By Jim Wagner, Founder, Lean Law Labs.
“It was the best time, those were 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 capitalists and the challenges ahead for founders in the current market downturn.
As a serial entrepreneur in the legal technology community, I have been fortunate to embark on some incredible journeys, most recently as President of Seal Software, which became part of DocuSign in May 2020. But I’ve also had to work my way through some painful and thin moments, including managing the 2002 dot com bubble and crash as DTI’s COO (now Epiq) and navigating the subprime crisis of 2008 as CEO of DiscoverReady (now Consilio).
Here are five of the most important lessons I’ve learned in my 20+ 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 changes painfully slowly. Founders should keep in mind that this is the case even when the new solution is clearly better for both lawyers and the customer rather than the status quo. Take for example the introduction of artificial intelligence to assist in the review of due diligence materials. It cannot be argued that artificial intelligence is extremely useful for lawyers in identifying change-of-control clauses, non-waking agreements and similar material clauses in large collections of contracts. But large-scale adoption of AI for due diligence has taken years to take hold and remains a work in progress.
as my friend Noah Weisbergco-founder and CEO of Zuva and predecessor Kira Systems, observes, “There are many things that need to change in the way law is practiced. But simply because they Must change, it doesn’t mean that change will happen in a significant way anytime soon. So, make sure you can sell your technology (and it can be useful) in the world we have now, even if it’s better as lawyers (gradually) change their behavior in the future.
If possible, solve a business problem as well
As lawyers, it is rational to focus in isolation on what concerns us. It is certainly possible to build an outstanding business that focuses exclusively on the pain a lawyer experiences. But you can build a more extraordinary business if you solve a problem that affects both the lawyer and the business or client the lawyer serves. Investors are always focused on the size of the market opportunity, and the “legal vertical” on its own is small compared to the size of most other verticals that professional investors target.
An added benefit of building a solution that appeals to business users as well as the legal community is that business users are often willing to move faster than their legal counterparts. Although the stock has recently fallen on hard times, a company like DocuSign is a good example of a business that provides significant value to both the legal community and its client base.
Don’t skimp on the content
Beginning on their first day of law school, attorneys quickly learn that the legal profession does not tolerate fools. All 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 issues lawyers solve or the nuanced expectations a client may have of their lawyer… and from there, things get very messy, very quickly.
Often the “best” outcome is when the sales cycle ends abruptly after the startup is exposed as a contender. The worst outcome is when the deal closes and the startup fails to deliver. From there, the parade of horrors can be quite long, including the possibility on judgment day that the lawyer or her client will suffer penalties for not complying with court orders, etc.
Much of this pain can be avoided by investing time to become an expert in your field. And if for some reason it is not possible to become a domain expert, do not miss – surround yourself with experts. They will help you close deals and help you avoid common pitfalls. One last thing – if you think that hiring these experts is too expensive and can be put off until your business has grown to a certain inflection point, think again or your business may never reach that pivotal point.
The world of legal tech is small. If you do good things for your customers, word will travel fast. Growing your business through referral is magical because of the confidence boost it gives you and your team; and your investors will love that it is cash efficient. On the other hand, if your customer feels that you are not doing a good job or that your solution is not working, word will spread faster. Then you will have an uphill battle with every new sales opportunity. Keep your commitments and you should be able to do business (whatever that business is) with the same customers and partners in 20 years.
Spend the money as if it were your own (unless, of course, you spend your own money wisely)
Many of the most successful legal technology companies were launched (sincerely, Andrew Cieya and Relativity). But a startup that costs real money and usually takes more time is not an option for many entrepreneurs. The good news is that there is more cash available to more legitimate tech entrepreneurs in 2022 than at any time in history. But mark my words – this money should be treated as a valuable resource. It’s a matter of when, not if, you’ll need to nest for something critical: market downturns, infrastructure investments required by your biggest customers, strategic hubs in your business model, and the list goes on.
These are all demands that entrepreneurs in the legal technology community have had to deal with time and time again, and will have to do so again. I love the vision and innovation that the latest crop of legal tech entrepreneurs are bringing, and I also respect the need to build a brand and community. But before the next CLOC “cash splash contest,” you might want to ask any veteran on your team what happened to our first notable VC-backed SaaS in legal tech. The ice sculptures and seafood towers in LegalWeek they were great. The bottom line for founders and investors … not so much.
The last thing I would share with a 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 it to the finish line. However, none of this compares to the experience that comes from having a vision, building a solution, bringing it to market, and the incredible satisfaction of making customers happy with that solution. And when that decision fundamentally changes an industry, which many of today’s founders aim to do, the joy is even greater. Yes, there are more risks, 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. ]