A long-game model based on expertise, access, and trust.
Longtime readers of Legal Evolution may recall Post 034, which was a profile of the legal industry’s most skillful and accomplished team of consultative salespeople: Borstein, Stroka, and Rebecca Thorkildsen. At the time, the trio worked for Thomson Reuters in the managed services unit formerly known as Pangea3. A year and a half later, their unit was sold to EY, see Press Release, “EY to expand legal services offerings globally with the acquisition of Pangea3 business from Thomson Reuters,” Apr. 3, 2019, with all three agreeing to make the transition.
If the legal landscape is on the **brink** of transformation—and through experience, we’re learning that our brink is going to last somewhere between one and two generations—it’s hard to overstate the value of significant time in multiple innovation trenches.
Nearly ten years ago, Joe and Paul were young BigLaw associates who left the practice of law to be a part of the NewLaw/LegalTech revolution. Now as their career odometers pass 40, what do they have to show for it? It may sound trite, but it’s wisdom and perspective. Indeed, it may be enough wisdom and perspective to help legal innovators and early adopters solve the killer bottleneck problems of our generation while at the same time earning an income on par with very successful lawyers.
A very old business model
Last month, I had the benefit of a couple of long calls with Joe and Paul to learn about the LexFusion business model. I definitely followed their logic. But let’s not kid ourselves. For those outside the legal innovation bubble, which includes most lawyers and law professors and all law students, all this talk of “one-to-many” is very confusing and frustrating. Cf. Richard Susskind, The End of Lawyers? at 27 (Oxford 2010) (first known use of phrase “one-to-many” applied to legal services).
Thus, we need an off-ramp to the world of plain English and familiar, real-world examples. In fact, LexFusion is a slightly juiced version of a widely established, decades-old business model. Indeed, it may have been how your grandfather earned his living. What’s new about LexFusion is the timely application of this model to the buying and selling challenges of the legal industry circa 2020.
Bear with me. Clarity, simplicity, and accuracy on the LexFusion model are on the other side of the following story.
Right place, right time, right mindset
One of the most iconic scenes from the 1967 film “The Graduate” is when Mr. McGuire pigeonholes Benjamin Braddock (Dustin Hoffman) at his graduation party from college to offer his views on Benjamin’s future.
The scene takes place next to the pool at the Braddock’s bucolic Pasadena, California home. See “The Graduate: Plastics,” YouTube. “I want to say one word to you. Just one word,” says Mr. McGuire. “Plastics. There’s a great future in plastics. Think about it.”
Alas, more than a decade earlier, my late uncle, James Sweeney, entered the plastics industry after graduating from Miami University (in Oxford, Ohio) on the GI bill. His first job was with the Dobeckmun Company in Cleveland selling “flexibility packaging” made from various grades of cellophane.
Fortunately for my uncle, this was the early days of a whole new category of products that offered many benefits connected to cost, quality, and convenience. After the Dow Chemical Company bought Dobeckmun in the late 1950s—part of an industry consolidation that would go on for decades—Uncle Jim moved from Cleveland to Cincinnati to Pittsburgh, each time building out a new and successful sales territory.
In 1970, Dow asked Uncle Jim to move to Southern California–the scene of The Graduate–to establish and grow yet another customer base inside one of the nation’s fastest-growing markets. Three years later, Dow pushed my Uncle to replicate the feat by moving to Northern California. Yet, that proved to be a bridge too far, as his spouse and five kids (my cousins) were all settled in a new and comfortable life in Rancho Palos Verdes, which included a 4-bedroom home with a 180º view of the Pacific Ocean.
At the time, my uncle was in his early 40s—roughly the age of Joe Borstein and Paul Stroka. Rather than make the move, he decided to hang a shingle as an independent manufacturers’ representative, taking on a handful of product lines that were suitable replacements for what he sold through Dow Chemical.
At the time, it seemed incredibly risky. Later, my uncle would tell the story of being dumbstruck that “all my customers decided to stay with me.” (To my law students, this is the key line in this post. Over your lifetime, it is 20x more valuable than law review.) As an independent manufacturers’ rep, my uncle went on to earn a remarkably good living—far better than he either expected or imagined based on his first 20 years in the plastics industry.
Uncle Jim was not a particularly complicated man, chalking up most of his success to the luck of the Irish. And yes, joining Dobeckmun in 1952 was being at the right place at the right time. But luck can’t account for my uncle’s mindset.
Specifically, my uncle was a very diligent and courteous person who was honest to a fault. His book of business grew, in part, because he knew a lot about flexible packaging. Yet, that knowledge did not flow from an intrinsic love of polymers or plastics. Rather, he had an intense drive to deliver value to people who would go on to become his friends. Fortunately for him, in the plastics industry in his lifetime, there wasn’t a good substitute for technical knowledge combined with customer-centric honesty.
There’s some truth to the fact that Uncle Jim could afford to be honest. That security came not from money in the bank but, instead, from diversification of offerings spread over a large base of current and potential customers. Indeed, that’s the lynchpin of why the independent rep model works. As an independent manufacturer’s rep, he had the ability to represent several non-competitive companies and product lines. Further, the diversification made his geographic region more compact, enabling him to spend more time on the phone and in meetings and less time in the car or on a plane.
At the end of the day, the most successful manufacturer reps follow a simple long-game strategy: focus on pairing the right customer with the right product, as that sets you up for repeat business on favorable terms. Under this type of arrangement, the customer comes to depend upon the representative as an honest broker who values the relationship more than next month’s commission. This is worthwhile for the manufacturer because it spares them the expense of building and maintaining a small army of (often average, mediocre) salespeople. Over time, the speed and volume of sales go up, primarily because the rep always puts the customer first. Yet, if the diversification is removed from the model—so the salesperson has only one thing to sell—the incentive structure can quickly unravel.
When Joe Borstein began explaining the LexFusion business model to me, he quipped, “It’s similar to a manufacturers’ rep model.” Because of my uncle, I immediately understood what he was talking about. Now maybe you do too.
Applying the Independent Representative model to law
In my view, LexFusion is likely to be successful because the underlying business model—the independent sales representative who sells several complementary, non-competitive products and services—is both old and endurable.
Further, there is a very large barrier to entry. As my Uncle Jim, the model only works if you have ongoing access to a large number of buyers. And that flywheel cannot turn without years in the trenches gaining technical knowledge and building a reputation for honesty and integrity. Indeed, as their career odometers passed 40, Borstein and Stroka finally had the technical knowledge, reputations, and network to make the model work.
Regarding LexFusion being a slightly “juiced” version, as noted in the introduction, this is because there are likely significant synergies among the companies Borstein and Stroka are representing. Thus, the solutions they design and bundle may offer unique value propositions not otherwise available in the market.
Now let’s layer in why LexFusion/Independent Rep Model is likely to succeed in the legal industry circa 2020.
1) Solving the buyer’s pain point
There’s no doubt that there’s a massive amount of innovation occurring in the legal industry right now. Yet, the sheer volume creates very serious bottleneck issues that paradoxically have the effect of slowing down actual adoption. This occurs because buyers lack the time and expertise to properly evaluate the growing number of NewLaw service offerings and LegalTech point solutions, particularly as law firms are waking up to the business opportunity.
Indeed, consider the below LegalTech market map from Catalyst Investors, which is now nearly three years old. See Catalyst Research Team, “Legal Tech Market Map,” Nov. 29, 2017.
The current evolutionary state of the legal “one-to-many” market is very similar to the automotive industry circa 1905. Sprinkled throughout the Northeast and Midwest were several hundred car manufacturers who took on enormous personal risk because they believed that cars were the future. And they were right.
Unfortunately, the vast majority of the manufacturers were wrong that consumers would be buying their cars. This is because plunking down several hundred down for a car in 1905 was very risky, as few manufacturers could provide credible assurances related to warranties, replacement parts, repair service, etc. And that same problem set applies to buyers of legal innovation—the nascent market is just too crowded and chaotic to figure out what enterprise software to buy or who to hire for your first outsourcing or offshoring engagement to stay within next year’s budget.
The automotive industry example suggests that these problems are gradually worked out through industry consolidation, whittling several hundred car companies down to something akin to the Big Three. Indeed, some might predict that the entire legal tech market map will eventually be rolled up into the big incumbent information companies (Thomson Reuters, Wolters Kluwer, NexisLexis, Bloomberg Law) or the Big Four accounting firms. [Over the next decade or so, a handful of homegrown companies may also achieve incumbent status.] Who better to know the timing and likelihood of this consolidation than two business-savvy lawyers who did consultative sales in both types of organizations?
Borstein and Stroka are making this jump because we are many years away from large incumbents or the Big Four offering bundled solutions to every segment of the legal services market.
Indeed, during this transition period, which is likely to last the rest of their professional careers, buyers need help piecing together best-in-class solutions within a marketplace that contains many promising innovations but is also very confusing and diffuse. Because they have very limited amounts of time to make high-stakes decisions, buyers are likely to value knowledgable advisors who speak their language and understand their pain points. Further, when they learn that the LexFusion principals care more about the relationship than the next month’s commission—a position they can take because they’re diversified across several companies and product lines—virtually all buyers are going to take their meeting.
Borstein and Stroka characterize their sales process as a two-hour meeting once a year with a few dozen marquee buyers to learn about their challenges and to share what they know about possible solutions (which, by the way, is a lot).
2) Solving the seller’s pain point
This is not a commercial for LexFusion. Over the years, I’ve become friends with Borstein and Stroka because they’ve been valuable sources of market knowledge. See Post 034.
That said, it should be obvious that being represented by LexFusion has enormous advantages for the sellers of the various types of offerings in the NewLaw and LegalTech space. Below are the seven lucky companies that have already made the cut:
- Agiloft, for contract lifecycle management.
- Factor, for managed services.
- HaystackID, for electronic discovery services and technology.
- Intelliteach, for outsourced IT and financial services.
- Litera, for legal workflow and workspace technology.
- Ping, for timekeeping automation.
- Priori Legal, for hiring project-based outside counsel.
See Bob Ambrogi, “Launching Today: LexFusion Aims to Turbocharge Tech Adoption by Changing the Sales Paradigm,” LawSites, Oct. 1, 2020.
For sellers, the most obvious advantage of the LexFusion is access to large, qualified buyers. We’ve already covered that topic.
A second advantage is de-risking the sales process, as LexFusion will be compensated based on some backend arrangement based on performance–commission, equity, some combination thereof, etc. So many start-up companies in the legal space and elsewhere make the mistake of hiring someone in their 20s, without much industry or technical knowledge, to make cold calls on a salary-plus-commission basis to business professionals with zero time to spare. This is expensive in both dollars and reputation. Good technical salespeople are very expensive; and unfortunately, because the sales cycles are so long in NewLaw and LegalTech, very few companies in this space are achieving hockey-stick results.
A third advantage, which is a bit more speculative but potentially very real, is market validation by inclusion in what Borstein and Stroka determine is best-in-class within the various solutions buckets. This is akin to getting a round of capital from one of the marquee VC firms, which has the effect of boosting your valuation and funding options with the rest of the market. With a little time and luck, sellers may begin to fixate on a perceived LexFusion halo.
During my calls with Joe and Paul last month, I asked them, “Will you take pitches from various new and unknown NewLaw and LegalTech providers?” The answer was a resounding “yes!”
Arguably, this aspect of LexFusion is likely to have the greatest impact on the diffusion of innovation with the legal sector. Innovators are often too close to their own ideas and technologies and have too few opportunities to get honest and objective feedback on what’s working and what’s not. Thus, a Zoom call with LexFusion can lead to a breakthrough, even if Borstein and Stroka can’t take you on as a client.
In the long run, I think LexFusion will be very successful. Although several others will attempt to copy the Borstein-Stroka model, the only ones likely to succeed are industry journeypeople who have turned honesty and integrity into a personal and professional habit. Alas, once again, karma is going to get the last laugh.
A coda on Susskind
Richard Susskind has had an enormous influence on my research and thinking. I am grateful for the frameworks he’s published that enabled us to anticipate and participate in a remarkable era of innovation that is still very much in the nascent stage.
Below is Susskind’s five stages of evolution, with the most lucrative one-to-many segment located in the space between systematized and packaged. I’ve added in annotations so that readers can understand how Susskind’s model maps onto the world in 2020.
Suffice it to say, sustained lift-off in the one-to-many space requires an enormous amount of multidisciplinary talent combined with new business models. I think LexFusion is likely an important piece to this puzzle, very much fitting the “critical need for leadership” that the industry needs.