Biglaw, Technology

LegalZoom Is Coming For Your Lunch

The online behemoth has been authorized to dispense legal advice in Arizona and Utah.

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Stuff is getting real down here in Arizona. Last year, Arizona’s Supreme Court approved a new Alternative Business Structure (ABS) framework, which permits companies other than law firms to apply for the right to provide legal advice. The goal is to allow new players into the space to increase the public’s access to legal services. These changes have opened the door to a laboratory for some potentially wild experimentation.

A few small ABS entities have been approved to date, but the first major new player has now arrived on the scene. LegalZoom, flush with cash following its IPO back in June, has been approved to run an ABS in Arizona. It will be permitted to hire attorneys to practice law despite not being a formal law firm.

One would think that facing a new competitor with a multibillion-dollar market cap would give most law firm managers pause. But that doesn’t seem to be the case. Whether right or wrong, the perception among many in Biglaw is that LegalZoom may not be able to provide the quality of service needed to compete at the top end of the field. In the eyes of many firm lawyers, LegalZoom provides mass market, dollar-store-level work, while Biglaw remains the exclusive provider of high end, bespoke, sophisticated work.

A steakhouse owner doesn’t worry their business will get hurt when a McDonald’s opens down the street, even though they both sell beef.

Nothing to worry about, right?

If You’re Not Worried, You’re Not Paying Attention

If only it were that simple. There are several reasons why a knee-jerk dismissal of LegalZoom’s latest move is a mistake — and a missed opportunity.

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It’s rarely smart to bet against a motivated, entrepreneurial, cash-rich competitor, and trends in the legal industry overall may point toward a bright future for LegalZoom and similar alternative providers. How much comfort are we as attorneys really supposed to take in the argument that LegalZoom is targeting a different market than we are, and so we shouldn’t worry about them? That argument admits as its premise that there’s a massively underserved market segment that traditional law firms have not tapped. LegalZoom has been successfully targeting that market for two decades, and just got the greenlight to offer more and better services to people who previously had no economical options. Why are we supposed to take refuge in the notion we’re ceding potentially billions of dollars of market share to a competitor who’s already sitting on a dragon-size hoard of cash?

Biglaw may also be underestimating the power of packaging. LegalZoom has figured out how to sell legal services in a way that appeals to the consumer. I’ve written previously about productizing legal services, and how crucial it will be for firms looking to compete in the 2020s and beyond. In a nutshell, productizing is the process of taking a broad, amorphous service and converting it to a recognizable, predictable product that can be sold to a broad market. To stick with the McDonald’s theme, a hamburger is a broad concept that can be made a thousand ways; a Big Mac is a product.

Clients love productized legal services. Bespoke lawyering is time-consuming and costly. Worse yet, those costs are unpredictable. Some months they might be high, some months they might be really high. With productized legal services, costs are perceived as more predictable, and thus easier for clients purchasing those products to sell to their own internal clients and stakeholders. Even if the productized legal services are more expensive, the predictability of that expense is worth its weight in gold.

Productized legal services are already well-established in market segments like trusts and estates, in no small part due to companies like LegalZoom. I’ve argued before that law firms looking to stay competitive need to work on standardizing and productizing their services ASAP, because the appetite for productized services is everywhere. LegalZoom already has the experience and resources to meet that client demand, and now it also has the regulatory greenlight to make its play. There’s every reason to think they’re building better mousetraps as we speak.

Even Warren Buffett eats a Big Mac now and again.

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Beating LegalZoom At Its Own Game

So what are law firm managers supposed to do to head off this wealthy, experienced, potentially game-changing competitor? They beat it at its own game. Instead of letting LegalZoom gobble up the underserved bottom and middle of the market on its way to competing at the top, smart firms will find ways to seize that market themselves.

Law firms remain the most trusted source of legal services, in part because we had decades as the only source of legal services but also because we pride ourselves on quality. Let’s tap that trust and get ahead of the game on productizing our services so we can bring that quality and reputation to the masses — and make a pile of money while we’re at it.

But what about our existing clients? They’ll flee if they think we represent clients other than the most elite, right? A Biglaw firm’s brand and image could be destroyed if it expands to serve a new, middle-market, or emerging business client base. The very fabric of the firm will be torn apart — leading to the inevitable and near-certain implosion of the firm. How could any rational firm think about evolving its business model given these dire consequences?

Lawyers love to catastrophize and find ways to not take risks or advance the business model. It’s precisely this mentality that allows businesses like LegalZoom to have a field day. I don’t mean to be overly blunt: we as lawyers need to get over ourselves. Even the storied Goldman Sachs, known for catering to the uber elite, has launched an online consumer-focused brand, Marcus.

Goldman realizes that to expand into the future, it needs to find new ways to gain market share. Although Goldman is still investing in building Marcus, it’s baby brand racked up $100 billion in deposits by the end of last year. No doubt in part because of the bet it’s making on the future, Goldman’s stock has also been the highest performing in the Dow in 2021. We as lawyers like to think of ourselves as special, and we fear change, but Goldman shows us that you can expand to new markets while still preserving your brand.

And to those Biglaw firms that don’t care about expansion and just want to cling to what they have, I’d say that embracing new ways of operating and delivering legal services is necessary for that, as well. It wasn’t that long ago that high-end retailers like Neiman Marcus, Lucky Brand, and Brooks Brothers doubled down on their traditional brick-and-mortar model believing that their high-class customers would never debase themselves by ordering from Amazon. All went bankrupt.

The battle between Biglaw and alternative legal service providers is raging, but many refuse to acknowledge that it’s even begun. We need to treat this new front opening in Arizona and Utah as a preview of what the rest of the nation will be experiencing in the coming decade. When LegalZoom and its kind come to your state, they’ll have the groundwork laid and experience necessary to make a play for even your most seemingly reliable clients. They’ll be ready for the fight when it comes to your backyard. Will you?

James Goodnow is the CEO and managing partner of NLJ 250 firm Fennemore Craig. At age 36, he became the youngest known chief executive of a large law firm in the U.S. He holds his JD from Harvard Law School and dual business management certificates from MIT. He’s currently attending the Cambridge University Judge Business School (U.K.), where he’s working toward a master’s degree in entrepreneurship. James is the co-author of Motivating Millennials, which hit number one on Amazon in the business management new release category. You can connect with James on Twitter (@JamesGoodnow) or by emailing him at James@JamesGoodnow.com.

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