With ten years’ experience as a lawyer in the corporate world, I decided last year that it was time for a change. I was tired of being part of big, bulky corporations and wanted to create something that would add value.
Why the sudden altruism? Well, it was more frustration.
I spent the first four years of my career in the space industry, negotiating and drafting contracts with companies that sent satellites into space. I met some really clever people that made some really stupid mistakes. Much of my time was spent managing contracts with small tech startups that were trying to break into the industry and some of the stuff I had to deal with was quite frankly, eye watering. Startups would happily sign away their IP, take on disproportionate liability, agree to stuff they couldn’t deliver and generally damage their pocket and their reputation, time and time again. When asked why they didn’t invest in a lawyer, the response was that they were happy to do the job themselves because they didn’t think the risk was that high and lawyers were just too expensive. Lack of awareness and lack of funds.
After leaving the space industry and moving into the more commercial space of technology contracts for international organisations, I saw the same pattern continue. Promising small companies that had spent years developing their product or business, putting it all at risk for the sake of landing a deal and getting the contract signed and out of the way.
It infuriated me and it made me feel that the only thing I was doing was perpetuating a broken system. So after I’d had enough of the corporate life, I decided to embark on a different journey, setting up as a startup myself and helping other startups with pragmatic advice and legal support at a lower cost. I am using technology and agile, lean processes to achieve that and it seems to be working.
So why are lawyers so expensive?
Lawyers usually charge by the hour. They also can’t always tell how long something will take. A lawyer with 8+ years experience charges an average of £409 per hour. You get the picture.
So why is this happening? There are a few reasons but here are what I think are the three main culprits:
The Partnership Pyramid: Traditional law firms are built on a pyramid model: the higher the retainer (the fee a client is asked to pay up front which the lawyers will draw down from as they work on a legal matter for each hour they spend on it), the steeper the profits for the partners. To support their structure, law firms can realistically only cater to clients that can afford to maintain them. Startups and SMEs have little chance of getting the legal support that they need, when they need it, since not all small businesses have a (minimum) £2,000 retainer to start working with a lawyer. So traditional law firms focus on the big guys and leave the smaller companies to either do it themselves or not at all.
Dark-age business models: Aggressive pursuit of high retainers means law firms have been plagued with short-sighted business planning. The traditional partnership model provides little incentive for investing in technology, innovation, or any wholesale restructuring of the model that will reduce the partners’ profit.
Stuck: Because law firms have hindered their own progression and have fallen behind other businesses, they have struggled with how to reduce costs and adapt to the changing times as they have become hooked into legacy expenses like high associate salaries, long-term leases, and antiquated IT systems. This has led to an old, slow and expensive machine, one that cannot possibly cater effectively to the modern world.
On top of these reasons, overheads for lawyers are high. First, when they are regulated by the Solicitors Regulation Authority they must pay a fee for each lawyer that works for the firm and also a fee for the law firm itself. Then they must pay a percentage of their turnover to the Law Society on top of that. Finally, insurance for regulated lawyers goes into the thousands of pounds a year. Operating as a legal consultancy means that these fees don’t apply but there is a certain prestige associated with being regulated (even if the legal activities carried out by the consultancy don’t need to be regulated) which some firms want to have.
In a nutshell, the system is broken. It’s a vicious cycle and it’s hard to break.
There are 5.7M businesses in the UK. 5.5M of those are micro-businesses with 1–9 employees. A recent study showed that 9 out of 10 small businesses didn’t use a lawyer even when they needed one, because of costs or confusion as to what their services mean. Another study showed that 1 out of 10 businesses fail due to legal issues they have faced and been unable to resolve.
It’s fair to say that lawyers don’t have the best reputation for several reasons. The nature of the complaints heard are consistent: extortionate fees, confusing language and slow response times. In an agile, tech-focussed world, it seems unthinkable.
But bizarrely, it’s not. Options for low-cost, high quality legal support are very limited. This means that small companies who arguably need the support the most, don’t get it.
The other issue is that because law firms focus on the big and rich, there is little awareness within the startup community about the value which a lawyer can add to a small business. Startups are happy to pay for a social media manager or the latest online project management tool, yet are reluctant to invest in getting the foundations right.
But what’s the real risk here?
Best case scenario, startups get away with no legal repercussions whatsoever. Worst case scenario, they get fined (fines under the GDPR go up to 20M Euro for example), they unknowingly sign away their IP or they agree to something they can’t fulfill and get sued for breach of contract. Likeliest scenario is that they make sub-optimal decisions that make them less attractive to investors, raise their risk profile and make them more susceptible to issues in the long-run.
There can be financial consequences and reputational damages. Commercial relationships can be damaged and customer trust can be compromised.
The average cost of a legal issue for a startup ranges between £5,000–£15,000. That doesn’t take into account the time needed to manage a dispute, the emotional toll it takes on already exhausted founders and the long-lasting damage that can be caused to brand image and relationships.
So what’s the solution?
We need more legal startups that are using technology, innovation and that are happy to challenge the status quo. We need simplicity and we need elegance. No more extortionate fees for no apparent reason other than to serve the personal interests of the upper to middle-class white male partner at the top of the food chain, no more speaking in bizarre legal terms to confuse the client so that they are afraid to challenge your fees and no more ghosting clients after they’ve signed on the dotted line for months on end. Just straightforward, 21st century-style legal support for companies that need it.
It’s time for the traditional law firm model to disappear into the abyss and the the legal industry to gracefully step into the 21st century, leaving the remnants of an archaic, elitist and one-dimensional model behind.