The New Normal
The Rise of the Non-Firm Firms
Posted Sep 8, 2011 5:03 PM CDT
By Paul Lippe
I want to talk about an important trend in legal services, the emergence of the “Non-Firm Firm.”
What is a “non-firm firm,” and why does it have advantages over the traditional firm? Let’s look at five characteristics of the non-firm firm (let’s call them NFFs) and contrast them with the traditional firms (TFs).
1) Process-focused. How many times have you heard a TF explain the two or three areas its lawyers are uniquely good at, but then go on to say “but of course, we’re really good at everything else, too.” The NFF doesn’t do that. They do a few things and only those things: typically e-discovery, due diligence, contract review and management, research, and other high-volume activities. As my confrere Pat Lamb wrote, following FMC Technologies general counsel Jeff Carr’s schema, you can divide legal work into four buckets: counseling, advocacy, process and content. Counseling and advocacy work is the true province of lawyers and requires specialized expertise and judgment; process and content work is generally repetitive, information processing work. Because the process and content work has been “bundled” with the TF’s bread-and-butter advocacy and counseling work, it has been delivered and charged as if it were high-value work. But it’s not. So clients will start to unbundle some of the process and content work to the NFFs, and it is likely that large companies will pick one NFF to work with directly, and then tell all their TFs (or at least their TFs who haven’t figured out how to work with NFFs) to work with that designated NFF.
2) Purpose-built. For all their flaws, markets are a beautiful thing. In particular, a start-up company can rarely exist unless it addresses a specific need in the market, presumably in some way that is superior (but probably not in every way) to whatever was there before. Because the NFFs are purpose-built to handle legal process and content work, they’re good at it: They have to be, or they’ll disappear very quickly. The NFFs apply modern methods and tools that have been widely adopted in other fields—but only grudgingly discussed in TFs because they apply the same norms and practices to process and content work as they do to advocacy and counseling work—like detailed process definitions, use of technology, and rigorous metrics. Most GCs operate in an environment where their executive peers have moved a significant amount of work to service providers who look, walk and talk like NFFs, so no one in a company will be surprised when the GC starts to explore this approach as well.
3) Measurement and systematic feedback. The other characteristic of any newer, younger player is greater receptivity to feedback. So the corollary to being purpose-built is that the NFFs systematically accept feedback from clients and use it to improve. Unlike the TF, NFFs don’t presume to be smarter than their clients, only better at what they do. So they are always asking clients how they can be better, and frequently that feedback becomes a component of determining their fee. And part of getting more client feedback and being new is that the NFFs will see lots of opportunities that TFs don’t, including the large latent demand for legal services that exists in most enterprises but is repressed because of costs.
4) Investor-owned. As most folks know, the United Kingdom and Australia are deregulating their legal markets, allowing nonlawyer ownership of TFs. This is not likely to lead to mature firms going public, cashing out senior partners and transferring control to investors. It is likely to lead to the development of “purpose-built” NFFs in various categories. For example, in the U.S., we now have Axiom, a super-successful NFF. I know a little bit about Axiom because one of their investors, Bob Kagle, is a venture capitalist who invested in my old company very successfully. Let me tell you three things about Bob’s decision approach that’s very different from those of most TFs. First, Bob will never say “that’s the way we’ve always done things.” Second, he thinks intensively and in a very sophisticated way about how to grow rapidly (scaling)—he was the original venture capitalist in eBay. Third, Bob would never call someone a “nonlawyer.” He thinks hard about how to attract and motivate the best possible people into a venture and would do that for all positions in the company. Venture capitalists aren’t perfect, but I could hardly imagine a law firm that wouldn’t benefit—in part—by having Bob in its senior councils. And please don’t trot out the strawman that investor ownership will lead to ethical shortcuts: I don’t think there’s any evidence to support that dogma. The pressures on short-term performance are the same whether lawyers own the organization or there’s a component of nonlawyer ownership. Ethical people operate ethically. Competent people manage for the long term.
5) Nothing but upside. If we take Jeff Carr’s view that the process and content work each represents one quarter of legal spending, then they together represent about a $50 billion market for larger enterprises. Assuming that the NFFs capture 10 percent of that market by 2016—say $5 billion—that’s huge upside for the NFFs. The concomitant downside for TFs is probably greater, because every dollar of revenues the NFFs get probably means $1.50 or $2 of lost revenue for the TFs, and perhaps a similar level of lost profits.
Please note that I didn’t say anything about offshore or India. I suspect that the majority of most NFFs employees will be in the U.S., and most already have a combination of onshore and offshore resources.
So will the NFFs be perfect? No. They will have lots of problems, which one can easily identify. But their strengths are significant and will open up opportunities for them and for clients. In a world where the non-legal press is increasingly oriented toward the normalization of law, NFFs will be a component of that normalization. I am speaking at an NFF conference in Los Angeles in October and can report more of what I learn then.
After a recent post, one ABA colleague challenged me to provide specific suggestions for how to deal with the changes we describe. So here goes:
A. Do a rigorous inventory of your process and content Work. Don’t just sit around and persuade yourself that everything you do is advocacy and counseling: Do a force-ranking of your time from five largest recent matters and characterize at least 25 percent as process and 15 percent as content. Then look at that work and ask yourself the Jack Welch question: If you were starting a new business to do that better, faster and cheaper, how would you do it?
B. Study the methods of the NFFs. Go to websites for Integreon, Axiom and NovusLaw and others and really understand what they’re saying. Don’t dismiss it as “jargon” or “buzzwords.” (What do you think nonlawyers think of words like indemnification or disclosure? All specialized language sounds jargony to the nonspecialist.)
C. Develop an alliance with an NFF. Pick one and do a project with that firm.
D. Ask your clients for systematic feedback, and discuss with them how to do process work more efficiently.
Paul Lippe is the founder and CEO of the Legal OnRamp, a Silicon Valley-based initiative founded in cooperation with Cisco Systems to improve legal quality and efficiency through collaboration, automation and process re-engineering. Lippe formerly was an executive at the electronic design automation company Synopsys and later was CEO of Stanford SKOLAR, a medical digital library and e-learning company sponsored by Stanford Medical School.
Editor’s note: The New Normal is an ongoing discussion between Paul Lippe, the CEO of Legal OnRamp, and Patrick Lamb, founding member of Valorem Law Group. Paul and Pat spend a lot of time thinking, writing and speaking about the changes occurring in the delivery of legal services. We hope you will join their discussions.