Our latest GCRC Interview is the first in our series about startups in the legal market. The interest in legal tech and innovation is huge at the moment as VCs look to seize the moment amid the shifting legal climate.
The first interview is with Nathan Wenzel from Simple Legal. This interview will be released in two parts. The first will look into what Simple Legal do and focus on the question of eBilling in particular.
To find out more about Simple Legal, you can have a look at their website: http://www.simplelegal.com/
For what reasons did you start Simple Legal?
We started SimpleLegal because we believe data is a key requirement to improving any process. For over a decade we have worked with large companies that spend in excess of $100M/yr on legal bills to help them understand their spend and the effectiveness of their law firms. But companies spending less than $20M/year are left with PDFs making it very difficult to get any real insight into their legal spend. We wanted a simple way to get data into the hands of GCs so they can help their companies manage spend. An eBilling platform really is just a way to enable a better hand-off between law firms and their clients.
How did your own legal experience motivate you to start the company? Did you feel there was a gap to be filled here in respect to Simple Legal’s?
We’re big believers that data + expertise is worth more than either of those components on their own. GCs know what they expect to see from their panel of firms. But paper and PDF invoices make it nearly impossible to see the big picture. We definitely saw a gap in what companies want from their law firms vs what is delivered in terms of information and legal project management. We hope to help law firms submit better, more informative invoices to their clients.
GCs have their traditional ways of choosing outside counsel – panels and relationships formed from their own experience working in private practice. How effective are these methods? And in light of the current scepticism of the panel process being aired in the legal press, could there be a change in approach?
A big part of the relationship with your law firm is trust. It’s no surprise that relationships and past experience drive law firm selection. Law firm performance isn’t binary like your cell phone service where you either have a connection or you don’t. Commoditizing law firms and legal services would be a mistake. There is certainly room to improve the model. Hourly billing is certainly not the best way to measure value. It also isn’t the best way to create trust. Fixed fee agreements should be part of almost every companies billing guidelines. We encourage our customers to setup a fixed fee agreement with their law firms to cover any general phone calls and correspondence. That accomplishes two things: 1) it takes the fear out of the ticking clock every time you’re on a conference call with a partner, two associates, and a legal assistant, and 2) it encourages the law firm to handle the questions in the most efficient way possible.
eBilling has been around a while. What do Simple Legal do differently with eBilling? How prevalent is eBilling now in the legal industry?
eBilling has been around for some time. But not all companies can take advantage of it because not all law firms are capable of producing a LEDES format electronic invoice. At SimpleLegal, we think data standards are great but they shouldn’t be limiting. Our software can read any output that a law firm can provide including QuickBooks. We also help the CFO organization by pushing approved bills from the eBilling platform into the accounting system. We want to eliminate all manual data entry.
Just how big is the legal market at the moment? How much is the market worth to investors?
In the US, the top 200 law firms will bill over $92B in the next 12 months with average margins of over 40%. I think Jeff Bezos of Amazon said it best: “Your margin is my opportunity.”
Investors have quite a few options in the legal world. From eBilling and eDiscovery to legal marketplaces and fixed fee legal work. I think LegalZoom has probably done the best job of capitalizing on the opportunity created by the legal profession being slow to adapt to a changing environment.
But with technology also, in some ways, a threat to the legal industry – in terms of the automation, say, of many of the processes that lawyers are paid so well to do – how long will investment in the industry last?
Technology is a business process lubricant. Technology will disrupt jobs where people are the cause of the friction. But I’ll disagree with the idea that technology is a threat to the legal industry. It is certainly a threat to the current legal industry: eDiscovery software can outperform junior associates, our own eBilling software has already proven to be as effective as an experienced auditor in finding billing guideline violations. But that threat doesn’t mean the end of the industry. It means the next iteration will have to take shape.
We’re still in the very early stages of this iteration. When tracking what your 10 lawyers are doing is just as easy as tracking 100 friends on Facebook, then we’ll know we’re nearing the beginning of the next phase.
Larry Bridesmith from ERM Solutions told us recently that this is an excellent chance for innovation in the legal industry because of disruption. Is this chance being taken by the profession?
In large part, you see law firms embracing efficiency innovations (see article). Time tracking via smartphone is an example. It’s technology, it’s innovative, but it’s not disruptive. They’re finding ways to cut costs at the margins to keep their core business model intact. Many of our customers’ General Counsel are pushing their firms towards flat fee work. Firms will struggle to thrive in that model if the billable hour continues to drive their incentive structures, demand planning models, and organizational hierarchies. Firms that are able to adapt to this disruptive change will flourish at the expense of their counterparts.
Investment in the legal industry seems to be growing slowly and there are hundreds, if not thousands of startups trying to follow in your footsteps. What advice would you give to any start-up looking for investment?
First, the legal industry is not one monolithic structure. You should know where you fit and where the investor sees the opportunity. We’re very fortunate to have great investors that have a history in the legal world on the corporate side. Lots of investors talk about investing in the legal world because they see the dollars spent. But very few actually have the background to understand the best way to tackle it.
I’d also provide the same advice to a legal startup that I would provide to any startup founder: Build something people want. (see article) Growth is the easiest way to prove that you’re building something people want. Show growth and investors will find you.