Okay, I admit: that was a pure linkbait headline. Not quite as bad as 17 Heartwarming Photos That Will Restore Your Faith In Humanity, but still, I couldn’t pass up the opportunity to draw in people who might be thinking (hoping?) that I’d given up on innovation in the legal market.
But the headline isn’t a complete fraud. In fact, you could consider this post as a necessary companion to An incomplete inventory of NewLaw, which generated a great deal of interest and enthusiasm last week. Scores of new law firms, businesses, and technologies are emerging in this dynamic market, generating justifiable excitement. Ron Friedmann led a discussion this week on Twitter that estimated the percentage of the corporate legal market that NewLaw is carving off — it may be quite small, but it still translates into a whole lot of money in a very short period of time.
Nonetheless, it’s precisely now, when legal innovation seems to be really taking off, that we need to remind ourselves how fragile and fraught the startup environment really is. A thousand flowers may well be planted in the legal marketplace; but hundreds will never bloom.
An excellent illustration of this idea can be found in a recent James Suroweicki column in The New Yorker. “Epic Fails of the Startup World” is a sober pail of cold water dumped onto the frenzied fires of innovation. “We live in the age of the startup,” Suroweicki writes, but this Cambrian explosion of innovative new businesses is occurring contemporaneously with a mass extinction: failed startups overwhelmingly outnumber successful ones.
The reasons behind these astonishingly high failure rates should give legal entrepreneurs pause: it appears that most startups suffer from a massive overabundance of misplaced confidence, made worse by a startup culture that has come to lionize failure as the noble condition precedent to success. There’s no question that failure is indeed a condition precedent to success in the startup world. But far more frequently, failure is just a condition precedent to more and bigger failures. Serial entrepreneurs, according to a German study, are actually more failure-prone than first-time innovators. [do_widget id=”text-7″ title=false]
The upside of this phenomenon is that the extremely few successes that emerge from the startup world deliver disproportionate benefits in economic and social terms: one LinkedIn or Uber is worth many Pets.coms. “We’ve built a whole system on unrealistic expectations,” says Suroweicki. “Because we don’t know how to identify good companies in advance, investors end up funding lots of them in the hope that a few will hit it big. … In the delusions of entrepreneurs are the seeds of technological progress.”
Remember that line you were given on your first day of law school? “Look to your left, look to your right, only one of you will be here in five years”? Imagine you’re in an auditorium with 100 other students and the speaker says, “Only one of you in this room will make it.” That’s a decent approximation of the odds facing startups. It’s only the bullheaded optimism of the entrepreneurial spirit, as well as the outsized rewards awaiting the rare winners, that keeps the system going, to everyone’s benefit.
We should expect the same thing to happen to NewLaw. In fact, it’s already happening. England & Wales has been described as the world’s legal laboratory; well, some of that lab’s experiments have already fizzled out. Conveyancing ABS In-Deed Online gave up the ghost last summer, sold for a mere one pound after arguably hitting the markets too early. Stobarts Barristers went the way of all flesh last month, perhaps confirming that a trucking company might not have been the best platform upon which to launch a law firm. And Co-Op Legal Services, the early heavyweight contender of consumer law ABS (and my personal rooting favourite) might not be dead, but there’s reason to worry that it might simply be nailed to its perch.
More failures and disappointments will follow. Some innovations will fail because they were based on a bad idea, some will fail because of bad execution, and some will fail because of bad luck; but they’ll all come to the same end. This is not a jab against NewLaw and legal startups, or a red flag on any specific entity; it’s simply the natural outcome of a marketplace law. There are nearly 100 entries on my NewLaw list, and probably scores of others I haven’t yet come across; they can’t all be lucky exceptions to the rule against startups.
If anything, the recent tsunami of cash investments in NewLaw might be just as much a sign of concern as of confidence. Josh Kubicki, the clear thought leader in the legal startup world, reported $458 million invested in legal tech startups in 2013, adding that 2014 is ahead of last year’s pace. Funding round announcements in the tens of millions of dollars aren’t routine quite yet, but we’re getting there. Is this a sign of the tremendous promise and potential of legal startups? Almost certainly. But it might also be a sign of vast amounts of money burning holes in the pockets of angel investors and searching for the next shiny thing. It might be, in the famous words of Alan Greenspan, a certain degree of irrational exuberance.
I wanted to note these ideas for a couple of reasons. One is to slightly temper the commendable enthusiasm inside and around the legal startup world, to remind participants in this genuinely exciting market that the risks rival or outnumber the rewards — it’s a narrow path to glory, and the drop on either side is steep. But the other reason, and I think the more important one, is to counter the inevitable arguments of the skeptics and cynics that will issue, in a few months’ or a few years’ time, standing over the corpse of some high-profile NewLaw entity and proclaiming that there was never anything here but hype and snake oil. That’s simply not the case.
Failure is built into innovation. It’s a feature, not a bug. You can choose, if you like, to glorify failure as a critical rite of passage on the path of enlightenment; like any heady drink, that’s fine in moderation, though it’s fatal in stronger doses. But you can also choose to revile failure, to loathe it and shun it and attach shame to those who experience it. This is the lawyer’s approach to failure, and it’s a leading reason why so little change has occurred in the traditional business model. We’re not just risk-averse as lawyers, we’re embarrassment-averse: we fear the self-inflicted humiliation of falling short. That’s why the schadenfreude felt by many lawyers when a legal innovation fails is palpable: we believe the innovator’s fall confirms the wisdom of our own reticence.
Rather than glorifying or reviling failure, however, I suggest we simply accept it as a perfectly natural part of doing business in a turbulent market. As the legal profession is pulled deeper into that turbulence, failures will mount, and they’ll be far more common among those who tried than among those who shied away. But the rewards will also be much larger and more numerous among the innovators than among the laggards. You don’t have to love failure. But I do recommend you get a lot more comfortable around it.
Jordan Furlong is a lawyer, consultant, and legal industry analyst who forecasts the impact of the changing legal market on lawyers, clients, and legal organizations. He has delivered dozens of addresses to law firms, state bars, law societies, law schools, judges, and many others throughout the United States and Canada on the evolution of the legal services marketplace.
Peter D. Lederer
Good piece, Jordan. I also thought James Surowiecki’s essay to be a good antidote for the occasional tide of excessive entrepreneurial exuberance. And the quote about sea turtles alone is worth the price of admission :)
Mark Schwilden
Everyday, thousands of great ideas are pitched, from board games, to consumables, to new apps, etc. The majority receive cursory review, and polite rejection. Some make it to development, others even to the shelf, to die there. Others stick and follow traditional growth curbs (if a traditional curb still exists). Fact is, law is just another commodity, and perishable at that. Hundreds of ideas are waiting to be borne in this space. Sweat, equity and smarts will help get some to a pitch table. As with any other business in any other sector, luck will often be the key variable that will push them to the next step.
Adam Ziegler
Enjoyable, thought-provoking post. I especially like the admonition against mistaking the failure of some innovative efforts as the failure of innovation itself.
But I have to disagree that there’s anything close to irrational exuberance or an overabundance of misplaced confidence within the legal startup world. Instead, what I see is a very small, scrappy band of people who perceive real problems in the legal industry, have creative ideas for solving them, and feel compelled to put those ideas to proof. Very much the garage days still.
I worry too about the emphasis on gross funding numbers, which are inflated by later stage companies/events (e.g. LegalZoom’s $200M private equity buyout) and the inclusion of categories like e-discovery. If we must focus on funding rather than founding, then we should examine trends in angel and seed stage investing in comparison to other sectors.
Nigel Jones Solicitor
A start-up is like a sapling in the woods — the odds are against it ever growing to the treeline. Fortunately, in the start-up ecosystem good ideas and talented entrepreneurs never really lose. Instead, they are rolled up into competitors to form the types of companies that can truly shape an entire new industry.
Dan @ MTL Law
Great article and completely agree with your statement of it being a perfectly natural part of doing business in a turbulent market
Ken Chasse ("Chase")
Canada’s laws societies have failed to initiate the necessary innovation to develop those support services that would enable the legal profession to move to a support services method of delivering legal services. There are five propositions that the law societies must accept if their statements as to what they refer to as their “concern about the access to justice problem” are to have credibility. Nowhere in any publication of the law societies in Canada, do we find them:
1. The precise statement of the nature and extent of the problem of unaffordable legal services is: the majority of the population cannot obtain legal services at reasonable cost.
2. The duty to make affordable legal services available to the population arises from the law that requires the law societies to regulate the legal profession and the monopoly it has over the provision of legal services. Specifically in the province of Ontario, that duty is express stated by the statutory duty created by the Law Society Act, s. 4.2 of which states:
4.2 In carrying out its functions, duties and powers under this Act, the Society shall have regard to the following principles:
1. The Society has a duty to maintain and advance the cause of justice and the rule of law.
2. The Society has a duty to act so as to facilitate access to justice for the people of Ontario.
3. Therefore, if the problem of unaffordable legal services exists, it is the law societies’ fault that it exists. If the law societies had been sufficiently responsive to the population’s need for legal services, the problem would not exist.
4. Therefore, it is the exclusive duty of the law societies to solve the problem of unaffordable legal services.
5. If the law societies cannot make legal services available to the population, they have no purpose. Therefore a different management structure has to be put in place that can regulate the legal profession so as to make legal services available.
Law society publications expressing concern about the access to justice problem do not admit the truth of any of these propositions. In particular, such statements of concern do not accept the proposition that the law societies are at fault for having allowed the problem to develop over decades without doing anything. They have done nothing because: (1) they do not accept the principle that the duty to solve the problem arises from their duty to regulate the legal profession; and, (2) they have never felt themselves to be under sufficient pressure to try to solve it. Why didn’t they ask themselves, if it is not the law societies’ duty to solve the problem, whose duty is it? It can’t be government’s duty to deal with unaffordably high legal fees, because such government intervention would violate the principle of the independence of the legal profession from government intervention. Then it is nobody duty to solve the problem. If so, then that majority of the population that cannot afford legal services must accept as a perpetual reality, that they must deal with their legal problems without the help of lawyers. That is the conclusion one must draw from the Federation of Law Societies of Canada’s 2012 published text, “Inventory of Access to Legal Services Initiatives of the Law Societies of Canada.” Those “initiatives” are of three types: (1) self-help programs; (2) “cutting costs by cutting competence” programs, by way of greater use of, students, paralegals, and unbundled legal services; and, (3) pro bono charity, which is too small to have any significant impact on the volume lawyer’s services needed. Accordingly, the first paragraph of that text defines the problem as being merely, “gaps in access to legal services.” The fact that the majority of the population cannot obtain legal services at reasonable cost is hardly a “gap” in the availability of legal services. And no democracy need accept the proposition that it must do without affordable legal services because the unaffordability of legal services is inevitable, and like the weather, it cannot be changed. Nor should it accept such poor performance from its law societies.
For the cause of problem and its solution of necessary innovation, see: (1) my Slaw blog posts:
“CanLII as the Solution to the Unaffordable Legal Services Problem,” Oct. 24, 2013; and,
“Government Intervention to Solve the ‘Access to Justice’ Problem is Inevitable,” August 9, 2013;
and, (2) the in-depth articles that I have posted on the Social Science Research Network (SSRN), which are free to be downloaded. They contain the many detailed facts, arguments, and footnotes supporting all that I’ve posted here. They are available from my SSRN author’s site at: http://ssrn.com/author=1398484.
– Ken Chasse, member, LSUC since 1966, & LSBC since 1978.
Jarred
I’m half-baked with this article.
You see, there is a change incivil litigation. No matter how minimal that is, there is always innovation just like court processes and prevailing jurisprudence.
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