Non-Lawyer Ownership & The QS Business Model
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Transcript of Non-Lawyer Ownership & The QS Business Model
Will Quality Solicitors’s Business Model Disrupt the Market for Legal Services in the United States?
Presenters:
Robbie Carman
Brian Peterson
Professor:
Adam Dell
Business, Law, and Innovation April 18, 2012
Overview
1. The Concept: A National Brand for Legal Services
2. A Newfound Market Opportunity
3. Breaking Down Quality Solicitors’s Business Model
4. Will Quality Solicitors’s Business Model Disrupt the Market for
Legal Services in the United States?
5. Conclusion
The Concept: A National Brand for Legal Services
The Traditional Model
• People that need lawyers
But who?
• Ask friends/family• Yellow book• Google
“Lottery” • Lawyers
$$$
The Concept: A National Brand for Legal Services
A New Model
• People that need lawyers
But who?
• Familiar and trusted entity
Connect to Brand • Lawyers
$$$
The Concept: A National Brand for Legal Services
What Can Branding Do for You?
“You can have all the facts and figures, all the supporting evidence, all the endorsements that you want, but if at the end of the day you don’t command trust, you won’t get anywhere”
Niall Fitzgerald (2001)Former Chairman Unilever; Thompson Reuters
The Concept: A National Brand for Legal Services
Consider this…
In January 2009, Concerto Marketing and Research Now completed a study into the benefits and drivers of brand trust.
The study surveyed 1000 North Americans from Research Now’s panel of online respondents
The Concept: A National Brand for Legal Services
The study found that when peopletrust a brand…
The Concept: A National Brand for Legal Services
83%…will recommend it to other people1
1. http://www.business2012.com/2012/02/build-trust-in-your-brand/
The Concept: A National Brand for Legal Services
82%…will use its
products & services
frequently1
1. http://www.business2012.com/2012/02/build-trust-in-your-brand/
The Concept: A National Brand for Legal Services
78%…will look to it first for the
things they want1
1. http://www.business2012.com/2012/02/build-trust-in-your-brand/
The Concept: A National Brand for Legal Services
50%…will pay more for
its products and services1 1. http://www.business2012.com/2012/02/build-trust-in-your-brand/
A Newfound Market Opportunity The Legal Services Industry in the U.K.
Approx. 10,000 firms2
Vast majority < 25 solicitors2
Survey: 72% U.K. partners believe “substantial”
consolidation necessary3
£11,890,000,000£13,110,000,000
Top 50 Law Firms
The Rest
BIG FRAGMENTED
U.K. Legal Services Market1
1. http://www.law.com/jsp/law/article.jsp?id=1202504293111&UK_Top__Law_Firms_Post_Best_Growth_Figures_Since_2. http://www.palamon.com/press/index.php?read=733. http://www.legalweek.com/legal-week/analysis/2159583/partners-believe-fragmented-legal-industry-set-intense-merger-run
A Newfound Market Opportunity New Legal Ethics Rules
Old Rules
Lawyers prohibited from forming partnerships with non-lawyers
Non-lawyers cannot have ownership interest in law firm
See ABA Model Rule 5.4
Legal Services Act of 2007
Non-lawyers can own up to 25% of law firms1
Expressly authorize creation of “Alternative Business Structures1
1. http://www.sra.org.uk/abs/
Managers and entrepreneurs with business expertise can now “run” law firms
A Newfound Market Opportunity
Greater Access
Outside Capital
Better Managers Lawyers
Technology
What does this mean for the consumer?
Analysis of Quality Solicitors’s Business Model Unit Economics
High
Low
Client’s Perception of Matter’s Importance
High
Low
Client’s Price Sensitivity
• Simple task, efficiently delivered many times = $$$$$$• Complex task, inefficiently delivered one time = (-$$$$)
Specialized Services
Client-Tailored Services
Standardized
IMPORTANT: Perceived Value ≠ Profitability
Analysis of Quality Solicitors’s Business Model Unit Economics
Law firms can be cash cows because once a certain threshold is passed additional revenue can be generated very cheaply
Profits
Other Overhead
Compensation & Benefits
Hours Billed
Gro
ss R
even
ue Break-Even Point
Unit Economics Estimates QS’s ROI = 25%
– Generates £ 250m per year – Spends £200m per year to generate
that revenue
This Number Will Go Up – Marketing costs will decrease as
brand gains notoriety– Efficiency will increase over time – Large pent up demand the “little
guys” under utilize legal services
Assumptions Revenue
– £1,250,000 per firm, annually (av.) • # of Locations in 2011 = 2001 • Enterprise-wide gross revenue = £ 250m1
Costs – Compensation = 50% of costs2
• Total salary spend = £ 500,000 - Associate = £ 50,0003
- Partner = £ 100,0003 - Average office has 6 associates and 2
partners
1. http://www.legalweek.com/legal-week/news/2131113/law-firm-innovation-award-qualitysolicitors2. Stephen Mayerson, Making Sense of Law Firms, pg 418 (2006).
3. http://www.law.com/jsp/tal/PubArticleTAL.jsp?id=1202489360193
Unit Economics
Analysis of Quality Solicitors’s Business Model
Analysis of Quality Solicitors’s Business Model
1. http://www.lawgazette.co.uk/news/private-equity-takes-stake-qs
Firm must commit to highest level of customer service
On average, commit 5% of all revenue to QS1
Recruiting Law Firms
What does QS look for?
What must law firms commit?
Client Feedback
Reputation
Network
Analysis of Quality Solicitors’s Business Model The Competition
Franchise-type Brands
Small Practitioners
Big Law Firms
Online Legal Networks
Corporate Legal Services
like…
like…
like…
like…
like…
Analysis of Quality Solicitors’s Business Model Competitive Advantages
Brand Power
Economies of Scale
First Mover Advantage
Internal training department with emphasis on “soft” skills
Huge marketing advantage giving unparalleled access to untapped markets
Consumer peace of mind “One less choice we have to make” 1
Gain control of consumer trust and confidence Switching costs – late entrants must invest extra
resources to attract away from trusted brand
1. http://blog.qualitysolicitors.com/2012/02/06/and-theyre-off-the-race-to-capture-the-consumer-is-finally-underway/
Analysis of Quality Solicitors’s Business Model Competitive Advantages
Service Innovations
Visibility Brand
Strength
Market Prominence
(Dominance?)
Analysis of Quality Solicitors’s Business Model Network Effects
Number of Users
Number of advertisers & partners
Indirect Network Effect
QS Market Share
Positive Feedback Loop
Complementary Services
Direct Network Effects
Consumer Trust/Ratings
Analysis of Quality Solicitors’s Business Model Technology - Yelponomics1
1 http://blog.launchcopilot.com/2011/04/25/yelponomics-what-really-drives-yelp-reservations/
Additionally, more reviews, not taking into account ratings, leads to more reservations. Why?
As we might expect, higher ratings leads to higher reservations
Powered By: Answer Questions Online
Attorney Reviews Pre-existing Document
Client Pays A Fixed Price
Analysis of Quality Solicitors’s Business Model Technology – Web Enabled Document Assembly
Analysis of Quality Solicitors’s Business Model
Aug-04 Feb-05 Sep-05 Mar-06 Oct-06 Apr-07 Nov-07 Jun-08 Dec-08 Jul-090
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200
300
400
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0 1
170
220
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Branch Growth1, 2
1. http://www.lawgazette.co.uk/news/private-equity-takes-stake-qs
2 http://www.guardian.co.uk/money/2011/apr/03/uks-first-chain-high-street-lawyers
Analysis of Quality Solicitors’s Business Model
1. http://www.legalweek.com/legal-week/blog-post/2118742/qualitysolicitors-secures-private-equity-backing-deal-silence-critics
Turning Heads
Last fall, Quality Solicitors secured investment from European private equity firm, Palamon Capital Partners. While the exact amount was kept confidential, Palamon’s investments usually range from €10m to €80m.1
€1.1bn funds under management1
Experience operating in fragmented professional services markets (specifically, dentistry and financial services)1
Palamon Capital
PartnersOverview
Clayton M. Christensen• Harvard Business School• Disruptive Innovation Theory
Vijay Govindarajan • Dartmouth – Tuck School of
Business• Reverse Innovation Theory
Catching the Next Wave of Innovation
Will the QS Business Model Disrupt the Market for Legal Services in the United States?
Will the QS Business Model Disrupt the Market for Legal Services in the United States?
1. Seeing What’s Next: Using Theories of Innovation To Predict Industry Change, Clayton M. Christensen
Disruptive Innovation Theory1
Will the QS Business Model Disrupt the Market for Legal Services in the United States?
Looking For A Target
The Hotbed
The Dilemma
Looking For
Money
Mot
ivat
ion
Low
H
igh
Ability
Low High
1. Seeing What’s Next: Using Theories of Innovation To Predict Industry Change, Clayton M. Christensen
Motivation Determined By: •Market Size/Growth •Competition•Economics of Opportunity•Business Model •Industry Attractiveness
Government Levers: •Taxes •Competitive Policy •Rate Regulation
Ability Determined By: •Resource Availability •Market Access
Government Levers: •Standards = Legal Ethics Rules
The Motivation/Ability Framework and Regulations1
Will the QS Business Model Disrupt the Market for Legal Services in the United States?
QS Will Unlock The Huge Potential Of An Underserved Market With Low Expectations – Must be cost-conscious – Must be high quality but it’s easier to do simple things well – QS brand gains high visibility gains big market share in “low tier market”
The US Will Change Its Ethics Rules – If UK ABS firms are successful then US firms will want in more pressure to change rules – As experience builds and technology advances ABS firms will move up the chain of
customers
Eureka! = Disruption – Eventually ABS firms will figure out how to do complex work far more cheaply than high
priced incumbents
Application to the Legal Services Market
Will the QS Business Model Disrupt the Market for Legal Services in the United States?
– ABA Heavily Considering Allowing ABS1
– Jacoby & Meyers Sue State of New York Challenge Constitutionality Of No Non-lawyer Investment Rule2
– North Carolina Senator, Fletcher Hartsell Proposes A Bill That Would Allow Minority Non-lawyer Ownership (49%)3
– Many Large Law Firm Partners Unaware of Changes or Unconvinced That They Will Have Any Effect On Them
1. ABA, Issues Paper Concerning Alternative Business Structures, April 5, 2011 2. http://www.lawcrossing.com/article/7527/NY-Court-Upholds-Ban-on-Non-Lawyer-Investment-in-Law-Firms/3. http://www.abajournal.com/news/article/nc_lawyer_and_lawmaker_introduces_bill_that_would/
Amplifying Weak Signals
The Small Things that Indicate Big Changes
Will the QS Business Model Disrupt the Market for Legal Services in the United States?
1. http://www.nytimes.com/2011/10/29/business/selling-pieces-of-law-firms-to-investors.htm
Conclusion
- European countries now allow non-attorney ownership/investment in law firms1
-Globalization of legal services industry1
- Increasingly Expansive and Complex Regulation of Private Conduct = Greater Demand for Legal Services by Normal People1
- Lack of Access to Good Attorneys Due to Cost1
- Lack of Knowledge About Which Attorneys Are Good1
Outward Pressure
Inward Pressure
U.S. Legal Services Industry