Last week I wrote about the size of the legal market and why it is attractive to VCs. Following this, as part of the GCRC series on Startups and Innovation, I will now look into what has allowed some start-ups to thrive in this market and and in so doing, I will hopefully provide some clues towards success for startups in the legal market today.
Nathan Wenzel from Simple Legal told us that the first thing to do is look at where you are going to fit into the structure of the legal industry as a whole.
“First, the legal industry is not one monolithic structure,” he told us. “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.”
Being able to place yourself within this structure needs three things, according to Colin Rule, from Modria; knowing your market, knowing why you’re best at solving your customer’s problem and being able to focus. Focus is particularly important, he told us:
“The one advantage a startup has over mid-sized and large companies is the ability to completely focus on one thing, and adapt faster to develop a solution and a business model that scales. In a big space like legal technology, it’s easy to get distracted. You have to find the part that you do better than anyone and focus on it. For Modria, that’s online dispute resolution. For each startup, it’s something different.”
This isn’t always particularly easy, of course. Reportedly 95% of startups fail, and having worked for a couple myself, it’s easy to see why. Focus requires great conviction in whatever it is that you’re doing, and to be confident in what you’re focusing on requires what you’re doing to be of genuine value. Too often people go into the startup world thinking they’ll get by on their idea of what it is to be an entrepreneur alone; having a good product or idea you can focus on is far more important than what you believe an entrepreneur should look like.
How do you come up with an idea you can this sort of conviction about? Jawad Ansari, from AssistMyCase, told us you that you often have to think ‘outside the box’ to come up with this idea, so as not to come up with something that is so ‘traditional’, or already-done, that there is no actual need for it.
“My point of view is the core value that we focus on it is thinking outside the box,” he told us. “A lot of companies that I have seen actually are trying to follow a very traditional path of providing some sort of automation to the legal industry. My suggestion would be, or advice would be, is to think outside the box and don’t be afraid to challenge the status quo.”
Priya Iyer from Anaqua, told us that you have to ensure that the technology or innovation you come up with has to be client-centric. Sometimes it is too easy to come up with an idea that may be brilliant and wonderful, which will completely transform the industry if used by everyone; but if it isn’t used by anyone, if the client doesn’t have a need or genuine desire for it, then the product will not sell and it will not attract investment.
“I would say focus on innovation and on technology that keeps the client at the centre,” she told us. “That would be my big thing: put the client at the centre. Do what would really help that client succeed and get to the next level. If you focus on that you’ll not be left behind in a disruptive cycle.”
In terms of the legal market in particular, Matt Faustman at UpCounsel, one of many alternative model legal services providers generating interest at the moment, says that UpCounsel have had success because they have created an infrastructure that has empowered lawyers in a new virtual world. He told us:
“What we have done is potentially build this infrastructure layer for attorneys so that a bunch of individuals can be given the power of being part of a firm but without the infrastructure costs and what we’re building is this very available very large virtual law firm but without the firm, without the infrastructure of a firm, and I think that they really like that idea, especially if you look at what’s happening right now with labour. A lot of labour is moving towards the virtual, more and more people are working from home, so what’s going on with skilled labour is that you know the bricks and mortar law firm is going to go away. I imagine it’ll go like ecommerce did a little bit ago – only like 7% of all legal sales are done by e-commerce now and that’s low – you’d think it would be more 20/25% – but it takes a long time for brick and mortar law firms to go away. What I’ve seen and I think our investors are beginning to think that more and more people and, businesses especially, are going to look to get their services online, Skype and email and so on are going to replace having to go into brick and mortar law firms and that’s going to change a lot.”
As Matt told us, there are plenty of companies out there at the moment who are on the cusp of providing technologies or innovations that could transform the legal industry, but need the financial push to allow them to do so.
“There is money flowing into the legal system right now,” he told us. “In the last ten/twelve months there’s been like 60/70million in venture dollars in just legal startups – there’s a lot of key stage companies that are half-a-million to basically prove how their concepts work or to see if they can really get a great product market in what they’re doing.”
What is apparent is that investors are not going to invest in startups just because they have high aspirations and ‘ideas’. What investors are looking for is startups that have a focused solution to a problem that customers or clients genuinely need to be solved.