By Jim Wagner, Founder, Lean Law Labs.
‘It was the best of times, it was the worst of times,’ – Charles Dickens, A Tale of Two Cities.
Much has been written recently about both the emergence of legal tech as a viable and compelling industry for venture investors, as well as the impending challenges founders face in the current market downturn.
As a serial entrepreneur in the legal tech community, I’ve been fortunate to take some incredible rides, most recently as president at Seal Software, which became part of DocuSign in May of 2020. But I’ve also have had to make my way through some painful and tenuous moments, including managing through the 2002 dot com ‘bubble and bust’ as COO of DTI (now Epiq), and navigating the subprime mortgage crisis of 2008 as CEO of DiscoverReady (now Consilio).
Here are five of the most important lessons that I’ve learned in my 20-plus years of experience as an entrepreneur that I would share with any legal tech founder.
‘Patience, you must have…’
It’s a tired but accurate and important trope for any startup’s planning: the legal industry is painfully slow to change. Founders should take heed that this is the case even when a new solution is clearly better for both the lawyer and the client than the status quo. Take for example, the introduction of artificial intelligence to aid in the review of due diligence materials. It’s inarguable that AI is incredibly useful to lawyers in identifying change of control clauses, non-solicitation covenants, and similar material clauses in large collections of contracts. But the wide-scale adoption of AI for due diligence has taken years to gain traction, and remains a work in progress.
As my friend, Noah Waisberg, the co-founder and chief executive officer of Zuva and predecessor Kira Systems, notes: ‘There are a lot of things that should change in how law is practiced. But, just because they should change, it doesn’t mean that change will happen in a significant way anytime soon. So, make sure you can sell your tech (and it can be useful) in the world we have now, even if it might be better as lawyers (gradually) change their behavior in the future.’
If Possible, Solve a Business Problem Too
As lawyers, it’s rational to focus insularly on what affects us. It’s certainly possible to build an extraordinary business that focuses exclusively on the pain that a lawyer is experiencing. But you can build a more extraordinary business if you solve a problem that impacts both the lawyer and the business or client that the lawyer is serving. Investors are always focused on the size of the market opportunity, and the ‘legal vertical’ as a standalone is tiny relative to the size of most other verticals that professional investors target.
One ancillary benefit of building a solution that is appealing to business users, as well as the legal community, is that business users frequently are prepared to move faster than their legal counterparts. Although the stock has recently fallen on tough times, a company like DocuSign is a good example of a business that delivers substantial value to both the legal community and its client base.
Don’t Skimp on the Substance
Starting with their first day in law school, lawyers learn quickly that the legal profession doesn’t suffer fools. Too often legal tech startups learn this lesson the hard way. They try to serve the legal community without a solid understanding of the substantive problems that the lawyers are solving or the nuanced expectations that a client might have for its counsel… and from there things go very wrong, very quickly.
Often, the ‘best’ result is when a sales cycle ends abruptly after the startup is exposed as a pretender. The worst outcome is when a deal closes and the startup fails in its delivery. From here, the parade of horribles can be quite long, including the doomsday possibility of the lawyer or her client suffering sanctions for failure to comply with court orders, etc.
Much of this pain can be averted by investing the time to become an expert in your domain. And if your becoming a domain expert isn’t possible for whatever reason, do not pass go – surround yourself with experts. They will help you close deals, and they will help you avoid common pitfalls. One last thing – if you think hiring these experts is too expensive and can be deferred until your business grows to a certain inflection point, think again or your business may never reach that seminal moment.
The legal tech world is small. If you do good things for your clients, word will travel quickly. Growing your business by referral is magical for the confidence boost it gives to you and your team; and your investors will like that it’s cash efficient. On the other hand, if your client perceives that you are not doing a good job or that your solution does not work, word will travel more quickly. You then will have an uphill battle in every new sales opportunity. Deliver on your commitments and you should have the opportunity to do business (whatever that business may be) with the same customers and partners 20 years from now.
Spend the Money Like it’s Your Own (unless of course you don’t spend your own money wisely)
Many of the most successful legal tech companies have been bootstrapped (respects, Andrew Sieja and Relativity). But bootstrapping, which costs real money and typically takes longer, is not an option for many entrepreneurs. The good news is that there is more cash available to more legal tech entrepreneurs in 2022 than any period in history. But mark my words – that cash should be treated as a precious resource. The question is when, not if, you’re going to need to call upon your nest egg for something critical: market downturns, infrastructure investments required by your largest clients, strategic pivots in your business model, and the list goes on.
These are all exigencies that entrepreneurs in the legal tech community have had to address repeatedly, and will need to do so again. I love the vision and innovation that the latest batch of legal tech entrepreneurs are delivering, and I also respect the need to build a brand and community. But before the next ‘cash splash contest’ at CLOC, you may want to ask any veteran on your team what happened to our first prominent VC-backed SaaS in legal tech. The ice sculptures and seafood towers at LegalWeek were awesome. The outcome for the founders and investors … not so much.
The last thing that I would share with any legal tech founder is more of a personal note. When I practiced law I loved the ‘high’ of working on a fast-moving deal, and getting that deal across the finish line. None of that, however, can compare with the experience that comes from having a vision, building a solution, bringing it to market, and the incredible satisfaction of making clients happy with that solution. And when that solution fundamentally changes an industry, which many of today’s founders aim to do, the joy is even greater. Yes, there’s more at risk, the bumps in the road are more personal and painful, but the payoff is worth it.
[ This is an educational guest post written for Artificial Lawyer by Jim Wagner, pictured above. ]