Is NewLaw Sticky Enough to Survive a Recession?
Yesterday, TechCrunch contributer Bastiann Janmaat pondered this question: Are startups selling to startups building a house of cards? Bastian observes:
B2B companies whose customers are other early stage B2B companies put themselves doubly at risk: Not only are startups failure-prone by nature, but an early stage company with strong fundamentals can still falter if its client base is vulnerable to market corrections.
Bastiann goes on to describe that startup-centric companies most likely to weather a recession offer services that provide meaningful cost savings and are sticky – meaning that they’re so ingrained in the company’s infrastructure that they’re as painful to remove as a sticky band-aid. Bastiann offers some examples of companies that meet this 21st century version of Darwinnian survival of the fittest test — Amazon Web Services (AWS), a cloud-based provider that is both cheaper than a company owning its own servers and to much of a hassle to change or Gusto and Zenefits, payroll and HR platforms that are integrated in many startups’ operations and therefore harder to eliminate.
On the other hand, Bastiann finds that #newlaw platform UpCounsel at risk. As Bastiann observes:
UpCounsel, an online marketplace to find lawyers, offers great cost savings, but hasn’t quite figured out how to avoid being circumvented. As a result, it isn’t very sticky (yet).
Bastiann raises a good point. While UpCounsel lawyers are low cost, they’re cheap for a reason – and not necessarily because overhead is low. Rather, my guess is that many lawyers providing packaged services at UpCounsel are simply filling in forms to address one-off problems of incorporation or contract drafting – rather than spending the time to gain an understanding of the company’s goal and tailoring a strategy specific to its needs. Don’t misunderstand me- there’s absolutely nothing wrong with lawyers providing this kind of one-off, commoditized service. After all, clients don’t always need a 30-page strategy memo and a three-lawyer team to review a contract. But – the danger that law shops face – irrespective of whether they’re a tiny one-lawyer solo shop or a massive, VC-backed extravaganza like UpCounsel — is that just as quickly as they displace more costly lawyers, so too, they can be displaced by automated DIY services if they don’t provide added value.
It’s not clear whether UpCounsel is set up to provide that added value. After all, by commoditizing legal service (again, nothing wrong with that), UpCounsel disincentives its lawyers from doing more than a deliverable dump. Think about it – if you’re banging out incorporations for six-hundred bucks a pop, you want to get them done as quickly as possible, rather than getting yourself tied up listening to the clients’ concerns and fears and hopes about their business. And while you might invest the extra time if there was a chance that the client would send more work your way, UpCounsel doesn’t provide a comparable incentive because there’s no guarantee that work will go back to the lawyer who did the work initially if someone else on UpCounsel can do it for less.
I’m not sure how UpCounsel fixes the problem of one-offs and that’s not my concern. Solo and small law firms face the same problem – but they also have more flexibility to create value for clients to ensure that they’ll stick around even when their business is shaky. Here are a few ideas:
Solos and smalls may not have the capital or manpower backing companies like UpCounsel or LegalZoom but we do have something they haven’t got: we are wonderfully nimble and can pivot on a dime. And, precisely because we solos and smalls are not accountable to outside investors, we can innovate and experiment to constantly improve our services so that they meet our clients’ needs, rather than our investors’ earnings goals. Who can say whether some or all of the #newlaw companies serving startups and small companies will survive? But I know for sure that one way or another, we solos and smalls will always find a way to stick around, just as we always have.
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I don’t think the critique of Upcounsel is accurate. I’ve gotten repeat business from clients through it, so it isn’t just one-off services. It’s certainly possible to develop a long-term relationship, and I think a lot of lawyers are interested in that. My biggest concern is that there is too much competition from other lawyers, and that exerts a downward pressure on pricing (and keep in mind, Upcounsel takes a percentage off the top, so if my fee to the client is $500, the client pays $500 but I get less than that). It isn’t Upcounsel that is commoditizing the legal services, it’s the lawyers using the platform. There are lawyers on there that are offering services at absurd prices — for example, the lawyer that will do your website terms of service for $72 after Upcounsel takes its cut. So perhaps the stickiness problem that Upcounsel faces is that it will become less and less profitable for lawyers to use it. Indeed, I no longer use a competing platform for this very reason. The competitor started emphasizing that the attorneys were low cost, and started offering flat-rate services at rates that didn’t make sense for me, they were so low. I haven’t used it in half a year, as a result.
Thanks for your response. Maybe it’s the platform that makes it easier to commoditize. I assume there will almost always be lawyers available to take the work at any price.