Post Category → Startup Lawyers

Lawyers and NPS

TL;DR: Net Promoter Scores provide a clear, simple opportunity for law firms and clients to cut through the obfuscation and marketing nonsense of the legal industry, and understand who really delivers.

From my earliest days of law school, I knew I was going to have a little trouble relating to my chosen profession. Virtually all of my peers were devoting large amounts of their non-class time to something called “blue-booking,” which means learning a bunch of arbitrary rules for proper formatting of citations in legal journals, and “spotting” the errors in a long list of citations; a kind of hazing ritual to get onto a journal. I simply could not get over how the entire thing looked like a spectacularly boring, unproductive waste of my time. I was the only law student in my class at Harvard that I was aware of (I’m sure there were a few others) who never even applied to a journal or law review, and never touched a blue book.  I’ve done alright.

This “WTF are you all doing?” feeling carried on post law school. Moving into a large law firm setting, it was absolutely breathtaking how backward the workflows of lawyers were, and how powerless law firms, as institutions, were to change it. Why are they powerless? Here is my core diagnosis for the “problem” of most large law firms: they are not really firms. Or perhaps better said, no one is really in control. The vast majority of large law firms are decentralized, weakly unified collections of fiefdoms, each controlled by a partner who isn’t truly accountable to other partners, or a central hierarchy. Within a “firm,” a small group of people may have a great idea, or tool, for implementation, but absolutely zero ability to get it adopted firmwide.

Combine that with a power structure concentrated in the hands of (usually) traditional 50 and 60 year olds, and the fact that you usually have dozens of totally unrelated practice groups with independent needs, incentives, etc., and you see that the inertia and inefficiency of law firms is structural and cultural. People who blame the billable hour are focusing way too myopically on one thing, and ignoring the broader, deeper problem. Most law firms are simply too large, too broad, too decentralized, and too lacking in institutional brand power relative to the personal brands of their old school partners to implement needed changes. The only solution, in many cases, is a reset button.

So joining and building out a small boutique firm was my opportunity for a reset button, and I got it, along with an AMEX card to buy what I needed, without having to ask anyone for permission. Starting with a clean slate, and supported by a handful of senior partners with the right mindset, I was able to build a law practice that cut out all the bullshit and delivers what good clients want. What do clients really want, btw? Here are a few examples of what they don’t want:

What isn’t bullshit?

(i) awesome lawyers with specialized expertise,

(ii) who are responsive and DON’T LOSE E-MAILS,

(iii) provide real strategic insight and not just paper pushing,

(iv) are transparent about costs (w/o BS-ing that legal can be cheap), and

(v) can demonstrate their consistent efficiency and quality.

In building out our firm, I searched for a single, objective metric, minimally exposed to BS, for building accountability and clarity around our mission of delivering the above, and I found it: the Net Promoter Score. Our most recently calculated NPS is 77. Apple’s, Amazon’s, and Costco’s NPS range from the 70s and 80s, depending on where you check. Is it as high as we want to be? No. Every year we learn more, and iterate as we scale sustainably. The beauty of NPS, in addition to its simplicity, is how every client’s voice counts. Many law firms have built their brands around the 1% of their clients, with the complaints about slowness, low quality, conflicts of interest, costs, and other issues of the 99% drowned out.

NPS imposes a level of transparency that punishes anyone who isn’t disciplined with what clients they take on, to ensure consistent quality. It actually forces you to focus, because the needs of an unfocused client base are so broad, that you can’t deliver consistency. NPS punishes bloated, unfocused, overly extended scale. 

While we don’t have the structural problems of large firms, we definitely deal every day with the training, recruiting, technological, cultural, and business development challenges of any high-end service provider that handles complex, high-stakes human (as opposed to automated or manufactured) services.  But what matters most is that we have a score for today, for last year, and for next year, to gauge whether we are doing our job, instead of the 100 other things that other people love to talk about, but are not actually our job.

And what I’ve found most interesting, and compelling, is how when you focus your strategy around NPS, the competitive advantages you build are durable. So many of the ways that law firms try to compete in the market can be easily bought: a piece of software, a key lawyer with a big book of business,  a sponsored event where influencers get together, a side deal to a market player in exchange for referrals. But by being purchasable, they’re also easily replicable by anyone else with money.

Delivering scalable, consistent, long-term quality – what results in a high NPS score – is infinitely more complex and time consuming to build, especially when you’re dealing with lawyers. There’s no main “secret” behind what we’re doing. It’s 1,000 little insights and implementations, compounding daily.

My advice to lawyers contemplating starting their own firms is to always, first and foremost, get absolute clarity around (i) what clients they want and don’t want, and (ii) then ask those clients what they want; then start building, and collect your NPS regularly. Focus, and the ability to learn and iterate quickly, is the core strategic advantage of the boutique law firm ecosystem.

And my advice to potential clients when diligencing lawyers is to start out with one question: “What’s your NPS?”  The answer, even if it’s not a number, always speaks volumes.

“Founder Friendly”

TL;DR: “Founder friendliness” should mean not being hostile, but also not being submissive, to founders. Good entrepreneurs and advisors know that.

Background reading:

Because we’re known as Startup/VC lawyers who don’t represent Tech VCs (just companies), I often get asked about my thoughts on “founder friendliness.” Occasionally it’s someone inexperienced expecting me to say something totally one-sided, as if “founder friendly” means always giving founders what they want. The truth is, I’ve put my fair share of founders in their place, when appropriate. As I’ve written before, company counsel does not mean founder’s counsel.

Serious lawyers provide counsel, and represent something apart from the preferences of any particular person. They don’t just push paper in whatever direction someone tells them to. Real lawyers know when and how to say “no.”

To me, “friendly” means the opposite of “hostile.” It means respecting a person as an equal, being transparent with them, and strongly taking into consideration their own values, goals, ideas, etc.  But that is very different from spinelessly doing whatever they want you to do. The best founders seek out advisors, including investors, who will provide real, critical input; knowing that a bunch of sycophants will get them nowhere.

Founder Hostile

On the one hand, there is very much a culture among certain venture capitalists that treats entrepreneurs as necessary, but ultimately dispensable, steps toward returns. I have seen it firsthand, and while it exists everywhere, it is directly (negatively) correlated with (i) the number of investors willing to write checks into a particular ecosystem, and (ii) the degree to which entrepreneurs confidentially share information among each other on VC behavior, producing adverse selection issues for the real assholes. You very rarely hear about this on blog posts or twitter, but when the pep rallies and PR-oriented speaking panels come to an end, it is there.

VCs in this category vary in the level of sophistication with which they implement their “founder hostile” strategy.  Most know that playing hardball out of the gate won’t get them the deal, and they prefer more of a “bait and switch” approach where they sing the praises of the entrepreneurs upfront, and then slowly move the chess pieces over time. The moves are identifiable by people who know the game:

  • put “captive” lawyers and advisors in place;
  • avoid providing coaching / training resources to founders;
  • tightly control the recruitment of new executives to phase in loyalists;
  • keep a tight grip on unreasonable budgets so that achieving results is very hard, and failure justifies “necessary changes”;
  • maneuver to prevent competitive funds from putting offers on the table;

In the end, it doesn’t matter what the cap table says; it’s “their” company now.

Founder Submissive

On the other hand, in the most competitive deals and ecosystems, there is a counter-dynamic where VCs compete with each other, essentially, on how much unilateral control they’ll give entrepreneurs. This dynamic is strongest in California. It’s, in part, due to the failure of many VCs to effectively apply basic strategic concepts – like differentiation – into their market positioning. If you’re just another VC/fund with a few connections and ideas among dozens of others, what else can you do but try to be the “easiest money”? The end-result of having these “founder submissive” investors is often immature management teams that aren’t able to effectively scale. VCs with real brands are able to avoid this. 

As I’ve written before, a Board of Directors has fiduciary duties to all stockholders. As you’ll read in many different places, the moment an entrepreneur decides to take on investors, they have to step off the “king” train and focus on growing the pie, and eventually achieving an exit, for everyone.

That being said, under DE law Boards have primary fiduciary duties to common stockholders, insiders and outsiders.  As the largest common stockholders (usually), and those who’ve held the equity the longest, entrepreneurs are extremely important representatives on the Board for fulfilling those duties; whether or not they are in the CEO seat.  We know that preferred stockholders and common stockholders regularly have misaligned incentives.  A truly “balanced” Board will prevent one part of the cap table’s incentives and preferences from overriding those of the others.

“Founder hostile” VCs are problematic because they push for the perspective of institutional investors to override those of all the other constituents on the cap table. “Founder submissive” VCs are equally problematic because they expose the company excessively to founders whose priorities may conflict with the economic interests of the broader stockholder base.

The proper balance is, of course, in the middle; where the VCs with the best reputations operate.  Be transparent about your goals, incentives, and plans. Don’t beat around the bush about your investment horizon, exit expectations, and how you’ll approach executive succession when that time comes. Let the common stockholders, including founders, do the same. No BS or opaque maneuvering. And then work together, knowing that no one has the singular right to override the perspective of the others at the table.

 

The problem with chasing whales.

TL;DR: Always trying to work with “the best” people in any category – investors, advisors, accelerators, service providers – can result in your company getting far less attention and value than if you’d worked with people and firms who were more “right sized.”

Background reading:

Founders instinctively think that pursuing the “best” people in any category is always what’s best for their Company. Need VC? Try to get Sequoia or A16Z. Need an advisor? Who advised the founders of Uber and Facebook? Need an accounting or law firm? Who do the top tech companies use?

The problem with this approach is that it confuses “product” value delivery – where what you get is mass produced and therefore uniform – with “service” value delivery – which is heavily influenced by the individual attention you are given by specific people of varying quality within an organization.

If you buy the “best” car, it doesn’t matter whether you’re a billionaire or just comfortable, you paid for it, and you get effectively the same thing. Buying the “best” product gets you the best value.

Don’t chase whales if you’re not a whale.

However, if you hire the “best” accounting firm, that firm will have an “A” team, a “B” team, and possibly even a “C” team within it. That is a fact. Every large service-oriented organization has an understanding of who their best clients are, and allocates their best people and time to those clients, with the “lesser” clients often getting terrible service. To get the “best” service from one of the best service organizations, you need them to view you as one of their best clients; otherwise you’re going to get scraps.

To get real value from a “whale,” you need to be a whale yourself. Chase whales (the absolute best people in their category) without having the necessary weight to get their full attention, and they’ll just drown you. In many areas of business, getting the full attention and motivation of someone who is great, but not olympic medal level, can be far better for your company than trying to chase those who may take your money or your time, but will always treat you as second-class, or a number. I call this hiring “right sized” people. 

Firms matter, but specific people matter more.

I use this reasoning a lot in helping founders work through what VC funds they are talking to. The brand of the firm matters, but you want to know exactly what partners you are going to work with, and you want to talk to companies they specifically have worked on, to understand how much bandwidth you’re going to get. There is a wide range of quality levels between partners of VC firms, and going with someone local who will view you as their A-company and give you the time you need can be much more important than being second or third fiddle at a national marquee firm.

We also use this reasoning in explaining to clients how we see ourselves in the legal services market. We do not work for Uber or Facebook, and we are not even trying to work with the future Ubers or Facebooks, or other IPO-seeking companies of the world. The very high-growth, raise very large rounds in pursuit of an eventual billion-dollar exit via acquisition or IPO approach is suited for certain kinds of law firms and practices designed for those kinds of companies. Most of those firms are in Silicon Valley, because most of those companies are in Silicon Valley.

There was a time when every tech ecosystem looked to Silicon Valley for guidance, and did everything it could to get its attention. Now a lot of people outside of the largest tech ecosystems have come to realize that, in fact, Silicon Valley isn’t really that interested in them; and thats ok. Those SV funds, firms, and people are whales looking for other whales. That is totally fine – the world needs whales, but the rest of the world needs help too.

If you are a unicorn, or legitimately are viewed as on the track to be a unicorn, then working with VCs, advisors, law firms, and other service providers that cater to unicorns will get you great service by ensuring you are working with the top quality individual people within them.

Hire within your class.

However, a recurring trend we’ve seen in many areas, including legal, is companies initially hiring one of the national marquee firms because they wanted the “best,” only to realize that not only were they working with that firm’s B-player or C-player, but even getting responses to e-mails from a specific person was a matter of days and even weeks. By “right sizing” their service providers, they fixed the problem.

In short: be honest with yourself about what you’re building, and then be honest about whom you should build it with. If a $100MM or $200MM, or whatever non-unicorn number, exit would be a true win for you, that is nothing to apologize for. The world needs those kinds of companies; lots of them. But to avoid a nightmare, align yourself with people truly “right sized” for a company on that kind of track.

When hiring any firm in any service industry, ask who exactly your main contact will be, and talk to the clients/portfolio companies of that specific person. Does their client base look a lot like the company you’re building? How responsive are they to you in your initial communications? That can tell you a lot about what level of bandwidth/priority you’re going to get from them.

For the kinds of strategic relationships that really matter, where the quality of advice depends on specific people and the attention they’ll give you, focus on “right sized” people; not just engaging the “best” firms. Don’t get pulled under water by chasing a whale that isn’t really that interested in you.