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Roundtable on change and challenge in the business of law

By Reginald F. Davis and Victor Li

September 1, 2015, 6:10 am CDT

At a rather small table in a large hotel conference room, five pioneers in new legal services met with the ABA Journal in May. Someone suggested the Las Vegas gathering looked like a poker game, but the intention was a discussion of a very different kind of gambling—the risks they've taken in beginning legal businesses outside the traditional law firm and the bets they've placed on the future of the legal industry.

The participants were Mark Britton, founder and CEO of Avvo, a listing and rating site that connects lawyers to potential clients; Michelle Crosby, co-founder and CEO of Wevorce, a tech-based, mediation-style approach to divorce law; Daniel Lewis of Ravel Law, a legal research service built on visualization; Kingsley Martin, whose KM Standards can create, audit or review legal contracts; and Jack Newton, CEO and founder of Clio, which provides cloud-based legal practice management software.

The group acknowledged there is no such thing as a new legal services community, mainly because they are all busy keeping their own enterprises going. But respect and interest infused their conversation.

What follows are excerpts, edited for clarity, from 90 minutes of discussion. Many subjects were broached: nonlawyer ownership, ethics rules, naysayers and change blockers. But mainly the discussion highlights what five legal industry entrepreneurs have to share about what they’ve learned, and what they hope the law will allow.

WHERE NEW LEGAL SERVICES BUSINESSES ARE CARVING A NICHE

You all have different approaches to the growing alternative legal services market. Give us some insight into what matters to your companies now and where you fit in the market.

Mark Britton: For us [at Avvo], it’s a mix. You have some big firms who have claimed [Avvo profiles] for every lawyer in their firm. [Avvo’s website has individual profiles of 97 percent of licensed U.S. lawyers. Lawyers can claim their profiles by proving identity, and then add information about themselves and their practice areas.] Ropes & Gray is an East Coast example; Cooley, Fenwick, all sorts from Silicon Valley or Portland or Seattle or Phoenix. We see a lot of our big-firm group claims being driven principally out of the West Coast or Florida. But we don’t spend a lot of time thinking about the big firms, because our focus is on that consumer that really needs help, and we’re not focused on the 1 percent or the big corporations.

When you look at the pain point in legal [who isn’t being served adequately by the current legal structure], it is with that 50 percent medium- to high-income consumer avoiding lawyers. And if you take that to low-income to high-income, that’s about 86 percent. And so you have all of these consumers that are just completely baffled as it relates to what lawyers do and how they interact with them. That’s where the opportunity is for us, and lawyers in general, and where we see most of the innovation.

Jack Newton: The space Clio is playing in and focusing on is in the small and solo-firm to medium-firm space as well. We see the technology need is so high there because you don’t have the human infrastructure at the big firms. You don’t have a small army of paralegals and word processors and everyone else behind you to make sure you don’t drop the ball. If you’re a solo and you drop the ball, nobody’s catching it for you.

And that’s where technology’s got to come in. I think that’s the really compelling aspect of cloud technologies; they can allow small firms and solos to have an arsenal of technology that in some cases is much more powerful than what the lawyers have at the big firms. That’s been a huge factor in leveling the playing field and making the solos and small firms so much more effective, capable, less at risk of malpractice and so on—just by embracing these technologies.

Michelle Crosby: Do you find the same tension point that we find [at Wevorce]: That although we have the data to prove to you that we’re saving you 60 percent of your time, and therefore expenses, you don’t need a paralegal—you don’t need someone. We can do all these things for you with technology. However, as a profession, there is a sense of entitlement from lawyers of “I need $400 an hour.” But if I cut your expenses, you realize that you’re making X-amount more, and that your margins are actually much higher.

Newton: The answer to your question is yes. We’ve had a tremendously hard time marketing and selling Clio using ROI-type propositions.

Daniel Lewis: [For Ravel] it’s mostly the opposite. We’ve seen adoption from solos all the way up to Wall Street firms.

And I think some of the stereotypes of firms are wrong. We heard when we started the business that lawyers cared about making sure that they could keep their billable hours and would be nervous about anything that made them more efficient. I don’t think that’s true. The people who get excited about Ravel get excited not because they see an ROI proposition. I don’t think [law] firms are particularly geared up as well as businesses to tackle those types of calculations.

But what they are geared up to calculate is: How do they get a competitive edge, because they’re operating in a business where everybody shares the same information. Everybody shares the same case law, shares the same knowledge of what’s going on in the market. And it’s all open information. And so what they try to do is compete with the smartest people who can make the smartest arguments—the most strategic decisions—and when they see tools that can help them do that, they jump on them. And they jump on them because they know that some other firm is going to do them, and then they look over their shoulder and see their competitors using it.

Kingsley Martin: The upper end of the market has a number of significant advantages. They can pay, and it’s a relatively small segment, so frankly, we serve them. The biggest segment of our market [at KM Standards] is BigLaw and big corporations. These are focused on big problems, and some of them have pretty hefty price tags. And so, as Dan points out, people do it for competitive and quality advantages, not necessarily efficiency and cost control.

Now, my hope is that we’re serving that market, for those reasons. But at the end, the innovation is going to come from the mass market, from our ability to take these incredibly complicated systems and make them more broadly available. I am convinced that while the 1 percent controls just an enormous amount of the total spend, the 99 percent is a potentially very significant market.

ON LEGAL ETHICS AND REGULATION

Long-standing legal ethics rules to protect clients have been criticized as stifling innovation in the legal industry. Do you think it’s the responsibility of the new legal services to challenge these ethics rules?

Britton: To challenge the ethical rules? When they’re dumb, yes. I can’t help but look at [unauthorized practice] and how much it’s hurting the legal profession. It was fantastic protectionism for decades—I get that. And maybe, at one time, to save the poor consumer from these “carpetbagging” nonlawyers who were going to lead them down unsavory paths.

I don’t think it’s going to be anyone at this table challenging these rules. It’s going to be the customer. We come out of business backgrounds where we say, “What is our target audience, what does that target audience want, and how do we give them tools to do what they want?” That’s what we do, right? The customers—half of them who have money—are avoiding lawyers. Lawyers aren’t succeeding in satisfying that demand. So I’m constantly saying: OK, why are half of these people not using lawyers? If we figured that out, we could double the size of the consumer legal services sector overnight.

And what we’re seeing are all sorts of regulations that have lawyers sitting on their hands and allowing a lot of nonlawyer services to pick up the flag for the consumer.

If you look at the data in the United States, what’s pretty interesting is, whether it’s the unauthorized practice of law commissions or the attorney advertising commissions, if you look at the number of actions that are brought by consumers, it’s very low. If you look at the number of actions that are even brought by the bar, as a percentage, they’re very low. And so you have to ask yourself: What are they actually protecting against? So you’re seeing movements in a fair number of bars to where they’re saying: OK, we probably need to look at this differently.

In that, rather than having all these preventative regulations, maybe we can pour more of our resources, our precious resources for the bars, into enforcement. You haven’t seen it happen aggressively yet, but at least I’ve heard many more conversations on this in the last two years than I’ve ever heard in the previous 20. So hopefully they’re moving towards more of an enforcement standard. But quite honestly, what I’d love to see is places like the FTC or the state consumer commissions being that place of redress. That’s what I’d like to see: a lot of the regulation—either in words or where it resides, with organizations that have that kind of wording in their enforcement.

Martin: I assume that no one on the table feels in any way limited or restricted by the ABA codes of ethics, including unauthorized practice of law. I certainly don’t, probably because I don’t intend to do anything that even smacks of unethical behavior.

Britton: I constantly feel restricted by rules. Not the ABA. The ABA, on their attorney advertising model rules, do a great job.

I feel like this is all—everything we’re talking about—is a subset of a crossroads where the legal profession has found itself. And that looks like this: We have a choice, and we’re totally stuck in the middle as regulators and as people who drive the profession forward as a whole, per se. When we think about what is missing, and everything that you’re speaking to, it is business sense. And so we can either teach that in law school or we can allow businesspeople to come into the legal profession and share in profits. Those are your two choices. That’s it.

Crosby: The concept of law is about serving people in need. Many of us go to law school for that exact value proposition. It gets very quickly contorted in the actual practice. And so, when you talk about ethics and lawyers and reform, I actually challenge the whole bar on what are we trying to do. And is that providing services that are in alignment? We’re very comfortable bringing experts on a very trial basis [to assist with cases]. Why can’t we actually apply that to the business of law and bring in the right experts and be more collaborative in it?

That, to me, seems more ethical and is providing services to the client by bringing more resources. Lawyers cannot do all of these things. We are not trained to do it.

Martin: There is an informational negligence about those standards, and maybe it’s for us to try and define and set the right level. But I think, ultimately, the only reason that our new clients will come to new law is because of trust. Just as in some ways the old bar and the old rules of ethics tried to establish and enforce that trust, we need to do the same thing in our technologies.

Lewis: It doesn’t seem surprising that an industry as old and as fragmented as the legal profession has a hard time changing. It’s hard to have a concentrated voice, from one perspective or the other. It wouldn’t surprise me, though, if—this is sort of a Silicon Valley perspective—if technology outpaces it so quickly that it forces change.

If you think of Uber or Lyft, these are businesses that grew so quickly, so rapidly, based on demand, that they were breaking the law left and right in market after market, and regulators said, “We don’t have any choice but to change the rules because the rules are clearly being proven wrong.” And it wouldn’t surprise me if that happened in the legal space too. And it may be the only way, if Congress doesn’t do something.

ON METRICS

We often hear about a dearth of data on the legal profession, but surely you’re using data to see how effective you are. What metrics are you seeing that you’re proud of and what has you worried?

Lewis: For our business [at Ravel], there’s one quantitative, one qualitative. The quantitative one is: We’ve heard folks say that using Ravel for their research has been up to 70 percent faster than using traditional tools. So that’s pretty cool. The more qualitative one is: We’ve heard people say that they’ve found cases through our systems that they haven’t discovered in other tools, even after what they thought was exhaustive research. And those cases have gone on to affect their cases and their wins. So that’s the other cool thing.

I think that the idea of metrics at the law firm level is much more interesting, though. Ralph Baxter, one of our organizers who led Orrick, Herrington & Sutcliffe for a very long time and thinks a lot about this issue, is constantly asking this question to other law firm leaders. The answers are all across the board sometimes. The wrong answer you’ll hear is billable hours. And the right answer, I think, is a little more unknown, but it has to do more with customer satisfaction and profitability on other metrics rather than just the billable hour.

Martin: We are very metrics-driven. And the one that we’re proud of is accuracy, measured on what we use, a precision of recall of low-90 percent. The one that worries us is that most lawyers think that that is a low number, and that they can outperform it. The reality, of course, … is that the expert opinion is usually no better than a coin toss. But challenging that perception—that I’m always right—we are daily presented with a situation where we present some contract analysis to a client who might say: “All of our contracts, all of our software development agreements contain an acceptance clause.” No, they don’t. So the client looks at this and says, “Well, there are two possible ways that we can treat this. Either we’re right and the [KM Standards] software is wrong, or the software is right and, boy, we may need to change our ways.” You can imagine where we always start.

Crosby: All of us at the table are looking at this problem of customers and what they need and all of the data. We are all first movers in looking at large amounts of data in this position. And yet you have all of these solo practitioners and all of these different incentive bases, and all of us at the table are looking at the whole pie. And when you start to present and start to get excited: Look, here’s the statistics, here’s the data. But you go into a market that has very different incentives to attack it. They don’t have a counter-ability to negotiate; there’s just this kind of unknowing fear out there.

Newton: Something we had a really hugely positive response to at the Clio Cloud Conference back in September was this dashboard that we rolled out. We’re a SaaS [software as a service] company, and SaaS companies are just super metrics-driven, and we started talking to our customers about metrics like MRR [monthly recurring revenue] and churn and net promoter score.

It’s kind of a one-time thing; but you think a net promoter score for your legal clients makes a lot of sense, right? Like, one of the biggest drivers of Clio’s growth has been referral business. So one happy customer goes and tells five noncustomers that they used this thing called Clio and they love it, and all of a sudden we’ve got five new customers. And that’s all a function of net promoter scores, and I think the same dynamic’s at play for many law practice areas, and yet lawyers aren’t thinking of net promoter scores. They’re not thinking of sending out that survey; they’re not thinking of how do I nurture my clients to make sure I’m staying front of mind with them over time and helping encourage that kind of promoter behavior?

The data can tell you, and it’ll tell you in very clear and unambiguous and sometimes painful ways, what you’re doing right and what you’re doing wrong. But with this dashboard system that we rolled out, we put what we thought were 10 or so of the most important KPIs [key performance indicators] for law firms to be thinking about; and for so many firms, it was just like an epiphany. There’s not an unwillingness to learn. They just need to have the systems that make it easy.

Simple is the key. And that’s a game changer, and I think we’re at a very exciting kind of cusp right now with the combination of easy-to-use software, the cloud, mobile—the things that are facilitating these very rapid and almost scarily fast changes in things like transportation with Uber and Lyft. I think we’re seeing all the same dynamics beginning to coalesce around legal, and I think the change will be slow until it’s really fast. And it’ll be a really, really exciting next few years.

SILENCING NAYSAYERS

Was there a moment when each of you were creating your business that someone told you, “Oh, that’ll never catch on”?

Crosby: Just one?

Britton: I still have people telling me we will never catch on. And I point out to them that we are the largest legal marketplace in the world. I don’t really point that out to them; I just kind of shake my head.

Even at Stanford [at the ABA National Summit on Innovation in Legal Services], I had someone come up to me and say, “I need to learn more about this Avvo thing, because I’m concerned about your Avvo rating, and I don’t want you to turn into this Best Lawyers thing that’s causing all sorts of problems.” And I didn’t have the heart to tell them that we’re probably 50 times the size of Best Lawyers online.

So there will always be this challenge with those that struggle with the new, and they will tell you that it will never conform to the old. And that is where the opportunity lies.

Martin: I think I better reiterate that. I mean, it’s not just one occasion; it’s daily. The fact of the matter is, I feel that my major challenge is that I operate in a sea of negativity. We have an onslaught of reasons of why it can’t be done. From efficiency, revenue models, from inability to analyze language. And so on and so forth. I think of it partly as an incentive for me to do it. And I think it actually leaves the space open long enough for us to grow into it. I think, in some ways, it actually works to our favor.

Newton: From our perspective, I think back to our first ABA Techshow, back in 2008 when we launched the beta of Clio. It was almost a 50/50 split between people who were coming up to us at our little 10-by-10 booth back then, and half of them were telling us this was an insane idea that was patently irresponsible and was going to fail. And then the other 50 percent were just evangelical. They were coming up to us saying, “We’re so happy; we’ve been waiting for somebody to build this. This is such a perfect fit for us.” And I think if you don’t at least have some healthy set of people coming at you telling you that your idea’s going to fail, it’s probably not an interesting idea.

Crosby: Well, my vision is turning every divorce amicable.

Britton: That is a serious vision. That is shooting high.

Crosby: It is a serious vision, and I think it’s doable. The time is the variable. And it turns out that technology has become the platform for really, actually allowing that to happen.

When I actually would go and talk to the judges, all of a sudden all of my orders were starting to get pulled and challenged. I was stuck in a power struggle because I was doing it differently. I start every certification program [for Wevorce lawyers] with a half-hour of my introduction of “Mission: Impossible.”

I have a very different perspective of how the world works, and it does seem impossible. But when you start looking at it, it’s very possible. And we’re seeing amazing results because of the audacity of the vision. And now the data’s catching up to prove it. And it turns out that I’m not alone. It turns out that I—slowly, with one question at a time—slowly started to attract other believers.

Lewis: When we were raising funding for the first time, we heard from a lot of investors that asked: Why would you do something in the legal space? There’s not enough lawyers—there’s only a million or so; they can’t even help themselves. They’re impossible customers to sell to, and they’re just not likeable people—stuff like that. So there was a lot of negativity about the legal market, but I think we’ve had a great reception from lawyers. The worst that we’ll see is on the older demographic—folks saying, “I don’t understand this visualization thing. It looks pretty cool, and I can understand how young people might use it, but it just doesn’t work for me.”

And I see that, actually, in my own family, where my father thinks it’s cool but doesn’t really understand what we do. My older brother, who’s a fifth-year associate, doesn’t really use it. My younger brother, who’s one year out of Stanford Law, uses it all the time.

Crosby: I’m pleased to report that, overwhelmingly, we’ve had an amazing amount of divorce professionals championing behind us. … There is a ton of growth and innovation within lawyers, and we’re seeing it percolate; and to me, that is really good.

And, you know, we measure tangible and intangible metrics—everyone that joins our platform. Yes, we have all the KPIs and all the things we report to the board and the investors. But the one thing I’m always looking for with my practitioners is: Do you believe that the work you’re doing with Wevorce is leaving the world a better place? And we still have 100 percent.

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Web extra:

Michelle Crosby and Kingsley Martin discuss how discerning patterns in legal cases drives their businesses.

This article originally appeared in the September 2015 issue of the ABA Journal with this headline: “Legal Eagles: A roundtable on change and challenge in the business of law.”