In this week's Law Firm Disrupted, we look at a couple of advantages law firms have when it comes to developing software.

I'm Roy Strom, the author of this weekly briefing on the changing legal market, and I can be reached at [email protected], and you can sign up here to receive this newsletter in a weekly email.

An Argument for Law Firms as Software Developers

Many legal tech companies have a familiar origin story. The company's founder used to be a practicing lawyer. The lawyer ran into a pervasive and seemingly intractable problem while practicing law. Eventually, they got so sick of it that they started a company to solve it.

It makes sense, even if it sounds simple. But it's still only the spark for these ventures. They still have to, you know, solve the problem and get people to pay them. And the fledgling entrepreneurs are doing that with at least one disadvantage they might not have initially considered: They aren't still doing the work that they set out to fix.

This has two potential problems. First, working from a concept of a problem makes it easier to forget what it takes to execute something that you're trying to replicate with software. Second, partly because of that problem—and partly because you naturally want to have a big company—you're more likely to solve big problems. Simple tasks that are repeated thousands of times within a law firm environment are often ignored.

Of course, tech companies know these basic development problems exist and they try to solve for them, primarily by engaging firms to act as testers of their software.

This week, I wrote a story on Chapman and Cutler's recent sale to NetDocuments of a piece of software the firm developed internally. I also wrote about Orrick Herrington & Sutcliffe's plan to invest in legal tech companies, which a partner at the firm said was done, in part, to ensure they could be beta testers of the most promising upcoming technology.

Part of the Chapman story that was left out has to do with some advantages law firms have in developing software over legal tech counterparts: A captive set of test users and the ability to hone in on discrete problems.

Eric Wood, the Chapman partner who had the idea that turned into the software the firm sold, is a classic example of frustrated-lawyer-turned-entrepreneur. As a young associate, Wood was frustrated with a whole bunch of the ways lawyers work “I couldn't believe the normal way of practicing law existed,” he told me, in a quote I might print for my desk.

Of particular disdain was the process of creating “closing sets,” an onerous task that basically amounts to sorting papers. Wood had a plan to solve that problem, and a plan to start a company to do it. Then something radical happened: The firm's managing partner, Tim Mohan, gave him time off billing work to try and build software solutions for the firm.

“Chapman Closing Room” (CCR, for short, in a shout out to Creedence) is a rather straightforward tool: It automates the creation of digital closing sets onto the firm's document management system. That's a task. But when a firm does it 5,400 times in less than two years (the number of times Chapman lawyers have used CCR), it is a task worth automating. The firm said it spent between $500 to $1,500 on the materials and printing services alone for each closing.

The initial proposal for CCR was much broader than what it became. Wood said it was supposed to be something like a lifecycle management tool for an entire deal. Clients and law firms alike would use it to manage a deal from initial checklist to completion. But it was a big ask to get disparate organizations working on the same schedule.

“I don't think you can enforce behavior across organizations like that,” Wood said. “You can't control behavior once it gets outside the door. So we chopped off a bunch of features to build it here.”

What would have happened if an entrepreneur in a corporate environment ran into that problem? Would they even admit it to themselves? Or would they still be solving that problem? Would they start researching behavioral science? Would they join the chorus blaming lawyers' stubbornness for the profession's inefficiency? Would they be able to build a legitimate business around a pared-down problem? I don't know. Either way, those weren't problems inside a law firm.

Wood works in what Chapman refers to as “the lab” alongside Michael Dov Nogroski, the firm's director of practice innovations. Nogroski said he is often asked by legal tech companies to demo their products. But he said the level of feedback the firm was able to receive from the attorneys, paralegals and support staff at the firm was unparalleled.

“We workshopped stuff. We sat with attorneys, we sat with practice groups, we had meetings and we presented and we listened,” Nogroski said. “And it was built internal by attorneys. By Eric. By chapman.”

He added: “I don't think this could have happened anywhere else.”

Neither Wood nor Nogroski said law firms are inherently better suited to develop software than software companies. And I don't want to give that impression, either.

But they help make at least two good points about innovative work inside a law firm: Try to solve the specific tasks that tech companies will have difficultly targeting. And take advantage of the captive set of users giving you feedback.

Roy's Reading Corner

On Big Law Survival: Golf is often called a game of opposites. To get the ball in the air, you have to hit down on it. To get the ball to go left, you swing through to the right. Hugh Simons argues in a piece for The American Lawyer that Big Law partner rates are something like a game of opposites: In order to make more money, partners should do less work. They should also charge 10 percent more. Simons says this is key for the long-term survival of Big Law. The problem, as Simons sees it, is a lack of delegation that causes partners to charge less for their own work and also work too much.

From Simons: “Clients are instinctively aware of the nonsense that associate billing rates have become; that's why they say they see the value in partner billing rates but balk at the junior associate rates. The truly weird part is that Big Law's wacky billing rate structure is entirely of its own making. Clients care greatly about the total fee charged; they care little about how that total is arrived at in the law firm's billing system. To change this profitability trajectory, Big Law needs to raise partner billing rates aggressively so that the billing rates of senior associates and counsel can rise so that, in turn, the greater margin earned on the time of these more senior lawyers can offset the loss of margin through diminished demand for junior lawyer time.”

On Big Law Thriving: Since partners are billing too many hours now, they can't do basic things like plan 10-person vacations or buy a spouse a lost wedding ring. It's a shame. But that's why Kirkland & Ellis this month launched a new concierge program. The firm gave its lawyers and top staff access to a group of concierge members willing to answer to their every whim. All of which is great, jokes aside. But it leaves just one question: Who's next?

And Who Needs Disruption… when Big Law is doing just fine. Revenue has grown 6.3 percent on the year, according to Citi Private Bank Law Firm Group. Sounds like more money for concierge services! 

That's it for this week! Thanks again for reading, and please feel free to reach out to me at [email protected]. Sign up here to receive The Law Firm Disrupted as a weekly email.