As a rule, law firms and those working inside them are not known for taking risks. As a result, there aren't too many who've managed to build up multimillion-pound businesses on the side.

Former Simmons & Simmons lawyer turned entrepreneur Stephen Scanlan (pictured), however, has done just that, and is now on a mission to encourage firms to embrace new technology and innovation.

Scanlan set up his own legal tech business, XRef Software Solutions – which helps law firms draft documents more quickly and accurately – in 2009 while still working at Simmons. Seven years later, he sold the business for $10m (£7.25m) via a merger with US rival Microsystems.

"Some things have really changed – although firms are still conservative about investment in new products, there are dedicated teams investigating what opportunities are out there in terms of innovation," says Scanlan. "Big law firms now have innovation teams set up which didn't exist five years ago, and often they have lawyers as the head of innovation. That, in my mind, is key."

While working at Simmons, Scanlan poured his disposable income and limited free time into setting up the proofreading tool. He brought in co-founder and former Linklaters lawyer and Merrill Lynch hedge fund trader Travis Leon to work on the business development side.

Law firms give language training, such as Arabic and Spanish lessons – so why not teach a programming language?

Leon recalls: "We both continued our day jobs while further developing the product and testing the market with the prototype. Eventually, I took the frightful plunge, leaving the security of City life to go full-time on the business. Although scary, there was also an allure and some excitement in taking on the challenge of a tech startup."

Scanlan adds: "Back in 2009, I think the idea of legal tech was met with a somewhat bemused look, so trying to break into to the legal market as a startup was very difficult. Firms were reluctant to deal with a startup with no track record."

Scanlan says more law firms are taking legal tech seriously, although he adds they could do more to help lawyers be more innovative.

"Law firms currently give language training, such as Arabic and Spanish lessons – so why not teach a programming language? That could help innovation and the way lawyers think – drafting a contract is similar to programming a program."

For other associates tempted to start their own legal tech business, Scanlan has a few pieces of advice.

"If I could have done something differently I would have gone faster, harder and raised funding more quickly. If you have an idea you believe in, go quickly as competitors will creep in. In hindsight, I went slowly – which meant I came to market at the same time as a competitor, whereas I could have got it off the ground a year earlier."

XRef launched publicly in 2012, just weeks before the co-founders became aware of a serious US competitor and their ultimate merger partner – Microsystems. Meanwhile, in the UK, data provider LexisNexis launched its own document proofreading tool LexisDraft the following year.

"I would also say that you are going to be risking your time, and emotional energy, so I would be cautious about investing a huge amount of your own money as well. If you are feeling financially stressed you might not go for the right decisions at the right time.

"I was tens of thousands of pounds in debt and an associate salary is tens of thousand pounds gross. Before we had any external funding, the cashflow of the company was funded out of my salary, and then also by my two co-founders' salaries."

Scanlan has now turned his attention to a new business proposal that he says will more directly impact law firms' profits. The business is still in the early development stages. "Proofreading products like XRef don't necessarily go to the bottom line of a law firm, in a direct sense. My new one is about time recording. If a firm has more billable hours done on paper they should make more money from it."

In his view, law firms need to "get the workflows right" first before moving on to more advanced artificial intelligence technology. "In top 20 firms I think there are certain parts that will be using programs that claim to be using AI, but we are so far away from having AI lawyers. All they mean by that is we sort data quickly with set rules – this is not the AI you see in science fiction."