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Friday, 07 November 2014 00:00

Old Law Firms Are Killing America’s Small Businesses. Who Can Fix It? Featured

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At this point, the law is inescapable—it surrounds virtually every aspect of our lives like a fortress (or a noose, depending on which side of the law you happen to land on.) But no matter your opinion of the law, or of lawyers generally, one thing is certain: the law is a complicated animal with a hair-trigger temper that can only be tamed by people with specialized legal knowledge. Unfortunately, the structure of traditional law firms makes legal help extremely hard to find for America's small businesses.

 

The fact is, the laws and regulations that were designed to protect businesses and consumers have become so perversely complicated that legal help is mandatory. One false move and you could lose your business, your house, or worse yet, your freedom. Unfortunately, legal help is only available for people with money to burn. If you haven’t looked lately, I’ll save you some bandwidth: it’s not uncommon for an accomplished attorney in any metro in the country to demand $400 per hour or more (much more) for their services. Obviously, prices like that are a very cold shower for start-ups who are on the “we’re skimping on showers to buy Google Adwords” budget.

 

The micro effects of these barriers to entry for small businesses are becoming visible in the macro economy. Although there are still businesses cropping up, it is clear that small business growth has been stifled in America. Earlier this year Eric Garland identified in his piece Why America Is Losing Its Entrepreneurial Edge, that business formations in US have dropped precipitously, and that business dissolutions are on the rise. Facts that tend to show that, perhaps, the land that bore the incomparable Wright Brothers, Henry Ford and Steve Jobs might be losing its entrepreneurial moxie.

While we can only hazard a guess as to why this is happening, and there are clearly lots of factors coming into play, we can certainly point to contributing factors. Without question, ridiculously priced legal help isn’t helping small businesses grow any faster. And because “risk” is the biggest deterrent to innovation, we would dare to say that if legal help, which can mitigate risk to an incredible degree, was more accessible, more businesses would be cropping up today.

Unfortunately, traditional law firms may as well be wearing start-up repellent. The legal system's restrictive regulations and traditional law firm's sluggish acceptance of change have preserved an outdated model that is failing to provide small businesses the help they need. As a result, America is facing a veritable Dust Bowl of small business activity where only those who are rich enough to afford expensive lawyers succeed, and the law advances only in their favor. The American public all the while misses out on the vibrancy of new ideas, local flavor, and innovation from unlikely places.

So what’s the problem? Well, at the heart of the matter, there are the three main problems with traditional firms that are killing small businesses:

 

3. The “Velvet Rope” Problem.

 

The sad truth is, law firms don’t want your business—unless you’re rich and easy. The moment you sit down in that tufted leather chair, the Attorney in front of you is thinking: are their more productive uses of my time? How much is this relationship going to be worth? And, can they pay me?

If you have a small business that necessitates legal work which doesn’t involve an easy lawsuit against a huge company for mega bucks, your lawyer is going to want cash—typically upfront. And they’re not going to help you unless you appear to be a steady source of income. If you need to pay in installments, can only pay for one thing at a time, or are otherwise troublesome, an experienced law firm will show you the door.

This is where a lot of good ideas fail. This crossroad of risk v. reward shutters entrepreneurs willingness to go out on a limb. The internal narrative goes something like "Well, I think it could work, but I don't want to get screwed by [insert scary possibility here.]" And suddenly, your crappy job doesn't sound so bad. At least you can wear jeans on Fridays, right? Right?? And POOF! Another good ideas turn into a shelved idea.

How many ventures simply evaporated at the junction where people realized the legal costs would make their dreams untenable? It’s anyone’s guess, but I would rather see a new "Mom and Pop" shop break ground than another Chipotle (yeah, I said it) any day of the week. The loss of even one great idea is too big a tragedy.

 

2. The “Blank Check” Problem.

 

Similarly to medical doctors, who are obligated to give a “differential diagnosis” where all relevant potential causes of distress are considered and eliminated, Lawyers too typically must consider all of the potential effects their legal decisions may have, and what problems their clients should anticipate. This, of course, ensures the best possible outcome for the client. However, what if you just have aheat rash, and not Rocky Mountain Spotted Fever? Should you pay for the bells and whistles if you don’t want or need them? Most small businesses don't think so.

When you retain a full service law firm however, you are typically signing up for the whole kit and caboodle. And because lawyers typically bill on an hourly basis, you could be in for a real shock if your problem is more complex than you thought. And remember: don’t stiff your lawyer. Lawyers are, well, lawyers, and will bare teeth quickly.

 

It’s not hard to imagine why clients are slightly miffed by the proposition that they (1) have to pay hourly, and (2) don’t know how many hours it’s going to take.

 

1. The “Smoke and Mirrors” Problem.

 

Even if you can stomach the price, and are on-board for the full-service experience, how do you know this lawyer is any good, or if that particular lawyer will be handling your work at all? Is your case being shuffled off to some overworked intern? Possibly. The reality is that the vast majority of legal issues are routine. Any competent attorney, and possibly a highly trained monkey, could solve many of the most common issues. Lawyers routinely spread the work around to pad their margins. It makes good business sense, but the savings isn't always apparent in the bill.

"But, my lawyer is the best!" you say. Well how do you know? Have you performed a double-blind attorney study? Likely not. Most client-lawyer relationships are created by word of mouth—sometimes it feels OK, but what good is it when you get down to it? Unlike hamburgers, where word of mouth may be an accurate way to predict the quality of the final product, lawyers and legal issues are hard to compare on an apples-to-apples (or hamburgers-to-hamburgers, as it were) basis. It might not be the best idea to sign-up with your uncle Murray’s bridge partner for legal help with your tech start-up because he’s a “real swell guy.” You might be better off connecting to someone completely unknown and get a way better price—but then, how do you find “the one”?

Unfortunately, there is no “Match.com” for legal help, and certainly no “tinder,” but we’re getting closer.

 

The New Paradigm: Disbursed Legal Help.

 

In an ironic twist, while small businesses can’t get competent legal help at a decent price, lawyers are also astoundingly unemployed. For that reason, there are large pools of qualified lawyers who can work independently, without the costs associated with a typical law firm. Many of these lawyers have been in the business for decades, but paused to start a family. Others are brand new, but have specialized knowledge in core areas that can solve common legal problems cheaply. All of them are extremely educated, but disenfranchised from the legal world because they don't fit the traditional mold.

 

Whereas in the past law firms needed to have a physical presence, the new economy actually prefers the "remote" and "on demand" lifestyle. And now that new laws allow for lawyers to provide "unbundled" or "a la carte" legal services, small businesses can get exactly what they need from an expert working remotely at an incredible price. Live in rural Montana but need a patent lawyer in Seattle? No problem.

 

A new breed of legal start-ups are cropping up to address longstanding market failures and solve the legal access problem with common technology. Among them is Lawger.com. Lawger is a start-up from the University of Oregon School of Lawthat allows clients can get legal help from independent attorneys a la carte—with a twist. In the spirit of a free market economy, Lawger created a reverse auction system where lawyers compete against themselves, vying for client attention. It's a system that has been applied in actual markets (you know, the ones you see on the Travel Channel) throughout history to get great prices on things like grain and tulips. It has never been applied to legal services as such, but if history is any indication, customers will be able to save serious cash on common legal issues.

 

Although Lawger and other legal start-ups attacking these issues are in their infancy, it is clear that the old guard is changing and new solutions are picking up speed. Although legal advice is only a single aspect of business success, it is certainly one that can be a game changer. We hope that the new economy will embrace these more efficient legal solutions, start awesome new things, and prosper fantastically.

Read 315530 times Last modified on Friday, 07 November 2014 20:54

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