The six years since I published NewLaw New Rules – A conversation about the future of the legal services industry have been an exhilarating ride, no more so because of the inspiring people I have met as a result. Daniel van Binsbergen, CEO and Co-founder of Lexoo is one such person. We held this conversation recently.
1. The last decade has seen the proliferation of NewLaw business model providers of B2B legal services. How does Lexoo interpret this growth and the diversity of types of provider?
I believe there are two trends at play. On the one hand, there now seems to be a critical mass of in-house legal teams open to different ways of solving their problems. At the same time there appears to be more finance available to fund new initiatives, with both private equity and venture capital now taking more of an interest in NewLaw than at any time in history.
The diversity of types of provider seems to be a result of the market still being relative young, It’s not settled where the biggest opportunities lie with NewLaw providers tackling different parts of the market. For example, some are going after work which was historically done by in-house lawyers, e.g. providers of interim lawyer solutions. Others are going after work historically done by traditional law firms, initially by targeting specific areas, e.g. due diligence, but still working together with a traditional firm. Increasingly these are becoming ‘full stack’.
Lexoo is an example of a full stack solution in that we take on the entire legal matter. The B2B legal services ecosystem of clients, incumbent law firms with the traditional or BigLaw business model, NewLaw providers, tech startups and vendors is complex and fast-moving.
2. How do you assess the ways in which incumbent law firms are managing their positions and performance?
Similar to most markets, incumbent law firms are largely iterating on their trusted theme. They appear to be predominantly trying to find gains by either consolidating with other firms, or by reducing the partnership and increasing leverage to maintain profit levels. There is a bit of experimentation with new ways of working, e.g. allowing lawyers to work remotely, or using a piece of tech here and there, but there hasn’t been a complete mindset shift. My view is that traditional firms won’t feel the urgency to truly reassess the best way to deliver services whilst their PEP levels are still so high. The risk of this approach is of course that by the time PEP drops, it’s probably too late.
3. Some, including me, have said there will be many more losers than winners among the incumbent BigLaw firms. How do you see this playing out?
I expect there will remain room in the market for truly premium ‘bet-the-company’ type BigLaw firms. I expect they’ll reduce in size to focus exclusively on the type of bespoke work where they’ll be able to continue to justify their hourly rates. I think my former firm of De Brauw Blackstone Westbroek is an example of that strategy. They’ve reduced the partnership over the past 5 years in order to consolidate around those matters where there’s less pressure. Not everyone can be premium though. ‘Mid-market’ firms with high overheads and legacy blockers to innovation, but without brands to pursue the ‘super premium’ strategy, will come under increased pressure and I expect we’ll see a number of high profile failures in the next five years.
4. Am I and other observers over-stating the threats and/or underestimating the adaptability of the incumbents?
I believe it was Bill Gates who said we overestimate what can change in a year, but underestimate what can change in 10 years. Adapting to changing market forces is extremely difficult if you have been very profitable for decades. Innovation and rethinking how work is done is already hard for the most innovative fast-moving companies and it’s a muscle that needs to be built over time. Not just in terms of expertise on ‘how’ to innovate, but also whether the organisation will accept major changes culturally. Most traditional firms don’t score high on those measures. The heads of innovation are often deeply knowledgeable people, but without the entire partnership culturally willing to work differently and willing to invest significant capital and accept lower earnings, it’s in my view very unlikely traditional firms will adapt in time. Many firms I speak with point to their still significant revenues. However, I believe this is the result of there not being a universally accepted and credible NewLaw alternative in most markets and for most classes of work. BigLaw’s seeming comfort levels are not because their service levels and value are in line with what clients would like them to be.
In that sense, it’s comparable to the strong position Blockbuster held when Netflix was starting out. Blockbuster could have bought Netflix for $50M but felt they didn’t need to. Five years later they were out of business.
5. What role are corporate law departments playing in driving change? Is it simply the case – as in any industry – of some moving first and others following with varying degrees of urgency and speed?
Yes, there’s definitely a distribution curve that mirrors most industries of ‘early adopters, early majority, late majority and laggards’. We are able to segment most clients quite accurately in these various buckets. It’s often a combination of the corporate’s internal culture, the level of ‘pain’ experienced (how tight are legal budgets) and the mindset of the GC (are they interested in doing things differently). Another factor is how much red tape there is, for example it’s harder for in-house legal teams with formal law firm panels to fit NewLaw providers into that structure and experiment.
6. Do think there is a ‘next big innovation’ around the corner, or is the market now operating to sort out who prospers and who fades away?
I don’t believe there is one big innovation which will change everything. I think NewLaw providers will continue to pick up speed and slowly but surely pick up more clients, and more work traditional done by BigLaw. At some point the market will tip and things will accelerate as the “late majority” will start feeling more comfortable sending their core work away from traditional firms. When it comes to the innovations themselves, a large part of the efficiency gains banked by NewLaw isn’t actually high tech, it’s applying basic process principles which are completely standard in most industries, like lean six sigma process work and project management by project management professionals using tools, versus lawyers untrained in it. When we combine that with a move away from the traditional partnership model and hourly rates, you actually get dramatically different outcomes in the efficiency, consistency and quality of legal work.
7. In a sentence, what advice would you offer BigLaw firm leaders?
I’d advise BigLaw firm leaders to become experts in ‘disruption theory’, there are loads of case studies out there on how big profitable incumbents lost to nimble new competitors, the legal market will not be isolated from that.
Daniel describes Lexoo as ‘revolutionising legal by connecting forward-thinking businesses with specialist external counsel’. Lexoo offers services related to complex projects, international legal work, flexible ongoing support and on & off-site interim lawyers. Lexoo started in February 2014, two months after NewLaw New Rules was published..
He has law degrees from universities of Leiden and Oxford.
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