Justin Kan Answers The Call: The Rise Of Atrium (Part II)

Law firms are resisting the adoption of technology or because of the hourly model. Atrium is here to change that.

Justin Kan

By now, you have heard that Atrium is seeking to solve The Paradox, leverage and develop legal technology, and become the largest multi-practice law firm in the United States.

Not surprising, given that Justin Kan, a serial entrepreneur with several successful startups, including Twitch, brings the DNA of Silicon Valley to this venture. Justin has been at the heart of the Valley through multiple successful startups and sits as a partner in Y Combinator, which has helped fund almost 1,500 startups. When everyone in your neighborhood is trying to get to the moon, split genes to cure cancer, or invent the next cryptocurrency, solving the deep problems in the legal industry should be a cakewalk.

Right? Maybe?

Let’s find out. The alt.legal crew, Joe and Ed, are teaming up for this interview with Justin Kan to get inside the head of the Atrium founder on his background, his reasons for starting Atrium, and his strategy to win.

Joe Borstein:  Justin, great to meet you.  Tell me about your background in tech (Y Combinator and Twitch).  Most importantly, I’d like to hear about the parade of horribles you experienced which led you to explode the status quo in legal!

Justin Kan: I’ve been an entrepreneur for the past 12 years, since I graduated from Yale undergrad with a degree in Physics and Philosophy, and realized I had no actual marketable job skills.

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JB: Physics and philosophy? Not the typical Silicon Valley titan.

JK: I think you’d be surprised by how many entrepreneurs got there because they were basically unemployable (Physics and Philosophy is not the most practical of degrees).

But through a combination of hard work, luck, working with the right people, and a healthy dose of ignorance about how painful founding startups can be, I’ve had a few successes along the way. Most notably, against all odds (and professional advice we received), we turned our live video platform, justin.tv, into a platform for watching other people stream video games called Twitch, which was acquired by Amazon in 2014 for $970mm.

In the past few years, I’ve also been an investor here in Silicon Valley as a partner at Y Combinator. The unifying factor in my career across investing and entrepreneurship was that the whole time I’ve basically been an involuntary power user of legal services. No matter what I’ve wanted to accomplish, whether it was raising capital, investing in a startup, or selling a company, legal has always been a cost and a roadblock to the ultimate goal.

Ed Sohn: You may have had more than your share of bad experiences. I apologize on behalf of lawyers everywhere.

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JK: That’s not to say that my experiences were all bad. In fact, I’ve had many lawyers who I felt provided excellent advice and service during important decisions or difficult times. That being said, I always wondered why the law firms that serve the most innovative technology companies in the world rarely adopt innovative software or try to improve their business operations. As a client, I wanted legal services to be more transparent, less often a blocker to accomplishing a business goal, and I wanted to know what I was going to pay for them up front. Why couldn’t any firm make those things happen for me?

JB: Let’s dig on the legal experiences. I know you say they weren’t all bad, but you must have seen a gaping hole in the system before you went out and raised $10.5m. What made you decide to pull the trigger and start Atrium?

JK: Actually my LTS cofounder and Atrium LLP managing partner Augie Rakow was the one who convinced me the idea was viable. I had initially had the idea of building a technology company to improve the delivery of legal services in December of last year, and then spent the next several months talking to lawyers, founders and investors to try to convince myself that it wasn’t a great idea. Lots of lawyers told me it was impossible to change the industry.

Augie, who I had met because he represented my brother’s startup, Cruise Automation, actually was incredibly bullish on the idea. We had a series of long conversations about technology you could use to improve legal for startups. Eventually Augie mentioned that if I didn’t start this company, he would on his own — which really was what convinced me to jump all in.

JB: We attorneys can be persuasive! You must have considered the Legal Innovation Paradox (a billable hour system punishes efficiency) that I introduced in Part One. How do you see The Atriums overcoming this problem?

JK: The Legal Innovation Paradox came up constantly when I observed a few companies that I had funded at YC attempt to sell productivity software to law firms. The constant feedback was always, “it’s useful, but it doesn’t fit into our workflow.” Lawyers rarely want to change their workflow, and even when they are willing, they don’t want to pay for it. I recall talking to a partner at a very good firm who oversaw the technology committee (decisions are made by a technology committee?!) who told me he wanted to innovate, but he was lucky if he could find hundreds of thousands of dollars for new software a year.

The truth is there is an intrinsic resistance to adopting technology or process improvements, which is because of the hourly model: the gains from any improvements mean law firms will make less money. So why would anyone want to innovate?

Atrium LLP is trying to solve this by charging fixed pricing for work. It plans on doing this by building models to predict how much work will be needed for different types of projects. Even if the models aren’t perfect at first, it doesn’t really matter: regardless of whether it is higher or lower margin initially, the point is that when are have a fixed price for service, it is your internal incentive to reduce cost over time. That is how the market drives lower cost for customers. When you have buyers who pay suppliers based on cost plus, you get high prices that don’t trend down over time (think government contractors). When you have fixed pricing, costs generally come down over time.

ES:  Our colleague at Above The Law, Bob Ambrogi, implied in his latest article regarding Atrium that this has been attempted before (in Clearspire). He mentioned several reasons why Clearspire was unsuccessful, including a failure to prove value, an inability for general counsel to change from incumbent law firms, and simply being ahead of its time.  Why do you think Atrium will be different?

JK: I think for Atrium LLP to be successful as a business it will have to do the same things other top-tier law firms do: provide excellent client service from top attorneys who can do great work. Technology will never be a substitute for that. When we were selling Twitch to Amazon, we didn’t want Uber for lawyers. We didn’t want an AI lawyer. We didn’t want a marketplace for lawyers. We wanted a lawyer with experience on billion-dollar M&A transactions to make us feel like everything was being considered and handled excellently.

Augie and BeBe’s goal is to build Atrium LLP into a top-tier law firm. There’s no hack to get around the hard work of hiring great attorneys and informing clients of how Atrium can help them. The technology from LTS that they utilize will only determine whether it is a better, more efficient and more profitable business in the long run.

JB:  Any other advice for all the legal entrepreneurs out there?

JK: Selling software to law firms seems like a huge pain in the ass. Most legal innovation is being driven by enterprises. If you want to create legal software, skip a step (and years of pain) and start with the enterprise. Godspeed!

ES: Godspeed to you as well!

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


Joe 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.

Ed Sohn is VP, Product Management and Partnerships, for Thomson Reuters Legal Managed Services. After more than five years as a Biglaw litigation associate, Ed spent two years in New Delhi, India, overseeing and innovating legal process outsourcing services in litigation. Ed now focuses on delivering new e-discovery solutions with technology managed services. You can contact Ed about ediscovery, legal managed services, expat living in India, theology, chess, ST:TNG, or the Chicago Bulls at edward.sohn@thomsonreuters.com or via Twitter (@edsohn80).

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