First You Get the Money(With Sales), Then You Get the Power (With Investors)
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First You Get the Money(With Sales), Then You Get the Power (With Investors)
- 1. Darwin Talk
- 2. “It is not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change.” -Charles Darwin
- 3. First you get the money (with Sales) Then you get the power (with
- 6. In legal tech, first you get the money with sales, then you get the power with VCs (if you even want it), then you get respect for legal tech and it CHANGES the legal industry.
- 8. MONEY
- 9. SALES
- 10. Lawyers are Skeptics Lawyers Average Source: Herding Cats: The Lawyer Personality Revealed, Dr. Larry RIchard You say NO for a Living and Risk Aversion Serves You Well with Clients 90th Percentile 50h Percentile
- 12. 5 Reasons to Sell First 1. It sucks, but you learn a lot 2. Build a real business 3. Build brand credibility 4. Revenue is non-dilutive investment 5. Funding prospects are grim for legal tech ”startups”
- 13. POWER
- 15. Investment in Legal Tech $49 $20 $6 $2 $20 $10 $183 $4 $32 $2 $10 $15 $75 $85 $22 $20 $73 $86 $5 $0 $10 $2 $0 $100 $200 $300 $400 $500 $600 $700 $800 $900 $1,000 Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Source: Crunchbase $731 Million since 2010, only $17 Million in the last 4 quarters
- 16. RESPECT
- 17. Law Firms Risking Obsolescence “Firms needed to overcome resistance to change and even shake up the partnership structure if they are to thrive. Comparing the situation to the Eastman Kodak Company’s refusal to face major changes in the photography industry, the report found that the legal industry was ignoring recent transformations in its marketplace, at its peril.” -NY Times DealBook citing annual report from the Center for the Study of the Legal Profession at the Georgetown University Law Center
Editor's Notes
- Hi everyone I’m Jules Miller, co-founder of Hire an Esquire, a legal labor marketplace providing attorneys on demand to law firms and in-house legal teams. I’m also co-founder of Evolve Law with Mary, and I believe the legal industry is ready for innovation and new technology. This is why we end each Evolve Law event with something called a Darwin Talk. Darwin was pretty radical in his day, but it’s this type of radical thinking and discussion that leads to scientific and social progress. So we end each Evolve Law event with a 5 minute talk to get the intellectual juices flowing and hopefully incite change.
- As my favorite quote from Charles Darwin states, it’s not the strongest or the most intelligent of a species who survive, it’s the one most responsive to change. So we’re trying to shake things up and help bring about change by giving you some thought-provoking content at the end of our events. You can agree with what I’m about to say for the next five minutes or violently disagree, but at the very least it should make for good discussion in the networking after.
- For this event on sales, the title of my Darwin Talk is “First you get the money (with Sales), then you get the power (with VCs).” It’s inspired by the famous business motivational movie…..
- Scarface!
- In particular, Al Pacino’s famous line that states: “In this country, you gotta make the money first. Then when you get the money, you get the power. Then when you get the power, then you get the women.” While I think he might have been a little misguided on that last one as his ultimate goal, thinking about the priority of what you want to achieve and why you want to achieve it really matters.
- So I’m going to re-purpose his quote to, “In legal tech, first you get the money with sales, then you get the power with VCs (if you even want it), then you get respect for the legal tech industry and it CHANGES the legal industry.” The premise is that legal tech entrepreneurs should be focused on the thing that matters, and I think that’s respect and adoption of legal tech so that we can fundamentally change the industry. In order to make this happen, we shouldn’t focus on VC investment, we should focus on selling.
- Scarface at it’s core is about Money, Power and Respect. It’s really the tale of an entrepreneur chasing the American Dream, not too different from many of the entrepreneurs in this room. For those of you who haven’t seen it, Scarface is the story of Tony Montana, an ambitious young immigrant who is willing to do whatever it takes to succeed. He hustles his way into a highly competitive business environment, starting at the bottom, working his way up, then venturing out on his own. He builds a veritable empire by successfully selling to customers, working through difficult business deals, beating out the competition, and proving himself as a leader. Then the money, power and success go to his head, and the resulting paranoia and ego lead to his eventual downfall. Good business tale that all the entrepreneurs in the room can all relate to, right? Hopefully the we don’t relate to the enormous amount of illegal activity, drug usage and extreme violence. But I think we can still learn some valuable lessons from Tony and apply them to legal tech.
- So let’s talk about Money.
- Or more specifically, let’s talk about SALES in the legal tech industry. All startup sales are hard - getting that first revenue with no brand or no history behind you, and most likely a product that’s a “work in progress.” You really have to hustle. But legal tech sales are particularly hard, because most of the time, you’re selling to Lawyers. The sales cycle is painfully long at the beginning - for us at Hire an Esquire, where I head up Sales, initially our sales cycle with large law firms was 12 months. This is absolutely BRUTAL for any startup, and several of our legal tech peers who were much better funded, just couldn’t weather the sales cycle and unfortunately they no longer exist.
- Also, lawyers are natural skeptics, raking in the 90th percentile on skepticism compared to the rest of the population. While this is probably useful for working with clients, it’s not great for adoption of new technologies.
- So we all know that in legal tech, selling is challenging. But that doesn’t mean we shouldn’t try to do it. In fact, I strongly believe that the first money going into ANY legal tech company should be sales revenue. Tony Montana started out washing dishes, and as legal tech entrepreneurs we have to swallow our pride and dive into sales when it’s not glamourous and we get a whole lot of nos. It’s painful, but everyone has to start somewhere.
- As someone who has been in the trenches selling to law practices for more than 3 years now, I think legal tech companies should immediately start selling for Six reasons: First, it sucks, but you learn a lot...and more importantly, it shows you how much you believe in what you’re doing and how much adversity you can overcome as an entrepreneur. It’s often much more fun to build a cool product that no one uses, but when you get out there and talk to customers and try to get them to actually pay you money for your product, you learn what’s important. Also in legal tech, you will inevitably get a lot of nos at first, and sometimes some very rude nos! But learn how to survive through it and get people to a yes, which can take a little longer in legal than in other industries. My co-founder Julia and I joke that the reason we’ve been as successful with Hire an Esquire as we have, is that we just won’t die. We survive where many other entrepreneurs would have given up. We are truly the cockroaches. But I think this is what it takes to be a successful legal tech entrepreneur. Second, you build a real business. I’ve talked to a lot of other legal tech entrepreneurs and many feel strongly that legal tech companies shouldn’t be called startups. We’re selling complex enterprise products to sophisticated and difficult customers, and often the ‘lean startup’ methodology can actually hurt us. I like to think we’re building small yet scalable businesses, and every small business needs to figure out how to sell. Third, you build brand credibility. By getting out there and selling, the market starts hearing about you and getting to know your name. Even if you don’t make a single sale, the fact that your potential customers see you again a year or two later gives you the credibility that you’ll still be around and are a more stable partner than most “startups.” In fact, many of our Fortune 500 clients at Hire an Esquire have an arduous RFP process that requires 3 years of historical financials. They seemed fine with the fact that the numbers were low in the early years, we just had to have 3 actual years of a track record! Tapping into these large enterprise markets is nearly impossible without that type of track record. Fourth, revenue is non-dilutive investment. How amazing is that? You get money to operate your business and you don’t have to give away equity! I’m based in New York so I’m going to throw a little shade here. Sometimes I think people in Silicon Valley forget how much more awesome earning money from clients is, vs raising money from VCs. I think growth investment capital can make sense to get to scale, but by that point if you actually have sales and can build a profitable or nearly profitable business, as a founder you still own the majority of your company. Awesome, right? Finally, I believe funding prospects are grim for legal tech ”startups.” The current investment climate is cooling significantly everywhere and VCs never really latched on to legal tech anyway. The harsh reality is that in the current climate, if legal tech entrepreneurs want to be around in 12 months, they need to be able to sell and make money from clients.
- So let’s talk about VCs and raising money, or the “power” component of Tony Montana’s philosophy. Again, as someone outside of Silicon Valley, it seems like entrepreneurs here sometimes care more about raising VC money than they do about creating a successful business. It’s glamorous to be VC-funded, it’s a status symbol, and it’s powerful. However, unless you spin out of Stanford, which is seems like almost all of the VC-funded legal tech companies have done, it’s going to be EXTREMELY difficult for the legal tech entrepreneurs out there to raise venture capital financing. Just because something is hard, that doesn’t mean you shouldn’t try. You may be able to raise money with no problem, but I would argue that you might not WANT to.
- As Tony Montana found out with these Colombians and this chainsaw, sometimes your business partners don’t have goals that are aligned with your own goals. This can be true with any entrepreneur-investor relationship, but even more so with legal tech. I already talked about how the length of the sales cycle is brutal. The expectations that VCs have for a 12 month time horizon on their investment don’t necessarily align with the legal tech sales cycle. SO although you may be able to raise a seed or Series A round, getting to the Series B or beyond usually requires significant traction. We’ve seen more than one legal tech company raise funding, then when they didn’t achieve as much traction as their investors expected in that timeframe, they couldn’t raise more money and had to fold the business. As an entrepreneur, this is a really horrible situation to be in, so think long and hard before taking outside capital and factor in whether you sales cycle is aligned with investor expectations.
- Also, actual investment in legal tech has been relatively puny. This data is a little old, but as of Q2 2015, there has only been $731 M invested in legal tech since 2010 and only $17 M invested in the preceding 4 quarters. This is driven by a few big investments in companies like Avvo and Clio, who had both been around for well over 5 years at that time, and a sporadic handful of early stage seed investments. Comparatively, VC investment in FinTech was $11 B in the same timeframe. Hopefully this will change at some point, and we’re working on it with Evolve Law, but for now, the prospects for VC funding in legal tech aren’t looking great.
- Finally, let’s focus on what’s I think is the important in legal tech. Respect. In the context of legal tech, this means respect for the industry as a whole. This audience excluded, lawyers aren’t really interested in legal tech yet. It’s not cool. It’s not exciting for the typical lawyer in a busy practice. But we need to make it cool.
- If you saw the recent annual report from Center for the Study of the Legal Profession at the Georgetown University Law Center, the legal industry desperately needs to change. The quote here from the NY Times is: “Firms needed to overcome resistance to change and even shake up the partnership structure if they are to thrive. Comparing the situation to the Eastman Kodak Company’s refusal to face major changes in the photography industry, the report found that the legal industry was ignoring recent transformations in its marketplace, at its peril.” The legal industry desperately needs technology, and in order to make legal tech cool, I think we don’t need VC money, we need to actually sell and build real businesses to make sure this happens.
- Finally, a note of encouragement to the legal tech entrepreneurs out there: Even if it seems like the world is against you, and you have snipers coming into kill you, no one is buying your product, just channel Tony Montana and keep at it. Survive and weather the sales cycle, and you’ll eventually start to make money with sales.
- If you do, the world is yours and we can earn respect for legal tech industry as a whole.