The Diffusion of Innovation in the Legal Industry: Why User Adoption and Selling Your Tech Business is Harder Than You Think

Throughout my career building and selling several successful technology companies, I’ve gained invaluable insights that would have dramatically shortened my learning curve had I possessed them earlier. Today, as the legal profession stands at the precipice of a technological revolution with new solutions emerging daily, I feel compelled to share what I consider to be the most fundamental lesson for any legal technology provider – a principle that has proven essential across all industries and applies equally to legal tech.

In the legal industry, technological innovation has historically moved at a glacial pace. As AI promises to revolutionize legal practice, understanding the diffusion of innovation becomes crucial for both legal tech companies and law firms. In this article we explain why crossing the chasm between early adopters and the mainstream market presents unique challenges in legal technology adoption.

UNDERSTANDING MOORE’S INNOVATION CURVE IN LEGAL TECH

Over 30 years ago Geoffrey Moore wrote a groundbreaking book about marketing new products to mainstream markets which included critical insight into the dynamics of phased market adoption points – referred to as Moore’s Innovation Curve. Moore’s innovation curve divides technology adoption into five segments: innovators (2.5%), early adopters (13.5%), early majority (34%), late majority (34%), and laggards (16%). The most critical point in this curve is the “chasm” between early adopters and the early majority.

For legal AI technologies, this chasm represents a significant hurdle and here’s why:

There are approximately 1.2 million licensed attorneys in the United States today. Using Moore’s curve, this adds up to:

• Innovators: 30,000 attorneys
• Early adopters: 162,000 attorneys
• Early majority: 408,000 attorneys

To cross the chasm, legal tech companies must convince nearly 162,000 attorneys to adopt their solution and nearly a half a million attorneys to capture the early majority. In this example, the Total Addressable Market “TAM” is 1.2 million attorneys, but you can do the same calculations on niche markets as well using the same percentages based on your adjusted TAM. This is where many legal tech startups will fail.

WHY SELLING LEGAL TECH IS HARDER THAN YOU THINK

1. Legal’s Conservative Professional Culture

The legal profession is inherently risk averse with many attorneys still operating with outdated systems, processes, and environments. Further compounding this problem is the “closed capital” system imposed on attorneys in every state except for recently in Arizona. Despite the reality of three-quarters of hourly billable tasks that can be potentially be fully automated, technology is slowly dragging the legal culture into new realities.

2. Revenue Threshold Challenges

Because larger organizations typically do not innovate fast enough, larger legal tech companies typically require acquisitions to move their revenue needle significantly. A study by Gartner found that legal tech acquisitions generally need to represent potential revenue growth of at least 10-15% to attract serious interest from established players.

To put this into context, the top five legal tech companies have annual revenues ranging from $500 million to over $2 billion. This means a legal tech startup would need to demonstrate potential revenue of $50-300 million to be considered a worthwhile acquisition target by these companies.

3. Adoption Rate Realities

The adoption rate for legal technology has been historically slow. The 2023 ABA Legal Technology Survey Report found that:

• Only 58% of law firms use cloud-based services
• Just 27% use any form of specialized practice management software
• A mere 7% report using AI-powered legal research tools

These figures suggest that crossing the chasm requires not just technological innovation but a fundamental shift in legal practice culture.

THE EXPECTED IMPACT OF AI ON LEGAL SERVICES

Despite these challenges, AI is poised to dramatically transform the legal industry:

• McKinsey estimates that 23% of a lawyer’s job could be automated with current AI technologies
• PwC forecasts that AI could reduce legal research time by up to 80%
• Deloitte predicts that 100,000 legal jobs will be automated by 2030

These potential impacts make crossing the adoption chasm all the more critical. Legal tech companies must find ways to bridge the gap between current adoption rates and the transformative potential of AI technologies.

STRATEGIES FOR CROSSING THE CHASM

For legal tech companies to successfully cross the chasm, they need to:

1. Focus on Awareness for there is no profit in obscurity. Most smaller technology companies are severely under resourced and tend to lack the funds, brand recognition, and assets needed to create rapid awareness in the legal market. Attorneys are notoriously busy, and their email inboxes are flooded, so getting their attention and creating awareness with them has never been this difficult.
2. Focus on specific, high-value use cases rather than promising wholesale transformation. Attorneys are busy and constantly solicited which means their focus is more likely to gravitate to solutions that solve their most latent pains.
3. Demonstrate clear ROI in terms familiar to legal professionals (billable hours saved, increased accuracy). This means the perceived value of your solution must clearly outweigh the costs. In short, you must clearly demonstrate how you can do more for them with less.
4. Address legitimate concerns about confidentiality, security, and ethics. Anything that is remotely perceived as something that could put an attorney’s license at risk will immediately turn off the late/laggard segments of any market.
5. Leverage testimonials from respected early adopters to persuade the early majority. The most powerful influence typically comes from early adopters who most people trust based when buying anything new. All of this ultimately starts with strong community building so get your user base growing rapidly and at scale. As the old saying goes, quantity has its own quality.
6. Think BIG! If your goal is to build a solution and solve a problem, make sure you thoroughly understand how it fits in the bigger picture. Larger companies don’t want to buy a piece of the puzzle unless they can sell the whole puzzle. So, if your goal is to sell your technology to other providers, make sure you fully understand where you fit, and the net benefits you provide to their puzzle and vision once sold. This principle applies to working with investors as well. Smart institutional investors will want to know, first and foremost, the size of your Total Addressable Market (TAM). If it is not big enough to demonstrate the potential of a 100+X return on their investment, they will pass. They don’t want to invest in a big fish in a small pond – no matter how good you are. So, unless you can show them an ocean in which you can swim, don’t expect them to come along for the ride.

IN SUMMARY

The diffusion of innovation in the legal industry follows predictable known patterns, but with unique challenges. Understanding Moore’s innovation curve and the specific barriers to adoption in the legal sector is crucial for legal tech companies seeking to move beyond early adopters and best position their company for investment or sell.

As AI continues to develop, the gap between potential and actual adoption represents both a challenge and an opportunity. Those who can successfully navigate the chasm will not only transform their own businesses but potentially the entire legal profession.

DUSTIN RUGE

Law Leaders