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

http://www.utexas.edu/


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

$$$



A New Model

• People that need lawyers

But who?

• Familiar and trusted entity

Connect to Brand • Lawyers

$$$



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



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 study found that when peopletrust a brand…



83%…will recommend it to other people1

1. http://www.business2012.com/2012/02/build-trust-in-your-brand/

http://www.sra.org.uk/abs/



82%…will use its

products & services

frequently1





78%…will look to it first for the

things they want1





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



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



Aug-04 Feb-05 Sep-05 Mar-06 Oct-06 Apr-07 Nov-07 Jun-08 Dec-08 Jul-090

100

200

300

400

500

600

0 1

170

220

500

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



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?



1. Seeing What’s Next: Using Theories of Innovation To Predict Industry Change, Clayton M. Christensen

Disruptive Innovation Theory1



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



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



– 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

http://www.lawcrossing.com/article/7527/NY-Court-Upholds-Ban-on-Non-Lawyer-Investment-in-Law-Firms/



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

http://www.nytimes.com/2011/10/29/business/selling-pieces-of-law-firms-to-investors.htm


non-lawyer ownership & the qs business model

Economy & Finance