Here come the disruptors

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Lawyers used to have the Midas Touch: whatever we did, however we did it, we were profitable, because no one else could do it (and no one else was allowed to try). From now on, lawyers’ and law firms’ profitability hinges completely on what we choose to do and how we choose to do it. That’s what I want to spend the next two days talking about.

Tomorrow, I’ll look at what’s happening inside the legal profession. Today, I want to talk about what’s happening outside it, starting with last week’s most dramatic news: $18.5 million in venture capital announced by online legal service Rocket Lawyer.

Rocket Lawyer, if you’re not familiar with it, provides legal forms that online users can fill out, store and share on the Web. For $20 a month, reports Forbes, consumers can also have their documents reviewed by a real lawyer and even get legal advice at no additional cost. It boasts $10M in annual revenue and 70,000 visitors a day. The $18.5M figure, by itself, is less significant — rival LegalZoom recently announced a $66 million VC infusion — than the identity of the secondary investor in Rocket Lawyer, Google Ventures.

It’s important to note that this is not Google Inc. we’re talking about — Google Ventures invests in (it does not acquire) companies independent of Google, and it supports a range of startups that develop things like carbon-neutral fuels and yeast-based antibody discovery platforms. No one is suggesting that Google Inc. will take over Rocket Lawyer, make its forms free and sell ads on the content — although you know what, that’s more than merely plausible. But note what Google Ventures’ Wesley Chan says in Rocket Lawyer’s press release:

We see a large market opportunity for legal solutions that are easily accessible and affordable to users. Rocket Lawyer’s combination of an intuitive user-driven front-end with a strong technology-based platform uniquely positions the company to scale and deliver the type of “wow” user experience that online customers love.

Note the drawing cards for GV: ease, accessibility, affordability, user-driven, user experience. They have nothing to do with the intelligence of the lawyer or the quality of the legal offering and everything to do with the manner in which clients find and access legal services. As I’ve said before, convenience is the new battleground, a fight for which law firms still haven’t even shown up.

Those same features are what drew Google Ventures to its first foray into the legal sphere: Law Pivot, a legal Q&A website that allows companies (especially startups) to confidentially (or, as of yesterday, publicly) receive low-priced, crowd-sourced legal answers from a roster of private lawyers. Similar to Rocket Lawyer, LawPivot gives lawyers a platform to market their legal services by sharing advice and engaging in discussions (the company’s personalized search algorithm provide users with relevant lawyers to provide answers to their specific legal questions). Again, note the words of Wesley Chan in the announcement:

There are inefficiencies in the delivery of legal services, and there is a huge opportunity for a technology-driven disruption in the legal industry. The LawPivot team has created an intelligent online solution that connects companies to the legal answers they need.

Those are the two key terms we need to focus on: inefficiencies and disruption. Those of us who scan this marketplace have been warning for years that the legal profession’s backward business model is in the gunsights of aggressive entrepreneurs that want to exploit those inefficiencies and push lawyers out of the driver’s seat. Well, Les voila.

Because here’s the thing: neither Rocket Lawyer nor Law Pivot are doing anything that even an average law firm couldn’t have done already. The former has created a client-facing document assembly system that provides channels to licensed lawyers who can review the completed documents and answer more complex questions. The latter offers lawyers the opportunity to engage directly with potential clients and demonstrate their expertise through the dissemination of their real-world knowledge. Law firms have had the capacity to create these services for years, but they’ve been unwilling or unable to risk changing the nature of their business.

Both Rocket Lawyer and Law Pivot (and LegalZoom and Epoq and many others both present and future) have recognized that the production of legal documents and the provision of legal insight have become so systematized, routinized or borderline-commoditized that their market value has fallen below law firms’ profitability thresholds. So they have converted the legal advice process and legal document assembly system into marketing and business development opportunities for lawyers. And they have one simple goal in mind: to replace the law firm as the primary platform by which clients find and engage with lawyers. That is a realistic goal, and both their ideas and their execution have been good enough to interest Google Ventures and other investors.

I guarantee you will see more of these deals financing more of these operations in future, and when the UK finally launches Alternative Business Structures, watch the stream turn into a flood. But the fundamental trend to understand here is the legal marketplace finally recognizing and responding to the inefficiencies lawyers have created in the delivery of legal services. The result will be disruption for lawyers and upheaval for law firms. Tomorrow, I’ll talk about what that’s going to look like.

Jordan Furlong delivers dynamic and thought-provoking presentations to law firms and legal organizations throughout North America on how to survive and profit from the extraordinary changes underway in the legal services marketplace. He is a partner with Edge International and a senior consultant with Stem Legal Web Enterprises.

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9 Responses to “Here come the disruptors”

  1. Larry Bodine

    Wait a minute. LegalZoom didn’t change the practice of law. And Rocket Lawyer has been around since 2008 and it hasn’t disrupted the practice of law. Why would things change just because one of these forms companies got a new investor?

  2. Jordan Furlong

    Larry, thanks for your comment. My contention is that these companies (well, Rocket Lawyer and Law Pivot, anyway — I don’t know about LegalZoom and they have some regulatory headwinds to get through anyway) are moving past being simply document downloaders and general advice sites — they’re becoming platforms through which lawyers market their expertise, reach clients, and deliver products and services to them. And when you think about it, that’s all a law firm really is — a reliable, high-profile platform upon which lawyers and clients find each other and through which they conduct their business.

    The difference is that while law firms were built along old legal market value lines — authority, strength, power and so forth — these emerging companies are built along new legal market lines: speed, affordability, timeliness, ease of use. The reason this can happen is that “expertise”and “knowledge” and “authority” are now so widely diffused in the legal marketplace that they’re not differentiators anymore — clients are coming to feel that they don’t need to choose between a provider who’s accessible and a provider who’s authoritative. And I think they’re right.

    That’s what I see as the fundamental shift underway here, and I think that’s what these investors see as well. I’ve no idea whether any of these specific companies will succeed wildly, get along adequately, or fail miserably — but the start of the value shift and the platform variability are real, and I think that’s what will last.

  3. Jay Pinkert

    Jordan,

    Very well done.

    I would also emphasize that the rise of these disruptors is only possible because consumers of legal services believe they are not sacrificing quality, or that the tradeoffs are not significant enough to justify paying the higher costs of the traditional legal service delivery model.

  4. Chrissie Lightfoot

    Excellent post Jordan. Stimulating and most enjoyable. Thank-you :-)

    In relation to your view that “From now on, lawyers’ and law firms’ profitability hinges completely on what we choose to do and how we choose to do it” I couldn’t agree more. However, may I respectfully add, IMHO, that the real game change at play here with regard to profitably will be WHY lawyers’ and law firms’ choose to do WHAT and HOW they do it. WHY sits at the very core of an entrepreneurial entity’s purpose and the very soul of an entrepreneur lawyer.

    Accordingly, I suspect that the new game change players will be even more discerning and passionate in their focus and drive for delivering extraordinary customer service. They know that focusing on THEM, i.e. the customer – first, last always – by investing in their people – first, last, always – the bottom line (profit) will then take care of itself. True?

    I’m looking forward to reading your next post…

    Warmest as ever

    Chrissie
    The Entrepreneur Lawyer
    (of the naked kind)

  5. Julian Summerhayes

    Jordan

    Thanks for the post.

    I mentioned to you on Facebook the research undertaken on 12 August by the Legal Standards Board, and that document is well worth a read. We already have Epoq/Direct Law in the UK but for those (local) firms that have been using it, I am not aware of a massive take up. I think, as you say, they view it as a business development tool – a sprat to catch a bigger client – rather than a stand-alone business unit. In the short term, I don’t see that changing. The UK market is worth 1.7% of GDP but a very large % of that turnover is accounted for by the top 10 firms. I don’t think that many of their clients will be attracted to an on-line model and for the rest – assuming that the fire power is focused on the SME market – there is not going to be massive demand. I don’t know how big it will be but I would be surprised if it was much more than £10M (but this is just a wild guess at the current time). People still feel inclined to deal with their solicitor and will put up with the poor service for so long as there is a degree of kudus with that label (which I know will be ameliorated over time). I say: bring it on. It chimes with my message concerning the integration of social media (my sine qua non). The problem is likely to arise when you have too many people offering the same thing and that is where a brand like Amazon might have an advantage even over the supermarkets. Interesting times for sure.

    I look forward to the next instalment.

    Julian

  6. Patrick Vuleta

    Excellent article, Jordan.

    I was just writing a new article for my own blog and came here to see if you’d said anything recent on the commodity issue lately. Turns out you did. :) I’ll post my own semi-reply within the next week.

  7. Tech Loving Lawyer

    If these sites are so wildly profitable, why do they need more capital infusions?

  8. Jay Pinkert

    Tech Loving Lawyer,

    To gain market share, manage growth-related cash flow. They’re practicing mainstream business management strategies. Companies like Apple and Dell are sitting on piles of cash but still use debt instruments.

  9. Mary Miller

    I think the legal markets leave this kind of room for Legal Zoom and others. Law firms, unlike Legal Zoom, are guided by all kinds of ABA rules that prohibit firms from selling equity in exchange for capital infusions (and thus having non-lawyer shareholders), and from running a law firm like a business generally. A law firm cannot be the next Legal Zoom (and cannot even name itself Legal Zoom) because law firms must compete with other businesses with their hands tied behind their backs by suffocating bar rules. While Legal Zoom hires lawyers, such a set-up is done through an “in-house” type of deal, rather than through a traditional law firm model.

    The #1 problem in the legal community today is the rules that make law firms totally uncompetitive. Everything from the “reasonable rate” (what is this anyway? No other industry sets any kind of “reasonable” standard to profit… what is a “reasonable profit”?) to forcing lawyers to work by the hour until very recently and even so very slowly allowing flat fees (which supposedly, must also be “reasonable”), to rules on how to name a business (names of dead partners are ok, but a catchy name to suit a business is not ok), and so forth.

    Law firms are treated by the ABA as if they were a government branch in a communist regime and not running a business in the capitalist marketplace, so there is plenty of room for smart lawyers who quit a law firm and escape ABA’s clutches to start a normal business selling legal forms, for instance. Brilliant. Traditional law firms will be pecked by these innovative measures until ABA wakes up and understands that law firms are also businesses and must be allowed to make a real profit and function like all other businesses in the world do.

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