‘We Will Survive’ – Legal Tech Companies on the Crisis

Lay-offs, battles with landlords over paying rent on an empty office, a drop in demand from potential buyers, these are some of the areas Artificial Lawyer has asked legal tech and NewLaw companies about.

Let’s look in detail at some of the responses, which are anonymous, except for one – see Elevate on the ‘Next Normal’ below.

Are you seeing a drop in demand from paying customers (i.e. if we put to one side the recent growth of interest in freemium offers)?

This was a complex picture, with a range of responses going from an immediate drop in demand, to clients needing the company more than ever, with much depending on what type of software or service they were selling.

For example, one company said: ‘We have seen some projects delaying or being stopped, but in other cases we see specific projects accelerating – specifically on the projects that are around collaboration support for WFH. Interestingly we have seen no slow down on the LIBOR projects.’

That suggests that large, on-going projects that are of major importance to the financial services sector are continuing, while tech that helps with collaboration is understandably in demand as well. 

Another company that works a lot with inhouse teams said there has been no drop off from existing clients – again understandably as they have licences in place. But, that the pipeline for new sales has dropped, likely because inhouse legal teams are swamped with other things to worry about.

For others – and perhaps because of the slow sales cycle for legal tech – it wasn’t clear even now what the impact would be. One company told this site: ‘We’re certainly planning for at least a slow-down, if not an actual drop in demand. So far, we’re pleasantly surprised at the number of customers in the pipeline who are proceeding as normal, but I’m sure they’ll be a change in projected revenue for 2020 for us all.’

And a drop in projected revenue was something others highlighted. One senior sales and business development exec for a legal tech company said: ‘Normally I get about 16 deals per year, this year I may be looking at six.’

He also noted that even with the lockdown and polite pushbacks from some law firms that are still getting used to being remote, he ‘had to put something into the CRM system, otherwise it will look like I am not doing anything and then the company will wonder if they still need me‘. So, he was going to keep knocking on doors, and keep offering demos. He was not giving up at all.

On the brighter side, there were signs that after the initial challenges of moving to remote, law firms are now starting to behave more normally, and that in turn means people whose job it is to explore new tech and test it out will – one can only assume – have to get back to doing what they did before.

I.e. while sales people have to prove they are active and doing something useful, so too do the staff in law firms that focus on innovation and new tech adoption. After all, they also need to show their firms they are doing something constructive. Perhaps then the two needs will meet up and carry on? We can only hope they do now that remote working has become more embedded into daily life.

Do you expect to ride out the crisis without having to furlough/let go any staff?

This is naturally the hardest question for a senior manager to ever answer. They want the answer to be that they will carry on without letting people go, but that may be impossible.

One solution is pay cuts. A legal tech company AL spoke to said that the core team had all taken a 20% pay cut, and that would help slow the burn of investor cash until they reached the next funding round.

That said, the source added that most of the tech companies in other sectors he has spoken to were putting in place 30% pay cuts.

As to job losses? This was a typical response: ‘We’re fortunate to be well funded, and we hope to weather the storm through spending discipline and freezing new outflows, as opposed to staff cuts.’

Although, one company simply responded: ‘No.’ I.e. there would be job losses.

That said a small number saw this as an opportunity, or at least simply a scenario where they would carry on as usual. This was especially true for companies that had long term contracts.

‘We’re actually trying to keep our recruitment pipeline going – we have seven vacancies – but it’s hard when we can’t conduct physical interviews,’ said one company.

And, the same company even added that they are looking to buy any smaller legal tech companies that are looking for a rescue ship, which can then be added to their platform.

So, a mixed picture. But generally people are trying / hoping to hold onto staff. As ever, much will be down to how long the lockdown lasts.

Everyone is working from home, have you asked your office provider for a rent holiday?

This seemed like something immediate that most companies could try, and some are. The responses were a mix of ‘we are in negotiations now’, to we have succeeded in getting a 50% rent cut. But, some don’t seem to be trying, although they are the minority.

Given that rent is a major expense it makes sense to look at this. Although, one larger tech company AL spoke to said it wanted to keep paying rent in order to protect the landlord…..now that’s not something you hear everyday! And one company said they’d been offered a rent holiday, but had not taken it yet, as they were so busy with a surge in client demand.

So, again, a mixed picture. Some companies clearly are reaching for everything to cut costs, with others seemingly not even that bothered by the chance to reduce costs because demand is still very high for them.

Again, this shows that ‘the legal tech market’ is segmented, by software type and different groups of clients, which in turn have responded in varying ways to the lockdown.

From a broad perspective, the companies involved in helping larger businesses (directly or indirectly via a law firm or ALSP intermediary), such as major corporates, banks and insurance companies seem to be doing well, especially with major doc review/analysis tasks. Companies with long term contracts also seem to be OK, as they are riding over the crisis, though even they are facing a drop in short term, new demand.

Will all companies be in this position? It’s hard to tell, but as seen with ediscovery company Disco, that let go of dozens of staff, some areas are more exposed than others.

The Next Normal

And, as promised, one company was happy to go on record and that was law company, Elevate. CEO, Liam Brown, said the following:

‘Our management DNA is fiscally conservative. Fortunately, we anticipated and budgeted for a slow-down during 2020 (albeit not virus-related) so we raised capital at the end of 2019 to strengthen our balance sheet and we used Q4 and Q1 to reorganize and re-shape our business to prepare. 

Re. COVID specifically, we’ve been watching this since December and have been increasingly preparing.

We’ve lived through SARS, MERS, etc. so we already had a pandemic response plan as part of our business continuity plan, which we kicked off last week of January.

And, because we’ve built the company with no single HQ location, and work from home as an option for almost half our employees, we already had the collaborative technologies and the remote working/ remote management practices well embedded.

We managed to move almost completely to remote work globally, before any lockdowns, with no interruption to customer service. We had to work proactively with customers to agree to allow work from home and all were accommodating. We have some customers which are ‘essential businesses’ that we have to continue to support onsite.   

We are now operating in what we are calling the ‘Next Normal’.

We’ve seen a few customers put discretionary or new projects on hold (such as new consulting projects), but we’ve seen just as many customers proceed with or accelerate projects (such as deployment of our AI-enabled contract software ContraxSuite or our practice of law ElevateNext experts to remediate and redraft contracts).

One scenario we hope for is to see something similar to what happened after 2008, i.e. we expect a decline in Q2 (though we have only seen customer actions that we project would lead to a 5% reduction) then a return to normal in Q3 and Q4 as law depts and law firms focus on designing and building efficiency and resiliency, which are capabilities at the heart of our business.

For example, we see our ElevateFlex flexible resourcing business as an area of growth for us. We are talking to customers about moving some of their lawyers to our flex platform (and then just buy them back when they need them) as one way of moving from a high fixed cost to a more variable cost model.’  

So, there you go. If there is one central message from all of this it’s: ‘We will survive!‘ Even among those companies that are looking at the possibility of lay-offs, the view is that this is not the end of the business. While others, such as Elevate, are in good shape and are already planning for Q3 and for moving through the ‘Next Normal’.

Hopefully we will soon enough reach the peak of this crisis and then slowly, steadily start to focus on getting back to regular life again, which perhaps will look a little different to the normal we once knew.

Good luck to everyone!