I recently spoke to two lawyers turned legal tech entrepreneurs about their early stage software companies. I start with a discussion of the problem each sets out to solve, then turn to observations of and implications for the legal tech market more broadly.
Solving a Broad Problem: Allocating Lawyers to Matters and Managing Capacity
At most large law firms, partners can choose associates to staff their matters. This causes multiple problems. Some lawyers get good work and others do not. Lawyers of color are often disfavored. Some associates work too many hours and others not enough. Professional development often suffers. Practice managers struggle to assess availability and capacity.
William Dougherty, an associate at a large firm’s London office, saw this problem and decided to solve it. He founded Capacity. A demo presents well. The software includes a traffic light indicator for availability (screenshot below), task allocation, a tendering system, and control dashboards. It embeds a process in software can help solve long-standing allocation problems. Two large firms are evaluating Capacity and a smaller one has signed for a trial.
Solving a Narrow Problem: An Updated Take on Risk Analysis and Decision Trees
Deciding on the right settlement strategy in a contentious matter requires a good estimate of the case value. Formal risk analysis with a decision tree, with its diagrams of possible paths and probabilities of each, is the best way to value cases. I learned this technique early in my legal career; see my 1990 article Software Makes Decision Analysis Easy (Legal Technology Newsletter, December 1990; with David Post).
Those who assume gut decisions suffice should read Prof. Bill Henderson’s 2019 post reviewing Randall Kiser’s book. It quantifies the large “errors” in settlements, especially in large firms. Yet few litigators do formal risk analysis.
Len Hickey, a still-practicing lawyer in Australia, also sees the value of risk analysis; he uses it regularly. He found existing software for risk analysis dated so developed a modern take. I liked the short demo of Prenario. It operates in the cloud and comes with templates. It is not yet in production (other than Len’s own use) but two large law firms are evaluating it.
Observations and Implications
Both Companies Are Very Early Stage. Each company has a lawyer-founder plus one developer. That raises all the usual questions large law firms have about vendor stability.
We Still Have Practice Problems to Solve. Despite hundreds of legal tech start-ups in the last five years, problems remain open for software to solve, as the products here illustrate.
Narrow versus Broad Problems. Fee earner allocation is a daily problem across firms and practices. In contrast, risk analysis and decision trees are mainly for litigators and not warranted in all litigation. That distinction suggests different strategies and market sizes for the two products. From what I see with legal tech start-ups, there are more narrow solutions than broad ones. That limits the addressable market for many products.
The Platform Question. Recent talk about legal software platforms caused me to think about whether either product can or should plug into a platform. I can see integration points for Prenario (e.g., nodes linking to specific motions or discovery documents) but not a platform where it ought to live. Capacity, in contrast, would fit well with LPM and pricing – but does that make it a platform play? On reflection, it’s not clear to me how many products will become part of platforms. Then there is Reynen Court and Theorem LTS, both of which facilitate law firms using multiple legal tech products, though I am not sure I call them platforms.
Platform or Consolidation. In my view, platforms have gotten too much ink and consolidation not enough. The business solution for both narrow and broad problems may lie more in roll-ups than platforms. Investment bank Raymond James’ report, 2020 2Q European Legal Tech & Services Insight is an excellent read overall. The applicable part here lists “LegalTech Consolidators”. We have certainly seen a range of companies buy up legal tech start-ups:
Change Management Challenges. Both Prenario and Capacity address long-standing problems. Do we lack a solution because the right software is missing or because the change management is so hard? I fear the latter:
- The risk analysis problem is less software and more learning a new way to think. Diagramming cases and assigning probabilities is not how most lawyers think. Until law schools make risk analysis training core to the curriculum, I fear it will remain a niche solution.
- The challenge of allocating timekeepers is about partner power. Partners like choosing with whom they work. Unless rationalized allocation factors into partner compensation, I am not sure any software will see wide usage.
Look Ma – No Artificial Intelligence. Both products solve well defined problems without artificial intelligence. Legal AI offers value, but I am glad that the market is no longer so fixated on it and seems to have developed a more nuanced view.
Conclusions. Some lawyers continue to take chances as legal tech entrepreneurs. While software development remains a risky business, doing so is way easier and less expensive than in the past. And that has drawn more lawyers to creating software. Fortunately for legal tech entrepreneurs, law firms have also become more receptive to new software solutions. Whether the products here or any other new ones see good commercial success, however, remains hard to predict.
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