Startups Need Specialist Lawyers, But Not Big Firm “Lock In”

TL;DR Nutshell: In the course of your startup’s life, you’ll need perhaps a dozen or more different kinds of specialist lawyers.  There is very little about the practice of law today that requires you to source all of those lawyers from one firm when the “right” lawyer (experience, rate, culture) may be a solo, at a boutique, or at another large firm.  Yet traditional law firms continue to push the “one firm for everything” full service model because it allows them to mark up specialist lawyers whom startups could otherwise hire for several hundreds of dollars less per hour.

Background Reading:

Most people have a good understanding of the importance of specialist doctors; that if you have a serious skin issue, you call a dermatologist, but if you have a serious heart issue, you call a cardiologist.  Biology is far too complex, and the stakes are simply too high, to rely on a single generalist who, while valuable at coordinating specialists and keeping an eye on the forest relative to the trees, couldn’t possibly be smart enough to cover every specialty without repeatedly committing malpractice.

Generalists v. Specialists

New founders typically have less of an understanding of how this generalist v. specialist divide also exists for lawyers.  If you’re a 3-person coffee shop that isn’t playing on a national scale, it may be OK to rely on a single general lawyer to incorporate you, file your trademark, and maybe handle your lease.  But if you’re a scaling startup seeking VC funding and making decisions on Day 1 that will influence your company’s prospects when it hits $25MM in revenue, you need solid specialist lawyers.

The category of “startup lawyer” is itself a specialty. It means a corporate lawyer who (you hope) specializes in working with early-stage technology companies and has closed so many angel and VC deals that she doesn’t need to be “educated” when your investors show up with a term sheet.  Startup lawyers also play the role of a generalist, sourcing and quarterbacking specialists as needs come up for their clients.

Here are just a few examples of specialist lawyers that startups often require as they grow:

  • Patent Prosecution – which itself contains dozens of sub-specialties depending on the type of science/technology. You don’t hire a patent lawyer with a background in organic chemistry to draft your IoT hardware patent.
  • Patent Litigation
  • Commercial Litigation
  • Trademarks
  • Tax – U.S., and Country-Specific
  • Tech Transactions – (Licensing, Reseller Agreements, OEM, Distribution Agreements, etc.) – subspecialties include hardware focus, SaaS focus, etc.
  • Data Security / Privacy – subspecialties include financial data privacy, HIPAA, etc.
  • Open Source IP
  • International Trade / Export Compliance
  • Employment / Labor Law – federal and state-specific
  • Employee Benefits and Compensation
  • DE Corporate Governance
  • Environmental
  • Real Estate
  • Securities Regulation
  • Immigration
  • Mergers & Acquisitions (M&A)

One of the main points that I’ve driven home in many SHL posts, and around which MEMN’s tech practice has been built, is that no single law firm can or should attempt to employ all, or even most, of the specialist lawyers that a technology company needs over its life cycle. Apple is massive and employs dozens or hundreds of different types of engineers and executives. Why? Because without doing so it could never produce the iPhone 6. Take any specific type of developer or engineer out of Apple and have her work alone or at a much smaller entity, and she couldn’t possibly produce as much value as she can being integrated at Apple.

This is just not how law practice works. Lawyers in various specialties absolutely do collaborate to ensure clients are well-represented and that work performed by various people doesn’t conflict, but with today’s SaaS/collaboration tools (which weren’t available a few years ago), that collaboration occurs just as easily (and depending on the firm, more easily) between focused, specialized firms as it does under the same massive, bureaucratic structure.  

I can call a top trademark lawyer at a 5-person boutique or a similar lawyer at a 1000-lawyer firm, and their capacity to handle 99.9% of my client’s trademark needs is virtually the same, though the boutique lawyer will be $250+/hr less (yet make the same or more per hour), and generally give my client more attention. The core value produced by large law firms is concentrated in individual professionals who, unlike people working at integrated companies like Apple, hardly become less valuable when you change their address and sig block. 

The Driver of Big Firm “Lock In”

So why don’t large firms simply break up, allowing their lawyers to drop their rates and stop wasting clients’ money? Aside from fear and inertia, there is one very serious “glue” keeping BigLaw together: origination credit.  In law firm economics, lawyers make money not only from the work they do, but also from a % (their origination credit) of the work done by other lawyers in their firm for clients they source.  If I’m a startup lawyer at a large firm and can push my client to use my firm’s trademark lawyers, patent lawyers, litigators, etc. etc., I get a cut of all those fees. I don’t get a cut if I send them to another firm with better lawyers, lower rates, and more appropriate skills. 

Many founders are shocked to find out that, for the vast majority of lawyers in BigLaw, maybe 20-25% of the amount they bill ends up in the pockets of the lawyers doing the work. You’re billed $650/hr for a patent lawyer, but maybe $175 gets to that lawyer.  Most of the rest is: (a) bloat (see above), and (b) markup to feed the origination pyramid.  

Putting aside how much this screws clients (founders), you cannot possibly understand how badly specialist lawyers would love to be able to bill clients $300/hr less, without taking a cut in their compensation. But many of them can’t, because leaving their large firms means being cut off from the deal-flow. The only specialists who are able and willing to break free are the ones with enough client loyalty (and chutzpah) that they can take clients with them. And those are the specialists MEMN likes to work with.

Boutique Corporate Lawyers and the Specialist Ecosystem

When a startup works with a startup lawyer in a large firm and needs a specialist lawyer, 99% of the time the startup lawyer will push work to his own firm’s specialists. Never mind that the specialist he chooses may be over-kill, or over-priced, or simply a poor fit. That’s his firm’s specialist, and the firm expects him to “cross-sell” into other specialties. He wants his cut.

When a startups works with an MEMN startup lawyer and needs a specialist lawyer, we assess the various options in our network (or elsewhere) and let the client choose what he/she thinks is the best fit. For example, we could go with a solid solo lawyer billing in the $200s who’s excellent for straight-forward work.  If it’s a more serious issue we could go with the slightly more expensive boutique w/ high-end specialists in the $300s or low $400s.  Or if it’s a bet-the-company issue we could go with one of the top specialists in her field who formed her own firm recently and bills at $500/hr (she was $800 at her former firm).

Granted, sometimes the absolute right lawyer is, unfortunately, still in BigLaw, and we work with her, but every year that becomes a rarer occurrence as the specialist ecosystem grows.  And I always favor lawyers outside of BigLaw because of the risks they’ve taken, the better attention they give to clients, and the fact that they are building a legal market that is less soul-sucking for the country’s top legal talent.

The point is that we leverage our vetted network of specialists to ensure clients get “full service” legal counsel, without misaligned economic incentives muddying the relationship. Clients aren’t “locked in” to any particular set of specialist lawyers, so we’re free to choose from a much broader pool. While this represents a loss in origination credit for our lawyers, it also significantly enhances their value proposition to clients, helping overall with business development.  Short-term loss, long-term gain.

Founders should be mindful of the incentives behind how their startup lawyers source specialists, because they can and will have an impact on the bottom line, and could even result in major screwups from a mismatch between what the startup actually needed and the specialist who was put on the job.  While the overall market is evolving to favor flexibility, transparency, and efficiency, a lot of traditional firms still tout b.s. about the importance of “big firm resources.” Smart founders know that “big firm resources” is, for the most part, just code for “we’re going to keep milking clients with overpriced specialists until the music stops.”

Startup Lawyer’s Poker: Fee Deferrals

Nutshell: Startup-focused law firms with well-developed client bases are able and willing to bet on (the 1% of) startups by deferring their fees, but founders should understand what they’re signing up for when agreeing to those arrangements.  In many cases, fee deferrals are just clever ways for firms to “lock in” already de-risked founders and have them ignore massively marked-up price tags on legal services.  Think before you drink the kool-aid. 

It’s no secret that one of the largest expenses that early-stage startups face from their very early days is the cost of hiring competent lawyers. The reason for this is simple: “cloud” economics don’t apply to people. Deploying a SaaS startup has become way cheaper than it was 10 years ago because of all the “X as a Service” that founders can leverage instead of having to invest significant amounts of capital on in-house technology.  But, unsurprisingly, developers still aren’t cheap. Being a good developer requires years of training and unique talent, and being human requires paying for stuff.  Good developers cost real money.  Good lawyers, like good doctors, cost real money.  Anyone suggesting otherwise is attempting to defy the laws of physics.

All that being said, readers of SHL know that there is a lot that smart founders can do to avoid over-paying for legal services:

  • Are you just one or two founders working on an MVP? – Use Clerky and/or, if you need a lawyer, hire a top-tier boutique firm that specializes in early-stage tech, and be careful with generalist solo lawyers.
  • Do you need specialist lawyers for things like trademarks, patents, or other specialty counsel? – Resist the firms that VCs try to force you to use, which are usually very large firms that over-charge clients by $200-300/hr in order to fund their pyramid structures, outdated bureaucracies, and bribes sponsorships of accelerators for funneling companies through them. If you think an extra $200 for every single lawyer hour won’t have a material impact on your runway, do the math again.

If I wanted to get cash-strapped founders to completely ignore the real cost of startup legal services and get them to pay my 2-3x inflated price tags, what would be a great way to accomplish that? Answer: defer my fees until they are less strapped for cash. 

PayDay Loan Meets No-Shop Clause

For many law firms, the fully transparent bargain in a fee deferral can be summed up as follows:

  • Assuming your bill doesn’t go above $X (often something like $25-50K), you don’t have to pay us anything for at least 6-12 months, or until you raise $Y (often a range of $100K-$500K).
  • In exchange, please ignore the fact that everything we charge you will be massively marked up. And we’d also like 1% of your common stock.
  • Also, don’t think about using other law firms for anything while our fees are being deferred – we can’t afford our deferrals if every client goes and hires those lawyers that left our firm 2 years ago and now work for $250/hr less than what we’re charging you for less experienced lawyers. If you do, the bill needs to get paid. This isn’t UNICEF.  The Life Time Value (LTV) isn’t there if all you’re using us for is a fixed-fee formation package.

If a major law firm has made this kind of offer to you, it’s likely because you’ve signaled to them that this bargain is a good deal on their end. Usually, that means you’ve been accepted into a major accelerator, received interest from an investor, or have otherwise been “vetted.” You’ve been de-risked. Smart founders who are lucky to find themselves in this position should obviously ask: if I’m de-risked, is this actually a good deal for my startup?

Be Smarter About It

In startup law, successful late-stage clients cross-subsidize early-stage clients that can’t yet pay their bills. This economic reality ensures that, as long as small firms are stuck working with B-players, the firms with A-clients will always be able to win more A-clients by offering them fee deferrals that the smaller firms simply can’t match.  Startups that don’t want to be bankrupted by lawyers, yet also don’t want to be locked down by gilded handcuffs, really then have two options:

  • Find the efficient A-lawyers, and budget for their services. – Well run focused firms can be dramatically cheaper on early-stage services than traditional firms (and, frankly, better quality), particularly those small firms that regularly work with startups and have optimized their pricing structures for those kinds of companies.  Budget for their services just like you budget for anything else. The truth is you rarely need that much lawyer time before your seed round.
  • Find top-tier smaller firms that are willing to defer. – Remember, only firms with solid client bases can afford to defer their fees for good clients. Many small firms simply won’t do it, but some will.  The deferrals won’t be as large (because your LTV for them is smaller – they aren’t trying to do everything legal for you) but it doesn’t need to be, because the bills are lower.

The evolving law firm ecosystem that I’ve written about is increasingly moving up-market, working with higher-quality clients that once were too afraid to use anyone but the established law firm brands. That means those smaller, more nimble and efficient firms are increasingly able to offer their own “incentives” to attract top-tier clients, without the massive costs of shackling yourself to a single, large full service firm. 

To be honest, I’ve always viewed fee deferrals as an unfortunate, but necessary evil in the startup law space; a kind of smoke and mirrors to distract everyone from the very real problems that traditional law firms are unwilling to address. Does MEMN do fee deferrals? Yes, unlike most firms our size, we defer for a small segment of our clients.  I’ve picked enough winners and turned down enough losers to trust my instincts on deferrals.  But if you ask me about deferring my fees, my initial response is always going to be “let’s talk first about how we’ve made top-tier startup law actually affordable.”

The Tech Law Ecosystem vs. BigLaw; Except in Silicon Valley

Question: Why is it that, despite being the epicenter of championing innovative business models, dynamic markets, and the disruption of bloated institutions, Silicon Valley remains dominated by a handful of very large, expensive law firms built on century-old delivery models?

The Blunt Answer: History and Bribery “Sponsorships.” Those large firms have dedicated biz dev people whose job is to write checks to incubators, accelerators and other players with heavy influence on the “pipeline.”  Sponsorships have enabled BigLaw to entrench itself.

And those same firms deliberately seek out VCs (not just companies) as clients, who tacitly understand that, in exchange for the firms’ not pushing too hard on VC deals (when they represent companies), the VCs are supposed to act deeply concerned when they don’t see one of the good ol’ firms at the table; even if the lawyer they’re poo-pooing has impeccable credentials, experience, and even just left one of the very same firms on their ‘preferred list.’ Sound incestuous? It is. See Don’t Use Your Lead Investor’s Lawyers and Why Founders Don’t Trust Startup Lawyers.

It’s well known among the tech law community that no tech ecosystem –not Austin, Seattle, Boston, NYC, etc. – takes law firm “brand obsession” to levels anywhere near those of Silicon Valley, in large part for the above reasons.

History

The full answer is of course a bit more complicated. See: When the A-Lawyers Break Free: BigLaw 2.0.  Before the Cloud and SaaS, big firms truly were necessary to deliver the tier of legal counsel that top tech companies needed, and Silicon Valley’s early growth period occurred largely in that era.  But at some point technology changes things, and the rules of the game shift.  I’ve staked my career on the view that this shift has occurred, and is accelerating.  I left a large, full service firm designed around the traditional “one stop law shop” model for a smaller firm that leverages technology and an ecosystem of top solo lawyers, boutique firms, and other services to replicate “full service” in a much more efficient and flexible way.

A Summary of Why The Ecosystem is Emerging (Outside of Silicon Valley)

  • There have always been second and third tier small firms that (i) picked up clients top firms were not interested in, and (ii) employed lawyers who either never met the criteria of top firms, or dropped out of those firms because they were fine accepting less interesting work and lower compensation for a more easy-going life.  An alternative to going in-house, these lawyers call themselves “outsourced general counsel.”
  • Top, well-funded clients that reached scale (the kind that seek out and are willing to pay for top lawyers) inevitably required a large set of legal specialties: tax, executive comp, IP, tech transactions, trademarks, etc. to handle all of their legal needs.
  • Lacking an affordable, third-party collaboration infrastructure (like today’s Cloud/SaaS tools) to coordinate all of these different lawyers, keeping everyone (dozens of different specialties) under the same roof to share the high fixed overhead costs was historically essential to getting large deals done smoothly and as efficiently (for the time) as possible.
  • Hence, top paying clients gravitated to large firms that could serve them, and as long as those large firms paid the most, top lawyers (in all specialties) were willing to accept the astronomical overhead, convoluted structure, and inefficiency of their large employers.
  • But now, virtually every proprietary resource that large firms once had exclusivity on is available as a SaaS tool or outsourced service, along with very affordable and extremely effective collaboration tools.
  • Therefore, those top lawyers, once locked into large firms, are realizing that as long as they can wrestle away top clients from BigLaw, they no longer have to put up with taking home only a small percentage of their billings.  They can drop their rates significantly, take advantage of their small footprint to optimize for their practice area, and take home at least as much, and often much more, as they did in large firms.  A win-win for lawyer and client – but a loss for “The Beast.”
  • End-Result: A growing ecosystem of significantly smaller, more flexible law firms and solo lawyers that (i) are at the top of their field, well compensated, and have much better quality of life, and (ii) by collaborating with one another, replicate BigLaw’s “full service,” without its soul-sucking bureaucracy.

Austin’s “Cut the BS” Culture: The Ecosystem Grows

In my opinion and based on observations from interacting with players in various ecosystems, Austin’s legal market is at the forefront of this emerging lawyer ecosystem.  Here the quality of attorneys outside of BigLaw – multi-specialty small firms, single-specialty boutiques, and even solos  – is extremely high and increasing, because the client base here isn’t anywhere near as brand-obsessed as in Silicon Valley.  We still have our own cronyism, but our strong “be authentic” cultural bent helps keep it in check.

At MEMN, we connect clients on a regular basis with experienced, top-tier corporate, tax, trademark, litigation, executive comp., patent, etc. attorneys outside of BigLaw, all with better credentials than the lawyers BigLaw throws to startups, and at rates often below inexperienced junior lawyers at large firms.  And, as far as I know, none of us took a pay-cut in leaving BigLaw.  I am fully convinced that this ecosystem will continue to gain traction, and we have every intention of pushing that traction outside of the Texas market, including connecting with firms in other markets doing the same.

How BigLaw Will Respond

Of course BigLaw is responding, but it’s important to keep in mind that “BigLaw” is a set of many different players, each with their own perspectives on the old model.  The big winners of the traditional law firm model were (i) the many layers of in-house administration and management needed to coordinate dozens of specialties and hundreds of different kinds of lawyers, and (ii) the power rain-makers sitting atop the pyramid extracting a significant amount of billings from lawyers doing the work, including all the specialists. These constituencies will absolutely do everything they can to protect the old model.

The main marketing message that will emerge from these groups will be one of “integration.”  They will argue that keeping everyone under a single structure provides benefits that make up for the overhead and inertia. In other words, they’ll try to portray themselves as the “Apple” of law.  Expensive and huge, but “worth it.” I love my iPhone 6.

Without getting stuck on this topic because this post is long enough, anyone who thinks about it will be skeptical of an analogy between software-hardware integration and the ‘integration’ of lawyers in dozens of different specialties, especially as technology continues to erode the friction in cross-firm collaboration.  A better analogy would be something like the Mayo Clinic, but of course that would mean that BigLaw must accept that only the absolutely most complex transactions (think billion-dollar, multi-national mergers) truly require its “integration” – and The Ecosystem would be more than happy to unburden BigLaw (which would then not be nearly so big) of the other 99.9% of the market.

While management and top rain-makers will work to protect The Beast, the rest of the BigLaw pyramid will, over time, come to realize that The Ecosystem is more of a liberator than a competitive threat.  Finally, a way to practice your specialty much more effectively, do interesting work, get paid well for your talent, and not have the significant majority sucked up to pay for “stuff” that doesn’t enhance your work.  Much like how technology has created an explosion of interesting, well-paying work outside of large organizations in many “knowledge worker” industries, The Ecosystem is simply an extension of that process to law.

A Message to BigLawyers

Ask yourself: if you’re billing $625/hr at a large firm and have developed strong relationships with clients, what will those clients say if you tell them you can do the exact same work for them, but charge $400/hr instead – the only real change being the signature block on your e-mails? Certainly The Beast, including the deal lawyer who ‘controls’ the relationship, will do everything it can to push the work to another $625/hr attorney in the firm. But what will the Client say?

Viewed this way, BigLaw today can be accurately described as a mechanism by which rain-makers who (lower-case c) “control” client relationships force the “labor” lawyers to stay in one large firm, accepting only a small percentage of the value they produce in exchange for “deal flow.” And by having the talent pool controlled in this way, clients who need top lawyers have to pay the higher rates to feed The Beast and the rainmakers.  The Ecosystem, and the fact that no one really controls clients (who won’t be forced to pay $625/hr when they can find the same lawyer for $400), throws a wrench in this structure.

A Message to Lawyers Building The Ecosystem

  • Collaborate;
  • Optimize;
  • Don’t fall back on generalism, but resist artisanal lawyering;
  • And absolutely do not underestimate ever the importance of branding and marketing.

Start talking to each other and sharing work.  Being solo has many inefficiencies, and for many specialties the “optimal” structure will likely be more focused firms that effectively leverage their institutional knowledge with targeted, efficient tools and processes.

Take advantage of your small footprint to experiment and iterate on process, technology, pricing, etc. that was never possible under a large firm – you are a startup.  Resist the urge to price yourself as a generalist who does boring, cheap work, but also don’t design your firm in a way that is so “high-touch, high-end” that it can’t scale.  If you’ve hit on something that works, scale it and liberate more BigLawyers.

And absolutely never, ever pretend that all it takes to succeed is to simply “be a good lawyer.”  Clients care about brand and prestige, including the deal lawyers who connect you to clients. No one can find you if you don’t know the slightest thing about marketing yourself. Serious companies won’t want to hire you if your website looks like it was built overnight by a middle schooler. Learn.

The Ecosystem will be built by the most entrepreneurial of BigLaw, including those who are confident enough in their personal brand to break free from The Beast. Once a path has been laid, the more timid will follow.

And a Message to the Gatekeepers

So you say that you’re all about disruption and transparent markets, yet you continue to hand out referrals to firms that write you checks and send attractive blondes offering steak dinners.  I’m not mad at you.  I know how the game works.  Upstanding doctors fall prey all the time to Big Pharma’s biz dev tactics, so I totally understand your inability to resist being a hypocritical little sh**.

Thankfully, every ecosystem (Austin included) has enough gatekeepers who believe in true meritocracy.  The Ecosystem is growing and will continue to grow. Companies will find a much more vibrant, dynamic legal market.  Top lawyers will find interesting, well-paying work in non-soul-sucking settings, and the most innovative will be rewarded with scale.  I’m not pretending to be Mother Theresa and absolutely have an economic dog in this fight.  But knowing all the benefits that accrue both to startups and to lawyers (my people) from it, supporting The Ecosystem is absolutely part of my mission.

Your Startup’s Legal Bill: The Printer & The Cartridge

A client of mine recently used an analogy to explain why he dropped another small, local law firm for MEMN: their printer is cheap, but their cartridges are really expensive.  That statement explains perfectly why many founders, because of their lack of understanding of basic law firm economics, can get really screwed by firms touting their low hourly rates as evidence of their “efficiency.” The core problem is this:

  • In the short term, your legal bill is a two-part equation: hourly rate * time spent. Naturally, that means that a lawyer billing $225/hr can generate a substantially larger bill than a lawyer billing $375/hr if the “cheaper” lawyer takes 3x the time to do the same task as the more “expensive” one.
  • In the long-term, “time spent” is itself a two-part equation: time spent to initially complete the task + time spent fixing mistakes (if the mistake is even fixable).  This should come to no surprise to a CEO who’s spent time interviewing and hiring developers. One developer wants a $60K salary, and the other wants $100k. Is the $60k one a bargain, or overpriced sh**?

The above two points should help make the analogy between printers and lawyers clearer:  a printer can seem like a great deal because the manufacturer locked you in with a low cost of adoption, but you should really pay attention to how much the cartridges cost, and how many you’ll have to use – and whether it flat out sucks. Because that’s where the real expenses are. It’s the exact same thing with lawyers: an exceptionally low hourly rate can seem like a great deal, but how many hours will this ‘bargain’ rate be multiplied by? And what exactly are you getting for that rate?

The “Hourly Rate” Issue

As mentioned above, it is absolutely the case that a lawyer billing $400/hr can produce a dramatically lower legal bill than a lawyer billing $225/hr; meaning that, under the right circumstances, you should be willing to pay more if the value is truly there.  But are there circumstances in which a lower rate does not mean lower quality? Yes, as I discussed in “When the A-Lawyers Break Free: BigLaw 2.0” a lot of clients are shocked to find out that when an attorney at a large firm bills them $675/hr, only maybe 20% (if she’s lucky) of that rate actually makes it to the lawyer (the talent). The rest goes to pay for all the background infrastructure necessary to support a firm full of dozens of different practice groups, offices, summer intern programs, etc.

Thanks to new technology and business models now viable because of that technology, a new breed of law firm is emerging that (unlike their predecessors who attracted attorneys by offering jeans, MacBooks, and a more relaxed atmosphere at the cost of lower compensation) can compensate their attorneys on par with and in many cases better than larger firms.  And those small, focused firms have dramatically lower overhead costs than larger firms. The end result is that, even with significantly lower hourly rates, the attorneys are still highly compensated.  Again, in law as in the world of developers, you get the talent you pay for.

Nutshell: make sure your hourly rate pays for legal talent, not an outdated delivery model.

The “Time Spent” Issue: The Problem with Generalists and Solo Lawyers

Moving to the second part of the equation: what allows a lawyer or law firm to do something more quickly, and with fewer mistakes, than another firm?  The first and most obvious answer is of course: better lawyers (and paralegals). No shocker there. Better, more experienced doctors work more efficiently and with fewer mistakes than crappier ones.  But there’s actually more nuance here than meets the eye.

Focus

You’ve developed a strange rash on your arm, and you need someone to help you treat it. Who do you suppose will be able to get it done more efficiently and effectively – a cardiologist or a dermatologist? It seems like a stupid question, but many people don’t understand the concept of legal specialization.  Focused repetition leads to specialized domain knowledge, which leads to higher quality and efficiency.

There are an endless number of business lawyers, corporate lawyers, even IP lawyers, running around touting themselves as startup lawyers. The reality is that they’ve spent 95% of their careers doing absolutely nothing related to the venture-backed startup space, but because they either stayed at a holiday inn express or because they know someone connected to startups, they’ve started to dabble in the area. How complicated could it really be? I’ll keep my answer short: get ready to be schooled.

Process and Technology

Being a generalist forces you to reinvent the wheel when specialists have already-developed forms, processes, and technology in place to minimize time burn.  A new client of MEMN recently said a prior firm charged $1700 to draft a form contract for hiring developers (which, btw, was garbage).  The startup lawyers who just read that are laughing because they know that a client who asks them for that kind of document gets billed literally 5% of that, if anything at all.

Process and technology are at the core of why the hourly rate of a law firm or lawyer says very little about what you’ll end up paying.  I’ve seen solo lawyers and boutique firms talk about “overhead” as if it’s something to be absolutely kept to a minimum at all costs.  The problem, of course, is that if you don’t invest in technology, knowledge management resources, etc., it is 100% certain that you are going to be incredibly slow and inefficient compared to those firms who do, even if those firms have higher hourly rates.  This is the core problem with solo lawyers.  Yes, their hourly rate is low, but they practice like it’s 1995. And that’s expensive.

While we’ve done everything we can at MEMN to cut out fat and bloat, I have zero qualms about investing in technology that will enhance quality and efficiency. That’s not “overhead.” It’s called running a 21st-century business.  We also have an amazing espresso machine. Treat your talent well.

Conclusion: When you hire talent for your own startup, you don’t immediately go with the person asking for the lowest hourly rate. If you do, you’re a moron. Remember that lawyers and law firms are like printers (and developers).  What looks cheap could end up being the most expensive mistake of your life.

When the A-Lawyers Break Free: BigLaw 2.0

Nutshell: The world of transactional tech law used to be divided into A-Player lawyers earning the gold at large firms and everyone else making a decent living at second-tier small firms. SaaS eliminated that world, and small can now mean better, faster, and more lucrative; which means A-Lawyers are breaking free.

No one who operates in the startup space needs to be told that bigger does not always mean better.  In fact, the opposite is often the case. Being large often makes you slower, more bureaucratic, and inefficient. Just try getting a piece of new technology adopted at a major law firm, or getting a secretary to learn that technology.  I’ve been there.

Big Was Better

If bigger leads to better performance, there must be something about the nature of the product or service in question that requires a large organization.  In law, that “something” was historically (i) expensive, proprietary resources to properly service clients (barriers to entry), (ii) the need for collaboration among multiple specialties, and (iii) high amounts of friction in effecting that collaboration.

Before the days of SaaS and Secure Cloud Storage/Collaboration, top-tier transactional law required at a minimum (i) a law library, (ii) internal word processing, (iii) teams of administrative support and attorneys, and (iv) dozens of legal specialties under the same roof.  Without that, you would be slow and inefficient.  In that world, choosing a small firm usually meant, as a fact, that you were dropping down a tier in quality.

And then things changed. Your “library” is now a subscription SaaS service. Word processing you can outsource by the hour. Same thing for admin support.  People working remotely often collaborate more easily than people working within the same law office, if they use the right tools. When BigLawyers step back from their billing timer and realize this, two very important thoughts come to mind:

  • Why are you all here? – Why do we (all kinds of different lawyers working in different areas that require different processes) need to still work under the same structure? I’m tired of having to justify to a bunch of litigators or IP lawyers that some software that I NEED for MY practice needs to be put into the budget. Why can’t I come to work in jeans if my clients don’t care? Why do I even have to come in to work today? All I do is stay in my office anyway.
  • Where the f*** do all my billings go? I bill $600 an hour. I take home like 20% of that. Wait, you mean all of this obsolete, bloated, bureaucratic infrastructure is the reason 80% of what my clients pay disappears? They hired me, not your brand. Why am I here?

Focus Always Wins

Every variable that once made the large, full service law firm necessary and optimal has been turned on its head by the web, SaaS, and the cloud. Now, a corporate lawyer at a small firm can staff a deal just as quickly, if not more quickly, utilizing a network of smaller, more focused, more efficient and (yes) better lawyers and law firms. It doesn’t take a Harvard MBA to understand why a top trademark lawyer operating out of a trademark boutique that does nothing but trademarks is going to be vastly superior at (guess what?) trademarks than a lawyer who works alongside dozens of other types of lawyers. Focus trumps being a generalist; and that applies equally to lawyers and law firms. 

But the reality of how SaaS has changed the landscape isn’t exactly news, at least not to people who follow these topics. Why then has it still seemed as if large firms have a lock on the best lawyers?

Money

In every profession, the best expect to be paid according to their talent. This is not rocket science, nor is it surprising. A-Lawyers have stayed in BigLaw for one very simple reason: it paid the most. Notice the past tense.  When big really did mean better, the better clients went big, and that means big paid more.

But it was only a matter of time that enough top lawyers started asking themselves “where the f*** do my billings go?” and realized that BigLaw’s overhead and bloat leaves an enormous amount of room to cut out fat, charge less, and still take home WAY more.  Yes, my friends slaving away in BigLaw trying to hit your 2000-2150 billables quota so you can earn that nice little bonus amounting to 3% of your billings, the cat’s out of the bag. Many of us at small firms earn more than you do. A lot more. And we do it with better technology, a more flexible schedule, and often working from wherever we want. All while our clients pay a lot less. Who, long-term, do you think is going to win at attracting talent?

You know what’s better than profits-per-partner? Profits in your wallet.

Networked Law: BigLaw 2.0

Examples of specialists we (corporate lawyers at a small firm) use to staff deals (i) a former silicon valley BigLaw tech transactions partner (head of his group) now operating a solo practice, (ii) a T100 in Texas trademark lawyer operating out of a trademark boutique, (iii) one of the country’s leading open source specialists operating a solo practice, and (iv) a veteran venture capital paralegal working virtually from Palo Alto. Everyone bills 40-60% less on an hourly basis than they would at a major law firm, which doesn’t even account for their ability to optimize pricing, process, technology, and staffing for their practice area. And, yes, everyone takes home more than they would in BigLaw.

You know what that’s called? D-i-s-r-u-p-t-i-o-n.  I don’t use that word lightly. This is not a piece of software that large firms can ultimately pay a consultant to help them adopt, but a fundamental restructuring of how top-tier transactional law operates.

The Future

Small firms are not just for the mickey mouse club anymore. The A-Lawyers are asking “Why are you all here?” and “Where the f*** do all my billings go?” and are doing something about it. Focused, faster, efficient, networked, and now with much bigger paychecks. Small law has been around for a while. But BigLaw 2.0 is just beginning to ramp up. As more A-Lawyers set themselves free, most of BigLaw will have to face the reality that all the branding in the world can’t save a bloated, overpriced, and now completely unnecessary delivery model.

p.s. We’re hiring.