Legal Tech’s broken dreams
Two-and-a-half years ago in Silicon Valley, a new and revolutionary law firm concept was presented to the world. Atrium launched June 2017 as a startup-focused law firm that would offer a combination of highly experienced lawyers and clever (yet to be developed) technology. The company would create custom tools that would add speed and transparency to the delivery of legal services. The goal was to kill the “billable hour.”
San Francisco’s Atrium offered two fixed-fee legal services: Atrium Counsel, a $500-$1500 monthly subscription that allowed start-ups access to a dedicated experienced lawyer for ongoing legal needs, and Atrium Financing, an end-to-end flat-fee advisory service to start-ups throughout their venture capital fundraising process.
As a start-up Alternative Legal Service Provider Atrium was widely lauded for being disruptive and innovative as it combined teams of real lawyers and technologists working in tandem, along with automation of certain processes.
After burning $75M Venture Capital, little over two years down the line, on 14 January 2020, Atrium announced that it would lay-off most of its lawyers. Atrium has decided to move away from legal work and to focus on non-legal professional services for startups and founders instead. Atrium Law suddenly is not a law firm anymore.
This article is not about ‘Schadenfreude’. It is far more interesting to see why Atrium failed. It turned out that the combination of real lawyers and new technology had not been a lucky one. Building a technology powered law firm from the ground up and at the same time proved to be a hard nut to crack. According to one of Atrium’s founders “lawyers speak a certain language; engineers speak a certain language”. There are countless examples of new law firms that became very successful. Building a successful Legal Tech company is already more challenging. Building then both at the same time seems to be a bridge to far. Partners that are lawyers run their law firm very differently from engineers building a software company.
In my opinion the problem with Atrium is more fundamental than just ‘speaking a different language’. For me Atrium and other ‘disruptors’ in the legal market are starting at the wrong end. The business of law is not about technology. When someone seeks advice of a lawyer, they are primarily looking for a human being with whom they can discuss their issue. It is comparable to when you are feeling ill. You want to consult a doctor in person, rather than fill in a questionnaire on a website. Like your doctor, a lawyer will listen to you, read between the lines and try to figure out what it is you want and why. Even very basic and simple legal products such as General Terms & Conditions involve many choices that you would like to discuss with a human professional. Clients want people, not technology.
The global legal market is estimated at $800 billion. That may seem like a lot of money but remember that Walmart has an annual turnover of $514.4 billion. The entire global legal market is not even twice the size of Walmart. Still there is a disproportionate amount of excitement about the yet to be unleashed potential of legal technology and the disruptive effect this will have on the sector. So far, like Atrium, this disruption has not materialized. Gartner’s 2019 Artificial Intelligence hype cycle shows that many AI development are at the ‘Peak of Inflated Expectations’ or at ‘Trough of Disillusionment’.
The Creation – Production Divide Concept©
If you would make an analysis of what a lawyer does, you will find that there are two distinct processes going on. The first is what I call ‘Creation’ this comprises all aspects that are uniquely bound to the personal skills of the lawyer. These skills are based on all the experience the lawyer has gathered, his/her personality, IQ, EQ, creativity and so on. This set of personal skills is why someone prefers to work with a certain lawyer. It is the reason why a client would prefer one M&A lawyer over another (even though their legal knowledge is the same). Creation is a lawyer’s ability to come up with smart solutions. The ability to listen and understand what drives the client. The ability to negotiate, and the ability to say no to the client if needed.
Creation is what distinguishes one lawyer from the other. It is the most important aspect of a client-lawyer relationship in any area of the law, on any level. I know employment lawyers who attract clients because they show empathy, have the ability to listen and can propose pragmatic solutions. I equally know top M&A partners who can skillfully steer complex negotiations in the right direction, know best market practice like no other, and have an unparalleled track-record in getting the deal done. All this has nothing to do with legal skill or knowledge of the law. Any academic would probably have as much, if not more, knowledge of the law. Yet I doubt of that academic could get the deal done.
The second aspect that comes out of the analysis of the process of what a lawyer does is Production. This encompasses all that is needed to materialize the fruits of Creation. Production (or execution if you may) is things like document review, producing the necessary agreements and getting them signed and distributed. Compared with Creation, Production does not have much added value in the eye of the client. Production also is not what distinguishes one law firm from the other. I once asked a tier-1 Real Estate partner who has a very large high-end RE-transaction practice, if she could deliver the same product and revenue if she had to work with the team of a mid-tier firm that also has regular experience in RE-transactions. After some initial hesitation, the answer was yes. It is not the associates who make the difference as long as they are decent lawyers with experience in the field.
Invariably this is where legal tech gurus and legal tech entrepreneurs get it wrong. Today and in the foreseeable future there is and will be no technology that can take the place of a lawyer. The core of what a lawyer is to a client is in the lawyer’s personal skills. ‘Creation’ is by definition a human thing.
Much of ‘Production’ however can and will be done or augmented by technology. Despite the fact that this type of software technology is totally applied in the legal arena, it has little or nothing to do with the core of being a lawyer. What this technology can do is speed up the ‘Production’. It will make lawyers more efficient in execution. If one lawyer can get more work done in the same amount of time, we will ultimately need less lawyers. Not because the lawyers are replaced by the machine, but because the same output requires less human involvement.
If Atrium would have been set up as a human-centric company, it might have had a chance to succeed. There still is a huge area to win for the first law firm that does not have to rely on the revenue from Production for its profitability.