James Schellhase, CEO of DiscoverReady. James Schellhase, CEO of DiscoverReady.

E-discovery is a vertical riddled with innovations, especially with methods of technology-assisted review (TAR) revamping the ways professionals practice. But also defining the industry is market consolidation, with big players cementing their veteran status and buying up others to get, well, much bigger.

James Schellhase will be taking charge of DiscoverReady in this changing marketplace. Having founded e-discovery and information governance company StoredIQ, where he stayed on after its acquisition by IBM, he is versed in the ins and outs of the evolving e-discovery industry.

Legaltech News recently caught up with Schellhase to get his thoughts on modern e-discovery and discuss the lessons he's learned from entrepreneurship and leadership in a major corporation.

Plugged In

Given your years working in e-discovery, what are your thoughts on the rapid consolidation unfolding?

I agree that there has been rapid consolidation in the industry over the last couple of years. Insiders know it, and observers suspect it and are intrigued by it. I've experienced this consolidation in the technology and service markets over the course of my career, so I am very familiar with this dynamic. Tech and service segment consolidation often happens in high-growth segments. People see opportunity, new companies sprout up rapidly, grow fast and try to compete.

Driven by the idea that “bigger is better,” these entrants often take on burdensome debt. I have participated in consolidations, and I'm a believer in smart growth without sacrificing quality as a prerequisite. A successful company must always appreciate that their success is based on a “three-legged stool” composed of its customers, employees and investors. When the “bigger is better” mentality takes hold, that three-legged stool can go off-balance.

Rapid consolidation is great if done correctly. If not, the consolidated enterprise will shrink in size and the resultant company will be riddled with quality issues. I have extensive experience in mergers and acquisitions, and the pattern continues to repeat.

How do you think consolidation will affect the innovation that tends to unfold at smaller, lesser-known companies trying to make their place?

Consolidation moves are not free. A merger or acquisition typically involves relatively major capital financing. Therefore, company management has to focus on cash-flow and its related obligations. Therefore, when large capital is at risk, funding for innovation or quality may be sacrificed. I can tell you from years of experience working with both Fortune 500 companies and small startups that smaller companies are often able to innovate much faster and more efficiently to serve their customers. Many times that innovation is stifled when companies consolidate.

How have your challenges and successes at IBM with information governance and StoredIQ prepared you to lead DiscoverReady?

At both IBM and StoredIQ, we focused broadly on information governance and information management. The key component areas included legal management, records management, compliance and data integrity, though IBM and StoredIQ also served the broader segments rather than legal only. Legal was a key component of information governance and a leading market driver for growth of IG, because of the legal industry having established industry mandates, requirements and processes that are unforgiving to the legal stakeholder. The governance components other than the legal stakeholder are falling in line, due to their respective increasing related mandates. The executive management of an enterprise has to respect and appreciate their fiduciary responsibility to shareholders, employees and clients to stay on top of these risks. Therefore, I can appreciate the enterprise-wide risk management of which legal has been the initial and significant driving force.

Having seen the industry from both the entrepreneurial and mega-company side, what advice would you give a smaller player trying to make their name in the discovery marketplace?

Companies generally do not care about vendor size as long as their primary focus is a solution to their problems rather than the vendor's own business objectives with the engagement. However, each mega-company and smaller player must accept the things they truly are capable of executing and those which they are not capable. Being a veteran of both sizes, many of my lessons were learned the hard way but I am wiser for the lesson.

Everyone wants to be the one-stop solution and corner everyone else out of the market. Therefore, to a new entrepreneur, I'd advise not to try to “take out” the mega-established players; it's a fool's errand. Find your own niche or market need that is not being addressed and fill it.

The “mega company,” as you call it, has incredible influence in the vendor purchase process, but often the larger players are a little slower to innovate, shift position, or experiment with new business models. Smaller players need to look for problems or gaps that are poorly addressed by existing solutions; doing so will help them identify their unique innovation, and be the best at addressing that need. As an example, StoredIQ recognized the challenges of growing volume and complexity of data, and put forth an excellent solution. We thought we might “take IBM (and others) out” in that particular segment, but instead we were acquired by IBM. Not a bad outcome, for us or for our customers.

Where do you see the e-discovery industry heading in the near and long-term future?

In the near term, in spite of the hand-wringing over consolidation, the market growth will continue at a good pace. There will be some pull and tug between different legal vendor types: people, process and technology. In every case, technology continues to advance, but it never eliminates the need for people (services) and processes (internal policies). I would go so far to say that the success that each has with their execution of their company objectives will yield more demands because of the resultant insight it teases out of the data.

On the longer term, I hesitate to prognosticate. Anybody trying to look past the next couple years are guessing at best. Technologies will continue to evolve, and there may be some surprises. But one thing remains constant: There will always a place for services. We'll see some automation of current manual processes, but humans are still key. Most importantly, e-discovery is one symptom of a larger problem rooted in the explosive growth and mismanagement of electronic information. This unbridled growth combined with the rapid introduction of new technologies creates tremendous legal and business risks for organizations and the law firms that support them.

How did you get involved in discovery, and why did you decide to pursue this as a career?

My passion is data … plain and simple. As an entrepreneur, I didn't see the larger companies willing solve the real problem, which is centered around data footprints doubling every 18 months (which has been continuing for approximately 15 years now). I knew at some point, someone with authority was going to have a question about it and then in frustration say “find it.” I knew that no large company was equipped to deal with that problem because of the natural conflict of also being the vendor housing that data and could not let go of that strong-hold. Simultaneously, litigation spiked in the wake of the dotcom bubble burst in the early 2000's, and again in the mortgage crisis and great recession of 2008. Both rode on a wave of data, and further illuminated the big data trends impacting us today.

I chose to first go into legal space in e-discovery because it was rapidly growing, and driving a critical need for the accurate management and production of data. That was the genesis of StoredIQ: “How to find a needle in the haystack?”

James Schellhase, CEO of DiscoverReady. James Schellhase, CEO of DiscoverReady.

E-discovery is a vertical riddled with innovations, especially with methods of technology-assisted review (TAR) revamping the ways professionals practice. But also defining the industry is market consolidation, with big players cementing their veteran status and buying up others to get, well, much bigger.

James Schellhase will be taking charge of DiscoverReady in this changing marketplace. Having founded e-discovery and information governance company StoredIQ, where he stayed on after its acquisition by IBM, he is versed in the ins and outs of the evolving e-discovery industry.

Legaltech News recently caught up with Schellhase to get his thoughts on modern e-discovery and discuss the lessons he's learned from entrepreneurship and leadership in a major corporation.

Plugged In

Given your years working in e-discovery, what are your thoughts on the rapid consolidation unfolding?

I agree that there has been rapid consolidation in the industry over the last couple of years. Insiders know it, and observers suspect it and are intrigued by it. I've experienced this consolidation in the technology and service markets over the course of my career, so I am very familiar with this dynamic. Tech and service segment consolidation often happens in high-growth segments. People see opportunity, new companies sprout up rapidly, grow fast and try to compete.

Driven by the idea that “bigger is better,” these entrants often take on burdensome debt. I have participated in consolidations, and I'm a believer in smart growth without sacrificing quality as a prerequisite. A successful company must always appreciate that their success is based on a “three-legged stool” composed of its customers, employees and investors. When the “bigger is better” mentality takes hold, that three-legged stool can go off-balance.

Rapid consolidation is great if done correctly. If not, the consolidated enterprise will shrink in size and the resultant company will be riddled with quality issues. I have extensive experience in mergers and acquisitions, and the pattern continues to repeat.

How do you think consolidation will affect the innovation that tends to unfold at smaller, lesser-known companies trying to make their place?

Consolidation moves are not free. A merger or acquisition typically involves relatively major capital financing. Therefore, company management has to focus on cash-flow and its related obligations. Therefore, when large capital is at risk, funding for innovation or quality may be sacrificed. I can tell you from years of experience working with both Fortune 500 companies and small startups that smaller companies are often able to innovate much faster and more efficiently to serve their customers. Many times that innovation is stifled when companies consolidate.

How have your challenges and successes at IBM with information governance and StoredIQ prepared you to lead DiscoverReady?

At both IBM and StoredIQ, we focused broadly on information governance and information management. The key component areas included legal management, records management, compliance and data integrity, though IBM and StoredIQ also served the broader segments rather than legal only. Legal was a key component of information governance and a leading market driver for growth of IG, because of the legal industry having established industry mandates, requirements and processes that are unforgiving to the legal stakeholder. The governance components other than the legal stakeholder are falling in line, due to their respective increasing related mandates. The executive management of an enterprise has to respect and appreciate their fiduciary responsibility to shareholders, employees and clients to stay on top of these risks. Therefore, I can appreciate the enterprise-wide risk management of which legal has been the initial and significant driving force.

Having seen the industry from both the entrepreneurial and mega-company side, what advice would you give a smaller player trying to make their name in the discovery marketplace?

Companies generally do not care about vendor size as long as their primary focus is a solution to their problems rather than the vendor's own business objectives with the engagement. However, each mega-company and smaller player must accept the things they truly are capable of executing and those which they are not capable. Being a veteran of both sizes, many of my lessons were learned the hard way but I am wiser for the lesson.

Everyone wants to be the one-stop solution and corner everyone else out of the market. Therefore, to a new entrepreneur, I'd advise not to try to “take out” the mega-established players; it's a fool's errand. Find your own niche or market need that is not being addressed and fill it.

The “mega company,” as you call it, has incredible influence in the vendor purchase process, but often the larger players are a little slower to innovate, shift position, or experiment with new business models. Smaller players need to look for problems or gaps that are poorly addressed by existing solutions; doing so will help them identify their unique innovation, and be the best at addressing that need. As an example, StoredIQ recognized the challenges of growing volume and complexity of data, and put forth an excellent solution. We thought we might “take IBM (and others) out” in that particular segment, but instead we were acquired by IBM. Not a bad outcome, for us or for our customers.

Where do you see the e-discovery industry heading in the near and long-term future?

In the near term, in spite of the hand-wringing over consolidation, the market growth will continue at a good pace. There will be some pull and tug between different legal vendor types: people, process and technology. In every case, technology continues to advance, but it never eliminates the need for people (services) and processes (internal policies). I would go so far to say that the success that each has with their execution of their company objectives will yield more demands because of the resultant insight it teases out of the data.

On the longer term, I hesitate to prognosticate. Anybody trying to look past the next couple years are guessing at best. Technologies will continue to evolve, and there may be some surprises. But one thing remains constant: There will always a place for services. We'll see some automation of current manual processes, but humans are still key. Most importantly, e-discovery is one symptom of a larger problem rooted in the explosive growth and mismanagement of electronic information. This unbridled growth combined with the rapid introduction of new technologies creates tremendous legal and business risks for organizations and the law firms that support them.

How did you get involved in discovery, and why did you decide to pursue this as a career?

My passion is data … plain and simple. As an entrepreneur, I didn't see the larger companies willing solve the real problem, which is centered around data footprints doubling every 18 months (which has been continuing for approximately 15 years now). I knew at some point, someone with authority was going to have a question about it and then in frustration say “find it.” I knew that no large company was equipped to deal with that problem because of the natural conflict of also being the vendor housing that data and could not let go of that strong-hold. Simultaneously, litigation spiked in the wake of the dotcom bubble burst in the early 2000's, and again in the mortgage crisis and great recession of 2008. Both rode on a wave of data, and further illuminated the big data trends impacting us today.

I chose to first go into legal space in e-discovery because it was rapidly growing, and driving a critical need for the accurate management and production of data. That was the genesis of StoredIQ: “How to find a needle in the haystack?”