#77 Do Law Firms Actually Want Innovation?

I don't see the forces of change to be at the level people expect. You think that AI is going to lead to the apocalypse? I've heard this song before and I ain't seeing no one dancing.

How do we incentivize people to want to optimize themselves out of a job? Hello everyone and welcome to Pearls on Gloves Off. I'm your host, Mary o', Carroll, chief operating officer at Goodwin. Today on the podcast, I'm joined by an old friend, Eddie Hartman, partner and board member at Simon Kucher, where he works with everyone from hyper growth startups to global enterprises on pricing, monetization and scaling strategies. He also helps professional services firms optimize their pricing, including members of the AMLA 100. Eddie has an extraordinary background. He has founded and grown companies worth over $3 billion, including one you may have heard of, LegalZoom. He's taught at Stanford, Yale and Harvard, contributed to the bestselling book Monetizing Innovation, and has a new book out called Scaling Innovation. In this conversation today, Eddie and I deep dive into some of the most pressing themes shaping the business of law and professional services today. We talk about, of course, AI in the legal industry and why most initiatives fail, what adoption looks like, and how lawyers using AI will outperform those who don't. We get into law firm culture and change the generational shifts in how lawyers think about technology and the business of law pricing and fee structures, why pricing sends such a powerful signal to clients, innovation inside firms, what's real, what's window dressing, technology as a disruptor and how firms can embrace disruption rather than fear it. And finally, some leadership lessons from hypergrowth. What Eddie has learned from scaling companies and how those lessons apply to law firms and beyond. It is a thoughtful, energizing and practical discussion with plenty of hot takes and and new points of views that I haven't heard expressed on this podcast before. So get ready for a fun one. Eddie, great to see you. I am excited about this conversation because you're one of my favorite people. You just are.

So nice of you to say, Mary. Thank you.

Yeah, we go way back. I think you are so accomplished. You are obviously very smart. You have such a clear mind about so many things in our industry and you've just been in it for so long that you're like this wise sage in our space. You have been part of the legal industry for, from what I can tell, since you started LegalZoom in 1999. But did you have exposure to legal before that? How did you fall into this?

The Closest that I had was that my dad had filed about 30 patents. And I knew that it sounded complex and arcane, but, no, I didn't know the first thing about law. Not really.

So what interested you? Like, how did you get the idea? I mean, that was like. That was the original legal tech. I don't even know if there was anything truly like a household name or even that people would recognize as legal tech before that.

Yeah. I mean, I think the only sort of contemporaries were DocuSign, which I think people don't think of or didn't think of as legal tech, but realized it is now. They were a little after us. There were lawyer directories online.

Sure.

And there was a fantastic set of do it yourself CD roms that you could get to try to do your own, like, Willmaker Pro and that kind of thing.

Oh, I remember those days of the cd. The ones that would, like, show up in your mail.

Yeah, that's right. And those were getting in legal trouble all the time. So bar associations were saying, oh, will Maker Pro. You can't allow people to try to make a will on their own computer. What is that? You can't do that. So state bars were already taking action against. You know what I think today we would think of as. My goodness, what do you mean? And, Mary, years later, we were in a Action for Unauthorized Practice of Law in one of the Midwest states. And they were explaining that the work that LegalZoom was doing struck them as UPL. And I pointed out that all we were talking about doing was correcting, for example, a typo in a legal document. And I said, that's Microsoft Word is the same thing. Would you say Microsoft Word is practicing law in an unauthorized sense? And the judge said, if I could get Bill Gates in the courtroom, you better believe I would.

Wow.

Yeah. That was the attitude. Anything affecting a secular document could potentially be a practice of law.

So how did you get past that then?

We got past it by being attacked by darn near everybody. It was a very Muhammad Ali, George Foreman defense in that we just took the punches and took the punches and took the punches and wouldn't go down. We were facing. Mary, have you ever had that year where all of your friends seem to be getting married and therefore, like, you're just like, every weekend there's either like a bachelorette party or there's a wedding to go to?

2008.

Yep. Yeah. Okay. That was me in depositions.

Oh, my God. And you, you were young. I mean, you were early in your career, right?

Yeah, I sure Was, I don't know if I call myself young, but I was early in my career and they just, they just did not love the idea of technology being applied to the law.

And so you just continued to fight until you got there and paved the way for the rest of us.

Yeah, we just continued to defend the actions that were brought one after another. We never ever, not once had to significantly change how we practice. But boy, they kept coming. It seemed like every lawyer who did not have full time employment found their way onto a UPL committee somewhere that then wanted to go ahead and take proceedings because it just to. I think to a lot of lawyers the idea of technology being applied to a legal need struck them as just outside of what the profession would allow.

And of course we still see that. Right? I mean you were the beginning and you're. And we've chipped away at it like a little bit at a time but we still have that attitude from sort of a lot of the folks out there, whether it's non attorneys helping out, whether it's technology, whether it's AI ownership of firms. There's a lot of protectionism in this industry.

Yes, there's nothing that the plaintiff's bar won't jump into, it seems sometimes. Right. But I think that the practice is starting to recognize that although we are a guild, we are not a monopoly in that we must admit self practice. And that in incorporates the idea that a person might use what amount to power tools to serve their own needs. That's it's a constitutional right. You can represent yourself, you can pursue your own legal action, you don't need to resort to counsel unless it's in certain prescribed scenarios. And people have the right to try to use technology that's going to help them along and we should expect that they'll do that more and more.

It's amazing and I don't think you, you told us so how did you come up with the idea? Were you like frustrated with some legal process and went after it?

Not personally, I was not frustrated. I had two very dear friends who are like brothers to me now and they were both lawyers and one was at Scadden Arps and one was at Sullivan Cromwell. And boy did they not like being first, second year associates. They spent all day every day. One of them, Brian Liu, used to recount just sitting in a glass cubicle with a huge contract in front of him, going through looking for any error and that was his life. He said I was like renting my nervous system and what was I doing was this really law. So they really disliked it and they were almost sure that most people would find their way to a more efficient way to practice law or at least do simple legal tests if it was available to them. When we started the thing, some of the first people that used legal sim were paralegals, which I think people find surprising. Paralegals knew what the partners at their firm were charging. And look again, nothing wrong with what partners charge, it's just, do you need that for everything? Paralegals were like, look, I understand that some of these simple legal needs can be satisfied without the need to resort to the big guns of a partner and a law firm team. And so those were some of our earliest customers. And actually there's an insight there which I think is not only true for legal sim, not only true for legal tech, but true for AI and true for all the sort of technology that I'm sure we're going to be talking about today. It was that the people who were most confident were the people who adopted, and I'll say that again, the people who were most confident were the people who adopted. Paralegals who saw this sort of work being done every day were some of our first customers because they knew what the inside looked like, the inside of the box. Most people don't. Most people, even if a fantastic AI solution is available to them, they don't want to use it because they don't know what's inside of that box. They're just not sure. And it's okay to them to pay a little bit more or even quite a bit more in order to get that assurance that they're not doing something that's going to get them into real hot water or go through a one way door that they can never exit again. It's that uncertainty that I would say 90 or 90% or more of people have about the law that stops most people from adopting anything that does not actually incorporate a lawyer. We just, we want the assurance that someone who has been licensed and in the case of a corporation, works for a firm with insurance. We want to know that that's on the other side of the team.

Yeah, that's still the case. That's still the case today and in all parts of the law. I think what you did and what you're talking about was the early days of, you know, what I've often called right sourcing. When you look at the work that needs to be done right and you figure out which resources are available and you match the level of value to the work that is at Hand. And as you explained, do you need New York White Shoe law firm to do this? Probably not, but there's a time and a place for that, and you want the right person there. That's really interesting because I think that's still what we're dealing with, as you mentioned, with the dawn of AI. And I'm curious, you've had a front seat to technology as a disruptor to the legal industry since before it was a thing. And I know you were very involved with LegalZoom. You still are. But even along the way, in more recent decades, you have had a front seat to many other tech companies you've advised, you've mentored, you've kind of been out there. And of course, we can talk about what you do now, but it's. You've been involved and you've been not just with one company. You've seen it from a lot of different angles. How has that changed? What are you seeing? What are the themes that are still the same?

Sure. Of course, I was lucky enough, Mary, to interview the outgoing editor of American Lawyer magazine, Alen. And she'd been in that position for 30 years. And it was very early morning for me. I'll never forget. I was on my way to Burbank Airport, and I said to her, 30 years, my goodness, the changes you must have seen in that period in three decades. And it was dark, pitch dark, pre dawn. And I just remember this long pause, and she said, nope. We went through a long period in the law where practice was very resistant to change, and a lot of things still haven't changed. But you know what? We have seen ILTA and the rise of legal ops. We have younger lawyers entering firms and older lawyers exiting firms. When I taught at Yale Law, I was criticized for using email, told, you know, you really shouldn't allow students to have a laptop in the classroom to take notes. That's going to decrease their ability to learn this stuff. And today, I think we have a much broader acceptance that technology has to be part of law. It's just that it wasn't that older lawyers came around. I think it's that a younger generation of lawyers, frankly, replaced them. So we really have seen people who grew up with more technology, more common use of tech taking leadership positions in law firms. And we've seen legal ops become almost a necessary part of most firms in order to furnish them with good working technology. And even a small firm, who can imagine even a small firm without an lms, right? You need that for your billing, for your docketing you just have to have it. That wasn't the case even recently. I do not see, though, I don't see anybody rushing to give the CTO at their firm a partnership. Do we want a cto? Sure. We want the CTO to be an equity holder who can vote on such matters. Oh, no, we want external technology vendors. And so, Mary, I, I don't know what you're seeing in the world of law firms, but to me, the people that I work with and I, you're right, I do have many clients across the spectrum. I see an embrace of technology, but it's almost like, but I wouldn't want it marrying my daughter, you know, it's, yes, of course we need technology, but we don't want technologists to actually have a voting seat at the table and be equity holders. That would be going too far.

Yeah, I talk about this a lot, how every firm created these innovation offices because innovation is that important and it's a chief level role. And we're hearing this demand from our clients. They want us to use technology, they want us to be thinking different. And so we will create this highly paid, very important role at the top called an innovation officer. There's different types of firms. There are those that I often say, there's nothing to see here. Firms, there's no change happening and they sort of ignore it. Then there's the ones that are sort of experimenters. They dip their toe in the water. They have these innovation offices. But like you said, it's here's some money, here's some great people. You guys go do a bunch of cool stuff, but come back and tell us how it goes when you found something interesting, and we'll stay over here, we'll just keep doing things the way we've always done it. And when they do come over and say, we've got something, it piloted really well. Our clients love it. We'd like to roll it out to the whole firm. What happens, not every time, but what I have seen over the years is often the firm goes, hey, that's amazing and successful. You should productize that. Let's spin you guys out and you become a separate company. Goodbye. Don't touch the firm.

And often what happens next is they say, oh, and by the way, you can't take that incredible solution and give it to any of our competitors. The firm, the unit before being spun off says, I'm sorry, what? Say, who's our market then? And the law firm says, us, of course, and anyone else you can find. It's not A law firm. And so this unit is like to general counsel offices and like, who. And oftentimes the effort to spin them off gets mothballed right then and there, because no venture capital is going to put money into an organization that's already kneecapped in terms of who they can sell to.

Yeah, fascinating.

And let me actually give you the counterfactual. Imagine that Goodwin developed an incredible. Or it doesn't have to be Goodwin. Imagine any of the law firms that, you know, and they've developed an incredible technology group, and they say, you know what? We're gonna spin you out now. And they. They get spun out, and then they wind up with a very significant client, which is another law firm, and that law firm wants a board seat. How would a law firm feel about a rival firm having a board seat at an organization in which they have a shareholder interest? Oh, heck, no. No, that's not going to work, is it? We see the limitations of this, and I think that's why so many law firms start out with a really pure intent to innovate, but then just didn't allow it to really happen.

Well, it's fundamentally at odds with the business model. I think that is the. The elephant in the room that nobody wants to talk about. That's all I talk about. Everyone at Goodman hears me talk about this all day long. I lose sleep over it. And this is, I think, why I' is because we have to really address that and we want to be the firm that changes that. But I'm also not delusional. This is hard. It's so ingrained in this industry, this profession, in the way every firm has operated since the beginning of time. And then like we just talked about, it's a protectionist sort of model where the ownership structure, the who can practice, it's all highly regulated, which. These are all factors that make it so hard to change. Do you think it's possible. Do we see changes? Is that we've seen a couple states move, but what do you think?

Yeah, there's a wonderful quote, John, this passes, I think he said, it's impossible to convince a man of something that his salary depends upon him not understanding. And right now, if you're an equity partner at an AmLaw 100, 200, the world is going very well. You are making more money than any group of equity partners ever before. So why exactly would people change, particularly if they're approaching the end of their tenure? And even if they're not, why invest what is going to definitely hit profits per equity partner into something which might work, might not work. And even if it does work, is that just going to hurt our model? If we're charging by the hour, do we want to work fewer hours? I mean, everybody knows the story of Kodak developing digital photography before anyone and then killing it because their model was film. So I wonder if law firms are in a similar position. Maybe not only don't recognize it, but why would they? Things are going great. Like, why should we change it?

Is classic innovator's dilemma. Clayton Christensen. I mean, we're sitting in it, we're living in it, right? I mean, and recognizing that it's happening. I mean, at least I see it. You and I have talked about. It's crystal clear what is happening. I mean, what we have to do to execute is crystal clear to me. But I don't think that's the case for a lot of people because to your point, they can't see it. And I remember the early days of legal operations coming, and that was one of the first disruptors of this space that said, something needs to change. And I had, and this is when I was at Google, we had law firm partners come and tell us, that's cute, what you're doing. This legal ops thing, I think it's just a fad, but it's pretty cool what you're doing with it. And I'm like, I don't think so. I think it's actually going to make a difference. And there's a good reason this, this role exists. You can't see it.

Richard Susskind, the amazing British legal theorist whose son, Daniel Susskind, just won a major book prize from the ft. He had a book launch and he'd written the book End of Lawyers. And I never forget, the book party was thrown by White and Case, and they had huge stacks of his book and a balloon arch and a sushi bar. All you can eat sushi. Celebrating a man who is saying your profession is coming to an end. Because AI we're at the dawn of the age of AI. And it was exactly what you say, Mary. It was. Isn't that cute? Let's be a little punk rock and have the guy who's saying that we are doomed as profession as our honored guest. And look, free sushi. And Mary, you and I were talking about a study that MIT released last month, and this is a major study. Yeah, big study. And what they said was 95% of AI initiatives, 95% fail to achieve anything. And the reason, if you call it a reason, how about a correlation, the 5% that does that, that did. See, their efforts were tended to be younger companies and startups whose habits had not fully formed. The thing that didn't work wasn't the AI. It was the willingness of the organization to consume and incorporate AI. And instead they just tried to use it to improve the way that they already did business, which unfortunately is not the way to do it.

Yes. How do we incentivize people to want to optimize themselves out of a job?

Yeah, I don't answer that.

As legal operations professionals, that was always our goal because there's always more work to be done. And so if you don't feel threatened by that and your goal is to find things that are not working and make them better, and just until there's nothing to make better, we know that there's no end. To me, that wasn't a threat. That's kind of the attitude that I approach it with. But yeah, I can't blame anyone who sees this and goes, if I use this, then what will they need me for?

So let me give you three factors. By the way, another great study was done by the St. Louis Fed, and it was a really in depth, I think, very well conducted study. And they found that firms that properly, not just law firms, but firms in general, corporations that incorporated AI, if they did it well, would achieve a 5% efficiency gain. 5, 5%. 5% in first of all, an environment where law firms are raising fees by more than 5% in any given year. And do law firms, unless you're an intellectual property, do even want to save on the amount of time? Right. Is that even in our interest? Let's call that the sort of first factor, right. The second factor is the human one. And I think it's what you're, what you're sort of alluding to. Imagine that I'm a manager of anyone, right? I could be a partner with a number of associates. I could be a manager at a firm, at a large corporation. And I've got a hundred people working for me. And Anthropic comes in and says, guess what? Great news, amazing news. You could eliminate 80% of your workforce. That's how effective we are. And you say, huh? So you're telling me of the hundred people I manage, I could fire 80 of them. These are people whose careers I've nurtured. I hired them, I've been promoting them. And you're saying fire 8 out of 10. Okay, but the other thing, Mary, is. And if I do, if I decide that I'm Just going to be heartless and go ahead and fire 80% of the people who have depended on me and been there for me. Now I'm the manager of 20 people. Yesterday I was the manager of 100. What does that mean for my job security?

Yeah, very interesting.

What we see in practice and again in the role that I play today. For people who don't know, I'm a partner at a consultancy and we do lots of work globally. One of the things that we see is an adoption of AI on efficiency basis. And yes, people use it to replace the workforce. And, and the amount that they replace is about 10%, 10 to 15%. And yeah, sure, Autodesk did it. Microsoft did it. There are a lot of organizations that are saying this AI is so effective, we are going to get more out of our workforce and we don't need part of our workforce. And that amount is not 70 to 80% as anthropic would say, or 50% or 40% or 30% or 20%. It's closer to 10.

Yeah, but. And don't you think that there's going to be an emergence of new roles, though? I mean, I believe that there's actually more legal work in the next few years. We are swamped, like everywhere I look. There's legal demand inside and outside. And I can speak for myself at the law firm, I'm hiring new roles left and right that didn't exist.

Jepsen's Law. Right. So the idea is, as technology comes in and makes law more accessible, more, by the way, it doesn't even have to be more accessible. It could just simply be run in a more efficient way so that you get the work done exactly on time and you know when it's gonna. When your burger's gonna be ready. That alone may encourage more people to avail themselves of the help of a lawyer or law firm. When autopilot started to be a standard feature of every American aircraft, it didn't put pilots out of work. It put more planes into the air. They were safer, more reliable. You could fly more of them. My money would be on the idea that people will have more legal needs in the future.

I totally agree. Yeah. And what legal needs are is going to change. And what services are delivered from firms is going to change. And that's why the support team changes and the operations changes and the business model has to change. And when I think about what you said earlier about the firm supporting, like Richard Suskin saying the end of lawyers, that's been me. Like I've been a Very vocal critic of the law firm business model for over two decades. And this firm was crazy enough to tell me they wanted to hire me. And I'm like, I don't think you understand what you're going to get yourself into if you're asking me to join your firm. But there is a firm I'm aware of, there is Goodwin, that is willing to. To think about what the future should look like and start taking risks and putting ourselves in our client shoes and thinking, client, what does the client want? What is the value that we can deliver to a client? How do we use technology? How do we use different types of resources and start to pivot our firm into that direction? And like I said, it's not easy. The billable hour is still a fundamental part of the firm that we have to figure out how to start moving away from. And we've got to educate our clients to get comfortable with that. So there's a lot of things that need to move, but it is happening in some ways.

Yeah. I actually want to address two things that you said. The first is the second human factor. So if the first human factor is the manager with 100 people does not want to become the manager of 20 people, nor does she want to fire 80 people who relied on her. So there's that human factor. But sure, you could get a really bloodless CFO who says, no, I'm gonna slash and burn. It could happen. The second thing you have to ask yourself is, but do people want it? And again, going back to what I said earlier, paralegals were the first people who wanted what we sold because they had that confidence and they knew it could be done. They could do it themselves. But do most people feel that way? Do you want your work done, your listenership? Right. Most of them are lawyers. If there was a practice here that they were unfamiliar with, would they want an AI first law firm to do it? I think most people would probably say no. The same way that we say, I don't want to put my grandma on a drone. I want a pilot sitting there in the cockpit. I don't care if the drone is better. I don't care if the drone could execute aerial maneuvers that no human pilot ever could. No. I think the other human factor is demand. There needs to be a human in it, and that's just how it is.

Yep. So we think about this. There's a whole bunch of new entrants that are coming onto the market that are. What are they calling themselves? AI powered law firms or AI powered lawyers. And look, there is an advantage there in that you get to create a business model that makes sense from the start and to have learned from hundreds of years of mistakes or misalignment and to get it right from the beginning. Is that an advantage versus what we're trying to do here, which is move an aircraft carrier?

It's such a huge advantage. You can start on the right footing, you can make proper use of AI. You can become far more efficient, far more effective, probably far more accurate. But here would be my advice. If anyone is thinking about doing that right now. Don't tell anyone that you are an AI first law firm. They don't need to know. It's not just that they don't care. They probably do care and they think that is actually a strike against you. Say instead that you're a law firm and that you just happen to be able to deliver on time every time you're more effective. I don't even know if you have to be any cheaper. Right. I don't think people necessarily want cheaper, cheaper in law because law is a credence. Good meaning even after you experience law, you have no idea if you're a normal human being, you have no idea whether the will that was just drafted for you is any good. By the way, if you're a lawyer, you probably also don't know. Most lawyers also would not know. So you have to believe. And a big signal of belief is that other people are willing to pay a huge amount of money for it. That's how you know it's good. So I think the AI first law firms out there, God bless them, they're going to be fantastic. Maybe don't mention the fact that you're an AI first law firm. I don't think it will do you any favors. I think for the majority of the firms out there, the ones that don't have Mary, the ones that aren't Goodwin, hey, maybe some of them will take AI seriously and incorporate it into their processes and they'll become more efficient and rethink how they do business. But I think the majority will wind up acquiring one of these younger, hungrier, upstart AI First Law firms. They'll do it through Arizona, they'll do it through Utah. That's still viable for them. And that's how they'll get it done. Not through changing, but through inviting someone into the house who started out with the new tech.

Yeah, interesting. I like the way you think. So you're saying don't use the word AI powered lawyers. What about everyone running around with the quote that AI won't be the end of lawyers, it will be AI. Well, sorry, what is it like? Lawyers using AI will be the end of lawyers? Is that what everyone's looking for? We're hearing it from clients, though, Eddie. Like, everywhere I go, the clients are like, how are you using AI? What are you doing with AI? Tell us everything. And they want to know, how are we going to save them money by using AI?

And you should expect to hear that question quite a bit. Right. And I think that I had a good friend who was a general counsel, and before he did work with anyone, meaning before he brought in a law firm, he would open up Excel and say, go on, I want you to do some simple spreadsheet functions. And if they couldn't, he would say, you're not doing work with my business. And they were a large car manufacturer. I think you know who I'm talking about. With every successive wave of technology, there's a set of clients that really want to know that you're using it. But a, not all your clients, probably not even half your clients, no matter what it seems, no matter how often you've heard the question, if you really took a step back, probably not even a third of your clients are really asking the question. But of course, a lot will. And what they really want to know is, am I getting suckered, or are you actually using technology appropriately? But will that translate into, if you don't give me lower fees, I'm going to be upset? Probably not. Better make goods. Sure. Tighter time frame, possibly. But lower fees, Remember, the fee itself sends the signal that the work is good. Honestly, do not see the fees hitting professional services to the degree that people thought it would, at least not yet.

Yeah. And I think when they're asking, how are you using AI and how is it going to help me as a client? I think it's a couple things. A, there's just so much pressure everywhere, and GCs are being asked, how are you? And how are your vendors and how are your law firms using AI? And so they're feeling like they have to answer that question. And then ultimately what they want to know is, are you doing things internally that is going to help deliver better value to me? Because our incentives are not aligned. And I want you to be aligned with outcomes that are beneficial to me as a client, not outcomes that are beneficial to you as a firm. And I think that is like having been a client. That's what they're looking for, is, can we really be partners? Can we be Trusted partners and work together. And what are you guys doing? We're trying to innovate. Are you guys trying to innovate? Are you trying to get better at what you're doing? Are you leveraging work that you've done for other clients and that you can help tell us what you're seeing, Help us see around the corner all these things that not necessarily about. Tell me exactly how you're using AI in this use case.

Yeah, I would encourage lawyers who are listening to just replace law with accounting or medicine. Just as you might say to a doctor submitting your parent into a skilled nursing facility. You might say, like, well, how are you using technology? Because you want to make sure that their standard of care is about as high as it is, as high as it can be. If you are using a large accountancy to help you with audit or a complex tax matter, you absolutely, increasingly, I'm sure, will say, explain to me how AI is helping. What are you doing? But are you then going to say, well, since you're using it, I expect to pay lower fees on this. I guess I'm going to get a refund for my dad in the senior living facility? No, I'm not sure that follows. What you want to know is that the standards of whoever you're turning to for truly skilled help are as high as they can possibly be. But that does not mean that people are suddenly going to ask for refunds. I just don't see it. At least not yet.

Yeah. Eddie, in your day job, you work for a consulting firm that has a big focus on pricing and pricing models. And I know you've written a couple bestselling books. Are firms talking to you about pricing and how they should be packaging their services in a different way than what's been done since the dawn of time? Is that going to start changing?

Absolutely. It's the core of what we do. We were started 40 years ago, and if you have, I don't know, shopped for Godiva chocolates, or if you have gone to Disneyland or if you have gotten into a rideshare, you've undoubtedly encountered the work that we do because we are, we're just the largest firm doing this work. I will say. Are professional services organizations coming to us and asking about how to do things better all the time? We have a massive practice in professional services. But are they saying, hey, please help us get off the billable hour? Oh, goodness, no.

I did.

Yes, you did. But almost everybody else is saying, hey, should we be thinking about, say, versioning? Should we be Creating preferred client systems. How can we handle make goods and discounted rates and that kind of thing? Absolutely. We do not hear people in, at least not yet again, except in certain practice areas. We are not hearing people suddenly rushing to do alternative fee structures. The promise has been there and I'm afraid the promise will remain there for a little bit longer, at least until Harvey has cleaned everyone's clock to the point that people need to start thinking about flat fees. But I just, again, it just doesn't seem to be a near term problem.

Do you think clients want it?

It's a great question. I think general counsels, if they're the consumer of legal time, I think typically, no, they're comfortable paying by the hour. They're always concerned in talking to their board that they may have made a mistake and it ain't broke, so why fix it? But CFOs are, they increasingly do want to see an alternative fee structure. To the extent that procurement and CFOs are getting more and more involved with the purchase of legal time. I do think that they are looking for different models until their GC says, nah, this is how it needs to be done. It's going to be hourly. I think that they want it, but they're willing to accept that it's not going to be done that way. Well, Mary, what did you see at clock? You know, did you see a huge shift as CFOs and procurement gets more and more involved into alternative fee structure like a success fee or a flat fee or a fee with collar? Because honestly I'd say that's the fringe case. It's not the, it's not the center.

Yeah. I think we're trying to educate folks on how to get there. There's a trust issue. Right. Because if you build this way for all of time and everyone who's a GC or an in house attorney started. Well, not everyone, but like let's assume most of them started at a law firm and that's the model they're familiar with, they're comfortable with it. And when you now flip the switch and say, hey, let's, let's just do this for $500,000, there's immediately, Exactly, let's try. But you know, and then when I was at 20 plus years ago, we would approach clients with that and we're like, I don't know if we should propose this. We're going to lose money hand over fist. And the client be like, oh no, I don't think so. Let's go back to the billable hour. And we're like, okay, it was a really good deal. So there is a trust, there's a trust issue there.

They don't trust it. And if they, on the rare occasion that they do accept the flat fee outside of areas like ip, they then say, but I still want you to track hours.

Yes.

And then that shadow billing catches you in the end. So if the flat fee arrangement winds up in the client's favor, they're very happy. But if it winds up in your favor, they look at the number of hours and they say, well, we want some money back on this.

Yeah.

So it's just, it's essentially a discount in disguise.

Yeah, yeah. And we've, even when we were at clock, we tried to educate all the buyers, the clients to say, look, it's a shared risk. Right. When you do that, when you do a fixed fee or some sort of alternative fee, both sides are sharing the risks. You win some, you lose some. In the end. It's your best guess, right? And that's true for almost everything else we buy in the world. You get an Uber. Oh, you got stuck in traffic. You didn't expect that. Sometimes you win, sometimes you lose. It's no different for legal services. And when you buy consulting or other professional services, it's not by the hour necessarily, but for some reason it's so hard to get away from it. It's just how everyone is used to buying.

Here's something interesting. So looking at thousands and thousands of pricing engagements, there's a correlation between the value that people hope to see in how they're charged and the size of the organization or sophistication of the organization. This is what I mean by that. If you are a very small organization, if you're essentially a mom and pop or a consumer or you're solo, you are very concerned about fairness. The price needs to feel fair, fundamentally fair. And if it doesn't feel fair, if there's some like fishy business in there, people get very quite emotional actually. The minute that you start working with mid sized organizations, a mid sized corporation is your client. Now, fairness is not as much of a concept. It's much less personal. What people care about is value for money. I want to make sure that I'm being charged for what I used and that I use everything that I paid for. And if I didn't, then I'm upset. Why am I paying for this thing? I didn't use it. It's a mid sized organization. The largest organizations, they don't really care about that value. For money. They don't care that they used every part of what you sold them. That's not as interesting. Oh, and by the way, you're working the largest organizations and you want to talk about fairness, they will laugh you out of the room. It sounds unprofessional, in fact, to talk about the fees as being somehow fair. That's not the concern at all. The concern is predictability.

Yeah, that's right.

They have a board to report to. And the biggest nightmare is that they have to go back and restate. They have to go back and admit that their forecast has to be relooked. So fairness then value for money? Oh, I'm only charged for what I used and then predictability. So I would have thought that law firms that work with largest organizations would have liked a flat fee because it's so nice and predictable and potentially even gets things done faster, I would have thought. But it has not come about. And I think the reason it hasn't come about is in part exactly what you say. Most of the GCs started off at law firms, and this is what they're used to. They're used to hourly billing, they're used to the six minute increment, and that's where things will stay.

Yeah, I do think it is changing. And the ones that are moving to alternative fees are probably driven a lot by the need for predictability, and that makes them feel a lot more comfort. Maybe some of it's generational, maybe some of it's just like the wisdom of willingness to take a risk and to try something different and to understand that technology is a driver in some of the efficiencies behind things and to align the incentives of the firm and the client. I'm optimistic, I'm hopeful, because we're starting to see much more adoption once you kind of talk them through. The big question that folks have is, what is the right price? They're like, okay, I understand it in concept, I like it in concept, but what is the right price? And if we can kind of land on it together and both sides feel good about it, then, you know, it's a win and everyone's comfortable. But, you know, getting to that requires a lot of education, a lot of conversation, and kind of holding hands and talking people through it.

Unsurprisingly, there are some organizations and actually, I'll tell you one that I'm excited about. It's called Laurel AI. And what they do is they answer the question that a lot of firms have about. And I've got, by the way, no financial interest in Laurel. I'm just impressed by them. The thing that a lot of, a lot of firms ask themselves, which is, but what would be a good flat fee? How can I know based on an engagement what is a flat fee that I can put forward where I'm not going to wind up with my pants down? So, and that's what they do. They, they help you to understand what would be a good non billable hour fee arrangement that you could afford with confidence. Because I think that's been another blocker is the firms themselves don't really, they don't have confidence. Like you said yourself when you were at Oric, you weren't, you weren't sure it was maybe a great deal for the client, maybe not a great deal for you. And even then the client wouldn't take you up on what you thought might be a money loser. So I think increasingly firms will turn to Laurel and other solutions to say how can I use AI to predict what would be a good alternative fee arrangement that I could put forward with confidence and know that in a sort of portfolio sense I'm not going to lose money.

And as a firm I think we already have that data. I mean, shame on us if we can't do it. We've been in business for like 100 plus years and we've been doing M and A transactions day in and day out and we've got tons of Data at the 6 minute increment of how long it takes to do each part of it. And so if we can't look at you and tell you what's a good deal and what it would like very likely come out to with some level of like, as long as we've scoped it correctly and we understand the work that needs to be done, we should be able to provide a pretty good estimate.

I think that law firms will continue to say, although we have all the data, this engagement though, this one, oh, this one's a special snowflake and we can't figure it out. We really have to do six minute increments until, no, not on, until Mary, until the day that Goodwin comes out with flat fees for a lot of engagements. And then all of a sudden, first thing, those science experiments where they drop a crystal into a vat of liquid and then all of a sudden the whole thing crystallizes because that one crystal trained the whole fluid to crystallize. I think that affirm Goodwin or a firm like Goodwin may be that crystal. And they say we, we have the confidence to do an alternative Fee structure here, like a flat fee or flat fee with call or success fee. And now all of a sudden the whole Amlod 50AMLO 100 turns around and says, goodwin's doing it. We have to in order to.

Yeah, that is true. I mean, everyone, they're all. We all move together. It's a big copycat sort of industry.

It is. It's a beautiful dream. I don't know if we'll see it on our lifetime.

We'll see. We got to try. Eddie, what haven't we covered that we should cover in our last few minutes together? We've covered a lot, but I feel.

Like we're just scratching the surface, right? Like, we could talk about different practice areas. We could talk about how we see law evolving internationally. We could talk about accounting firms that know now own law firms, thanks to the change. We could talk about how financing is changing for some law firms and the impact that's going to have. But why don't. Instead of trying to cram that into the four minutes we have left, maybe you invite me back and we could talk about all those things.

We could have another conversation. Although I do. You just reminded me and a question just popped into my mind. In the uk, the ownership structure of law firms is not regulated the way that it is here. Yet they don't look and operate that differently than the law firms here. Why do you think that is? Because that we've always kind of said, oh, that must be what's holding us back.

Yeah, it was a huge rush in. So it was Legal Services act and everyone thought, oh my gosh, it's just going to change everything. The UK already had will writers. It had the ability for non lawyers to draft wills. So there already was some of that. UPL is not as high a barrier in the UK as it is in the US that said. Yeah. Everybody thought, oh my gosh, this is the end of times. Right? Like, it's going to be the walking dead and zombies roaming the streets and civilization will crumble. And honestly, it was sort of a whimper, right? Nothing happened.

It all looks the same.

And I think that brings us right back to the beginning of our conversation. Without demand, nothing moves. Without human will to do it, nothing moves. You think that AI is going to lead to the apocalypse? I say maybe, but I've heard this song before and I see no one dancing. I think that the much more likely scenario is that there will be a change, but it will be far more mild than people are predicting. And the reason is human elements. What do you want to do within your firm and what do you want to buy as a consumer of legal time? By the way, if there is one thing I'd love to do in the last two minutes, it's just mention I have a book out.

Yes, please tell us about your book.

It's the sequel. We had a book written in 2015 called Monetizing Innovation which was a big hit, is a big hit in the rarefied space of understanding pricing and business. But it was really cool. I actually went into Spotify and every single person in their product team has a copy of Monetizing Innovation that they're given when they join and they call it the Bible. It's cool. The book had, I think a big impact. So it took us nearly 10 years, but we wrote the sequel Scaling Innovation which hit number six on Amazon. I was really proud of it. It just came out a few weeks ago.

Yeah.

And if people hear the sound of my voice and they want to go out and get a copy of Scaling Innovation, my understanding is I get $0.04 4 pen if you get it and if you bring it to me, I will autograph it. But seriously, I think the reason to get it is not to make me 4 cents richer, but I think it really has a lot of great information in it about how to negotiate, about how to think about your pricing structure, about how we see things changing. And there's really interesting AI stuff in there, including a case study on case text which of course we know better as Thomson Reuters co counsel after they were acquired for going on $700 million.

Yeah, yeah. That's amazing. And I don't think it's a small audience that's interested in this topic. Every industry is struggling with pricing the whole AI. How do you price AI? How do you price for software? How do you price any services? These is a big question mark. It's a great topic.

Yeah. I really wish more people, when they were thinking about how can they expand their practice one way or another, really thought, yeah, but where's the demand? I just think it's central. So yeah, hopefully the book will help more people to expand successfully. That's what it's all about.

Such a pleasure. Eddie, I think you brought a really different point of view today. I mean most people come here and say that the world is going to completely change and lawyers are going to look completely different tomorrow. And I love the contrarian view and what a great conversation. And so like I said, you're always clear eyed. I see exactly what you're saying and I appreciate you coming on the show.

Yeah. And if I turn out to be wrong, and I should have built a bunker and got iodine tablets and genetically unmodified seeds, then, oh, well. But honestly, I've just. I've heard it before, Mary, and I don't see the forces of change to be at the level people expect.

That's the beauty of a podcast. We'll revisit this in 10 years and see who was right.

A world of good age.

So good to see you. Thanks so much.

Bye.

Bye, everyone.