Competition Is For Losers: The Rise Of Atrium (Part I)

Could these companies solve the legal innovation paradox?

Bebe Chueh and Augie Rakow

Ponder for a moment, what I call “the legal innovation paradox”: in a billable hour regime, efficiency reduces profit. (Let’s call it “The Paradox,” if you are into the whole brevity thing).

Anyone who has worked in Biglaw holds this truth to be self-evident: the more time spent on a task, the happier the partners the more revenue and profit flow to the law firm. In such a regime, how can innovative legal companies (which reduce time spent on tasks) encourage law firms to adopt them?  As a warrior on the front lines of that battle in my day job, I can tell you that it’s quite difficult.

The Paradox is perplexing to those outside of the legal industry.  They think, logically, if you can reduce the cost of your product or service (below that of your competitors), you should be able to gain disproportionate market share and thus profit.  But the problem is that very few lawyers believe that the gears of commerce, which work so well in other industries, apply to legal. And, it’s hard to convince a bunch of millionaires that their business model is broken!

The Atriums: Solving The Paradox

Enter two legal entities, Atrium LTS and Atrium LLP (hereinafter, “The Atriums”).

Over the next two columns, we are going to explore how The Atriums are working to solve The Paradox — and it is the most interesting and ambitious story of legal innovation I have come across since launching alt.legal (although not all my colleagues at ATL necessarily agree).

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First, let me try to explain The Atriums in a nutshell:  The Atriums are two separate, but equally important entities (dun dun):

Atruim LLP is, at its core, a traditional law firm with Biglaw-quality lawyers focused on high-end client representation — for 80% of their work day.  Critically, the other 20% will be focused on testing, integrating and providing feedback on legal technology designed by Atrium LTS (LTS stands for legal technology solutions). Its goal, modestly, is to be “the largest multi-practice law firm in the US.”

Atrium LTS is a venture-funded, legal technology startup with a huge war chest and a technology veteran at its helm.  LTS will build tools and technologies for its sister law firm, Atrium LLP, and eventually the broader legal market. Atrium is truly a baby of Silicon Valley. Founded by serial entrepreneur, Justin Kan, they raised a “record breaking Series-A round,” of $10.5M.

And here is the magic: as part owners in Atrium LTS, both partners and associates have two ways of making a living: the typical billable hour (or other fee arrangement), and the success of the technology in Atrium LTS, which they collectively own. They expect that their efforts in each entity will be self-reinforcing, leading to ever-better results for their clients, more clients due to their success, and ever-better systems through their efforts perfecting the tech products LTS.

Paradox Solved?

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So just who is Justin Kan, and why should we believe he can succeed in legal?

Justin is co-founder of Twitch, a live-streaming video game platform, acquired by Amazon for $970M, and a partner in Silicon Valley’s darling incubator, Y CombinatorWe have had the honor to spill ink over Y Combinator a couple of times  in the pages of ATL. Justin is the newest, and most high-profile, example of Y Combinator nurturing innovative legal companies, and working to explode the traditional legal regime.

Thus, Justin, through founding or investing in nearly 80 companies, became an “involuntary power user” of legal services, and was routinely puzzled by law firm business practices. He saw the problem we all saw, and now is using his tech skill to try to make things better.  

Don’t Be The Taxi Driver Complaining About Uber.

So the world is changing and most of us lawyers don’t like it.  Let’s shake our fists at the Fates and lament the loss of the billable hours of yore.

Or . . .  we can take a look at what the Atrium LLP founders, Augie Rakow (formerly a partner at Orrick) and Bebe Chueh, (founder of AttorneyFee.com, which sold to LegalZoom), are creating.  In my view, the model they have built (high-end law firm, empowered by high-tech proprietary legal technology company), has not been tried before, and is bursting with potential. As Peter Theil puts it, “competition is for losers,” so why not try something promising and new.

Enjoy Part I of my interview below with Augie and BeBe, and email me with questions for Justin Kan, which I will strive to incorporate into Part II.

Joe Borstein: So the Atriums, together, represent a unique business model.  What were the events which lead to their creation?

Augie Rakow: Justin really got this going, because he thought that the status quo in legal was just “head scratchy.”  He couldn’t understand why law firms were not doing things like other businesses.

Moreover, the amount he had spent on legal during his 10+ years founding companies in Silicon Valley blew his mind.  Even when compared to other professional services industries he was spending money on, law firms never marketed to him as a customer.  For example, other professional services companies at least tried to retain and reactivate him as a client after a deal was done.  No lawyer has called him after he sold his company to ask “how did it go”?

JB:  So give me an example of something that doesn’t work as well in legal as in other businesses. 

AR:  Well, the way law firms get clients is totally ad hoc, as I know from personal experience.

You might ask why law firms don’t use their CRM (or Customer Relationship Management program like SalesForce[1]) or why they don’t use a sales team to find new clients.  The reason?   Because they don’t have a CRM or a sales team that really knows the market.  In other words, insufficient investment.

Now, the good thing about law firms is that there is a lot of autonomy for their partners.  But that means, in practice, that the same lawyer does everything.  The marketing, the sales, even the collection and all other functions, so it’s amature-ville across the board.

JB:  So what was your personal impetus for building Atrium LLP?

AR:  I wanted to come to the marketplace with a truly differentiated practice, which didn’t look the same as everyone else in the market, because it was actually better.  At Orrick, I had learned how to sell the way everyone else was doing it, and had built a great book of business.

But the only way to grow under that regime was to sell harder and be ever-more responsive, which hits upon a ceiling of possibility pretty quickly.  Basically, I saw that lawyers were competing on “hustle” and “chipper-ness,” rather than innovation in delivery of legal services.

Peter Theil puts it best when he says “competition is for losers,” but my dad also taught me that to succeed big you need differentiated expertise.  You want a deep and narrow topic where only 5 people in the world have your expertise.

JB:  So how did you try to make your practice differentiated?

AR:  One weekend, earlier this year, I decided I would learn how to automate a financing!  I sat down and wrote out the specs for a program which would eliminate a lot of the heavy lifting.

In March, I told told my wife I had to make a move.  I felt like leaving to do this WAS the risk-averse move. While I loved being a lawyer (with all its beautiful mental abstractions), and liked being a Biglaw lawyer, I hated the logistics of being a lawyer, which were a huge part of the job and of no value to the client.

If I could automate those logistics, and build a differentiated firm, I would have so much more to offer my wonderful rolodex of clients.

My main professional asset was a network of people who would call and ask for advice.  Now it will broadcast an even better message to a high caliber of network, with a message of innovation.  Ultimate business development message.

JB:  So how did startup-maven Justin Kan com into the picture for you? 

AR: Great story.

I had represented Justin’s brother, but didn’t meet him until I commented on a post he had put on Facebook, in which Justin was crowdsourcing what people were spending on their financing:

Poll: how much did you pay in legal fees for your seed round, series A, or series B+? Pls let me know what round it was for as well

I replied with my thoughts on how someone like Justin could keep costs down. From there a private conversation evolved about why the business of legal was so damn broken. We immediately saw eye-to-eye and thought that if we each focused on what we do best, we could make a far better mousetrap.

Bebe Chueh: At this point we had found the founding team.  I led the raise as Augie was still at Orrick.  And I was free as I had finished my earn-out with LegalZoom.  General Catalyst was the lead investor.

JB: Explain to the audience how the law firm works?

AR and BC:  Basically, the law firm attorneys and staff own the technology company and have a responsibility to spend time on it.  Generally, we expect the team to spend 80% of their time on client management and 20% on process improvement, to make the client experience better in sustainable ways.

In exchange for that process work, Atrium LLP employees get advisor equity in the tech company.  The goal is to build amazing technology for ourselves first.  LTS’s second client may be opposing counsel, tired of being run ragged.

JB:  What’s your long term goal with the firm?

AR and BC: Goal is to build the largest multi-practice law firm in the US. And with a fragmented law firm market this is not that far-fetched.

For example, no law firm has taken more than about 1.5% of the market.  We believe this is due to a lack of corporate structure in the firms, and it represents extreme fragmentation, even in the fragmented world of professional services. Also, the law firm will be like a tech company in many meaningful ways.

First, the office itself is in the design district near Air BNB in SF.  It has more staff on the engineering side of the business (LTS) than on the legal side (Atrium LLP), with the goal of making things better/cheaper/faster all the time.

Our fundamental innovation is in creating an economic incentive for long term investment in the operational and business aspects of a law firm.  We will be constantly improving the delivery of our advice while doing the actual advising.

JB: Thanks Bebe and Augie! 

Before I close, I want to revisit an article I did last year with Eddie Hartman of LegalZoom, on the quiet crisis in legal. I reported:

In one hour at FutureLaw, [Eddie] laid out a compelling case that our legal system will remain in a quiet crisis until non-lawyers (you may have heard of them: businesspeople, technologists, marketers and managers) can own shares in law firms, and drive the level of competition, experimentation and change we see in other sectors of our economy.

But did Eddie have it backwards? What if lawyers work for, and own shares in, legal technology companies? Together can they push forward the quality of their legal work product?

Stay tuned for my next installment on Atruim, where I interview Justin Kan and find out why a mega-rich, mega-successful tech guru is taking on legal, and why he thinks Atrium will work where others have failed.

[1] The fact that I feel that have to explain this on ATL is evidence of his point.


Joe Borstein Joseph BorsteinJoe Borstein is a Global Director with Thomson Reuters Legal Managed Services, delivering Pangea3 award-winning legal outsourcing services and employing over 1800 full-time legal, compliance, and technology professionals across the globe. He and his co-author Ed Sohn each spent over half a decade as associates in BigLaw and were classmates at Penn Law. (The views expressed in their columns are their own.)

Joe manages a global team dedicated to counseling law firm and corporate clients on how to best leverage Thomson Reuters legal professionals to improve legal results, cut costs, raise profits, and have a social life. He is a frequent speaker on global trends in the legal industry and, specifically, how law firms are leveraging those trends to become more profitable. If you are interested in entrepreneurship and the delivery of legal services, please reach out to Joe directly at joe.borstein@tr.com.

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