A Novel Legal Services Model for Startups: EnigmaTech Legal

A Personal Journey

For my first blog post, I would like to tell you about how I came up with the idea for EnigmaTech Legal.

My mother passed away unexpectedly last year. Over the years, she had become my closest friend, second only to my spouse.  Needless to say, her death hit me particularly hard.  As the lawyer in the family, I took a career break to manage her legal affairs, which led to a sabbatical of sorts to process my grief.  I did a lot of soul-searching during this time and realized that the path I had set for myself during college and law school—to climb the proverbial corporate ladder—no longer made much sense for me, if it ever did.  It did not help that when I began to interview for a new job I discovered that there is considerable uncertainty surrounding in-house counsel hires at the moment.

The Problem

During my job search, I experienced sudden, mid-search ‘re-leveling' of positions, canceled job postings, and unusual secrecy and even dishonesty over budgeted salary ranges, not to mention woefully inadequate compensation offers given role expectations.  As a startup founder myself, I realized that many startups are simply not confident that the costs associated with in-house counsel—such as salary, bonuses, benefits and stock options—are worth it, especially when startups cannot predict how competent, productive or efficient their new hire will ultimately be.  Plus, a startup’s legal needs can be highly variable.  It may need a full-time in-house counsel (or extra counsel) only part time this month, so why pay an internal hire (or extra hire) full time for it?

The alternative of course is to hire outside counsel under the traditional billable-hour model.  As you probably know, most law firm lawyers are paid a fixed salary, but are billed out to clients by the hour.  Not only does this create an inescapable incentive to do many, many hours of inefficient work at their clients' expense, but (and I apologize to my law firm partner friends for saying the quiet part out loud) their clients are likely paying a hefty premium to firm partners on top of the price for which their lawyer is actually willing to do that work.

There are no doubt circumstances where hiring outside counsel under the billable hour makes sense—such as for complex or highly negotiated deals, all but the simplest litigation matters, formal legal opinions, emergencies, and other such situations where specialized and better resourced counsel is needed—but for most startups it is simply overkill.

What if instead of these two options, a startup could retain a competent, tech-savvy lawyer with years of experience—as both outside and inside counsel—in blocks of time based on accurately forecasted legal needs? Fractional counsel services of course exist (I provided them myself as a budding attorney), but they typically operate under the traditional billable-hour model and are, in my experience, provided by under-qualified lawyers, many of whom have never actually been an in-house lawyer.

The Model

The proposed model would be based on free, recurring monthly forecasting sessions during which a lawyer would work with you to determine your legal needs given the specifics of your particular organization (such as day-to-day contract flow, anticipated new hires, product development schedule, brainstorming session cadence, etc.).  The lawyer would then recommend a block of time that they believe is needed to satisfy such needs, and you would pay a flat hourly rate that is much lower than that for which an outside lawyer would bill you for a similarly experienced lawyer (which would easily be 3-4x in my case) for each hour in the block.

Launching a new product or expanding into a new territory soon?  Book a larger block.  Heads down developing your MVP?  Book a smaller one.  In either case, your fractional counsel would be incentivized to do efficient, quality work so that they can meet client expectations for each reserved block, or risk future business.  (They did help you with the forecasting after all.)  And any incentive to do make-work will no doubt disappear entirely.

Of course, the need for legal work cannot always be accurately forecasted, so maintaining flexibility is crucial.  But the core idea remains the same: to pay only for the counsel you need, without the flaws of traditional models.

The Company

Based on this concept, I have launched EnigmaTech Legal with the hope that this model will prove sustainable.  Clients pay only the amount for which their lawyer is willing to do the work and can bank the rest, equity and all.  Fully transparent rates and straightforward service terms are posted publicly online.  (Would your existing outside counsel do that?  Why not, do you think?)

Those of you who have worked with me in-house know that I am efficient and transparent to a fault.  My hope is that EnigmaTech Legal will allow me to leverage that blessing/curse in new and exciting ways.

Conclusion

With EnigmaTech Legal, you can have many of the benefits of in-house counsel without the costs, and escape the innovation-stifling billable hour.

-Damian