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: Those large firms have dedicated biz dev people whose job is to write checks/cut deals with market players for referrals, and establish referral circles with investors who have heavy influence on the “pipeline.” Referral pipelines rife with conflicts of interest have enabled BigLaw to entrench itself.
The entrenched 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.
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 E/N, 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
- 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.