Ask any entrepreneur, “What’s your biggest complaint about working with your lawyers?” and one of the top answers will inevitably be that the cost can be too darn expensive. And even when the cost isn’t “through the roof” expensive, it’s still unpredictable.
While unpredictability in costs is the bane of any company, this is particularly true for a start-up venture that is watching its cash outflow closely.
That being said, there are times when hiring a top-tier national or international firm, even if expensive, might make sense. But how do you decide what work rises to the level of needing one of those firms?
If you had to sum it up in one question, it would be “how strategic is the work?”. One helpful way to think about this is to break down your legal needs into 3 categories:
1) “Bet the company”
Not surprisingly, when a group of Chief Legal Officers were surveyed by Altman Weil (a management consulting firm for legal organizations) about the relationship between the level of work and the importance of price, as the importance of the work went up, the survey responders were less sensitive to the price and put more emphasis on the capabilities and reputation of the law firm.
Following this to its natural conclusion, “bet the company” work like financings, protecting key patents, negotiating strategic agreements, and advising the board will generally warrant hiring brand-name lawyers.
On the opposite end, for commodity work like document review or negotiating those “purchase order” type of agreements like the proverbial “water-cooler” agreement, clients are willing to take more risks.
But what about the work that’s important enough that you want to make sure you’re protected, but is not so important that it’s worth calling your favorite $600/hour lawyer? For instance, closing sales deals, reviewing offer letters or changes to the NDA before you let a new developer see your key source code, or revising your form agreements?
Fortunately, because the economic downturn has forced many companies to cut back on headcount, there are more options than ever before to obtain temporary legal help, including temp agencies like Robert Half Legal or Axiom Global, and a bevy of former law-firm attorneys who’ve hung out their own shingle.
Depending on the lawyer you find, you can find lower rates than a traditional law firm hourly model, and with some providers, you may be able to negotiate a predictable rate as well.
But don’t write off all law firms just yet.
There are a couple of law firms, one in the US (FLEX by Fenwick, http://flex.fenwick.com) and one in the UK (Lawyers on Demand, http://www.lod.co.uk), that are trying to help companies by providing experienced lawyers that can handle the “important-level” needs of their clients, but at a rate that is a fraction of what you’d pay at a law firm while also providing “predictable billing” models.
How is that possible? Both firms operate these businesses without much staff overhead and offer their attorneys a salary that is less than the typical law firm associate or partner, but is still very competitive with in-house attorney salaries. Since salaries make up the bulk of the cost to a client, by cutting those significantly, they’re able to then pass along these savings to the clients.
While the traditional hourly model will continue to be part of the legal landscape, as clients become more savvy at defining the level of importance of their needs, law firms that develop creative solutions that align the importance of a matter with the client’s risk tolerance and price sensitivity will likely be the ones to succeed in the future.