proper use of a customer relationship management (CRM) tool. This kind of alignment will generate targeted leads and stronger pipeline opportunities that help the business grow more efficiently.
Conclusion
With all that said, let’s go back to our original questions: Are we really facing a recession and, if so, what does that mean for law firms and legal technology companies in 2022?
“The reason why most experts have not come outright saying that we are in a recession is because technically we are not – yet. But for law, what matters are the ups and downs of the markets because it determines where the money will be,” Raymond observes.
“Law firms and, subsequently legal tech, generate business from capital or conflicts. They resolve conflicts through courts and contracts, which ensures financial transactions and revenue growth. Discovering who will be in a conflict or needs capital will drive cashflow for law firms. Legal tech, on the other hand, will have to raise capital the old-fashioned way: sales.”
