Career Alternatives, Technology

Why Legal Entrepreneurs Should Be Unreasonable, But Not Irrational

Here are three attributes vital for startup success, according to lawyer turned entrepreneur David Perla, now president of Bloomberg Law.

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If all actors really want to be directors, it seems that all lawyers really want to be entrepreneurs. I’m tempted to think so anyway, based on the way lawyers react after hearing that I, and many other lawyers, successfully transitioned from practicing law to starting a business. Frequently I get a wide-eyed stare, followed by highly interested questions along the lines of: “How did you make the leap?”

The good news for the many lawyers dreaming about becoming entrepreneurs is that they are desperately needed in our profession. There is massive need for innovation in the legal marketplace, and that innovation is not going to come from large law firms. (That’s not a criticism. Big firms know what they do well—practice law—and they stick to it.) The necessary innovation is going to come, rather, from outsiders. Given this advantageous landscape, should every associate who has ever dreamed of starting a business quit tomorrow? Of course not. Instead, I would encourage all would-be legal entrepreneurs to consider whether they have three attributes vital for startup success.

First, they should posses the perhaps naïve assumption that they can make it. Given the failure rate of startups, and the opportunity cost of not using one’s legal degree, any attorney entrepreneur must possess unfounded optimism about their prospects for success. Startups are inherently risky, and most won’t make it, thus, such confidence is entirely unreasonable, and yet it is in no short supply among lawyers.

Second, the would-be entrepreneur must be willing to change their perspective from that of a lawyer to that of a business person. Specifically, they have to shed the risk aversion of a lawyer and place a priority on moving their business forward. When approaching a deal, for instance, they should be focused on getting it done and extracting value from it, rather than poking holes in it. The instinct toward caution serves lawyers well, but if they can’t break free of it, it’s likely to limit their business success.

The third attribute is the one that I most often see missing in legal startups: an appreciation for the problem that the business is trying to solve. This attribute requires rational thinking, which should be a strength of lawyers. And yet, many legal startups are built around problems that affect only a small number of people, or are inconsequential, and/or can’t be solved. The types of problems around which businesses can be built, by contrast, are ones that people will pay to solve and which are scalable.

Many entrepreneurs jump in early, before determining if that’s the case. LawDingo illustrates this point. As CEO Nikhil Nirmel pointed out at a recent Legal Startups Pitch Night hosted by Penn Law at Bloomberg, the “find a lawyer” company experienced years of stagnant revenue. In spite of the many similar companies out there, I’ve still seen little evidence that finding a lawyer is a big problem for consumers. Only when the company realized that it could solve an important referral problem for professional service providers and focused on solving it did its revenues increase.

An important corollary to the fact that startups should appreciate the problem they’re solving is that they should, optimally, use the most efficient, accurate, and scalable tool to solve it. Crowdsourcing is hot at the moment, but if an algorithm can solve the business problem better than crowdsourcing, use the algorithm. Algorithms are inherently more scalable, more testable, and faster than crowds. I recently watched a pitch from a young company that is using crowds to annotate code and answer legal research questions, in each case for free. Given that annotated code and core legal research are already largely commoditized, one evaluator asked how the company planned to ever make money. The answer was that the company expects, over time, to discover new insights from the crowd, and to monetize those insights. In other words, the company isn’t actually solving a problem, nor does it know what its sellable product will look like. I was left wondering if the crowdsourcing aspect was simply a solution in search of a problem, especially given the prevalence of machine learning solutions in legal research, and the vast number of existing low-cost legal research providers.

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I admire the unreasonableness we’re seeing in the legal startup market today. But I fear that too many young lawyers are also being irrational – and not looking before they leap.

At Pangea3, the legal outsourcing company I started, we wound up working backwards. We had a solution—legal resources in India—but didn’t know immediately whether it had a matching problem. When my co-founder and I began asking corporate legal departments how they handled high-volume legal work, we kept hearing the same thing: if you create a company like that, we would use it.

Only then did the two of us look at each other with a wide-eyed look and say: “It’s time to make the leap.”

David Perla is the President of Bloomberg Law and Bloomberg BNA’s Legal division. Perla plays a key leadership role in the continued growth of the company’s legal business, which includes legal, legislative, and regulatory news analysis and the flagship Bloomberg Law technology platform. You can reach David at dPerla@bna.com and follow him on Twitter at @davidperla.

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