Interview (Part 2) | Conrad Everhard (Flatiron Law Group)
Tell us more about yourself!
Conrad, have you ever met somebody by chance who has then significantly changed your life?
When I was very young, my family moved to Brussels, Belgium. Once there, for reasons which are still not crystal clear to me, (remind me to ask my 89 year old Mom), my parents decided to place me in the local French speaking school system, rather than in the American school with my sisters. I became a little French speaking Belgium kid. Then, nine years later, we moved back to the U.S. and I was deposited cold turkey into a New Jersey public middle school! The transition from genteel Brussels to Springsteen wasn’t smooth, needless to say. I might as well have been dropped on Mars. I really struggled with culture shock.
At some point during this ordeal, undoubtedly after watching NFL football, I decided that I wanted to become an athlete, a football player specifically. My ambitions were not shared by the student body, to put it charitably. But there was one guy, an assistant football coach, who happened to be my gym teacher, Auggie Renna, who believed in me. He saw something. He encouraged me to go for it. He put together a training program for me. He pushed me mentally and physically. By sophomore year in high school, I was starting at linebacker for the junior varsity team. I then played two years on varsity. After that, I played four years of football at Georgetown University (along with other sports).
It was a life transforming encounter for me. The experience made me an American again. I was re-immersed into the culture. But, more importantly, the experience taught me something about myself. I can do things that everybody else thinks is crazy and succeed! Just like starting Flatiron Law Group!
I stayed in touch with Auggie for several years. But eventually we disconnected for a couple of decades. We only recently re-connected through the magic of LinkedIn. Amazingly, it turns out that Auggie left teaching, took an entry level job at a casino in Atlantic City, and rose from being a busboy to one of the most celebrated marketing leaders in the gaming industry, still working today!
Who, or what would you describe as your greatest teacher?
The biggest influence on me in terms of law is Stephan Mallenbaum, my long-time mentor (and still informal advisor). Stephan is one of the foremost thought leaders in the legal evolution space. And, unlike the academics who get paid by Big Law to lecture them on the future of law, Stephan has been out there in the trenches pushing actual change. He has served as a practicing corporate and M&A partner and in various strategic and legal capacities at several national law firms. He is currently the Executive Director of Seeger Weiss LLP, where he is helping the Firm fine tune its class action litigation business model.
Stephan plugged the gaps in my thinking that allowed me to conceptualize a law firm like Flatiron. Ever since I started practicing law, I understood intuitively that a business model that was premised on marking up the time of the most junior, inefficient labor was not economically rational for the client. But, for a long time, I accepted the industry argument that our artisanal ways were necessary in order to maintain quality. It’s Stephan that showed me that this argument is nonsense.
It’s just a fiction fabricated by Big Law to justify an antiquated business model. There are no structural obstacles unique to the legal industry that prevent the industry from evolving. Like accounting and banking, and other professional services, the delivery of legal services can be modernized by application of technology, by capturing and re-using legal data and knowledge, and by out-sourcing commodity tasks to more efficient providers. That’s what Stephan has been preaching at his various stops. That’s what we are doing at Flatiron.
What does your 'average' day look like?
We are a start-up, like any other start-up. On top of that, our practice model is a partner working model. All high value, high skill work that comes into Flatiron is handled by senior deal lawyers, leveraging our efficiency platform.
So, my business days typically consist of creative chaos. I spend a lot of time practicing law. I spend a lot of time testing and tinkering with the cool deal tools and platforms that my partner, Lennie Nuara, the architect of our technology strategy, and his team, are building for Flatiron.
I also spend a lot of time recruiting other attorneys. And I spend time evangelizing our model and our value proposition to the market, including by answering interviews like this one. I also work-out almost every day, walk the dog and grill for my girlfriend. On Friday nights, I watch my son play Friday Night Lights football (he is a rising senior in high school in Raleigh, North Carolina) or baseball!
At Flatiron, are there any skills that you have used or developed further that you thought were undervalued earlier in your career while working at law firms?
Yes, of course. That was the whole point of forming Flatiron. We formed Flatiron, and got outside the Big Law firewall, precisely so that we could finally use our business skills and think like business people in other industries.
Look, I remember, when I was a young partner at a big global law firm, I was invited to attend a management presentation given by Hildebrandt. The consultant advised us that, if we could only squeeze an extra 10 billable hours out of each associate each month, the monetary value of those extra hours would flow directly to the bottom line. Never mind that there are only 24 hours in a day, the associates were already billing 2,400 hours per year, and the strategy would drive over-billing, to the obvious detriment of the economic interests of the clients. That is what passes for strategic thinking in Big Law!
At Flatiron, we have flipped the script, adopting a largely fixed fee driven fee model. That means that, under our model, the more efficient we are, the more money we make. That changed everything. Now, instead of agonizing over how we can exploit junior associates even more, we are laser focused on figuring out how to deliver legal services more efficiently, at the lowest production cost, without compromising quality, by leveraging technology, machine learning, knowledge management, out-sourcing techniques and best business practices.
It has been a wonderful freeing experience.
The Flatiron experience, we want to know more!
What are some of the unforeseen benefits that isolating aspects of 'traditional' legal services and embracing new technologies have delivered at Flatiron?
When we embarked on this journey, building proprietary tools and platforms, we did it for ourselves, to make us more efficient. Because, under the fixed fee paradigm, the more efficient we are, the more profitable we are. It was a cost management exercise. What we didn’t foresee, and what we learned, was that the platform that we are building would also create lots of value for Buyers and Sellers. So much so, that our deal platform, which we now call M&A 3.1, has become a focal point of our sales pitch and our value proposition.
In a nutshell, we have taken the standard VDR, (which is nothing more than a glorified document repository), and layered on top of it legal intelligence and process management to create a digital deal ecosystem that captures the entire life cycle of the deal, from inception to post-closing integration. At the outset of each deal, we compile the critical legal materials and data, and then organize it, parse it, manipulate it and post it on our deal platform, so that the most sensitive information is accessible at each step of the deal. We build this tool for us, to eliminate the “re-doing” traditionally performed by lawyers. What we didn’t anticipate was our platform would become a cool resource for decision makers as well, enabling them to move faster, with better information and less risk.
Our platform surfaces problems early in the process, so that they can be solved before they become deal breakers. Our platform gives Buyers an easy tool to visualize complex corporate structures, giving them comfort to undertake due diligence projects. And, under our platform, critical data flows seamlessly through each step of the Deal directly into the post-closing integration process.
M&A 3.1 has become one of Flatiron’s biggest competitive differentiators.
How has the Flatiron approach when seeking strategic technology solutions to better serve clients evolved?
First of all, we are looking for cheap computing power. One of the seismic shits which has occurred over the past ten years or so is the advent of on-demand cloud computing power from services like ASW. This has been a game changer for Flatiron. Because it allows us to harness the computing power that we need to run our cloud-based practice platform and support our deal tools. We can build and support advanced tools and systems at a fraction of what Big Law pays to support its own proprietary systems. And our systems are always current, always up to date, supported on the cloud. While the proprietary systems of Big Law become obsolete after a few years. It enables us to level the playing field with Big Law.
In terms of software, we are not a technology company. We don’t want to build technology products. That’s not our skill set. Sure, we will hire developers to build custom improvements and patch together solutions. But, fundamentally, what we want to do is to layer our own proprietary legal intelligence on top of other people’s technology products, to create legal intelligence solutions. So, we look for technology products that are versatile, flexible and easy to manipulate. We like young companies because we find that the founders are often agreeable to working with us to implement the fixes that we want.
What tips would you give other legal startups who are navigating the onslaught of potential business partners that offer promising new solutions?1 response
We advise a lot of legal tech start-ups. Most of them are run by bright, young founders, sometimes lawyers. My principal piece of advice for them is that you cannot build sophisticated legal intelligence solutions for lawyers without the active support and participation of senior, experienced lawyers.
Look, the first generation of legal technology evolution is now behind us. E-Discovery has been a special success. But, let’s face it, the first generation of legal tech disintermediated secretaries, word processors, paralegals and very junior lawyer tasks, like the rote review of due diligence. The next frontier, indeed the holy grail of legal tech, is the automation of the process flow of law and the automation of the repetitive tasks that lawyers do every day, like contract drafting and regulatory filings. Because then you will be disintermediating $750 per hour lawyers, a much more lucrative target environment.
But in order to automate lawyering itself, you need to capture and productize legal intelligence and know-how. You can’t do that without the participation of senior lawyers, who know the deal flow and have the knowledge. That’s where a lot of these legal start-ups fall down. The founders know technology. But they don’t know enough about the practice of law to be credible in the market.
Now, that’s not a problem for Flatiron, since we own our own captive law firm. But, for other legal start-ups, they need to figure out a way to tap into the knowledge of experienced lawyers. That’s not easy. Because lawyers are not especially entrepreneurial and, by the time they know enough to be valuable, usually make a lot of money, are busy, and are proprietary about “know how”.
When we last heard from you, you also mentioned that Flatiron was looking into developing proprietary AI tools. How that has been going at Flatiron? What about in M&A/Venture law generally?
Yes, we are building cool tools. And we are parking our IP in a separate technology affiliate. It’s all very much a work in progress. And we are not ready to open the kimono. I mentioned our investment in building a digital M&A deal ecosystem, which is progressing well. We are also very interested in the DNA of legal contracts. We have been taking legal contracts and de-constructing them to the clause level, and then we parse, manipulate, improve and gather intelligence from the data. When we compile sufficient critical mass, we will apply machine learning to identify trends, patterns, consistencies, inconsistencies and best practices from the data. The objective will be to create a premium AI tool for senior deal lawyers that will enable them to re-construct contracts on the fly, using a simple Q&A inter-face, drawing from best in breed model clauses and legal intelligence. Check in with us later for more details!
In terms of market, M&A is a much more interesting market for AI than venture capital. We like the VC sector. We do a lot of venture capital work. But, in terms of a market for AI, venture capital is a small vertical with a small document set. The model clauses have already been posted on the NVCA site. And the VCs have commoditized the price point. There is not a lot of margin to capture.
M&A is a much more target rich environment for Flatiron. The sector is dominated by big global law firms which deploy legions of young lawyers to churn billable hours doing the same repetitive tasks over and over again. Using our M&A 3.1 platform, better business practices, and a more “progressive’ labor model, we can match, or even exceed, the quality of the big law firms in M&A, but at a fraction of their production costs. The end result of M&A 3.1 is a lot of efficiency for the client and a lot of margin for us.
Optimising legal services and providers of those services
What do you think are some of the overlooked or understated causal factors which currently stifle innovation in the provision of legal services?
The problem with driving legal innovation in Big Law is not technology, it’s the Big Law business model. Look, AI tools, like document assembly platforms, knowledge management repositories and process flow management systems, are just empty vessels. The tools are worthless unless they are populated by content and data from the people who have the knowledge, the senior lawyers. Which requires a significant investment of time and effort. I know because I have done it. But senior lawyers don’t want to invest time and effort in technology. Primarily because they don’t get paid to do it. Lawyers at big law firms get paid to produce billable hours. They don’t get paid to produce non-billable hours. And working on AI systems is considered non-billable work. So, unless and until Big Law decides to reward its senior talent for investing in proprietary AI systems, those lawyers won’t have economic incentive to do so.
What skills does a successful lawyer that specialises in the M&A or Venture Capital law require today that they didn’t require 5 years ago?
Lawyers who practice in M&A and VC law are going to have to figure out how to respond to market pressures on the price point from new and alternative providers of legal services, like Flatiron. It’s already happening in the venture capital sector. The venture capital funds have commoditized the price point.
And it’s going to happen in M&A as well. We are not the only law firm that is challenging the price point in M&A via the application of innovative business practices. It will take time in M&A. GCs are reluctant to let go of legacy legal relationships, especially in premium areas, like M&A. But GCs are also under pressure to rationalize outside legal costs (pressure which will increase when the economy slows).
In the venture capital area, Big Law has responded to the downward pressure on pricing by discounting, delegating more responsibility to junior lawyers and, frankly, by treating the work as a loss leader (in the hope of recapturing the loss when the client grows bigger). But discounting and delegating are not viable long-term strategies. They will inevitably lead to a decline in quality and loss of margin. And those strategies won’t work in M&A, where the work is much more complex and demands senior oversight.
Lawyers are going to have to acquire real world business skills to figure out how to reduce their production costs, without affecting quality, by adopting better business practices, leveraging technology and intelligence, and re-thinking the way that they deploy labor. Law firms are going to have to look at their overhead as well. Law firm corporate departments that don’t evolve are not going to survive.
How is big data changing the M&A landscape in the US and in particular, a lawyer’s role in that M&A landscape?
Yes, big data is going to impact the practice of M&A law, eventually, because, unlike venture capital, which tends to produce private deals, there are vast repositories of M&A deal documents in the public company databases, like EDGAR. Using machine learning techniques, those documents can be compiled and crunched to extract intelligence. That intelligence can in turn be channeled into knowledge management systems, giving M&A lawyers real time insights on market terms and best practices and the ability to construct M&A documents by summoning best in breed clauses derived from the databases. It’s all very premature at this point. But it is on Flatiron’s radar screen! Let’s revisit this topic at a later date!
Is the average law degree in the US more or less relevant to the business of law than it was 5 years ago? Why?
I am not one of those guys that screams and yells that law schools are not adequately preparing students for the new marketplace. Sure, it would be great for law schools to teach students technology skills so that they are ready to practice in the modern economy. But, in my view, the primary purpose of law school is to teach law, not practice skills. You can learn practice skills once you start practicing. Law school gives students the luxury of total immersion into the foundational principles of law. A luxury which is enormously useful for the practice of law, but which students won’t have once they start practicing law.
I think of my own experience. When I entered law school, I was very interested in the capital markets. So, I immersed myself in securities law classes and wrote a thesis. As a result of that experience, I acquired an instinctive sensitivity for the concept of “materiality” (what constitute a material disclosure). A sensitivity that still serves me well today. In contrast, a lot of my colleagues in the securities bar, who did not enjoy that foundational experience, struggle with the concept of “materiality”, because it is not intuitive. It is a unique construct of U.S. securities laws. To me, that is what law school is about.
The problem with law schools is not that they are not teaching properly. It’s that the industry is contracting. At the upper end, Big Law doesn’t need as many lawyers any more, in part because of pressure from alternative providers, like Flatiron. And, at the lower end, the return on investment doesn’t justify the cost of law school. You can make just as much money doing something else without the burden of paying the law school tuition. There are just too many law schools
For lawyers who are passionate about realising the benefit that new technologies and service delivery models can bring to the delivery of legal service, what tips would you give in relation to persuading their colleagues to join the cause?
Let me revisit a point that I made earlier. The principle obstacle to innovation in law is not technology adoption, it is the lawyers themselves. Most Big Law lawyers don’t get innovation. Understand, they were not trained in a real world environment where reducing production costs to maximize profitability is self-evident. Instead, they were taught that the way to make money in law is by “leveraging” junior labor. In other words, by practicing in the most inefficient way possible, because it generates more billable hours. So, when you approach a Big Law partner, don’t be surprised if innovation doesn’t compute.
The best way to persuade Big Law lawyers (who are not already a passionate technology evangelists) to adopt innovation is to appeal to their greed, to demonstrate that adopting innovation will make them more money. That reducing the production costs of their legal services via the adoption of innovation will allow them to price themselves more competitively, fending off the challenge from lower cost alternative providers, like Flatiron, while preserving (or even increasing) their profit margins on the revenue.
But, honestly, as persuasive as that argument may sound, it’s a heavy lift. Because adopting a margin driven model means shifting away from the billable hour “leverage” model to a fixed or hybrid fee model, like we did. And the billable hour model is baked into every part of the Big Law ecosystem, from labor, to high overhead, to office space, to Partner compensation. It would require a fundamental re-imagining of the way that Big Law does business. A restructuring that may make sense for certain practice sectors, like corporate and venture capital, but not for others, like litigation, where the old model works fine.
It’s the reason why we formed Flatiron. We finally came to the conclusion that real change could only happen outside the Big Law firewall, from law firm start-ups, like Flatiron. And it’s the reason why we are not stressing over the possibility of a pivot by Big Law to address the challenge from the alternative providers. Big Law is simply too invested in its legacy model to change, at least for the foreseeable future.