The Rise of the Legal Virtual Office

By Stephen Furnari - September 18, 2015
The Rise of the Legal Virtual Office

A look at the past, present and future of the legal virtual office.

Our profession has been under intense economic pressure for nearly a decade. An impotent economy combined with the rapid rise of non-lawyer legal services companies means there’s less work to go around and downward pressure on fees.

Lawyers struggling to stay relevant have been seeking different ways to create efficiencies. One such way is to drastically reduce a firm’s office footprint, or eliminate it altogether by practicing virtually.

But virtual practice isn’t a new phenomena. In fact, it’s been around in various forms, and called by different names, for decades before “the cloud” was anything other than a meteorological term for something that may require an umbrella.

In this article, we’ll take a look at the past, present and future of legal virtual office rentals, and see if we can make some predictions about our professional destiny.

Virtual law practice has existed for decades, when “the cloud” meant you may need an umbrella Click To Tweet

Understanding the Nuances of Virtual Lawyering: VLOs, VLFs & VLSs

If there’s one thing lawyers understand, it’s that language matters. The placement of a comma in a statute can mean the difference between winning or losing at trial.

But when it comes to lawyering, the term “virtual” is often used to describe very different things. Yet these subtle differences can have a meaningful effect on an attorney’s compliance with ethics rules.

So in an effort to set the record straight, here’s a quick summary of virtual terminology as it relates to the practice:

Virtual Law Firm

A Virtual Law Firm (VLF) is a law practice that does not utilize a central office to house attorneys or permanent staff. Instead, the firm’s attorneys work from wherever they choose (most often their home). The firm relies on SaaS applications to securely store client documents and communicate with clients. It increases and decreases support staff on a per-project basis. VLFs are also referred to as virtual law practices.  Some Virtual Law Firms maintain Virtual Law Offices (see definition below) to receive mail and meet with clients, while other firms conduct all business online and never meet clients in person (a Pure Virtual Law Firm).

Virtual Law Office

A Virtual Law Office (VLO) is an unbundled office rental arrangement where firms get the business presence of a traditional office and have access to its resources, such as an address to receive mail, a physical location to meet clients, conference rooms, receptionist and admin services, and temporary office space. The difference is that attorneys pay for the services only when they need them. VLOs are often sold in “packages” with higher priced packages including more services. Attorneys using VLOs work primarily from another location, which can be the attorney’s home office as in the case of a VLF, or a traditional bricks-and-mortar office in another location.

Virtual Legal Services

VLFs and VLOs are not to be confused with Virtual Legal Services (VLS), which are actual legal services that are provided and delivered exclusively online using SaaS applications. VLSs include services performed by attorneys and non-lawyer legal form companies like RocketLawyer and LegalZoom.

In the case of VLSs performed by a law firm, often these services are “unbundled” meaning that the client performs some or all of the services themselves with the guidance of an app and the lawyer intervenes on a minimal basis, if at all.

But VLSs performed by attorneys are different from those of non-lawyer form companies in that, assuming jurisdictional compliance, attorneys can render legal advice as part of the transaction, which the non-lawyer entities, at present, cannot.

The Origins of the Legal Virtual Office

Search the Web for the first law firm that practiced “virtually”, and UK family law firm Woolley & Co. gets mentioned a lot. Touted by some as the “first recorded virtual law firm”, in 1996 Andrew Woolley completely abandoned bricks-and-mortar law practice when he started his solo practice.

Other than a registered office address, Woolley had no bricks-and-mortar presence. Nineteen years later, Woolley has 22 lawyers and still practices virtually.

Woolley may well  have been the first firm to fully replace a traditional office with technology; however, to say that Woolley & Co. was the first legal virtual office is inaccurate. Law firms embraced virtual practice decades earlier than Woolley, and well before the term “virtual office” was even coined.

The First Virtual Office Service for Lawyers

In 1970, California attorney Paul Fegen launched the first of his many full-floor, full serviced law office suites. Considered by many to be the founding father of today’s shared law office suite, Fegen’s company Attorneys Office Management, Inc., which most attorneys simply referred to as Fegen Suites, grew to 220 locations in 26 states before filing for bankruptcy in 1983.

Attorneys Office Management began providing virtual office services to law firms in 1973 when one of Fegen’s law suite tenants wanted to partially retire.

“The attorney approached me about giving up his office space but continued to pay us to collect his mail and answer his telephone,” says Fegen. “He then worked from his home, but still met clients in our conference rooms and used our law library.”

“Lawyers who heard about the arrangement just started coming to me,” says Fegen. Often those clients wanted to retire or accepted in-house jobs, but still wanted to keep a small private practice.

Fegen says he never advertised this new virtual service, which he referred to as his “off-site tenant program”, and he only offered it in the Beverly Hills location.

The driving force behind the first #LegalVirtualOffice service: the semi-retired solo Click To Tweet

But as word spread about Fegen’s off-site tenant program, out-of-town firms started contacting Fegen about setting up satellite offices in his Beverly Hills location. “It started with firms in Orange County using our Beverly Hills office as their L.A. County headquarters, and it grew from there,” says Fegen.

At the time, Fegen charged $100 per month for mail collection, full access to conference rooms and other amenities, which included access to a full law library. Lawyers would pay an additional $100 per month if they wanted their phones answered. Incredibly, about the same cost for virtual office services 40 years later.

Fegen Suites was a game changer for virtual legal practice because it provided lawyers with a low-cost, reliable way to purchase unbundled office services (business identity, reception, secretarial, mail and paralegal) on an as-needed basis. It enabled lawyers to untether themselves from traditional office space at a time when technology wasn’t available to support the virtual practice of law. The practice was still very labor-intensive and, until Fegen, required a sizeable office footprint.

According to Fegen, by 1983 he was providing virtual office services to over 100 law firms in his Beverly Hills law suite, with three full-time staff members dedicated to the company’s virtual clientele.

The Legal Virtual Office Pre-Fegen

Fegen’s experience with his off-site tenants simply highlights the fact that there was always demand for “unbundled” office services by attorneys who, for various reasons, couldn’t justify the full expense of maintaining traditional office space.

Solo attorneys had been sharing space in small law suites long before Fegen’s first full floor suite in Beverly Hills. Even Fegen himself started his career in a five-office shared legal suite.

According to Fegen, shared spaces like this were all over back then, as they are today. These small legal suite shares were the only option for solos who couldn’t afford to own a building or lease office space directly from a landlord.

Since the very beginning of solo practice, the reasons underlying the need for virtual practice have always been there. Lawyers who wanted to scale back their work, moonlight or expand into new cities without carrying the full cost of an office rental either had to negotiate virtual office deals with their friends or not practice at all.

So it only makes sense that ad hoc legal “virtual office arrangements”, like the first one presented to Fegen, were taking place well before Fegen realized there was a business to be made out of it.

The “Virtual Office” movement goes mainstream

Fegen sparked a movement that was soon followed by many others.

According to executive suite industry expert Frank Cottle, by 1979 there were over 500 “executive suite” operations in North America with concentrated pockets of them throughout California, New York, Georgia, Texas and DC, and approximately 90% of these executive suites offered some form of virtual office services by this time.

“They were generally offered under the product name of ‘corporate identity plans’, ‘business identity plans’ or ‘executive identity plans’,” says Cottle, who is chairman of the executive suite industry trade group Alliance Business Centers Network.

According to Cottle, the term “virtual office” wasn’t commonly part of the industry lexicon until the late 1990’s.  

Considering that 20% to 30% of all executive suite clients are attorneys, that’s a lot of lawyers working virtually, and well before Woolley in 1996.  

Improved office technology accelerates law firms’ detachment from bricks-and-mortar

During the 1980’s, the office technology needed to advance virtual practice improved dramatically. Word processors, personal computers, voicemail, auto-attendants and fax machines began to eliminate some of the layers of staff required to run a law practice. In most cases lawyers still had to be connected to a bricks-and-mortar office, but required a much smaller footprint than ever before.

It wasn’t until the mid-90’s when office technology could support a law firm’s full extrication from a bricks-and-mortar office. Harnessing the power of the Internet, law firms that weren’t afraid of technology could make a go of Pure Virtual Practice.

Wooley started the Pure Virtual Law Firm movement in 1995. But it wasn’t until 2002 that the first full-service, Pure Virtual Law Firm relying exclusively on cloud-based applications was formed in the US. That firm, FisherBroyles, LLP, was followed by high end firms Virtual Law Partners and Rimon P.C in 2005, and several other small firm practitioners.

The economic turmoil of 2008 pushed attorneys who had few job opportunities into virtual practice

The economic collapse of 2008 accelerated the number of lawyers practicing virtually. Internet bandwidth and SaaS applications needed to run a virtual law firm were readily available, making virtual law practice an affordable option.

Technologically adept practitioners, in particular recent graduates of law school, began opening virtual law practices in lieu of protracted and fruitless job searches.

This was the case with Minneapolis estate and business attorney, Jayne Sykora, who started a law practice with friend Jennifer Santini after spending a few months job hunting. Sykora and her partner weighed their options about office space. Concerned about how quickly they could generate revenue from new clients, the partners decided to start their firm as a legal virtual office.

Like many young lawyers starting firms, they decided initially to rent a virtual office from an executive suite operator. This gave the partners a convenient bricks-and-mortar presence and a place to meet with clients, but at a very low cost.

In a 2011 article, North Carolina attorney and virtual law firm advocate Stephanie Kimbro estimated that there were 200 to 300 virtual firms in the US. But by all accounts this number seems very low and may have been representative of Pure Virtual Law Firms only, not the hundreds of attorneys who practice virtually, but maintain the appearance of a bricks-and-mortar office with a Virtual Law Office.

Says ABA: Legal virtual offices decline in 2013

By 2013, the number of lawyers who describe their practice as being “virtual” declined to five percent (5%) in 2013 from seven percent (7%) the year prior, with seven percent (7%) of all solo attorney respondents describing themselves as having virtual practices, according to legal blogger Robert Ambrogi’s summary of the 2013 ABA Legal Technology Survey Report,

Commenting on the ABA study, DC attorney and solo practice thought leader, Carolyn Elefant, suggested that the decline may have been attributable to a faulty business model. Elefant pointed out that many virtual office lawyers were relying on a stream of low-end, one-off cases and VLSs, which was unsustainable.

According to Elefant, this type of business model can’t work without the kinds of economies of scale that solos and smalls don’t have. Many attorneys just couldn’t earn enough to survive.

The challenges of the modern day legal virtual office

Elefant acknowledged that the 2013 ABA study wasn’t sufficient evidence to draw any permanent conclusions. But still, virtual practice is not without its challenges.

The two most common complaints by work-from-home lawyers is that it’s difficult to stay motivated and it can be very isolating.

By not working from an office space every day, virtual lawyers miss out on easy opportunities to collaborate with other attorneys or exchange referrals. As a result, virtual office attorneys can be at risk of experiencing lower efficiency and less revenue.

This conclusion is supported by several studies that found that lawyers who work from traditional office space with other attorneys earn at least 30% more than their virtual office peers.

To be successful, virtual attorneys have to be more diligent than their office rental peers about getting out of their office and staying connected to the legal community.

What types of firms are making virtual practice work for them?

This being said, there are plenty of attorneys who successfully operate virtual law practices. Attorneys who spend most of their day in court seem to do well with a Virtual Law Office.

This is the case for Richmond, Virginia attorney Cassie Baudean, who is frequently in court on family law matters. A traditional office didn’t make financial sense because she was rarely there to take advantage of it. Baudean instead chose a virtual office rental.

Similar to Baudean, New York criminal defense attorney Charles Sanford Smith wanted to keep overhead low. In an interview in Jurispage, Smith described how he chose a virtual office over traditional space because, for a very small spend, he got access to an office in a premium location, plus he had access to multiple meeting places.

But Baudean and Smith have practices where they must routinely get out of the office for court, so staying connected with colleagues is just part of their everyday routine. On the other hand, a corporate attorney who mostly drafts agreements and rarely sees clients must be very disciplined about getting out of the house.

Another group of attorneys finding success with virtual practice are firms that have a group of experienced practitioners. Firms like Virtual Law Group or the Seattle firm Advocates Law Group (ALG) appeal to seasoned practitioners who like the collegiality of working in a firm, but desire greater professional flexibility than a traditional firm can provide.

Employment lawyer George Tamblyn joined ALG after a 10-year “retirement” in academia. Tamblyn said that after having worked in biglaw earlier in his career, he was not interested in returning to practice at a traditional firm at this point in his career. Tamblyn chose ALG because it more adequately met his needs.   

A virtual law practice like ALG is a great opportunity for those attorneys who want greater work-life balance, but still want to do sophisticated work. For many, virtual firms like ALG are a much easier transition than going solo.

Managing these virtual firms can be tricky though. The two biggest challenges seem to be creating and maintaining firm loyalty, and maintaining some control over the virtual lawyers.

According to UK publication Infolaw, most virtual firms seem to be coping by being disciplined about holding regular in-person meetings.

The future of the legal virtual office: The Hybrid Firm

The virtual practice of law spawned incredible innovation that’s being adopted by virtual and bricks-and-mortar firms alike. For example, client portals, which were once the domain of Virtual Law Firms, are being used routinely by bricks-and-mortar firms.

As technology continues to improve and the principles of virtual practice become more accepted by attorneys and their clients, the profession will likely see firms adopting bits and pieces of virtual practice on an ever-increasing basis. Firms of tomorrow will borrow virtual office best practices, spawning hybrid firms designed to meet professional needs and client demand.

Here are a few examples:

The Law Firm Collective

If you can keep your brain sharp, law is one of those professions where you are able to work well into your senior years. As baby boomers continue to reach retirement age and Gen-Xers take on the responsibility of caring for aging parents, some of these attorneys will start to leave full-time firm practice for more flexible work arrangements.

Many of these attorneys are used to firm admin work being done for them and appreciate the collegiality of working alongside other attorneys. The additional responsibility and isolation that comes with solo practice may not be appealing.

The Law Firm Collective is a consortium of solo-type practices that operate under one brand, share overhead and collaborate when client matters require it. There are no associates in a Law Firm Collective and minimal staff.

The Collective has an eat-what-you-kill compensation structure that is based on a percentage of billables, but attorneys are paid out at a much higher percentage than traditional law firms since there’s fewer staff and fixed expenses.

Baby-boomers and Gen-Xers with aging parents will pursue #LegalVirtualOffice in greater numbers Click To Tweet

Attorneys without portable business may find opportunities in a Law Firm Collective as “hired guns”, but with less frequency since they would be relying on other attorneys for overflow work, which may be inconsistent.

The Law Firm Collective will operate mostly as a virtual law firm, but many firms will have some form of scaled back bricks-and-mortar presence, possibly in multiple cities, enabling lawyers to work from an office when they want to.

To keep overhead low and limit long term financial obligations, Law Firm Collectives will choose flexible office space arrangements in professionally managed shared office suites over long term office leases. If the firm does lease office space on a long-term basis, it will be a much smaller footprint than a traditional firm.

British Columbia, Canada firm Heritage Law is a great example of a Law Firm Collective with a partial bricks-and-mortar footprint.

The Geographic Opportunist

As non-lawyer legal form companies continue to eat up market share for low-end legal work, an increasing number of law firms will be competing for the more sophisticated transactional and litigation work that remains.

Some firms will seek profitability by concentrating their practices on niches of niches; for example, doing employment defense work only for cardiology OEM medical device manufacturers.

To continue to grow, these firms will be forced to expand into new cities to land new business.

Many of these firms will be boutiques with fewer than 20 lawyers. Spending tens of thousands of dollars to open a new office space in a city with unknown market potential will not be a risk these firms can take on.

The Geographic Opportunists will open offices in new cities using virtual office rentals. Short-term, low cost contracts will give the firm an opportunity to test a new market (or several new markets at once) with very little financial exposure.

The virtual office rental, together with utilizing virtual law firm tactics, will enable the Geographic Opportunist to create a “local” presence while operating full-time from their base location.

Urban trust and estate lawyers are routinely doing this in neighboring suburban cities (and vice versa), as are personal injury firms and real estate closing practices.

Aspiring B&M Startups

Lawyers may be the slowest of the professions to adopt changes in technology or business practices. But with respect to virtual office rentals and virtual law firm software, the cat’s out of the bag.  

Lawyers looking to start practices on a shoestring budget will do so increasingly with a virtual office, foregoing the expense of a traditional office space (at least initially).

The merits of this decision are the subject for a different article. But the reality is, there will be plenty of attorneys who choose a virtual office as a launchpad into a permanent office rental once they can afford it.

After two years of virtual practice, Jayne Sykora reports that she and her partner have moved into a permanent office they share with four other small firms.

“Starting the business with a virtual office worked really well for us initially,” said Sykora. “It kept our overhead very low and it was convenient.”

But, says Sykora, “as our business grew, we found that we were not being as efficient as we could be because we were doing so much running around for meetings (both client and networking) during the week.”

The two attorneys found that they had to work nights and on weekends to get the actual client work done. Sykora’s firm moved into permanent space to be more efficient with their time and schedules.  

So far it’s working: the firm recently celebrated their five year anniversary.

Arizona bankruptcy attorney and legal blogger John Skiba has a similar story. After starting his practice (for a second time), Skiba worked from a virtual office rental for two years until the practice could support a permanent office rental.  Skiba reports that the transition period as a virtual practice reduced his overhead tremendously.

Latent Market Innovators

According to the Legal Transformation Institute there are 23 million small businesses in the US. Roughly seven million did not seek the help of a lawyer when presented with a significant legal event. Those that did get legal help reported that they spend on average $7,600 per year. This creates an untapped market (those who avoid lawyers) equal to roughly $45 billion. And that’s just small business.

On the consumer side, according to Direct Law CEO Richard Granat, 50% of U.S. middle income households have at least one legal problem per year, but only 20% seek legal assistance from attorneys, and 26% do nothing at all. Granat also estimates the size of the latent legal market to be $45 billion.

 Legal Virtual Office | Size of U.S. Legal Market

While an increasing percentage of consumers are seeking alternatives to lawyers, such as online self-help resources like Nolo and LegalZoom, those companies cannot give legal advice and therefore can only get part of the job done.

Here’s the reality: How many times have you, with your law degree and years of experience, picked up a form book in a practice discipline other than your own and arrogantly thought that you could get some piece of work done, only to find that it was way above your pay grade and you’d be at serious risk of committing malpractice?

Now, confront the average American with a legal issue and ask them to (1) assess the issue, (2) deduce all the potential problems and contingencies that could arise, (3) select the right forms to begin to solve the problem and complete them accurately, (4) file them with the correct agencies, courts or adversaries, and (5) properly follow up with the next phase of the case without blowing the matter up.

Even with the assistance of a non-lawyer legal service’s complex algorithms, it’s not easy playing lawyer.

There’s a market for legal advice that’s somewhere in-between full-service lawyering and legal forms services. Virtual Law Firms have tried to make a dent in this market but have failed to generate enough volume business to be sustainable in any meaningful way.

But this market is too big to ignore and the technology for lawyers to access it is getting better by the day. Accessing this market in a profitable way will require the use of virtual law firm techniques combined with software to provide unbundled legal services.

Those who figure out a scalable marketing and operations platform will be well positioned to take advantage of this market opportunity. Improvements in technology on all fronts should make the latent legal market more accessible to small firm practitioners, and easier to run a sustainable, if not lucrative, practice.

Unless the bars start giving up their monopoly on legal practice, Virtual Law Firms that can profitably service the latent legal market will start to take over an ever greater share of this market.

Courthouse Hustlers and Faux B&M Solos

As legal virtual office practice becomes ubiquitous, with increasing frequency the lawyers who spend the majority of their day in court will simply use a virtual office address, possibly at a suite that has coworking type hot-desk space where they can come and go when they need to. For lawyers like Cassie Baudean, a traditional office, even in a shared law office suite, makes no financial sense unless she wants to level up her practice by hiring staff.

But not every solo lawyer has aspirations of managing a team of full-time staffers. Many are quite content working as a one-person-army and using virtual contract help when needed.

The same can be said for the dozens of attorneys who work from home for personal or lifestyle reasons but, out of necessity or ego, want the “appearance” of a traditional office space. These lawyers will continue to use virtual office rentals as their firm’s official place of business.

The lesson from decades of virtual officing

A week ago I got a call from a panicked client whom I am helping with an estate matter. A family member got into some legal trouble, there were some problems with a pending lawsuit and, to the client, the world seemed like it was crashing down on her.

This client lives in New Jersey, I’m in Florida and my law practice is run from a Virtual Law Office in New York. Welcome to the new era of law practice.

We chatted by phone for a while, discussed all of the issues and made some decisions about how to move forward. But most importantly, I was someone who understood her needs, the unusual dynamic between her family members, and the quirks of the law firm representing the estate in the lawsuit. Oh, and I can also advise her on the law.

As a profession, this is what we do. We spend months, even years, building relationships with clients. We help them get through difficult legal issues. It’s what we have done for decades, only now, technology enables us to do it from just about anywhere.

This technology may help us get work done faster. It will allow us to choose whether we want to work in traditional office space or out of our homes. It may even take some work away from us.

But until computers can start to practice empathy, we’ll be in good shape.

So at a time where there’s some uncertainty about the attorney’s future role in the delivery of legal services, our choice not to be constrained to traditional office space will not change the fundamentals of what we do best, but instead will give us the additional flexibility needed to remain relevant in a rapidly changing market.

About Stephen Furnari

Stephen Furnari is a self-employed corporate attorney and the founder of Law Firm Suites, the operator of coworking spaces for law firms. Through Law Firm Suites, Furnari has helped hundreds of attorneys launch and grow successful law practices. He is the author of several eBooks, including “7 Deadly Mistakes that Prevent Law Practice Success” and “An Insider’s Guide to Renting the Perfect Law Office”. Stephen has been featured in the ABA Journal, Entrepreneur, New York Daily News and Crain’s New York. Connect with Stephen on Twitter (@stephenfurnari).

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