America’s startup culture has proven that there is a different and often better way to run a business. Although these lessons have begun to permeate outside Silicon Valley, the legal field has remained tone deaf. That’s unfortunate, because startups can serve as a model for innovative, efficient and invigorating work environments. Today’s law firms, which generally lack these qualities, more closely resemble the bureaucratic corporations controlling the markets that startups seek to disrupt.
The failure of lawyers to embrace innovation is not surprising, given that we are taught to be creatures of precedent and, as a breed, are generally risk averse. Although these traits can be put to good use in our role as counsel, they can also lead to an irrational fear of change and, with that, stagnation. Startups, on the other hand, excel at breaking new ground — creating previously unrealized value for their clients, customers and users, while trying out innovative new revenue models. As a result, they also tend to do a better job of aligning their interests with those same clients, customers and users.
As impressively, startups have mastered this innovation while staying lean. Some of the largest and most profitable tech companies were launched on shoestring budgets and grew considerably without the help of an army of administrative staff.
At the same time, working at startups is energizing for employees. Successful startups encourage collaboration, reward individuals based on their value added (instead of tenure) and allow workers to play to their strengths. When done right, they also create a culture where employees believe they are working together toward a greater objective.
My law firm’s workspace borrows the standard enjoyable distractions found at tech startups, including ping-pong and pool, dedicated chefs and the occasional Krav Maga lesson. But we recognize that these amenities are empty gestures if lawyers don’t feel fulfilled. In our experience, fulfillment follows from instilling attorneys with a sense of common purpose, rewarding autonomy and collaboration, as well as encouraging contribution on meaningful decisions from everyone.
One way that law firms can benefit from applying attributes of a startup is in billing. Compared with startups, traditional law firms have it backwards. Whereas startups generally seek to align their interests with their customers, the majority of lawyers are paid based on the billable hour. This method creates inverse incentives. As lawyers, we are generally paid more when the client is sued than if we help avoid the lawsuit altogether. The longer it takes us to complete transactional or litigation work, the more money we make. Even firms that embrace alternative pricing structures like flat rates generally just use figures that represent forecasted billable hours.
TYING PAY TO RESULTS
Value-based (or savings-based) billing is admittedly tough. On the plaintiff’s side, where I’m lucky enough to spend most of my time, life is a bit easier. Our pay is typically tied to the results we obtain for our client, although even for us, the “hours-equal-value” thinking bleeds over.
But defense firms can still find better ways to align themselves with the interests of their clients. For example, in reverse-contingency deals, an attorney may assign an expected value to a case and receive pay commensurate with savings on that number. Transactional attorneys can negotiate contingency payments upon the closing of a large deal or if future litigation is avoided.
The net result of these types of arrangements is fewer and more efficient lawsuits and more thoughtful and efficient transactional work. Most importantly, these measures help clients start thinking of lawyers as their partners again, and not just a line item in their budgets.
Taking a cue from startups, law firms also need to shed some overhead costs. Overpriced office space, underutilized support staff and small fortunes spent on misguided summer programs should become remnants of the past. If we are honest with ourselves, these types of expenditures were made trying to create the “right” appearance for our clients. However, given that corporate clients increasingly reflect the startup culture, the risk now is that these appearances can seem antiquated and be off-putting.
We should also embrace the gifts of the startup environment. No longer should we pay our associates based primarily on how much they billed and how many years of experience they have. By abandoning these rigid hierarchical structures, law firms can promote creative problem-solving, judgment, efficiency — and increase the bottom line.
As the startup world has shown, given the chance, associates and even summer associates can contribute value well beyond their years. With the firms’ interests aligned with the clients’, things like training and retention — which get lip service but not much else — would become paramount to success.
We must create work environments that cultivate energy and innovation. At our firm, first-year associates weigh in on litigation and management strategies. Summer associates voice their opinions on bettering the summer program. All lawyers are polled about compensation, hiring and viable cases to pursue.
The question we routinely ask is simple: If this were your firm, what would you do? The trick is meaning it.
Jay Edelson is the founder and managing partner of Chicago-based Edelson LLC, which focuses on plaintiffs’ class action work.