Technology

Greasing The Gears Of Legal Commerce -- Automatic, Systematic, Hydromatic (alt.legal) Innovation

Close your eyes and picture a magically perfect legal services market.

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Joe Borstein

Close your eyes and picture a magically perfect legal services market.

In this meritocratic legal-utopia, the best law firm (with the best legal talent, innovative technology, and processes/solutions) wins the work every time. Innovative upstarts take on (and take out) incumbents by taking risks and building a better mousetrap. Law firms clamor for tools that give them an edge (which, in turn, venture capitalists clamor to fund!). In the end, the best law firms (law companies and technologies) win, while clients’ rights and interests are optimally protected at the lowest possible cost… and we all live happily ever after.

Today, Jae Um and I explore what such a world would look like!

Gears Make the World Go Round (Faster)

I asked Jae to help visualize a theory we are calling “The Gears of Commerce.” If you don’t know Jae, shame on you. She’s the newest must-read influencer in legal. While her longform essays speak for themselves, I’ll add that she is also a true expert on all aspects of strategic marketing (from brand and positioning to sales and pricing).

We agreed that it’s not productive to blame Biglaw lawyers (who are smart and hardworking) for the slow pace of legal innovation. Rather, the frustrating pace of progress is a function of the systemwide inefficiency of all commercial activity in our industry which, unfortunately, is visualized below.

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To solve these blockages, we need to ask smart questions about how that market actually works and how it can work better. What are the specific cogs and wheels that must click together and rotate in perfect synchronicity?

The Best of All Possible Worlds (With Fine Print, Of Course)

Back to our opening question. How would a more perfect legal market work?

Because both Jae and I are pragmatists, we constrained our thought experiment to reflect the current regulatory environment: (a) law firms remain protected as the only business entity authorized to practice law, and (b) lawyers maintain their monopoly on equity ownership of law firms.

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Here’s a simplified flowchart of our ideal state:

  • CLIENT PROBLEM: clients approach leading law firms (the only organization in the United States who can practice law) with a legal problem, and seek proposals to solve it;
  • VIRTUOUS CYCLE / SOLUTION DESIGN: law firms weigh the cost and benefits of various courses of action, and propose solutions;
  • BUY BUILD OR PARTNER: these solutions would include both their legal expertise, AND best-in-class technology, outside services and financing, all of which would be designed to lower costs and risks, and improve legal outcomes;
  • CLIENT-SIDE BUYING SOPHISTICATION: the law firm with the best proposal would be selected;
  • FIRM-SIDE EXECUTION: Law firm would serve as general contractor, executing the proposed solution as promised;
  • COMMERCIAL LOYALTY (NOT JUST <3): if the solution was successful, this strategy would please the client encouraging them to use the law firm more in the future, while also encouraging others clients;
  • TRUTH IN ADVERTISING: the law firm would advertise their win, and have outsized odds of picking up more like clients;
  • RIGOROUS REPORTING: the legal media would also pick up the innovative story and speed the adoption of the technologies, services and financing used by the law firm;
  • SMART CAPITAL: venture capital and strategic buyers would increase investment and acquisition of similar solutions, making them better and better, faster and faster!
  • RINSE & REPEAT: Well, you get the picture!

The Red Pill: The Real World We Occupy Today

Well, anyone who works at the intersection of law and innovation today knows we are far from this ideal state. In order to grease the gears of commerce, we first have to diagnose the barriers preventing the best of all possible worlds.

We identified three categories of barriers that slow the pace of innovation, each at different points in the go-to-market process: (1) being presented to buyers; (2) being adopted by a critical mass of clients, and; (3) being rewarded by the market.

Failure of Best Solutions Being Presented:

It’s the revenue, stupid!  The legal innovation paradox states clearly that solutions that make legal matters more efficient tend to reduce billable hours.

  1. Many innovations reduce the revenue Biglaw will generate on a given matter. Unless Biglaw partners believe they will be rewarded in other ways, this is a disincentive to innovation (think predictive coding for litigation or leveraging AI like Kira or eBrevia for diligence).
  1. You can’t leverage what you don’t know! Most Biglaw attorneys have very little knowledge of the alt.legal landscape. Again, this is NOT because they are dumb or lazy (most are smart and hard working) but because they are busy! Few firms have influential chief innovation officers, or people in other influential roles to serve as trusted curators of institutional knowledge for best-in-breed innovations.
  1. How do you price it? Don’t forget that just a decade ago, nearly everything was handled internally by the law firm (copy fees anyone?). You can’t blame Biglaw partners for not knowing how to price the subcontracting of predictive coding technology or legal process outsourcing teams in ways that are fair and profitable.

Failure of Best Solutions Being Adopted:

Next, even if innovations are presented, there are barriers to adoption by clients.

  1. Have you tried contracting with a Fortune 500? It’s hard… very hard… and very slow. Often, a major company doesn’t want to try the newest thing at all. Surprised? Geoffrey Moore of Crossing the Chasm tells us that only about 16 percent of people seek novelty; the rest of us prefer to shop for established, reliable products we know will work.
  1. Cost savings are not always a priority, and they’re certainly not the only priority. While “more for less” has been the rallying cry of corporate counsel since the Great Reset of 2009, legal procurement simply isn’t a one-size-fits-all proposition. For many big-ticket, high-consequence items, white shoe firms will tell you that their clients simply want everything done perfectly, and that clients truly don’t care about cost. The latest Altman Weil Chief Legal Officer Survey tells us that the white shoe firms are neither dumb nor deluded in this view: CLOs indicated that nearly 25 percent of outside counsel fees are “price-insensitive.” (Consider that a typical bet-the-company litigation or major merger dwarfs even the astronomical fees of elite Biglaw firms to a rounding error.)
  1. There is often a light form of capture, where in-house counsel want to be brought back into Biglaw as a partner (or at least be invited to their sweet parties!). Indirectly or subliminally, some senior counsel do balance incentives between squeezing Biglaw for discounts and protecting the long-term relationship.

Failure of Best Solutions Being Rewarded:

Finally, if a tree falls in the forest, and no one is there to hear it, does it make a sound?

Biglaw partners correctly surmise that there will be little marketing, media or fanfare in response to innovative solutions — even better, cheaper, and faster results. Thus, there is no guarantee they will pick up new clients by being better (sad).

Furthermore, the bigger the matter, the less likely it is to recur — so the firm might not even get materially more work from THAT particular client.

Without a guarantee of effective and meaningful storytelling from the very top of the marketing funnel to the point of sale, the proposition is to perform all this extra work and take on all this extra risk… at the expense of current revenue!

In the current state, the primary pitfalls in the marketing cycle are:

  1. Advertising in legal doesn’t work well and is highly regulated!
  1. Media doesn’t always cover the HOW behind major innovation wins.
  1. Word of mouth is limited in legal and very, very slow.

Despite the ongoing and increasing interest in legal innovation as a whole, the aggregate volume of hype often results in meaningful signals getting lost in the noise.

So. What Do We Do About It?

As we enter 2019, it is my commitment to cover in these pages the lawyers, companies and innovators working to make these gears turn faster. Stay tuned, and thanks Jae!

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.)

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