Vaporware Technology Won't Hide Your Firm's Business Model Problems

As someone who's served as a legal CTO for almost 10 years now, I've seen a lot of legal technology come and go; some of it phenomenally useful, some of it not worth its cost of adoption or implementation. Legal tech is a great industry with lots of great advancements, but also a lot of Rube Goldberg machines. It takes some hands-on experience to know the difference.

One thing I've noticed over the years is the tendency for many law firms, especially Biglaw, to hope that technology -- either its actual use, or (more often) a PR campaign pretending that it's being used -- will distract clients from deeper and more fundamental problems with the firm's business model.

I divide the types of innovation in law, including technology, into two broad categories: additive innovation and subtractive innovation.

The first means trying to do more with more. In other words, hoping that some magical tool or new process can just be layered onto the existing model and solve your problems. Buy that shiny new software, and hopefully it'll save your lawyers some time, and clients will be happy with the added value.

The latter means doing more with less. This is harder to implement, obviously, because it means making cuts. It means assessing all the costs of a law firm's business model, and honestly asking yourself: is X or Y really needed to do what clients are really paying me to do?

Additive "innovation" lends itself to much sexier PR. But in my experience operating within the growing ecosystem of elite lean boutique law firms, subtractive innovation more often produces the results that clients actually want: materially lower rates without lower quality.

Fundamentally for a lot of clients complaining about the legal industry, "the rates are too damn high." If your magical software that shaves off maybe 3-5% of billable time, while sometimes adding inflexibility into your processes, isn't moving the needle on that problem, you've achieved very little.

If the real problem is simply that the rates are too damn high, the obvious next question is why, in fact, are they so high? The percentage of the rate actually paid to the lawyer doing the work is often a small fraction of the overall price. There are a number of possible responses to this question.

First, too high for whom? Very expensive large firms serve a variety of diverse clients. Not all of those clients complain the same about the rates. It is very possible -- in fact, this is my opinion on the matter -- that much of Biglaw has overshot the needs of, and therefore become overpriced for, many but not all of its clients.

Speaking only for the clients that really, truly think the rates are too damn high, the most material reasons that come to mind are:

The subtractive innovation of newer, leaner law firm models executes on the above reality. Clients aren't that impressed if you take a $1,000-per-hour lawyer and adopt some shiny software to shave 3% of their time. Take that same lawyer, and make their rate $550 or $600, without changing her compensation, and now you'll have their attention.

Technology absolutely plays a role in this new kind of legal innovation, but that role is much more in the background. It's not about asking lawyers to automate everything imaginable, even when clients often prefer flexibility. It's also not about forcing all lawyers to work with a project manager, assistant project manager, billing specialist, alternative billing coordinator, and God knows who else 24/7.

All my love and respect to the software vendors and new nonlawyer legal professionals helping the $1,000- to $2,000-per-hour lawyers try to make their rates more palatable to clients. You are fighting a good fight.

But some of us have a different take on the matter. The real issue for many clients is, very simply, the rates are too damn high. Subtractive innovation is how we can lower them, without lowering the compensation of the lawyers actually delivering the goods on a day-to-day basis.

I say all of this not to poo-poo those trying to make Biglaw more efficient, including with new technology. Rather, sometimes there's value in "zooming out" and looking at the bigger picture. Entrepreneurial lawyers today have a wide open field to try new business models for profitably delivering the services that even many high-end clients demand. As they explore those models, they should keep in mind that asking "What can I buy?" is often the wrong question. Sometimes the right question is: "What can I cut?"

Jose Ancer is a Partner and Chief Technology Officer at Optimal Counsel LLP, an elite, tech-enabled boutique law firm serving venture-backed startups and growth-stage companies for corporate & securities and M&A law. He frequently writes on his Startup and VC Law blog, Silicon Hills Lawyer, which is followed internationally by entrepreneurs, venture capitalists, lawyers, and law schools. Follow him on Twitter @ancerj.