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Law firm as a subscription business

This week on the podcast I shared my conversation with Joyce Tong Oelrich, co-founder Tong Tejani PLLC, a boutique specializing in government contracting.

Listen to the full episode here.

Ideas

Here are three ideas to steal from our conversation:

1. Progressive change management: when you're introducing anything that will require unlearning and relearning, build in steps that increase the level of comfort with the 'new way' over time. In moving the firm towards a subscription-based pricing model, Joyce and her partner set progressive steps from hourly billing to ➡ fixed fee work to ➡ subscription model.
2. Spend time on discovery: whether you validate your own experience or talk with prospective customers, understand what would add more value. Or, just as important, what diminishes the value of the customer journey which you can solve for.
3. Do things that don't scale: Paul Graham, the founder of Y Combinator popularized the saying "do things that don't scale". His essay states that startups take off because the founders make them take off. These are things that often become the special sauce for an enterprise to succeed; those that give you depth or insights which aren't visible at scale. The level of thought and care are given to the onboarding experience is a prime example of this.

Understanding the problem

One of the most common questions that founders get is why did you decide to start X, how did you know that it was the right thing to do.

It was interesting to hear the triggers for two seasoned in-house counsels in launching their law firm:

We knew from talking with other in-house counsel that we were facing the same broad challenges in terms of budgeting issues, not knowing what your legal budget is going to be from one month to the next; receiving work product that was thrown over the fence: this is what we're interested in, this is your answer, but never really answering the question or giving actionable advice.

So they [outside counsel] would tell you what the law said, but not tell you how that law applies to your particular scenario. And that was really what started our thinking of, we need action.

We need to be able to act on the advice that is given and started thinking about why our outside law firms weren't able to give us that type of advice. One of the reasons, our hypothesis, was part of it could be that they don't really know their client's business that well.

That led us to the hourly billing model. If you're going to charge your client on an hourly basis, you can't spend time on getting to know their product because they're not going to want to pay for that.

Then as a firm, the associates all have metrics that they're working against. So they can't just spend random hours getting to know a particular client, even though that helps them in the future in terms of how they advise. So that was one of the things that we thought about and tried to figure out how we could fix that problem in a way that would be beneficial for us and for the client.

Things don't always go according to plan

One of the items that led me to have this conversation was learning about the experience the firm had in convincing their clients to embrace a different pricing model. Even though subscription pricing was standard for their client's businesses, it wasn't an easy sell to have them shift from hourly billing. It took time, building trust, and incremental changes to get there.

I don't think we thought that it was going to be as tough of a sell because most of our clients that we have worked with and that we know very well and know how they sell, how they operate, they're all SaaS companies.

So they all sell, software as a service, which is a subscription model. We thought this would be something that, of course, they would understand the benefits of, because they're saying to their customers, here's the benefit of a subscription.

It's really hard, for the legal field to turn that corner because law traditionally has already been 10 steps behind in terms of technology compared to even the largest corporate companies. So law firms are already lagging in that way. And to throw this at in-house counsel, we were overly optimistic to think that they would swarm to adopt this idea. What we've discovered is that you still need to establish that relationship first.

In the conversation we also break down the pricing structure the firm adopted, how they manage the tiers, and scope creep.

Does a subscription model work for every law firm?

I think what's harder is selling a product that they don't necessarily see in a deliverable.

With litigation, you file papers. You talk to the opposing counsel, you do all of those different things. Same with corporate transactions - you have a number of transactions, you have a date that they need to be closed.

A lot of times the role that we play is that ear that says, 'you may want to pay attention to this because of these regulatory requirements or, this regulation just came out and it affects you; how are you going to deal with it?' That is a much more difficult price point because they won't see it.

They think you're not doing anything, but you really are, because you're keeping track of everything and you're making sure they're up to date. Then when there is a spike, and there is something that goes wrong, you're there and you already know it all.

That's the more difficult part, where there's no concrete deliverable that they can point to their CFO and say 'this is what we're paying for'. It's more, we're paying for them to be on call and you'll see that we had these spikes and these lulls, but it all evens out in the end. I think that's the difficulty in subscription pricing.

Client onboarding done right

Client onboarding sets the rhythm for the level & quality of service you can expect. The onboarding flow that Joyce outlines is simple, and starts with listening to your customer:

It's not just the contracting and sales piece at the very end, which is a lot of times when law firms come in then, or they come in after the fact when there's been a problem, that's where they focus.

They're not necessarily the ones that are involved talking to the engineers and saying, 'have you considered that? You need to make sure that it's accessible to all sorts of different people. And how do you build that into your product?' The initial investment of time to really get to know the client and understand what their business is, how they go to market, who their main clients are, and what's the end for this company.

Bonus

Two items which we didn't go deep on but would make good topics in the future are:

1. XaaS - anything as a service, specific to the legal profession. GCs as a Service, Innovation as a Service and so on; and,
2. Unbundling of the law firm - specialists carve-outs from large horizontal organizations. (This is not a new idea, Andrew Parker wrote about it in 2010, but it's still relevant.)

Until next time. Stay well.

Ab

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