Will This Legal Tech Startup Kill the Billable Hour and Bring Transparency to Legal Billing? (Scott & Digby Leigh - AltFee)

This is technically Legal podcast about legal technology, innovation in the legal industry and the impact tech is having on the law. I'm Chad Main, the founder of legal services company Percipient, and on today's episode, I'm talking to Scott and Digby Lee about Alt Fee. That's the software company they founded to help legal teams implement alternative fee systems to break free from the traditional billable hour model. The billable hour. Everyone in legal complains about it, but we just can't seem to shake it. On today's show, I'm talking to a duo of Canadian brothers who are actually trying to tackle the billable hour. They are Scott Digby Lee, the co founders of an app called Alt Fee. It seems that Scott and Digby may be onto something too, because they are fresh off a win for best startup from this year's Startup alley at the ABA Tech show in Chicago. So what is AltFeed? It's an app that helps legal teams determine what should actually be charged for specific legal services. The team at Altfi are big proponents of AFA's, otherwise known as alternative fee arrangements. They'll fill us in about different types of AFAs, but an easy one to get your head around is a flat fee. So instead of a lawyer charging by the hour to prepare a will or incorporate that company, they just charge a single set price. So if a lawyer is using alternative fee arrangements like flat fees, how can they accurately determine what should be charged for the work they're doing? That's where Altfee comes in. The app walks users through each step of a legal project and provides a value or cost for that step. So an accurate fee can be determined. And the cool thing about it is the variables that the app considers aren't just the specific legal tasks that a lawyer must complete, but the app also considers variables like the urgency, like, does the client need it right away? If it does, it assigns a value to that that's reflected in the price. The brothers credit their dad for inspiring them to create the app. Prior to founding Altfi, they both worked at his law firm, Digby in a business development role, and Scott as a lawyer. They say their dad really instilled in them the importance of delivering value to clients at a fair price.

You know, I was doing the product tour again today, and I noticed the attorneys at that firm that it was set up for all basketball players. We got Charles Barkley in there, Steve Nash, Cheryl Slopes. I assume you guys are NBA fans.

Basketball is kind of the sport that we grew up with. So it Kind of indirectly made itself into our demo account in the early days, and it's just stuck hard. So it lives deep within the old fee roots. Now.

The running joke is because of the global application, we keep saying, should we make like an Aussie Rules football edition? Should we make a, you know, for our Canadian customers? Should we be making a hockey edition? So we might have to build out some more demo accounts.

I assume you guys are we the north fans, right?

We're a little bit biased because, you know, we had our Grizzlies back in the day, which is what we grew up with for those few years that they were around. And so it's still quite difficult for us to cheer for the Raptors, even though they're Canadian. We actually tend to fall more south and follow down that way a little bit depending on where our favorite players are at. So it's kind of sad.

When Steve Nash was in the league, I was a fan of wherever he was playing. I followed him around.

I don't know, man. I'm just turning a grouchy old man. NBA is hard for me to watch nowadays, man. Just shooting threes. Kind of boring. I miss Barkley. I miss Nash the Dish.

You know, it's a different game now. It's fun to watch college basketball these days. I think they. They still go hard and. And play a lot of defense and. And just care a lot. So that's fun basketball to watch. But you're right, it's pretty rare for me to sit down and watch a full NBA game these days. Even though that was the sport I grew up watching and playing.

Well, we digress. I could talk about basketball and music for forever, so. So your father's a lawyer. Both you two, prior to launching Alt Fee, work at the firm. If I recall correctly, Digby, you were in biz, Dev in marketing, and Scott, out of law school, you were doing. What do they call that in Canada?

Articling.

You were articling with the firm. And then ultimately you start practicing doing M and A work. At what point does Alt Fee start to come on the radar? What time are you two thinking? You know what? There should be an app for this.

We got to give our dad a.

Lot of credit there.

So going back many, many years, he has always. Well, I'll start by saying he's always been very client centric in his delivery of legal services. I think it's one of the reasons he left Big Law himself. He was a partner at a firm called Bullhauser and Tupper for a number of years. As a lawyer coming up, which is now Norton Rose Fulbright. And he had an entrepreneurial streak that took him away from the big firm life. Knowing that he kind of wanted to do it differently, do it his own way. And I think early on in his journey had a real unique mindset as a lawyer to be client centric, which now is a very topical. We're talking about a guy who's been practicing for 45 plus years. I won't try to date him too precisely, but yeah, so you know, a visionary at the time to be forward thinking around the client centric piece. And he built his law firm with that as the cornerstone. And I think the hourly model was so embedded back then and remains relatively embedded. But he always had his eye on how can I improve the client experience as I deliver the legal service. And a big piece of that was around more price certainty for the client. And so that's really where the Alfie story begins for me is this idea of how can we better prepare the client for what to expect in terms of cost. And that is where we started with our own firm and trying to create a non hourly model, move the firm completely away from hourly billing and provide clients with that upfront cost certainty.

Was it the idea itself, was it a product of. I remember when I was practicing, what's this going to cost me? Like you never really know. I know that clients don't want to hear that because you never know what's going to happen. Was it a product of that your clients asking you, you wanted to give them some sort of kind of accurate best guesstimate you could?

Well, I think what happened was, you know, fast forward to the start of COVID and this idea that had been percolating around and really this dream of wanting to do it this in this non hourly way. We started hearing from clients more directly that they needed more price certainty up front. There's a lot of uncertainty in the world. A lot was going sideways for people and budgets were getting tighter. And so that idea of running clock was no longer really tenable for a lot of people. So that's when we got really serious about creating a manual version of what today is Alt Fee within the firm. And that was the kicking off point, I'd say, for when we jumped all in on this idea.

So let's take a step back, give the Alt Fee elevator pitch.

You know, in its current form, Alt fee is the foundation for law firms that are operating on alternative fee model. So alternative fee model for us really is anything outside of the traditional hourly Model we want to be the foundational tool to help them be successful with the scoping, the pricing, the proposing and the auditing of their alternative fees.

And just to kind of reacclimate or for those who may not be familiar with lots of times called AFA's Alternative Fee Arrangements. Give us a few of the flavors. You know, obviously when you say traditional, that's a billable hour. I guess contingency fees are maybe considered as, but you know, they're kind of. I don't really consider them that because I consider that traditional. But what are the other flavors?

I think some of the other ones that are really typical, you know, the most common being a fixed fee. Right. A fixed dollar amount for a piece of work. And I think there's a lot of variations that come off that sort of subscription slash. Periodic fees is like a monthly recurring fee over a period of time for completing X type of work. And then I think the one that comes into play with the more complex, the more predictable work is stage or phase based. And so that's really breaking your work down into individual stages or phases and then assigning a fixed fee to the different stages. So Chad, how you explained the scenario from your practice days of things being hard to predict and complex and a lot of uncertainty on the front end, that's the answer to that question is how am I going to price this? I'm going to do a breakdown of this bigger piece of work into individual sections and then I'm going to have the information necessary to scope and price out that stage or the first few stages with confidence.

Let's talk about the features. What all does it do? Obviously you could input certain variables and it'll give you what an expected or predicted fee would be. You can then comfortably quote your client. But what are the other stuff it does and what's under the hood?

Yeah, so you're getting to the core of it. You know, what Alfie is set up to do is as I was explaining as a firm, break your work down into individual projects. So get a level more granular than you traditionally do under an hourly model where you can just sort of say I'm going to do this and, and here's my hourly rate. Let's get going. So break your work down into those individual stages or project types and then do an in depth analysis on each of those so that we look at both the tasks, right. The scope of the work. What are the different things that are typically associated with carrying on this project, which is sort of table stakes in afa world, you got to do a good job of scoping this out. But that's really just the start, especially with where the industry is going with the adoption of AI and other technology that is improving the efficiency, that is reducing the time a lot of these billable tasks take. You got to know what you're getting yourself into. But that's not the only consideration. And that's where sort of the next step in our process sets in. We call them modifiers and this is really your value based consideration. So typically your non time based considerations. What are the other things that we want to look at as an organization that may affect what the right price is to charge for this? And also where is the client getting value out of this? So kind of a really easy example of that is project urgency. Right. If someone comes to me and says get this done by tomorrow, it may not take me more or less time to do that, but there's a lot of added value for that client for me doing this right away. And also there's other internal considerations like how is our capacity, what other work do I have to drop off in order to get that done? And therefore there maybe should be a premium charge for me getting that done really quickly for you.

I encourage people to go to your website, which I'll put a link to in the show notes, because there's a great, great product tour. And what you do, you go in there, you check the kind of matter it is, then you check what you think the steps would be, as you've already alluded to, Scott. But then to your point, the urgency, that's another little variable. You check, you know it's urgent, it's not urgent, and that kind of tweaks the fee. So I think, I think that's pretty cool. But you know, I want to go back to something you said about AI and the importance of thinking about these alternative fees. Because as I think your thesis is and is correctly so is, look, if lawyers truly adopt AI, which they're going to have to at some point, I don't know if it's there yet, but at some point down the road they're going to have to, it's obviously going to make them more efficient and cut down on the billable hour time. So how do you charge for that? So maybe, maybe this might be the straw that breaks the bill. Hours candles back, right? Maybe this is the time we see a change in legal billing. So to your point, how can using tools like this help always figure out what they should be charging for something that might have taken them 10 hours before. Then I'll take some.

Three.

Great question. And it's really was at the core of our motivation to build out this modifiers feature. So we did a pricing report last year. As part of that, we had 100 plus firms complete a survey to join our alternative feed directory on our site. And part of that survey asked a question which was rooted around are you taking value into consideration while you price? And a very large majority say yes. And I've talked to hundreds of legal professionals and tried to pull a layer back on that onion and say, what are you actually doing? And almost without fail I consider value. But it's very ad hoc, very personal to me, the person having the conversation and very reactionary. And so what we want to do with our modifiers in our platform is say as an organization, as a whole, for all of our team members. How do we look at this in a consistent and systematic way that allows us to actually start capturing our real line of thinking that ties to the value of the services we're providing in a way that enables us to do it really well on a one off basis, but also encourage our entire team to learn from every experience they're having so that we consistently update our system to take into account those learnings that we're having.

Would you go a little deeper of value building though, what it is specifically like as opposed to the hourly billing where I spent 20 hours. Thousand dollars an hour, 20,000 bucks. Explain value billing and what the, what the metrics are for that. Figure out the fee.

And there's large variations of this. Right. So I think there's a large spectrum from a pure hourly model to a pur. What would be called value based pricing. Value based pricing. I think at the farthest level, they're not thinking about time. If you're a true value based pricer, you're not thinking about time. You're pricing the client that's in front of you and you're pricing the project. So I think at one end of the spectrum, you know, there's obviously not a huge amount of people within legal industry doing that. There are a handful for sure that we know about that are doing that. They don't record time, they've burned their timesheets and that's kind of the model that they follow. So in that world, you know, what we wanted to create in Alfie was there's a spectrum. We understand that we wanted to provide something that could apply no matter where you're at, within that spectrum. So you can be very value Based in your thinking by taking advantage of our modifiers, Looking at purely from the client perspective, purely from the project that's in front of you and your internal team, what you need to do in order to take this project on. But you can also look more task based, care about the time that goes into it and really find the appropriate balance for where your firm is at and where you're looking to grow.

An example of value building might be the deal. As a result of the deal, a company is going to make $1 million, whatever that may be. That's the value. Right. That's the value to that business. And so the fee is based on some sort of multiple or fraction of that. Right.

100%. That's a great example. I think, you know, the amount of money at stake or the amount of money on the line is a really common way of looking at it. And it happens whether or not everyone knows it's probably happening a decent amount right now.

Right.

You go for a real estate transaction. A lot of firms that are doing conveyancing work are going to look at the price of the property that you're buying or selling and that's probably going to impact the amount they're going to charge. There's extra liability for their firm. There's more value for you as a client when you're selling a higher value property. Those sort of things are real, yet the actual tasks they will have to complete might be the exact same. Whether you're $500,000 property or $5 million property.

Right. Because in that scenario there maybe they charge you 300 bucks an hour because the million dollar property, but maybe you're looking at a $20 million property. So they're going to charge you a thousand bucks an hour. Right. So the value is already being considered when they're setting these fees.

Yeah. I mean, I would say you're still describing it from a typical hourly model. Right. And so I would take that same analysis but apply it to a fixed fee. Right. So you come in the door as a client for my law firm, I do conveyancing work. You're selling a $500,000 property, I'm going to look at that $500,000amount. Take that into consideration. When I come back to you and say, okay, it's going to be $1,000 for that project. You know, next client comes in the door right after you and they're selling a $5 million property, I'm going to look at the value of that property, what that means for our firm. Liability. We're Taking on the value to the client, all those good things and determine that as a result of that, it's going to be a $2,000 fee to take this project on. And so same analysis as you, but you can do that analysis in a way that doesn't just change your hourly rate. It actually changes what the fixed or alternative fee that you decide on is the right fit.

When we come back in just a minute, Scott and Digby dive deeper into how Altvue works and we discuss how maybe the app can be a potential conversation starter between client and legal teams so each understand what the other is expecting and what actually happens behind the scenes when legal work is being done. I'm Chad Main and you're listening to Technically Legal.

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We'll get back to my conversation with Scott and Digby Lee in just a second, but before I do, I want to direct you to tlpodcast.com there you'll find an episode page for this episode and every episode prior where there's more information about our guests and links to some of the stuff we talk about in the show. We've got a brand new website, so hope you check it out. Tlpodcast.com all right, let's get back to my conversation with Scott and Digby Lee. Scott's just about to go under the hood of Altfi and fill us in about some of its features.

Part of the offering is we've created somewhere in the neighborhood of 450 plus template guidelines, we call them across a number of different practice areas. And I think what you're referencing is those guidelines that we provide. They give you a head start as A law firm and the value there is more of a head start around for an individual project type. What are the sort of factors and considerations we should be thinking about in that early scoping process? The numbers themselves are placeholder amounts. So we really encourage firms to dig into what is their local market rates, what were they charging for previously and try to establish those on a customized basis for their firm's needs.

That makes sense. So they are editable by the user to make it more accurate, which makes total sense. It couldn't really do it any other way. But this got me thinking. I know today a lot of your customers and your folks been on law firms, but I was thinking about In House just this morning as I was thinking about our conversation today. It seems to me this would be really helpful for In House because you're always seeing these articles. Well, we want to use AFA's but no one wants to use them because both sides think they're leaving money on the table. The law firm thinks that they're not going to get paid enough, they're going to do more work than they charge for. And then the client's thinking, well, they charge me for more work than they really did. But wouldn't this kind of solve the problem? Right, because in house if they have your tool, they have access and usually they have sophisticated billing tools because everybody's got to input their billing electronically. They have access to these hourly rates and what different tasks costs like they could build out the the task themselves and figure out what a good afa, a fair AFA would be.

We've had conversations with in house groups or even law firms that are looking at it from the in house perspective with the organizations that they work with and see the value there as well. So yeah, definitely an area that is of interest. Not where we've obviously spent our time to date, but I think we've seen it from the other side in terms of these in house organizations. Really whether you're an in house organization or an individual coming to a law firm for services, the goal is to agree upon that price upfront, create the cost certainty, that alignment between service provider and client so that we're on the same team with the same outcome, the same goal in mind, working efficiently to go carry out the work to get there.

Both sides would have the data. But I think more often than not In House probably knows their numbers better than law firm, law firm have building software and all that info is there. But if you're in house, you got the numbers, you know, all right, we had this type of M and A deal, it was this many hours and he's broken down by task. I mean, both sides have this information. You could really figure out what the true cost is.

I think the other piece to that is to figure out the true cost, I think is the start of the analysis. The other piece to the puzzle that adds some complexity to it is sometimes, I mean, those value based considerations are typically as a result of the systems that you're creating as a law firm. And what are the things that you care about? There's obviously some ways around that, like Project Urgency is kind of a really simple example where anyone could identify what the target end date for this thing is and that may affect the price accordingly. But if you're getting more sophisticated and systematic in your value based approach, then in my opinion that does have to live within the law firm as well.

But maybe both sides use a tool, right? Yeah, so maybe both sides use a tool like all right, law firm, you know, do we cheat them and how they, they do all this type of work for a company and they want to move to an afa. Both sides get in the tool and they, you know, put in what's important, how many hours they think it should take. I mean, then you could kind of see the numbers and you could true them up. Right?

Yeah, I like that. I like that line of thinking.

Because as I talk to you about this, I'm thinking too, you know, well, there's a lot of stuff in house may not know that goes in to making the sausage. Right. The law firm is going to be best positioned to know that. All right, the task is broken down in these three phases and this is time needed, you know, and these are the, this is the stuff that costs us.

I think you're on to kind of the next phase in the client lawyer relationship, which is more transparency, more getting on the same page. And historically maybe it's been a little bit more us versus you in approach, regardless of what model you're under. So hopefully tools like ours as they evolve can help service that space because I think we have heard that from the in house side they probably do have better metrics around what it should cost. But there's a, there's a really valid point there on the lawyer side which is, you know, you don't know everything that's going into a file to get to the finish line. And ultimately if you're struggling to convey that value, then you know, the other side's not going to feel good about it and we need to find better Ways of articulating that value and showing it. And maybe it's more transparency through something like, like alt fee.

Right. Because that creates the conversation that's always the common thing is well, our outside counsel doesn't understand our business and how we're looking at stuff. And then law firms are always, well, they don't really know how hard it is to do this work. This could be a great conversation starter. The law firm and the company in house counsel could go and look at each one of those stages in all feed where they've allocated to it and you know, see where the differences are.

We encourage that type of behavior. It's one of our strong beliefs around the model is that it shifts the significant conversations around scoping and pricing up front. Right. So if we're going to agree upon fees up front, me as legal service provider, I'm going to have to have a pretty thorough conversation with you as a client to understand the details of what we're getting ourselves into in order to provide that fixed fee. And so I think exactly what you're saying happens in a bit more of an indirect way where the law firm has to be prepared for all the different stages that we may take on and therefore in a position to have that more sophisticated and thorough conversation with the client upfront so that we can get to agreed upon fees. So yeah, I totally agree.

Is there any kind of reporting that a law firm could give to their, their client and say, hey, we suggest an AFA fee of $10,000 per matter, per this matter and here's why we show you how we came to that conclusion.

It's really interesting, you know, I think different law firms have different philosophies around the level of transparency or collaboration they take on with their clients to come to the price.

That's part of the problem right there. I think that's part of the problem when you're hiding the ball. Because I think more times than not in house counsel, they've already been practicing. They know like they're not going to be shocked and they're, you know, if you hide the ball, they're, I don't know, I just feel like you should be forthcoming and you're probably gonna get.

Better rates and we probably have to look at it from the in house perspective in terms of in house counsel versus providing services to a non legal professional. Because for them that could be a very complicated, very difficult process to work their way through depending on the type of work that you're doing. So yeah, I think it's a great Point, I think for those that are have an understanding of or want the understanding of the details, then taking them to whatever level is necessary to create that alignment. We would obviously believers in that and the types of behaviors we definitely try to encourage on the platform.

It seems to me too, to your point, would also help communications with, let's say, a small business, you know, they're only hiring a lawyer once a year or something. They get their bill or they get the fee agreement. Like, whoa, this is expensive. Seems to me that the lawyers could take this information from offee and say, well, it is expensive, but here's why. Boom, you got to do this. Boom, you got to do this. Yeah, boom, we got to do this.

And that's exactly what we both do in the app. And the app enables them to do verbally as well. But within the app, you can go through that process of identifying the relevant factors, considering value, and the next piece of that is the client communication. So how do we bundle this up and explain back to them in a proposal or engagement letter what are we doing, what is the value of what we're doing and what is the dollar amount going to be and bring that back with obviously the ultimate goal of agreeing upon all that so we can kickstart and actually get into the substance of the work.

Yeah. Which is also really crucial and in terms of establishing scope. Right. And that gives you a record of what you've agreed upon. So if scope changes, you can address that in a transparent way as well.

So I know you have some integration specifically with Clio. Are there other ones and how does the integration with Clio work?

Clio is our only integration right now in terms of the functionality of it. It enables our mutual customers to do a couple of things. One, that sort of core workflow that we've mentioned within AltFi, you can grab at all of that and then take it into Clio and generate flat fee invoices with consistent descriptions of your services, consistent dollar amounts in a really seamless way. So within a few clicks, you've gone from scoping and pricing and alt fee to generating an invoice for that same dollar amount, the same description you've talked about, and send that off to your clients. So really ease that process in the other direction. We're capturing for those that are recording time and want to use that to help judge the success or judge where potential learnings are coming from. We capture the recorded time that they're putting towards it within Clio, pull that back into alt fee and then draw a comparison between the fixed fee or alternative fee that you've scoped in price with an alt fee against the amount of time that you put towards that both during and and post project.

So what's on the roadmap? What are you working on right now? What's next for alti?

Lots of exciting stuff. You know, we've really built this thing and you know, the goal from the early days is being a foundational tool for those alternative fee providing firms. Right. And so we've obviously come at this from the scoping and the pricing angle off the start, which is obviously our core space that we're living in. We're not going anywhere away from that, but it's continually building on that. So we've now started to unearth some really interesting customer data, bring that back to them in a way that, you know, with a goal of making it actionable, things that they can take from there and actually start making decisions around from within their business. And so we're digging deep on that right now, looking at other ways in which we can repurpose the really interesting data that we're now capturing in a way that can help law firms make great decisions about their systems and obviously particularly their pricing systems.

You know, I should point out too that you guys have a great directory of legal service providers that offer AFAs and I encourage, if you're interested, check that out. And again, I'll put a link to that on the the show notes too. So good luck in Chicago at the tech show. When this comes out, we'll know. But yeah, that's, I'll be a great experience for you. I'm glad you guys are going. Digby, Scott, thanks for your time. If people want to get a hold of you or learn more about Altfee, where do you want to send them?

So our website is altfico.com. you can track us down on LinkedIn as well as a great spot to get us. Our company is listed with a backslash alt fee and a search of Digby or Scott Lee should bring us up. Our last name is spelled L E.

I G H. Thanks, fellas. Thanks, CH.

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