Ever since Joseph L. Bower and Clayton Christensen coined the phrase “disruptive technology” in their seminal article “Disruptive Technologies; Catching the Wave”[1] , technology firms large and small have considered it a virtue to bring disruptive products and business models to market. According to Christensen, disruptive business behavior manifests itself either by creating “a new market that can serve as a base for disruption”[2] (think on-line stock brokerage, personal digital assistants, digital photography) or by disrupting “the prevailing business model from the low end” (think discount big box stores). [3]
My involvement with disruptive innovation has not been limited to helping my clients be disruptive. I, too, have been disrupting from the low end.
The core of my practice is assisting technology-intensive businesses negotiate sales, licensing, distribution and purchase agreements. Our larger clients need help with these matters because their inside counsel don’t have the time or the expertise to handle such matters in an effective manner, or, sometimes, either. Our smaller clients typically need our help because they don’t have any legal expertise in-house.
Eight and one half years ago – when I formed this firm – both sets of clients usually obtained this type of assistance from traditional law firms. Like other purveyors of “sustaining technology”, the top law firms’ primary focus was on how best to gain market share in the highest profit segments of their market – in this case, merger and acquisition work, bet-the-company litigation and boutique specialties that command a premium. (European privacy and data security law, anyone?) Recognizing the inherently less profitable nature of estate planning, certain real estate work, routine commercial transactions and various other areas, many top firms deployed their limited resources elsewhere.
Other firms continued to offer such services, but for many of them it has not been a great fit. With the help of firms such as ours, a growing number of clients have concluded that it is not worth hundreds of dollars more an hour to be able to visit a more attractive office, to have one’s attorney be served by a large support staff, or to gain the defensive comfort of purchasing all of its legal services from a branded law firm. To paraphrase Christensen, many clients have tired of paying more than they want to pay, in order to bear costs that don’t bring them value.[4] Moreover, for some clients the traditional law firm service delivery model has become downright irritating, no matter what the alternatives might be. Who wants to work with partners who run away from the lower margin work you need them to do, or with associates who will likely leave the firm just about the time that they finally understand your business?
As a result, the “low margin” practice groups that remained in traditional law firms became ripe to lose market share to firms such as ours. The marketplace has noticed and responded. In one instance, two partners in the Silicon Valley office of a national law firm have launched a successful virtual law firm where they are doing quite well charging their clients a fraction of their former rates. In another, a well-known Silicon Valley firm has established its own unbranded, low cost affiliate to serve those portions of the market that the mothership cannot serve at a profit. Hard to disagree with their thinking: making some profit in that market will be better than making none!
If I may, I don’t think that the progress that firms such as ours have made in this segment has simply been the result of our being in the right place at the right time. We’ve done what it takes to disrupt from the low end: we’ve held our costs to the absolute minimum, shared our cost advantage with our clients, and taken the marketing and sales actions necessary to help prospective clients understand and value what we offer.
That said, I must admit that the growth of firms such as ours has been wind-aided in several respects. Growing client comfort with the Internet has made it a lot easier for lawyers like me to be just as responsive as my big firm competitors. It’s also made it easier for me to deliver written work product that possesses production values comparable to that generated by BigFirm’s word-processing staff. Just as significantly, the Internet has substantially lowered my cost of finding and capitalizing on information that previously might have been inaccessible to me.[5]
On the marketing side of the equation, we have benefited from the Internet’s enablement of the virtual company. Fifteen years ago operating a legal practice from a home office or an undistinguished business address was a branding negative. These days firms such as ours don’t give that much thought, as many of our clients are virtual companies and even our more traditional clients have embraced some degree of virtual engagement. When so many other relationships are predominantly email, telephone and video conference relationships, our clients seem to be just as indifferent about where our office is as they are about where their CFO is calling in from on any day.
Likewise, we’ve benefitted from the economic turmoil of the past four years. Client brain-storming sessions on how they can drive unnecessary costs out of their business has yielded us several new clients. The more that the client paid BigFirm last week to complete its private placement, the greater the typical client’s desire to find us.
None of this is to say that there’s no place for commercial transactional lawyers in larger, traditional law firms. Parceling commercial work out to firms such as ours will never appeal to clients who place a premium on having a single trusted outside counsel manage much or all of their portfolio of legal matters. Other practice groups within large firms will always generate a good deal of commercial work that the firm would rather capture than hand over to other firms. Commercial transaction clients sometimes get sued, sometimes need to comply with Yurkistani privacy law. And, most clients will pay some premium to work with a favorite commercial counsel who remains at a high cost platform.
Fortunately, there’s plenty of room for both of us. That said, I like our prospects. I don’t see them disrupting our business model any time soon.
[1] Harvard Business Review, January-February 1995. Christensen’s subsequent book, The Innovator’s Dilemma (1997), rendered Christensen’s findings and observations about how business disruption occurs modern day business conventional wisdom.
[2] “Foundations for Growth; How to Identify and Build New Business”, MIT Sloan Management Review, Spring 2002, p. 24.
[3] Ibid.
[4] See id. at 26.
[5] Fifteen years ago the leading U.S. expert on the privacy laws of Yurkistan kept most of that knowledge to herself, and marketed her expertise to clients and her partners by word of mouth, writing articles that weren’t widely read and presenting seminars to relatively small groups. Today she provides an overview of the subject – and possibly substantial detail – two or three places on the Internet. Often her doing that provides practitioners like me information and insight that I either would not have obtained otherwise, or would only have gained at great cost. Sometimes my review of her web articles results in my recommending that my client seek her help. Other times it eliminates the client’s need for further queries, or enables the client to get the assistance it needs from a lower priced privacy expert located in Yurkistan.