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Can legal startups survive an economic decline?


A lack of innovation, high operating expenses and complacency have resulted in less than cutting edge technology and efficiencies from the big boys in legal technology and publishing. The problem has been made worse because of law firms’ acceptance of the status quo as they don’t know better and bill by the hour.

The result is an explosion (relatively speaking) of legal startups over the last six or seven years. Some good ideas, some with new technology/software, some making money, others not, some third party funded, some bootstrapped, some well run and others not.

Lawyer and veteran legal blogger, Carolyn Elefant (@CarolynElefant) asked a darn good question over the weekend, “Can these legal startups survive an economic downturn?”

TechCrunch contributer Bastiann Janmaat (@BastiannJanmaat) pondered this question: Are startups selling to startups building a house of cards? Bastian observes:

“B2B companies whose customers are other early stage B2B companies put themselves doubly at risk: Not only are startups failure-prone by nature, but an early stage company with strong fundamentals can still falter if its client base is vulnerable to market corrections.”

Bastiann goes on to describe that startup-centric companies most likely to weather a recession offer services that provide meaningful cost savings and are sticky – meaning that they’re so ingrained in the company’s infrastructure that they’re as painful to remove as a sticky band-aid. Bastiann offers some examples of companies that meet this 21st century version of Darwinnian survival of the fittest test — Amazon Web Services (AWS), a cloud-based provider that is both cheaper than a company owning its own servers and to much of a hassle to change or Gusto and Zenefits, payroll and HR platforms that are integrated in many startups’ operations and therefore harder to eliminate.

Both Elefant and Janmatt reference UpCounsel, an online marketplace to find lawyers, as being at risk bevause of the possibility of being circumvented by other services.

Getting sticky sounds like getting to the point where you are part of the “plumbing  of the Internet.” Up or down economy, there’s always something flowing through the net – people need your pipes. While most dot-com companies failed 15 years ago, Cisco stood strong.

Take my company, LexBlog, as an example. We’ve long been viewed as an agency providing custom design and development with deep expertise in blogs and social media. Rightfully so, we positioned ourselves as this.

But over the last year we’ve made a heavy investment in software by building a new publishing platform with WordPress as its core. Rather than our designers and developers developing custom sites over two or three days, we can provide custom user interfaces in two or three hours on publishing software that receives regular upgrades and feature enhancements. Better user experience at much lower cost.

This pivot puts LexBlog into the “plumbing category.” Whether a law firm, public relations agency, marketing company, website developer, media player or publishing company, you need software on which to publish, whether for yourself or for your clients and customers. Publishing and its software are not going away. We’re getting closer to the plumbing.

I’d add to Elefant’s and Janmatt’s comments that those companies operating at profit are much more apt to survive an economic downturn. A large initial investment from a financial partner or not, measuring success with traffic and users proved fatal to Internet companies the last time we had heavy venture capital investment followed by a declining economy.

Startup entrepreneurs and their investors are not the only losers in such a downturn. Lawyers and law firms who start using a product billed as successful because of money raised and traffic/user numbers (often inflated) take a hit. Incorporating what turns out to be a failed service or product into one’s practice management, marketing or professional development efforts can prove to be a waste. A firm’s clients can even be effected.

Don’t get me wrong innovation in legal technology is a good thing. Human and capital resources flowing into the area is driving real innovation benefiting lawyers and the people we serve. But as history has shown us, not all of the legal startups will survive.

Image courtesy of Flickr by Peter Abrahamsen 

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