Talking with Lachlan McKnight, founder of LegalVision

Lachlan McKnight is the CEO of LegalVision, an award-winning NewLaw firm. I had the pleasure of talking with him recently.

1. Lachlan, the last decade has seen the proliferation of NewLaw business model providers of B2B and  B2C legal services. How does LegalVision interpret this growth and the diversity in types of provider?

The first point I would make is that many so-called ‘NewLaw’ firms are simply boutique breakaways. They are managed in the same way as a traditional law firm, with one or more principal lawyers owning the business (i.e. no external shareholders), charge hourly rates (and are therefore not seeking to disrupt the time/value paradigm), and make limited use of technology (beyond mentioning technology in press releases!).

The second point I’d make is that most genuine ‘NewLaw’ businesses are tiny. I regularly speak to NewLaw founders and am constantly surprised at just how little revenue most of their businesses are actually getting through. Many of these businesses are doing interesting things, but (at least in my view) the revolution in CX and productisation that the legal industry needs to go through can only be driven by businesses operating at significant scale. Industries are not transformed by cottage, lifestyle businesses; they’re transformed by category killers.

So in summary, I still think there’s more noise than action in the NewLaw space. When the first genuine Australian NewLaw business hits $100m of productised revenue we’ll be able to say the industry is really changing.

2. The B2B legal services ecosystem of clients, incumbent (traditional or BigLaw business model) law firms, NewLaw providers, tech startups and vendors is complex and fast moving. How do you assess the ways in which incumbent law firms in general are managing their positions and performance?

If I were running an incumbent law firm my strategy would be to (i) invest in understanding the ecosystem, which you rightly point out is complex and fast moving and (ii) resources permitting, make an investment or two in promising startups. The top tier of traditional firms in Australia are currently doing very well, so it makes little sense to radically transform their current business models. The key is to be positioned to transform when it becomes clear that an alternative model to the partner led hourly rate pyramid structure is going to become dominant.

Many traditional law firms are doing nothing, which actually is economically rational when you look at the boards/ managing partners of these firms. Most of these individuals all due to retire in 3 to 7 years. Why invest in the future when they can take a higher draw now – a disrupted market in 8 years isn’t something they’ll need to deal with!

A few smart leaders are choosing to make strategic investments, which I think broadly makes sense. Of course the challenge is choosing what to invest in. A NewLaw provider like LegalVision or a legal tech startup? It’s not easy.

3. Without peering into your business secrets, how does your Gilbert + Tobin (G+T) relationship benefit that firm and Legal Vision?

We’ve had a very strong relationship with G+T for many years. In the enterprise space, our offerings are complementary  – we focus on Managed Services (aimed at assisting in-house teams with BAU style legal work) and G+T obviously focus on “bet the farm/one-off” style projects. Many enterprise clients clearly have a need for both services, so there are often opportunities for both entities to cross-refer work.

We also just spend a lot of time speaking about the industry. In particular, I speak to Sam Nickless, G+T’s COO about every other day. We’re constantly discussing new innovations, what’s happening overseas, where the market’s heading. It’s super helpful to get “big law” insights on a regular basis, and I guess Sam and G+T find some of our insights helpful.

Finally, of course, G+T is the biggest external shareholder in the fastest growing, and by far the biggest, genuinely NewLaw provider in Australia. They’ll probably do quite well out of the investment!

4. Some, including me, have said there will be many more losers than winners among the incumbent BigLaw firms. How do you see this playing out? Do I and other observers over-state the threats and/or underestimating the adaptability of the incumbents?

This is a really interesting question. I think the way to look at this is at a workforce level. By far the biggest transformational movement in the legal service industry over the next 10 years will be the continuing influence of capital. Traditionally the law firms have been owned and controlled by labour (partners). Output has always been based around labour (hence the hourly rate). Across the industry, from NewLaw providers to legal tech players, to litigation funders, capital is now seizing an ownership stake in the industry.

The net effect of this is that partners in traditional law firms (particularly mid-tier firms and below) will see their income reduced. If NewLaw providers, assisted by capital injections which mean they can invest in systems, processes and technology, take a chunk of the ‘BAU’ work from traditional providers, those providers will have to seek capital injections themselves to enable them to invest on a longer time horizon. This will lead to corporatised law firms with profits being split between employees and shareholders (as in a normal business). I read with great interest an earlier post related to capital on Dialogue by Mark Cohen, Big Money Is Betting On Legal Industry Transformation. Mark and I are definitely on the same page!

This doesn’t mean that traditional providers will disappear, but perhaps that they will slowly evolve into very different types of businesses.

5. What role are corporate law departments playing in driving change?  Is it simply the case – as in any industry – of some moving first and others following with varying degrees of urgency and speed?

I think it’s correct to say that some are moving first and others are following, but the role of the corporate law department is absolutely critical to industry transformation occurring sooner rather than later. It really is super hard for a non-lawyer to make a call about changing the way a business is running a legal function, both internally and through external providers. It does happen, but it’s unusual. So corporate law departments really do have a huge impact on industry transformation.

Luckily in Australia we’ve got leaders such as Catriona McGregor, Anna Lozynski and Rachel Launders running some pretty forward thinking in-house teams.

6. Do you think there is a ‘next big innovation’ around the corner, or is the market now operating to sort out who prospers and who fades away?

It would be very unwise to assume a new disruptor isn’t going to pop up and start eating everyone’s lunch, so it’s vital to remain paranoid. Having said that, I think the biggest disruptive movement in the industry right now is the move of towards a capital + labour model, so my view is that’s going to be the biggest driver of change over the next 5 or so years. In the NewLaw space at least, most businesses are cottage lifestyle businesses. This is no bad thing, but structural change isn’t going to come from that direction.

I do think that as we see capital with longer time horizons invest more and more heavily in the industry we’ll start seeing weaker players collapse due to huge downward pressure on prices.

Lachlan McKnight

Lachlan co-founded LegalVision in late 2012 following a career in corporate law and investment banking.

LegalVision assists both SME and Enterprise clients in areas of law where its systems, processes and technology can deliver industry-leading outcomes.