The Entrepreneur who is Disrupting the Legal Market

Photo © LegalZoom.

Sam: Can you tell me what caused you to wake up one day and say, I’m going to set up LegalZoom?

Eddie: It wasn’t like that! It was a much longer process. I had two good friends, Brian Liu and Brian Lee, who were both wonderful lawyers but had emerged from law school, like everyone else, with an enormous amount of debt. The average debt for law students in the US is $135,000 — how do you pay that debt off? If you try private practice — helping families or helping people with bankruptcy or tax issues — be prepared for a very long haul. It might take you thirty years to pay it off.

My friends wanted to get on with their lives, and they were smart and lucky. So they found themselves working at big law firms. But life in these big law firms when you’re in your twenties is miserable. They thought there must be a better way to get this done. And we began talking through a series of truly awful ideas.

But then one day Brian Liu said, What if we took very simple documents, very simple legal procedures and put them online? And that was the moment!

But I had no idea that people were willing to pay for it. I didn’t know the first thing about law — we don’t think about these things until we’re in a crisis moment. One of the nice things about LegalZoom is that it zooms right in there. When a person is in a crisis moment, I like to think LegalZoom’s a good solution. People with a credit card and an internet connection can get legal help. And that proved to be a good model.

Sam: So looking at entrepreneurship, from my experience I think there are three things that you need to do as an entrepreneur: get the product in really good shape, find a way to penetrate the market, and secure financing. What can you tell us about making sure the product is top-notch?

Eddie: Let’s begin by saying what is top-notch. Years ago, I went to Texas in the wintertime and I had my three-year-old daughter with me. It turns out that parts of Texas get very cold in the winter. Having lived in California I didn’t anticipate that, and my daughter was freezing. We went to a store and we bought a coat for $40. Now was this coat waterproof? I don’t know — it wasn’t raining. Was this coat windproof to arctic temperatures? I don’t know — there was no wind blowing. Would this coat have held up for years? I’m not sure — she grew up and we only used it for about a year.

Now it’s entirely possible that someone would say, ‘It’s not waterproof, it’s not windproof, it won’t last for five years. That is not a top-notch coat.’ But here’s the thing. It was a top-notch coat because I could afford it and it kept her warm. So let’s begin by saying that top-notch is the thing that solves your problem as effectively as possible.

The same is true for the legal equivalent. I don’t need expensive advice that takes a lawyer weeks of research on situations that will never occur. A top-notch legal product is one that solves the problem at hand.

Sam: And to find the market fit, did you do any research?

Eddie: Yes, we asked people about their concerns, about their life situation. We asked them how much they think they can afford, and what they think is a reasonable price and an expensive price. And we asked when they needed certain things, like a will or a trademark or conveyancing, so we would know the right time to approach them. We tried to find out what is the benefit to a person, what are they willing to pay, and when is the right time to approach them.

Sam: What about the second component? You have your product, then you need to grow your market. What advice do you have there?

Eddie: You need to be prepared to partner. Because if you’re interested in becoming an entrepreneur, an alternative legal service provider, that means that you can work with technology people, you can work with operations people, you can work with marketing people and consider them just as much a part of the organization as the lawyers. You can say, ‘We’re all going to work together to fashion a solution.’ Law firms don’t operate that way, so you have a huge advantage. Especially when you focus first and foremost on what exactly people need and are willing to pay for.

Sam: OK, let’s go on to financing. What tips could you give budding entrepreneurs about attracting money to what you’re doing?

Eddie: It’s often attractive to people who are thinking about a legal start-up to go to lawyers for investment. But most lawyers will only invest in you if you’re doing something that fits with their idea of the traditional practice of law. The problem is that most people who want to finance companies don’t understand law. But they do understand that there are regulations that seem complex. They look up the history and see that companies like LegalZoom have found themselves in hot water. And that has a chilling effect on people’s willingness to invest.

But I believe the tide is turning. Quite a bit of capital is flowing into legal tech and legal innovation. Many companies are starting to see the ice crack a little bit. So it’s a good time to be looking for investment. For example, anyone can dial into Stanford CodeX calls, which is a great way to meet people in the community and potentially also people who are investing. I’ve seen Google Ventures there more than once, and other venture capitalists. You can call in from around the world, look at a few sessions and then write in and say you’d like to present or participate more actively.

Sam: You mentioned the hot water LegalZoom has on occasion found itself in. What are the obstacles facing legal entrepreneurs like yourself?

Eddie: There’s a very deliberate set of laws designed to hold us back. Lawyers are in this to make money, and they have a guild that not only controls the way that law is practiced, but it also controls the legal market. So the laws that restrict entrepreneurship are arbitrated by magistrates, who are also market participants, and your right of recourse is to other lawyers, who are also market participants. In other words, you only have market participants creating the rules, enforcing the rules, arbitrating the rules, and allowing appeals to the rules.

And there is this group of people saying there must be a different way to give people access to legal help — we can do it cheaper, we can do it more efficiently, we can do it to a higher level of quality — but the old guard are holding them back.

Sam: Can you give me an example of a rule that limits entrepreneurs’ ability to operate?

Eddie: There is a thicket of regulatory rules pertaining to things like restrictions on the corporate practice of law, restrictions on unauthorized practices, and restrictions on advertising. Why are there restrictions on advertising? If we recognize that so much of the problem of access to justice is that people don’t know when they’ve got a legal problem and they don’t know who to turn to because there are no brands they know or can trust, why do we have regulations prohibiting advertising? Is it because it’s unseemly? I’d argue that having 70% of defendants in family court being unrepresented is unseemly — many of these people are trying to get custody of a child.

It comes down to the question of, “Does law exist because lawyers need to eat or does law exist because there’s injustice?” If we believe that law exists because there’s injustice, then what the heck are advertising restrictions doing?

Sam: And these rules make the market less efficient at finding affordable solutions than it should be?

Eddie: Right. By failing to embrace process, technology and marketing — the very things that most modern corporations embrace — we are failing to take advantage of a better, safer solution. We are, in other words, acting negligently. We know that there’s a better solution and we’re failing to take advantage of it because lawyers have a financial interest in not changing.

And it doesn’t even always help the lawyers, even though it was lawyers who put the regulations in place. The average solo law practitioner in the US only gets between six and eight hours of billable work per week. Unfortunately, lawyers are now the captives of their own regulatory system.

There’s a huge amount of demand and there’s a huge amount of supply, but they’re not connecting to each other because of all this friction caused by the regulatory environment. And alternative legal providers could soak up some of the weight, so that people at least have somewhere to go. So it’s small wonder that lawyers are trying as hard as they can to outlaw it, stamp it out of existence, sue it out of existence, bury their heads and hope that it goes away.

Sam: OK, now for my final question. We’ve talked about things that apply to Western markets, but we know that we have this this huge access to justice gap in large parts of Africa, the Middle East and other regions. I’ve just come back from Niger where they have an amazing Minister of Justice who really wants to change things and built an incredible team. But Niger is one of the poorest countries in the world. It needs help. So is there anything you could say about how the private sector and private money, as we recommended in the Justice for All report, could be deployed to that part of the world so that the kind of technologies and processes we’ve been talking about can be scaled up there? Because Western donors are still giving money to those countries to train more lawyers and judges, reinforce the Bar Association and help them with case management systems — they’re sticking to the old, failed model that we know doesn’t deliver justice for all.

Eddie: You need to encourage market participants who can nibble at the middle to top of the market. They need oxygen in the form of revenue, and they need to be allowed to create a market. This won’t really help the poorest people in those countries, but the new firms will do things like make forms available or make a certain level of advice available. Even if their aim is to get the high-revenue customers, some low-revenue customers will also be part of the bargain. And by showing how simple it is and by giving people a taste, a taste is the doorway to hunger.

And how do you generate more public tax dollars? You motivate people to care about what they’re not getting. People will riot for a chance to vote, for example. I think that if people truly understood the value of what’s being taken from them, they would demand more allocation to justice from their governments. And that would create the necessary revenues.

So you need to start with some cleansing fire, as they call it in forestry: clear out some underbrush, free up space for new saplings. And having a few new entrants to the market will give a small benefit to a lower tier of consumers with legal issues, who then having gotten a taste of it get an idea of what they’re missing.

Because let’s face it, in Niger and in the West, people are being swindled. They’re being swindled out of one of the most important things, equal access to justice. If we were being swindled out of medical systems in this way, we’d be outraged. We need to open our eyes.