Is the Atrium ‘pivot’ really shades of Clearspire?
Last week Atrium, the Californian law firm / legal tech company dedicated to serving the needs of startups, announced it was pairing back its law firm operation by laying off an unspecified number of lawyers (although it would appear to be most of them) and pivoting to their next phase of growth. They will apparently:-
continue expanding outside of legal services as trusted startup advisors by building a professional services network dedicated to founders.
When Atrium was formed by Justin Kan, Augie Rakow, Chris Smoak and BeBe Chueh in 2017 it was “a new kind of law firm“. It had two sides to it:
Atrium LLP is a law firm in San Francisco. But the way it operates differs extensively from most other small or big law firms. The Biglaw-quality lawyers at Atrium LLP practice law. So far, so good. But unlike most law firms they charge a flat fee for their products and practically every non-legal function of the firm is contracted out to another legal entity called Atrium LTS (Legal Technology Services). The team of technologists at Atrium LTS are then tasked with creating software tools for the law firm aimed at allowing it to become more efficient at delivering legal services. In addition, Atrium’s lawyers play an important part in the development of the software of which they are the consumers. This model allows for the creation of legal tech products that have been shaped with lawyers not only in mind, but have been directly shaped by lawyers.
So a law firm with a bespoke legal tech arm or maybe a bespoke legal tech company with a law firm arm. Although both at arms length because law firms in the US must be owned by lawyers and the legal tech side of Atrium was receiving external investment.
This had, of course, been done before by Clearspire, which was founded in 2008 (nine years before the formation of Atrium).
When Clearspire folded in 2014 I asked ‘Did the cost of legal IT kill Clearspire?‘. In that blog post, referring to the spend on legal technology, I said:-
It would appear that this spend was $5 million and involved two and a half years of research and development. For a law firm with 25 lawyers that is $200,000 per lawyer spent on IT. The aspirations of Clearspire were much greater than a firm of 25 lawyers. In January 2013 the stated aim was to “expand its nontraditional legal services model across the country with the addition of 50 to 100 former BigLaw lawyers each year for the next five years”. That didn’t happen. If it had then the spend per lawyer on legal IT would have gone down considerably from that $200,000 figure.
However, $5 million seems one heck of a lot of money for any law firm (especially a new start) to be spending on legal IT. What was special about this IT? I have not been able to glean a lot about its USP if it even had one. I found an article that suggested CORAL, the system developed by Clearspire, provided a “highly secure technology platform to collaborate real time with clients and team members, post questions, review briefs, and more”. Perhaps we need to know what the “and more” is as everything else can already be done with off the shelf platforms at a fraction of the cost… It has been suggested that CORAL did not even assist document management!
Whilst I had pondered back then that $5 million seemed one heck of a lot of money to spend on IT, only a few years later Atrium had $75 million at its disposal (through venture capital funding) to spend on its IT.
Boasting on its website an “in-house legal team” of 70+ that means, in very simplistic terms, a spend of $1 million per lawyer on IT. That is five times what Clearspire spent per lawyer.
A lawyer could spend circa $500 per annum to access very powerful legal practice management software from established legal tech companies. It would take 2,000 years of legal tech spend at that rate to match the spend by Atrium in a couple of years (if indeed that $75 million investment has all gone on its legal tech development).
The maths (math if we are on dollars) doesn’t add up.
Although my maths may not be accurate as there is a suggestion that some (maybe even a good deal) of that $75 million was diverted from the tech company to the law firm. As Mitch Kowalski tweeted:-
From what I can piece together, it seems that it may have been used to compensate lawyers in the law firm through a complex structure. And so when the comp fund ran low, it was time to cut bodies. But I’m speculating, only Justin and the VC know for sure how the money was used.
Again, like I asked about Clearspire’s CORAL, what is so special about Atrium’s IT offering? One comment in Hacker News refers to the Atrium tech as a “glorified Dropbox”:-
As far as I can tell, Kan fundamentally misunderstood the nature and value of automation in the legal services industry.
Kan was quoted in 2018 as saying “The goal with the tech side has always been…to help attorneys spend more of their time on meaningful work and less of their time on crank-turning work.”
Time spent on “crank-turning work” constitutes a relatively negligible portion of billable time for any attorney billing at a reasonably high rate. They delegate as much of it as possible to people who bill at lower rates, like assistants, paralegals and junior associates. So you’re not really automating much of the attorney’s work at all. Even if you build an ergonomic software platform for routine tasks (like Atrium’s glorified Dropbox), the amount of time/money it would save over the course of a large engagement is de minimis. And if you aren’t dramatically saving time, you can’t dramatically reduce client costs under any fee structure.
So they end up with this software group making tools that don’t help the legal side make more money. And the tools don’t contribute meaningfully to the legal side’s pitching for work in part because they don’t save the prospective client much money. Meanwhile, the software side can’t sell the tools to other law firms because the software side is tied to a law firm. Ultimately, they end up with a bunch of lawyers and software developers who can’t help each other. This outcome is so predictable that it’s downright hilarious they ever thought it would be a money-making strategy, and apparently the investors didn’t understand or think it through, either.
What Kan mostly got wrong was thinking that automation would be profitable for a law firm. There are lots of automation tools that would be extremely valuable to a law firm, but that usually means you should be selling them to a law firm, not from a law firm.
The same commentator said in response to a comment by someone that Atrium “was an audacious idea that made a lot of sense”:-
I’ve spent my whole career in the legal field and built a number of legal tech automation tools with varying degrees of sophistication and commercial success, and I genuinely have no idea how he thought Atrium was going to work.
From the outside, the only audacious thing I see is that Atrium tried to do something that’s famously impossible to do.
It is worth reading all of the other comments concerning the Atrium pivot on Hacker News.
Mitch Kowalski commented on Twitter:-
It was always positioned as one entity. The magic of tech combined with a Silicon Valley darling would create something special – which it didn’t. As I understand it even the tech was nothing new. This was all hype from day one and apparently they learned nothing from Clearspire.
Justin Kan’s announcement on the Atrium pivot was perhaps a bit wooly and left me with more questions than it answered:-
We’ve made the tough decision to restructure the company to accommodate growth into new business services through our existing professional services network. This change impacts our workforce in a couple of ways.
Our in-house attorneys will shift to have the option to become preferred providers in our professional services network. I want to recognize the dedication and hard work of those who are impacted by this. Their knowledge and investment in Atrium over the past two and a half years is invaluable.
So we’ve made staff redundant but if they want to set up their own law firms on a self employed basis we might throw them some work from to time to recognise their dedication and hard work when they were Atrium employees.
We will keep a small group of partners in-house who will serve our clients with strategic services like financing and M&As, as well as work with our network of vetted and trusted firms to deliver general corporate legal services. This model of collaborating with firms through our professional services network has been an integral part of Atrium’s success to date. The specialists in this network, most staffed by attorneys formerly in big law, share our entrepreneurial spirit to deliver exceptional legal services through our technology platform.
Thus is would appear that they are shrinking to a law firm with minimal staff that will on the whole outsource work that comes through their doors to others.
Justin goes on:-
Our legal team is continuing to work on existing client projects, and we will make sure that there is no interruption of service.
Presumably by outsourcing if they have cut most of their lawyers from the firm.
Justin tells us what’s next:-
In our next phase of growth, we will continue expanding outside of legal services as trusted startup advisors by building a professional services network dedicated to founders.
We will continue to invest in legal and are excited to shortly announce new senior partners. Our partners will work with the specialists in our professional services network to deliver exceptional legal services in a fast and transparent manner.
I assume from this that having shrunk the legal team, Atrium are giving the ones they are keeping the title of partner. Very ‘Old Law’ if that’s the case.
Ex Atrium employee @lex_node tweeted:-
Law firm will be maintained by a few partners who manage independent contractors, was how it was described to me
In response Dera Nevin tweeted:-
A lawyer-driven staffing style agency bolted on to a tech platform? Why not just build the tech platform and sell to all attorneys? Clio redux… I guess I have to see it to understand.
To which @lex_node responded:-
That was my reaction. Unless the tech platform hardwires me directly into the brains of Marty Lipton, @StrineSays and @ProfBainbridge so they can flow top-notch legal judgment directly to my fingers via cybernetic Matrix uplink, I don’t see how it’s worth 1/3rd of fees [NB that will be covered later in this blog post].
But I’m probably not the target audience. Someone like 1-2 years out of lawschool who doesn’t want to work at a big firm and can’t get mentoring might appreciate the opportunity.
Dana Denis-Smith commented on Justin Kan’s announcement in a tweet:-
Usual SV “promotion” language- how much money is left in the bank only a few know; this is an attempt to pivot so you can pull the plug with a bit of dignity as SV is a pretty small place & news travels fast. Lesson: Don’t set up a business just because you despise the incumbents.
Mitch Kowalski made his concerns known, on Twitter, about Justin Kan making any announcements about a law firm that he can’t own because he is not a lawyer:-
Atrium LLP is the law firm that can’t be owned or controlled by Justin Kan. How is it he can close something he doesn’t own or control?
Next, the tech company was supposedly always separate from the law firm, so how is closing the law firm a pivot?
José Ancer highlighted, on Twitter, other problems with the two company Atrium structure:-
Because Startup Lawyers are often the most experienced “equalizers” accessible to inexperienced startup teams in negotiating deals & governance, aggressive but clever players use tricks to get startups into relationships w/ lawyers whom the money “owns.”
Now whilst Justin Kan does not specifically say so in his announcement, when Bob Ambrogi broke the news the day before that announcement Bob revealed that an anonymous email he received that morning claimed:-
We know firsthand that the Atrium employees came in for an all hands meeting on Tuesday Jan 7 and were told that the entire law firm part of the business is being shut down. What’s more, they were in that same meeting encouraged to ‘start their own firms and use Atrium software.
Likewise Artificial Lawyer revealed that an ‘insider’ had told him:-
The goal initially was the LTS would make tech just for Atrium LLP. They now appear to have reversed track on this strategy and will now make legal tech products for the wider market.
Well it would make sense for them to want someone to use their software now that they will have very few lawyers themselves to use it. But Justin Kan does not, in his official announcement, clearly indicate that as being part of the Atrium pivot. Perhaps though it is implied if their “network” of professionals are required to use that software.
Interestingly, ex Atrium employee @lex_node gave us this thread on Twitter, which reveals more about the proposed networked arrangement:-
I was one of the RIF’d Atrium lawyers.
They hired me in November, I moved to SF from MIA & started the second week of December.
After 3 weeks, I received a WARN Act notice. I have no reason to believe that every firm employee did not get one.
Needless to say, in light of the cross-country move and abruptness, this has been enormously upsetting & disruptive to me.
I will say no one at Atrium seems to care. They offered me to join their platform where I pay all costs & they would take 1/3rd of my billings. No thanks.
They also offered other lateral move assistance, but who wants to negotiate offers in a massively weakened & rushed position, or to delegate this to people who would drop the ball so hard as to hire someone new at a time like this in the first place?
I am seeing some abysmal takes on Twitter–e.g. that the tech was so good lawyers were no longer needed, or that the attys were Luddites who couldn’t adapt to the software.
Please, if you don’t know what you’re talking about, don’t talk about it. People’s careers are at stake.
I loved the original mission of Atrium, which was to disrupt BigLaw inefficiency by making attys more efficient with software.
The new model is nothing to be admired and IMHO will Uberize/disrupt solo and boutique practitioners, driving down rates and degrading service quality.
Overall, this is yet another lesson in both Silicon Valley hubris and how tricky it is to have a successful legal career.
I have unmasked myself & declared myself an “autonomous attorney” because I am determined to try my hardest never to be in this position again.
The future of technology and services is P2P relationships, not value-extracting middlemen. Atrium’s new model is anachronistic.
Let us all fight for the decentralized future by dealing directly with each other & achieving scale with dissident, truly P2P technologies.
If the majority of Atrium’s aggrieved ex-employees take the same viewpoint it may prove difficult to build the ‘network’ that Justin Kan aspires to as part of his pivot.
Preston Byrne tweeted:-
Atrium wants to be Uber for Lawyers and extract a rent for access to their software users. Cheap lawyers aren’t the same thing as cheap cabs.
In an exchange with Mitch Kowalski on Twitter @lex_node clarified that the one-third fee split payment for use of the Atrium platform was in respect of work referred by Atrium to their network. There had been no discussion on costs for using the platform for work generated by @lex_node himself. However, @lex_node stated:-
Personally I’d just as soon use Google Drive + Clubhouse + Slack or a similar configuration.
Which again doesn’t say much for the $75 million bespoke Atrium tech offering.
If selling their legal tech to law firms outside that network is also part of the Atrium pivot will there be a demand for such tech if it really is just a glorified dropbox, or worse, in a market that is already fairly saturated with existing and probably more useful and well rounded products?
When Clearspire closed its doors as a law firm we were also told that it would re-emerge as a company selling CORAL to law firms. That never happened.
On Twitter Zach Abramowitz tweeted:-
I haven’t spoken to anyone at Atrium but I would reserve judgment before proclaiming failure. Letting people go never looks good but Atrium wasn’t built to be a people heavy law firm, it was built to develop software. The law firm was simply a go to market strategy.
It was inevitable that at some point they would go away from the law firm model and focus on the software. Was this THE time they had planned to make that move? No clue.
Atrium co-founder Augie Rakow told Artificial Lawyer in an interview in January 2019:-
The battle for legal talent will never go away but as legal tech improves it will become a key differentiator in the industry. But let’s be clear, tech will never replace the need for your core legal talent. We want to focus on using tech to amplify the talent of lawyers.
It seemed that he was speaking about Atrium’s lawyers but did they actually have all and any lawyers in mind at the time?
I doubt it. If that was the case their model from day one would have been a very different one. And, in any event, Justin Kan’s announcement suggests a continuing service provision to startups using a wider pool of professional services than just lawyers i.e. not a pivot completely away from legal services provision and just to software supply.
Joanna Goodman, responding to Zach Abramowitz, tweeted:-
A big #legaltech pivot? To avoid becoming the Clearspire of the 21st century? Of course the dual-purpose model is challenging, but there is also the law company version… 2020 is already an interesting year for #legalinnovation
The pivot, however, doesn’t seem that different from the Clearspire one. It remains to be seen if Atrium survives that pivot in a way that Clearspire did not.
Chrisssie Lightfoot chimed in:-
Hear hear @ZachAbramowitz & @JoannaMG22. Agree with both. Also Atrium no doubt by now realise where the profit & growth is; keeping hold of the stuff that works & letting go of the part which is too costly. First 3 yrs of any startup is challenging. Shades of Riverview Law pivot?
But does the legal tech work and does anyone else want it?
As Mitch Kowalski observed on Twitter:-
More rumination about Atrium – if your captive law firm is forced to close because it can’t make money using your “platform”, why would any other firm use your “platform”?
The “shades of Riverview Law pivot” that Chrissie Lightfoot mentioned will be a reference to the law side of that business being sold to Ernest & Young whilst the Automation and Case Management as a Service tech was retained by Kim Technologies.
At Atrium nothing has been sold. Lawyers have been made redundant. What happens with the tech very much remains to be seen. But it looks more like shades of Clearspire than shades of Riverview Law.
Also lack of profit from the law firm may have been down to not charging enough. Techcrunch reported that:-
One Atrium client said they weren’t surprised by the changes because they got so much legal advice for just $500 per month, which they suspected meant Atrium was losing money on the lawyers’ time as it was so much less expensive than competitors. They also said these cheap legal services rather than the software platform were the main draw of Atrium, and they’re unsure if the tech on its own is valuable enough.
Although even as they were cutting their legal team and pivoting they were still making sure that their subscriptions were being collected. Celine Halioua (a customer of Atrium) tweeted:-
Always great to find out that your entire legal team has been laid off via twitter. A++ @atrium killing it
Of course they made sure to still take my yearly payment last week 🙄
Reporting on the Atrium pivot the San Francisco Chronicle points out that:-
Some experts also believe that only a small portion of the legal profession can truly be automated away. In a 2016 paper, Massachusetts Institute of Technology Professor Emeritus Frank Levy and co-author Dana Remus found that only about 10% of legal tasks could be handed over to computers.
“Certainly, automation is having a significant impact on the labor market for lawyers, but predictions of widespread displacement of lawyers are premature and overblown,” Levy and Remus wrote. “Only relatively structured and repetitive tasks” can be automated, they added.
In any law firm tech will be a small part of the mix required to make it work. Clearspire and Atrium bet too much on the tech. They sought to reinvent the wheel. As I said back in 2014, when commenting on the demise of Clearspire:-
Law Firms survive on providing legal services to customers (aka clients). Law firms, new or old, need to concentrate on that. Technology is a tool to assist that process. When setting up a law firm I wouldn’t try to create a PC or phone from scratch. Pier Giorgio Perotto and Alexander Graham Bell beat me to it. The same is true of legal IT systems. There are plenty out there that work very well indeed. Usually it is the law firms or individual lawyers within those law firms that are simply not using the systems anywhere near to their full potential.
Or as Scott Greenfield put it:-
When somebody bottles zeal, they may be on to something. Until then, no lawyer will be more successful in his business or more effective in his practice because he has the latest iPad. But if you can’t send or receive an email, chances are pretty good that you’re on the opposite end of the spectrum from Clearspire, and just as doomed. Technology may not be a worthy religion, but refusal to recognize and use technology is equally foolish.
It’s unfortunate that Clearspire went under, as there was much to commend it and its novel approach to law. At the same time, it will now serve as a warning that shiny isn’t enough, and that the technology apostles don’t pray to the one true god.
To the extent there is anything worth calling “the future of law,” it’s to use everything available that makes you a better lawyer and to better serve your clients. This goes for new and seasoned lawyers alike. That’s my advice.
My views, and I imagine Scott’s views, haven’t changed any in the past six years. Technology is just a tool not a panacea.
And as Nir Golan put it on LinkedIn:-
Like many I have been following the recent developments at Atrium as they seemingly pivot away from “disrupting” the delivery of legal services in the US (seem to be moving away from legal altogether).
One of my humble thoughts (based on what’s been said in the press) was that some forget that at the core legal services are a human to human service. It’s a human-based industry providing a human-based service/product. And maybe just maybe legal services are not something you can just “disrupt” (god I hate that word) by throwing tech at it all without understanding and appreciating the human element in this industry. It’s an industry with a strong focus on relationships with customers and human to human interaction. I believe that any innovation needs to understand that and be designed and co-created with the customers and around this foundation. Tech needs to be carefully integrated into this human based industry whilst understanding the human needs and desires of our customers.
Humans are hard.
Innovation in legal needs to be designed with and for humans. That’s where the real magic happens.
Rather ironically one of the co-founders of Atrium, Augie Rakow, seemed to think the same thing when he was at Atrium (he left on 26 April 2019). In a LexBlab podcast on Alternative Law Models (Hat Tip to Augmented Legal) on 3 April 2019, just three weeks before his departure from Atrium, Augie Rakow said:-
I really don’t think that technology is important… these are all new, increasingly stronger forces acting on the market. But from the perspective of an individual law student or lawyer trying to figure out ‘how do I have a good career as a lawyer?’ I think that you want to ask yourself do you want to be an expert… where you have a set of issues that you know better than anybody else in the world. Maybe 5 other people in the world who know that sort of issues as well as you do. Do you want to be that kind of an expert? Which is a little bit more academic… looking at a lot of the things that originally drew you to the law. If you like doing those alset puzzles and you like reading case law and you like that stuff. You probably like thinking about legal issues… If you can put yourself in a position where what you are trading is your expertise and you are differentiating yourself on your expertise that is a really wonderful way to be a lawyer, it is really fun.
If, however, you are someone who says ‘You know I kinda like being around the business stuff, I like going to law school as it gives me the opportunity to work on deals that allows me to be around that stuff. But I don’t really actually like the content that much, I just actually like being around it. And that is perfectly fine. And you say well maybe I want to focus on the operational aspects of being a lawyer. I maybe want to go start some kind of business that will provide a platform for experts to practice on. Or I want to go build some kind of a platform where customers can come and self service to get legal solutions. That is a whole different way of thinking and then I think you definitely do want to be focussing on technology and you are thinking more as a business person in that case.
But if you like thinking about legal issues. If you like reading the SCOTUS blog or something and you like to listen to the issue that is going up on appeal. If that is exciting to you as it was very much for me and still is. Then I think what you really want to do is double down on that. You want to find a way to differentiate yourself as an expert. And you want to be aware of the other stuff. You know you don’t want to be a total luddite. You want to know like use e-mail. But it doesn’t change that fast [laughs]. It doesn’t change that fast.
So there you have it. A founder of Atrium, a company that was going to disrupt the practice of law through technology doesn’t think that technology is important to most lawyers. It doesn’t change that fast. You might want to learn how to use e-mail.
Later, in the same podcast, Augie Rakow said:-
The technology angle is really good for marketing to startups and for fundraising but it is not really all that core to the business in many ways…
The key insight behind Atrium is that if you have just a law firm entity, except in the UK [N.B. he means England & Wales] and I think in Australia only lawyers can own that entity. Which means there is nobody that you can sell your law firm equity to… What that means is the whole idea of building up the value of that law firm with the aim of selling it to someone in the future. That whole avenue of building value and realising value for yourself is not available to you. So the only way you can realise professional value through doing a good practice and building up your reputation as a law firm. But the only financial value that you can reap from that is through cash that you take off the table every year…
The fundamental problem that we are solving at Atrium is that we are saying we are going to separate out this investor owned entity and we are going take outside investment ($75 million) into that. We are going to build up an operation for the lawyers to practice on. But it is not going to be the practice of law. It is going to be the platform that they practice on. That is going to grow in value. And someday that may go public. It may get acquired by one of the larger accounting firms. By Accenture or something like that. Who knows. There are other kinds of providers to companies that are potential acquirers for it.
Back to technology. Bringing technology into the practice of law is not the fundamental mission of Atrium. The fundamental mission of Atrium is making it possible to invest in operational value over time. If you are going to take that money and invest it in marketing or take it and invest it in recruiting or take and invest it in technology or take it and invest it in training for managers or whatever that is just a specific business decision but not the core concept if that makes sense.
So technology is not core to the business of Atrium but just good for marketing and raising funds that might not be spent on the technology (my earlier assumption of $1 million spent per lawyer on technology maybe now goes down somewhat) but on other things a law firm needs to spend money on. Wonder what the investors in the technology company would think of that!
Furthermore the plan appears to be to sell the platform to an accountancy firm or the like. Will an accountancy firm want to buy a legal software platform? Ernest & Young wanted Riverview Law’s legal practice but not necessarily the technology they had developed (they did licence use of that for a certain period of time as part of the deal to acquire the legal practice). Accountancy firms are, like law firms, service providers not software companies.
In the same podcast Augie Rakow was asked: “On the revenue model how much would be couched as traditional legal services before the platform fee kicks in?” Augie answered:-
All of it. Almost all of our revenue is serviced revenue and will probably be that way for 5 or 10 years.
Then the next question came: “But that is the arc though? 5 or 10 years? Because I do believe the platform will eventually take over to some extent?”. Augie answered:-
Ya, hmm, there is a lot there that kinda remains to be seen. [Pauses, laughter from others]. Ya, we don’t know. Ya, we don’t know [more laughter from others]. I will say this about the technology. One thing that we have really learned. I think we kinda knew in the back of our heads that we weren’t going to build software that was like magically going to make all of our lawyers like 50% more efficient… But you can also think about software as doing other things. You can think about it as adding extra value either increasing your ability to advise or telling the world out there that you exist.
He gave an example of approaching Crunch Base to access their database for sales and marketing purposes. Another example was giving clients a dashboard to keep track of what you are doing for them at an extra cost. Many law firms already do that at no extra cost!
So the technology they were developing wasn’t going to increase lawyer’s efficiency dramatically but they would use technology (from others) for marketing and provide dashboards to clients (at extra cost to those clients).
This doesn’t say a lot for Atrium’s technology and the prospect of selling it to third party law firms.
Jeroen Plink in a Twitter thread made some observations on the Atrium Pivot. He suggested that perhaps:-
$75 million in 2 rounds by people who think legal services are broken means people are frustrated but willing to put their money where their mouth is.
I suggested in response that they were maybe daft rather than frustrated.
Jeroen also suggested that:-
Atrium intro’d concepts that every law firm should: customer success, account management, better CRM, genuine sales
This was Ron Friedmann’s favourite point from Jeroen’s thread. But Jon Tobin tweeted:-
I think many law firms have been on that for a while. Always room for improvement, but I am not sure if Atrium deserves credit for intro-ing the concepts.
To which Drakowski replied:-
Exactly Jon….been at it for over 20+ years, and you’re doing a great job with it as well. My first “CRM” was an Excel spreadsheet 😉
I then joined the conversation with:-
At Inksters I installed a sophisticated CRM on 1 May 1999 when I formed the firm. It has been enhanced as #LegalTech has advanced over the years but still performs the fundamental function that it did nearly 21 years ago.
I also then reminded everyone that many #NewLaw and #LegalTech companies today are quick to forget or not recognise the past: Hack the Past : How the Legal Profession knew nothing about Technology
Jeroen does, however, make a number of very valid points about Atrium. I’ll single out some of those:-
- The delivery model was flawed: attorney compensation similar to BigLaw but services delivered mostly same way charged at rockbottom prices without ability to scale.
- Technology can help to scale but many solutions developed were poor reinventions of wheels.
- Law is broken for many markets. However, there are better markets than startups. Do not understand why Atrium’s investors did not instruct Atrium for their legal work.
- SME market as broken as startups: cannot afford BigLaw, get mediocre service from generalist lawyers (e.g. a small M&A transaction is critical for the business but cannot justify the fees of big law and smaller firms may not be good enough.
- Consumer market deeply broken leading to A2J issues. This might be a better market for the next Atrium.
Dera J Nevin in response to Jerone Plink’s thread on Twitter gave us this one:-
Some further observations (take with skepticism, I’m still catching up and may not have full facts)…
The law firm part of the Atrium model has implemented a RIF. That actually doesn’t necessarily tell us anything about how the tech arm is doing.
It does mean some talented lawyers may be looking for next opportunity. They all have SV experience now.
It was always unclear to me exactly what the tech build out was; was it automating existing processses and reinventing wheels or redesigning processes around work? The latter is hard. Law is fundamentally a human process and engineering won’t fix that.
Taking tech and applying it to law I’m increasingly convinced won’t change much. All this is really taking law to a basic digitalization framework. Useful, yes. Transformative? Unlikely.
But take $75M and apply that to project to make law machine readable? Now we’re talking about the possibility of transformative change, because the foundation for computational law will be there. In addition to data, we need LAWS & legal infrastructure to cross digital divide.
Increasingly convinced that machine readable laws are going to be necessary to change the way A2J operates. Cannot be outsourced from state into other mechanisms without that.
I appreciate none of this has anything to do with @atrium. I applaud them for trying to fix what they saw to be an awful process. But it’s a pile on of tech without understanding the mechanics of why things may be the way they are.
All that to say, still haven’t abandoned my “law as code”, computational structures and legal by design schtick.
Stay on this channel for more 1-track analysis of complex issues!
And we can’t overlook that rather than just building tech, we may need changes to laws and regulations. Thoughtful, careful changes. Happy to see these conversations are unfolding in many jurisdictions.
Thanks for coming to my TED talk. /fin
Adam David Long also provided a Twitter thread with his thoughts on the Atrium Pivot. Of note he said:-
Yet, in retrospect at least, it is very hard to see how that professional services side of the business could possibly, in its wildest dreams, generate the kind of “hockey stick” revenue growth that VC’s are expecting when they put 65 million dollars into a company.
Nicola Shaver tweeted:-
The Atrium debacle has affected me, not because I was particularly attached to the firm’s success but bc I strongly believe that new model law firms, run well, have enormous potential to positively transform the market. Hopeful this failure doesn’t discourage others. #legaltech
Mitch Kowalski replied:-
“run well” being the operative term.
To which Alex G. Smith added:-
Maybe it’s time to find and actually dig into those actually succeeding in this area and the new lines that are starting to work (they aren’t just NewLaw but partners in firms running clients on different models. Atrium was fawning on money (VC) not on actual reality.
We do need more of those real success stories. 2020 should be the year of #implementationnotideas.
Willie Peacock, esq tweeted:-
I didn’t care enough to look much into what @atrium was, but there seems to be a lot of schadenfreude on #lawtwitter these days. Even if we don’t all agree with their model, can we all support people who try to shake up the status quo in a stagnant industry?
I mean, if they were doing something illegal or predatory, sure, but it sounds like they were just an over ambitious law firm that wanted to use a ton of technology to increase their efficiency. Zero wrong with that.
There will always be failures and successes. But we shouldn’t ignore the failures. We learn from failures and often success arises from an initial failure. We can’t berate those for trying (even the over ambitious ones) and giving good lessons to others that follow.
Mark Cohen, who co-founded Clearspire, gives us his wisdom from the horse’s mouth on why Clearspire failed in The Clearspire Story. He states:-
It would be too self-congratulatory to say our disappointing financial result was solely because we were too far ahead of our time. We were; but we did not give the market what it wanted from us and became slaves to the elegance of our vision. This is a cautionary tale for entrepreneurs and established businesses alike: listen to the marketplace.
If Clearspire were too far ahead of their time were Atrium still too far ahead of their time when they came along with a similar model a good few years later? Probably not. I’m not sure the time will ever be ripe for this type of model at the scale of in-house legal tech that both aspired to.
Were Atrium also slaves to the elegance of their vision? Did they not listen to the marketplace? It seems that they probably were and didn’t.
For me the lesson I see most strikingly, remains what I said it was back in 2014 when I commented on the Clearspire demise. That is not to spend millions of dollars trying to reinvent the legal technology wheel as part of a new law firm startup.
There are law firms who have successfully developed bespoke technology solutions for their own particular purposes without betting the farm on it.
But on the whole there is a readily available market place out there with an ever increasing array of technology solutions that would more than satisfy most law firm’s needs at a reasonable monthly outlay. Many of the technology solutions available are doing the same things – and how many things do lawyers and their clients really need done that existing technology can’t do?
Jordan Furlong expressed his pessimism on Twitter:-
I was always skeptical about Atrium, but I thought Axiom was a real difference-maker; now both have pivoted/relaunched/whatever. Maybe I’m too far along the Friedmann Curve :-), but it’s hard to be optimistic about third-party innovators in law right now.
When the Atrium news broke, Aron Solomon gave us, on Twitter, final points he made in an early 2018 legal innovation session he ran for around 300 lawyers:-
Legal Innovation is great when someone is paying your salary and says “go be innovative.”
- 2018-2019: Nut jobs and Mercenaries.
- 2020-2021: The Purge. Most investors leave, many startups fold.
- 2022-2025: Very scaled-down version of legal innovation industry.
Aron’s only Atrium surprise was that they didn’t manage to raise another $100M.
We’ve barely entered 2020 and it looks like The Purge has begun.
Reactions on Social Media
In addition to the reactions in the comments section to this blog there have also been reactions to this post on LinkedIn and on Twitter.
On LinkedIn the following comments have been made:-
Dana Denis-Smith (CEO Obelisk Support):
I love the way you talk of the tech as “IT” Brian Inkster – that put a smile on my face.
Alex G Smith (Global RAVN Product Lead at iManage):
Series A Legal IT has a more honest ring to it!
That must be me showing my age. Remember when it was always #LegalIT and no one was using #LegalTech or #LawTech? I see though that I quoted my 2014 Clearspire blog post where I used IT throughout – that dated it. Having quoted it I started using IT again when comparing with Atrium. Later in the Atrium blog post when I quote others referencing “Legal Tech” I revert to doing the same. Hadn’t realised this. I’ll be more self conscious now about my IT/Tech references. But I still kinda like IT!
Aron Solomon (President and co-founder of Mission Watch Company):
What remains interesting to me as the Atrium saga unfolds is the inability among legal industry pundits and journalists* to understand what a pivot is and isn’t.
Always good to remember that the term is derived from the basketball move in which you keep one foot planted while you move the other foot however you like to change your direction (as long as that anchor foot always stays planted).
This ain’t no pivot.
Ron Friedmann (Chief Knowledge + Information Officer at LAC Group):
Thanks for the thorough job assembling commentary from multiple sources, including Augie Rakow podcast.
Thanks Ron Friedmann. Maybe demonstrates the difference between legal blogging and legal journalism we were discussing on Twitter last week?
Indeed. As a blogger, you did a deeper dive into Atrium than any journalist.
Nir Golan (General Counsel & Head of Global Legal Ops):
Great work Brian The inclusion of all the different perspectives is wonderful. That’s what a real open discussion should be about. Now we can actually learn from this. The diversity of thoughts/experiences/skills is key here also. How else can we all truly understand the problems and the lessons learnt. The lessons and issues vary based on one’s perspectives and experiences.
Thanks Nir Golan. I always like to include as many perspectives as I can. That extends to adding into my blog posts after the event the comments and debate that take place surrounding the blog post on social media – which I still have to do but will be doing for this post. That should result in a rounded view on the topic for my readers.
Philipp Thurner (Legal Technologist @ NEXL):
That was a great early morning read. Thanks for pulling this together.
I always believed in the power of networks and still think that it’s the most scalable and cost effective way to grow a practice but as mention in this article, not for the sake of ‘Uberisation’ but a true P2P (or L2L) network of equals. To collaborate and work together to solve bigger and more complex client problems. With today’s complexities the overheads to serve modern clients fully is just too big.
I’m all for a network of boutique firms coming together to creat some upward market pressure but not an open-for-all marketplace of “cheap” lawyers.
José Ancer (Emerging Companies & VC Consigliere @ E/N):
What has surprised me is how little of the legal tech/innovation crowd has caught on to the deep ethical issues here. So many have been convinced that all ethical regulation of the industry is *just* protectionism, that there’s a massive blindspot.
Kan *openly* stated in interviews that a significant motivation for raising VC from the specific funds he pursued was to have them refer companies to Atrium for company-side representation. Process that. The *investors* in your “law firm” (the 2 entities clearly operated as one) are sending their own portfolio companies to your firm for company side representation? You are purporting to represent these startups in negotiating w/ *your own* investors? Red flag perhaps?
It’s one of the most spectacular examples of basic conflicts rules being completely flouted. IMO it’s a case study for how, while I absolutely agree UPL rules need to be made more flexible, people need to wake up to how there are *legitimate* reasons ethics rules exist in the profession. This was SV investors trying to monetize a blindspot in the legal tech/innovation narrative, to the detriment of clients.
Quddus Pourshafie (Accompanying the Legal Industry to pivot into the Future of Law):
Thanks for sharing Brian. It seems a Framework for Legal Practice that uses the
#legaltech marketplace to build the firms operative model might be useful after all.
Stephen Kong (Partner at Pepper Hamilton LLP):
There is no way that Entrepreneur ran this article about two weeks ago. It must have run much earlier. And if it did run just about two weeks ago, wow, what timing! https://www.entrepreneur.com/article/343595
Mariana Hagström (Founder and CEO @Avokaado):
Thank you Brian Inkster for this thorough summary on Atrium pivot. Does anyone still think that a law firm should/could build a software for its internal use, for its own lawyers and clients only: “So they end up with this software group making tools that don’t help the legal side make more money./…/ Meanwhile, the software side can’t sell the tools to other law firms because the software side is tied to a law firm. Ultimately, they end up with a bunch of lawyers and software developers who can’t help each other. This outcome is so predictable that it’s downright hilarious they ever thought it would be a money-making strategy, and apparently the investors didn’t understand or think it through, either.”
Alistair Wye (Leading legal innovation and technology strategy):
Excellent synthesis of the Atrium pivot / restructure, the potential reasons why, plus reasoned comparisons to Clearspire (a similar tech led alternative legal offering that folded in 2014).
Graeme Johnston (CEO at Juralio Ltd):
That’s a very rich summary, Brian. Thanks for publishing it.
Dera J. Nevin (Data Policy and Strategy Officer at The Blackstone Group):
Thanks for consolidating this commentary, Brian Inkster.
Carolyn Elefant (Energy Law Entrepreneur at PowerUp Legal LLC, Energy and Eminent Domain Lawyer at LOCE):
This is a great summary – I am out of the loop so this is a great way to catch up.
Here’s my biggest problem with all of this:
Atrium is, sadly, the zeitgeist.
It’s 2020, so we are evidently free to call things whatever we choose to without regard to, well, reality. We can call failure potential, treason perfection, and failures pivots.
I read this and thought “Fyre Festival” of the legal industry.