Biglaw

How Biglaw Firms Can Think Like A Startup

Small, scrappy spinoff companies might help save Biglaw.

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Is it possible that the way we drag Biglaw into the modern age is as simple as swapping our suits and ties for hoodies and sneakers?

The legal industry is about as stodgy as it gets. We’re mahogany desks, marble floors, precedent, tradition, and all the things that scrappy Silicon Valley startups aren’t. Because of Biglaw’s approach, it’s not law firms that have been blazing the trails of the legal industry for the past generation. If you want to find new, creative paths forward, you’re not likely to get there by sitting in a corner office leafing through briefs. You’re better off hacking together solutions in a garage, breaking things and putting them back together, experimenting, iterating, and failing all day until you start to fail a little less, and maybe even succeed.

Of all the things preventing law firms from being innovative and experimental, one of the chief impediments is the weight of this tradition and precedent. The classic law firm model discourages innovation, long-term thinking, or risky experimentation. That’s why the biggest drivers of legal industry change are generally not law firms but rather legal tech companies and alternative legal service providers.

Doing It Differently

It used to be that if someone in a law firm was talking about a spinoff, they were probably discussing “Frasier” or whatever new “CSI” is debuting this week. But clever firms have been leveraging the possibilities of spinning off entities outside the traditional law firm structure for years now, with exciting results. Bryan Cave Leighton Paisner formed Lawyers On Demand (LOD), a flexible attorney staffing solution, all the way back in 2007. More recently, Silicon Valley giant Wilson Sonsini formed SixFifty, a spinoff entity focused on legal document automation. Plenty of other experimental startups are being formed under the umbrella of large law firms, and the benefits are easy to understand.

By organizing as a standard business rather than a law firm, legal spinoffs grant themselves significantly more flexibility than firms enjoy. Just the change of expectations that comes from no longer thinking like a law firm can be monumental. Firms need to have clients, make money, and be successful today to attract talent. But a spinoff entity can afford to adopt that hungry startup mindset. It can take big swings, make mistakes, pivot, and generally spend time finding itself and figuring out new ways to do things. It can be agile and flexible in ways that large institutions like law firms often cannot. Spinoffs have the room to experiment that’s needed to do something innovative just by virtue of not being a law firm.

Equity Changes Everything

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Spinoff entities also have game-changing flexibility when it comes to equity. If the spinoff entity is not engaged in the direct practice of law, it’s likely not subject to the same fee-sharing prohibitions as law firms. This means the spinoff entity can offer equity to specialized nonattorney business professionals to run their operations. This can give spinoffs a more diverse and talented pool of management to draw from, and it avoids the problem of firm management also having to maintain their book of business. It’s always going to be an advantage to have better, more-focused management.

Spinoff entities can also get creative with permanent equity in ways that most firms can’t structurally afford to. Most partnerships cash out at year end, and when an attorney stops working, they stop getting paid. That incentivizes making money today over investing in a firm’s future. After all, what partner wants to pay for benefits they might never enjoy? But a spinoff entity can issue shares of itself to the members of the partnership that fund its initial startup, and those shares can last in perpetuity. The promise of a stream of payments that doesn’t dry up upon retirement is an enticing one.

Spinoff entities offer the possibility of an exit strategy that usually don’t exist in the legal world. If the spinoff succeeds, its owners may be able to sell it on the open market, as happened in 2018 when Bryan Cave Leighton Paisner sold its stake in LOD.

Failure Needs To Be A Possibility

If nothing else, spinoffs are a vehicle for experimentation and limited risk. When a firm wants to experiment and try a new practice, it could be putting the proceeds of its stable, traditional practices at risk. Spinoff entities allow firms to compartmentalize that risk while simultaneously granting themselves the flexibility to try new, untested ideas. Spinoffs allow a freedom to fail that simply doesn’t exist in traditional law firms. And without the freedom to fail, there’s rarely a chance for breakaway, industry-changing success.

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The legal industry is in the process of modernizing — trying to catch up with a business world that’s increasingly leaving it behind. Part of that change with how law firms run is the freedom not to run our businesses like law firms at all. Spinoff entities aren’t the solution to all our industry’s problems, but they may be a piece of that larger puzzle. The more ways we give ourselves the room to get messy, try new things, and even fail, the more we’ll ultimately succeed.

GoodnowJames Goodnow is the CEO and managing partner of NLJ 250 firm Fennemore. At age 36, he became the youngest known chief executive of a large law firm in the U.S. He earned his JD at Harvard Law School and attended Cambridge Business School (UK), where he wrote his master’s thesis on how to use entrepreneurial strategies to infuse innovation in law firms and established businesses. 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 LinkedIn, Twitter, or by emailing him at jgoodnow@fennemorelaw.com.

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