Startups Scale. Solo Lawyers Don’t.

TL;DR: Freelancer marketplaces push solo lawyers as a way to keep legal costs down for startups.  But what they’re marketing is very different from what they actually deliver. Solo lawyers can’t scale, and lack specialization. For high-growth startups, that is a big problem.

Background Reading:

In the landscape of options for getting legal covered for a tech company, there are generally speaking three types of providers, in order of largest to smallest: (i) BigLaw, (ii) Boutique firms, and (iii) Solo lawyers.  I’ve written quite a bit about the comparison between (i) and (ii), but this post is mostly about (iii).

Overhead

“Overhead” is a term often used to refer to everything that a lawyer’s rate has built into it that doesn’t directly go into compensation. Very large firms (BigLaw) have significant amounts of “overhead”; only about 20-25% of the $575/hr you pay for a top-tier BigLaw senior non-partner actually goes into her pocket.

But it’s far too simplistic to assume that all those resources are simply being burned for no reason. Large, fast-moving, complex transactions require collaboration among lots of different kinds of legal professionals, including different kinds of specialties of lawyers, paralegals, legal assistants, legal technology providers, etc. For the very top end of the market, good arguments can be made that the “overhead” of large, international firms is actually quite necessary. The idea that a bunch of freelancer lawyers/legal professionals could just team up to get a billion-dollar merger done efficiently and on-time is little short of delusional.

Boutique firms are the market’s response, enabled in part by new low-cost technology and infrastructure, to BigLaw’s overhead. Those deal lawyers who don’t cater to, and aren’t pursuing, the Ubers and Facebooks of the world, are acknowledging that while they do need institutional resources (overhead) to create strong teams that can close meaningful deals, those institutional resources don’t need to eat up more than half of revenue; certainly not with today’s technology. A $100MM acquisition, or even in many cases a $10MM financing, is sufficiently complex and fast-moving that, again, you are delusional if you think a bunch of freelancers working independently are going to get it done effectively; but a small integrated team of affiliated lawyers, or even a handful of boutique firms, can easily get it done outside of a 1,000 lawyer firm with offices on multiple continents.

Solo lawyers are on the opposite end of the overhead spectrum. They are the freelancers of the legal world. Their ‘overhead’ amounts to maybe a few SaaS subscriptions and a computer. MEMN’s specialist network, in fact, has a fair amount of solo lawyers in various legal specialties. Their rates are naturally lower than lawyers in large or even small firms, due in part to overhead. You might conclude – and there are definitely solo lawyer marketplaces out there trying to drive this conclusion – that every early-stage startup should obviously be using solo lawyers, because they’re “cheaper.” But this overlooks certain key facts about the nature of startups, and about legal services, that call for a reality check.

Legal bills don’t correlate completely with hourly rates.

It’s not that complicated to understand that a well-structured team of lawyers billing $425/hr can easily produce a lower legal bill than independent solo lawyers billing at $275 if they have the right institutional resources – technology, team, knowledge, process (“overhead”) – in place. They’re also often supported by junior professionals/non-lawyers with dramatically lower rates to cover routine items. At very early stage, a lot of the tasks that startups need actually require very little lawyer involvement at all if the right infrastructure (‘overhead’) is in place. If you assume solo means cheaper, you’re often wrong.

Specialization drives efficiency.

What is a “startup lawyer”? That will take too long to fully explain in this post, but I can tell you what it’s not: a litigator, a small business lawyer, a generalist who dabbles in a little estate planning, real estate, and a few seed financings on the side, or a generalist corporate lawyer. I’ve been shocked by how many of these solo lawyer websites market lawyers as “startup lawyers” when they clearly, from their own bio descriptions, are nothing of the sort. Similar to the first point above, a lawyer at $425/hr who has done a project 50 times will be dramatically more efficient at it than someone at $275 who has done it once.

This is not rocket science. Smart founders know that developers with higher salaries often get far more done than 10 developers at lower salaries. The talent market dynamics of lawyers are not that different from those of developers.

In a talent market, the cheap guy is usually cheap for a reason.

In an industry where results are driven by human, not just institutional, capital, you simply cannot hire whoever walks in the door and train them to produce A-level service; no matter how fantastic your resources are. As elitist as it may sound, most lawyers on the market simply lack the capacity and knowledge to correctly manage and close complex legal work. They may be very well suited for certain areas, but the moment you leave the minors and start playing in the majors, everything goes off the rails.

Serious talent requires serious compensation, which sets a floor on hourly rates; regardless of overhead. If that is too difficult to understand, good luck in business. It can be (and is) simultaneously true that the legal market is flooded with under-employed lawyers willing to discount and jump through hoops for work, and yet great lawyers who can manage and navigate specialized complexity/scale are in very high demand and short supply. 

Fast growth requires scalability. Switching lawyers is costly.

A startup can go from 2 founders needing to just incorporate to needing fast VC, employment law, tax, licensing, etc. support in just 1-2 years; sometimes sooner. You’ve got a VC term sheet on the table, 10 equity grants that need to get done in 2 days, a resolution to the issues with the VP you just fired, and assistance finalizing that LOI with the big customer that will help close your round; and you need all of this done this week. Virtually every single startup that has switched to MEMN from solo lawyers has had the same universal complaint: they are SLOW.

Of course they’re slow. All that (air quotes) “unnecessary overhead” they cut out to get you that awesome hourly rate is precisely what could’ve funded the institutional resources that ensure legal work keeps moving: a well-trained team to collaborate with, technology (and training for technology) that streamlines unnecessary tasks, non-lawyer professionals to knock out checklist items while the lawyers focus on the big stuff. Scaling companies need legal teams, and max out a solo lawyer very quickly.  If a single solo lawyer happens to peculiarly have all the time in the world, please re-read my comments on talent markets.

And if you think it’s smart to go with the solo who is ‘cheaper’ and then switch quickly to a firm: again, a reality check. Switching lawyers/firms is costly. The new lawyers have to familiarize themselves with what the prior guy did, on forms that they (usually) aren’t familiar with. That takes time, and increases the likelihood of errors. Finding a firm that can scale-down for very early-stage, but then scale up when needed, all using its own forms and resources, is far smarter than taking an iterative approach with your legal team.

In short, the changing legal landscape available to tech companies is being driven very much by technology, and it’s been great not just for entrepreneurs, but also for lawyers looking for alternative platforms to work from.  I’m a big fan of how solo lawyer marketplaces are helping connect demand with supply in areas where the ‘overhead’ of firms really is unnecessary.

But be very careful about buying into any marketing suggesting that there’s this untapped market of great solo “startup lawyers” just waiting to fill your startup’s legal needs at unbelievably low rates.  Solo law works great for small businesses, who don’t scale fast;  and also for certain legal specialties where projects are very compartmentalized. But true startup/vc law requires institutional resources and well-trained, well-coordinated teams of lawyers/non-lawyersThe goal of tech startups is to scale quickly.  But solo lawyers can’t scale at all. That means that solo “startup lawyers” are, at best, a bad fit; and at worst, an oxymoron. 


Also published on Medium.

  • Ric Rob

    Who wrote this article? Someone trying to persuade clients to keep paying for their overhead so they can prevent underlings from defecting with clients or at least their secrets? Here’s a reality check: around half of the USA’s lawyers are solos. Meanwhile 1/3 of 1% of the U.S. population works as an attorney. There isn’t that much difference between many of them in terms of talent; they’re already well above the curve. Lifestyles matter to some lawyers though. They don’t want to be mere cogs in assembly lines, who focus on such a narrow niche and consequently often miss the forest for the tres.

    Would you prefer to work as your own boss, helping causes that you care about at the rates that you want to set? Or would you prefer working on what (other) partners demand, while exploiting clients in pursuit of your own survival within such an expensive scheme? Solos can scale better than ever before thanks to the internet and other digital breakthroughs including processing speed and memory storage advances. Happier lawyers can bill less because working requires less exertion.

    Plenty of solos only serve referrals too, so sometimes there’s a slow time on their calendar because they do not seek to generate business for which to simply bill. Some previously worked at “Big Law” but others learned from friends and publications (as well as interviews) what it’s like there, and wanted no part of it. Larger firms certainly have slow times on their calendars as well; they’re called layoff$. Have you looked into attrition rates at large law firms? Those speak volumes. Law firms’ higher fees help explain the cost of switching projects from one attorney to the next, after a predecessor defected, got canned, quit or even passed away from the unhealthy conditions. Those lawyers who work into their 80s or 90s are typically solos for good reason: they LIKE being lawyers because they can pace themselves enjoyably. Do you want a cranky lawyer with phony pleasantness (if you can ever reach him or her)? Then go with Big law for your legal needs.

  • Paul Spitz

    I’ve worked in a mid-size firm, a boutique corporate firm, and now I’m a solo. I think I can speak knowledgeably about all 3 practice environments, and let me say, this post by you was remarkably disappointing and uninformed. There are a lot of flawed assumptions in this post:

    1. The assumption that all solos are “door lawyers,” and that a solo lawyer can’t and doesn’t specialize in startups. We may not be able to say we “specialize,” because of archaic state bar rules, but that doesn’t mean I don’t focus my practice just as much as you or the guy at Wilson Sonsini.
    2. The assumption that solos charge bargain rates. Actually, some of us charge rates comparable to what midsize and biglaw partners charge, but because of our lower overhead, we make more money. Also, if our bills are lower, it often has less to do with our billing rates, and more to do with being able to service clients more efficiently that a midsize or big law firm. We don’t have to pass work back and forth multiple times between inexperienced junior associates and more senior lawyers, to ensure that the work is done properly. Finally, on this point, some of us don’t discount our rates. We charge a fair rate based on expertise and value, and that’s the rate. Big and midsize firms discount all the time – you know it – because they know they overcharge.
    3. The assumption that we can’t build an effective network of independent specialists to fill gaps in our own practice, such as patent, trademark, tax, etc., which is closely related to the next faulty assumption…
    4. The assumption that all your partners and associates are highly qualified. Believe me, I’ve found plenty of crap lawyers in big and mid-size law firms — the kinds of lawyers who routinely set up every startup as an LLC, for example. And big firms will generally staff projects with junior associates, who lack the experience and knowledge base of a focused solo with 10 or more years of experience.
    5. The assumption that solos are slow, and midsize and big firms are fast. That’s hogwash, as my Grandma would say. I turn work around pretty quickly, and frequently hear new clients complain about how it took weeks for their previous midsize or big firm – which doesn’t value them as a client – to do even basic work.
    6. The assumption that solos can’t hire paralegals and secretaries to do the less complex work. Sure we can, and we do, and we can do so on a flexible basis, staffing up and down as our needs dictate.

    Now, is there a level of certain types of legal work that may not be appropriate for my setup? Sure, I’ll admit that. I’m probably not going to take on an IPO, and once a company has gone public, I’m unlikely to be handling all their securities work. Or a complex $1 billion M&A deal, I may not have the resources for. Maybe I hand that off, maybe I co-counsel with other lawyers.

    I really enjoy your posts here, and most of them are pretty insightful, but this one was a load of crap. This read more like a rant from someone who just lost a few clients to a solo, rather than an accurate and informed assessment of whether a solo lawyer can serve startup clients well.