Raging against the machine

Andy Greene, an entrepreneur and lawyer, is betting there’s a better way to represent small and midsize companies. And he’s looking for help.  - Chandler West
Andy Greene, an entrepreneur and lawyer, is betting there’s a better way to represent small and midsize companies. And he’s looking for help.  —Photo by Chandler West
March 2014

Andy Greene is betting that innovation can be as simple as a list of prices.

Fixed-fee evangelists may seem a dime a dozen in today’s stressed-out legal market. But few lawyers are as dedicated to making them work as Greene is.

For the past two years — and more than a decade before that if you count the idea’s gestation period while he worked in Big Law — Greene has been developing a new kind of legal business in Chicago.

It’s called Legati.

For all the thought and business planning it took Greene and a small team, Legati’s goal can be summed up like this: It’s meant to supply high-quality litigation services to businesses that have been priced out of the legal market by traditional law firm models — business plans that Greene believes force firms to focus only on providing the highest-priced legal services.

A good way to think of Legati — which Greene technically refers to as a third-party administrator model — is as a sort of funnel. Its website takes in business clients who are looking for litigation services at a lower, more predictable cost. And it filters those clients to a network of solo and small-firm lawyers who agree to serve those clients at prices that Legati advertises.

Legati makes money through what is essentially a referral fee. Lawyers don’t pay to be in the network. Instead, they are chosen by Greene through a review process intended to ensure Legati provides high-quality service. Most of the lawyers have spent time in Big Law. Few believe in the Big Law model.

Up to that point, Legati is not much different than the Business Law Network — an earlier foray Greene made into marketing a group of semi-connected business lawyers to small business clients via the Internet. Running BLN — like an iteration before it known as FizzLaw — has taught Greene valuable lessons for Legati. It’s also added to his confidence that Legati will succeed.

Legati represents an innovation in legal pricing similar to what now-defunct car company Saturn attempted for car buying: no negotiation, low-cost pricing. And Legati presents costsin a level of detail uncommon for its profession.

Need a complaint drafted for a matter worth $250,000 or less? That’s $3,900. A deposition is $2,200 in state court and $3,000 in federal court. Prepping for an expert witness runs $7,600. Pre-trial and post-trial motions, at $12,900, are the most expensive item. If your matter requires something other than the 17 explicitly priced legal maneuvers, an hourly rate of $175 will apply.

If your matter involves more than $250,000, the prices are roughly double. The hourly billable rate is $250.

At the moment, Legati has 10 attorneys from five law firms who exclusively handle litigation. Greene believes the Legati model can eventually be applied to almost any type of legal area, but as with any new business venture, there has to be a guinea pig: commercial litigation.

Greene, a co-founder of his six-lawyer firm, JG Law, is confident this first test of the market will yield a healthy prognosis.

But, of course, there are questions: Can he recruit the right lawyers? Will the marketing effort reach its intended audience of smaller business owners? How will they react?

Perhaps the most crucial question — Does more demand for legal services exist at the price point that Legati offers? — is also what Greene seems most sure about. That’s thanks in large part to his experience in Big Law and years he’s spent tinkering with his own firm to service those clients.

“The size of the business legal market … depending on how you measure it, has been put at anywhere between $80 (billion) and $120 billion. There is billions that isn’t being serviced by the AmLaw 200,” Greene said. “This is where we think the legal market needs to go. … The need is there.”

Motivating factors

One of the most interesting questions behind Greene’s gambit is motivation.

Plenty of practitioners and commentators lament about a lack of innovation, and headlines like “The last days of Big Law” attract many eyes.

But change within the legal market is notoriously slow-paced. And lawyers who have the clients to continue to bill hours within a law firm setting (a crucial aspect for success in a new firm or another venture like Legati) don’t have an immediate incentive to risk it.

Big Law is still a highly lucrative field for successful partners, with the AmLaw 100 averaging profits per partner of $1.47 million in 2012.

GreeneSo what pushes somebody like Greene to actually invest in trying to find a new business model?

To be sure, running Legati isn’t free — it has five employees, office space and the expenses that come with those things — and it’s currently (and for the foreseeable future, Greene said) self-funded.

Greene’s short answer is that it was a long process to get to this point. The long answer, though, can be boiled down to three trends that have directly impacted his 20-year legal career and that he believes Legati capitalizes on:

1.Decades of fee creep at law firms increasingly makes smaller businesses all the more unlikely to afford Big Law or even midsize firms.

2.Those same business owners are more and more willing to hire lawyers through Google searches instead of relying on referrals or law firm prestige rankings.

3.More sophisticated legal purchasers are demanding price certainty, and those demands have been difficult for large firms to meet.

A tinkerer’s training

A fourth aspect is Greene’s penchant for spotting business mistakes where other lawyers see standard operating procedure.

The earliest example of that came shortly after Greene made partner in the litigation group at Altheimer & Gray in 2002, which is where he practiced after graduating from Northwestern University School of Law in 1994.

He set his sights on the firm’s associate training model.

It was a system that may be well-known to Big Law alumni: Partners handed out work to associates, in effect, however they deemed fit.

What that often meant was associates with chummy relationships with partners or who were already producing good work attracted a disproportionate amount of matters — especially the plum assignments that were the most professionally rewarding.

While lawyers traditionally saw that as a useful way to groom future partners, Greene saw it as a waste of talent and money.

Instead of picking winners and losers and, in the process, winnowing out associates and wasting salaries north of $100,000, the firm should view every young lawyer’s success as a way to expand potential revenue, Greene said. In addition, providing more equal training assignments diminishes the odds that associates will become disgruntled and leave.

“I think the industry has forgotten that it’s actually a good business model to train young people,” Greene said.

“You only have so many hours in the day. If you train more junior people and develop them to the point where they can take on matters and take on clients directly, you’re increasing the supply of what you can provide and you can generate more revenue through them.”

So Greene set out to do just that. He implemented a system whereby he and his former law partner Iain Johnston (a co-founder of Greene’s law firm, JG Law, and now a federal magistrate judge in Rockford) distributed matters for the entire Altheimer & Gray litigation department. They took into special consideration whether all associates were being brought along the same path.

“Andy and Iain were willing to step in and say, ‘Well, fine, let’s actually solve this. Let’s find a solution to this problem,’ And to their credit, the department let them do it,” said Heidi Steiner, a former Altheimer & Gray litigator who now works with Greene at JG Law.

“And they were able to do that. (Andy) just did things like that. He’s always been willing to put in a tremendous amount of his own time to tinker with the status quo — and to everyone’s benefit.”

Leaving Big Law

While his revision of the associate training model was successful, Greene’s other attempts to innovate within the structure of a Big Law firm were often stifled.

His biggest concern was that he was losing out on servicing the very clients he enjoyed the most: small and midsize business owners.

“I got very frustrated with the increasing frequency where I would have a solution (and) be able to help them solve a problem, but my cost was so high — because as in most firms, my billing rate was going up every year — that my cost became the main issue,” Greene said.

“It became almost as big a problem, and sometimes a bigger problem, than what they hired me for in the first place.”

He tried to remedy that. But the business proposals he wrote outlining a task force of attorneys to market themselves — and fixed fees — to smaller clients largely went unnoticed within the firm.

When Altheimer & Gray abruptly dissolved in 2003, it was “a very real and vivid reminder of how fragile our industry can be,” Greene said. It only further solidified his view that the law business was ripe for disruption.

After his first firm’s failure, he spent a few years as a partner at Sonnenschein Nath & Rosenthal (now Dentons). When his business ideas were met with a similarly cool response, he concluded there was no space for his favorite clients at the top of the large law firm pyramid.

Legati
A look at some of the services Legati offers on its site, www.legatilaw.com.

“Perhaps it was naive of me to ever think that it was appropriate for those firms,” Greene said. “It was just a different business model.”

Consider this the moment Greene began to believe trend No. 1 on his path to forming Legati: Decades of fee creep at law firms increasingly makes smaller businesses all the more unlikely to afford Big Law or even midsize firms.

For Legati’s sake, Greene views this trend as an opportunity to enter into a market that has few competitors.

“I don’t know anyone who has published their pricing and is offering services from an experienced network of commercial litigators. I’m sure there are competitors, but I’m not sure who’s offering this service in the same way,” Greene said.

“I think (Legati’s) market — the small- and middle-sized business — I don’t think they’re the target of most law firms. I think most law firms over the past 10 to 15 years have consciously decided to go towards the higher end of the pyramid.”

Big-firm quality, small-firm flexibility

With the rough goal of implementing the business plans that had so often been shot down at his former firms, Greene left Sonnenschein in 2007 to hang a shingle with Johnston.

At the forefront of their plan was to implement fixed fees and alternative-pricing agreements they long believed would open their services up to a broader swath of the market.

Of the pair, Johnston said Greene first picked up on the trends that led to the duo opening their own firm.

“He’s the most creative lawyer I know — by far,” Johnston said. “In both a business sense and as a litigator. He’s always trying to think of ways to challenge the premise of pretty much anything, which can be annoying at times. But he always does it in a pleasant way with a sense of humor.”

Steiner, who worked with the duo before Johnston became a judge, said they complemented each other well. Johnston approached the law from a more traditional standpoint, Steiner said, and Greene often got fired up about changing the traditional business model.

Johnston said Greene “would go off on … kicks” about the problems of the billable hour — to which Steiner would jokingly exhort: “Rage against the machine, Andy. Rage against the machine!”

“I mean, because it’s ridiculous,” Steiner said, laughing as she recalled her quips. “We’re a law firm. We’re a bunch of 40-something lawyers. You know, rage against the machine during the day and then go home in my SUV. And get a latte on the way. There’s a comedy to it.”

Greene, Johnston said, had long struggled against the conventional wisdom of the billable hour. But when the duo first began selling clients on their new alternative fees, they encountered pushback. That was strange to Johnston, especially considering the clients were often getting the better end of the deal as the pair used a trial-and-error approach to determine prices that could sustain their practice. Eventually, though, they got it down.

“We got in the habit of being able to price things correctly and make a profit on them,” Greene said. “So we could literally save clients tens of thousands and, in some cases, hundreds of thousands of dollars.

“But we’d still come out profitably, which means you can keep doing it.”

After a while practicing and introducing himself to other small-firm lawyers, Greene realized he wasn’t alone. There were plenty of lawyers “flying under the radar,” he said, who were successfully implementing alternative fees and serving the very market of small and midsize businesses that he was.

He met folks such as Patrick Richards, owner of four-lawyer Richards Patent Law and a former McDermott Will & Emery partner; solo practitioner and former Barnes & Thornburg associate Steven E. Anderson; and Daryl Schumacher, a financial services veteran who had practiced at Piper, Rudnick and other large firms but was now part of a smaller shop.

He had conversations with some of the attorneys (those three are a small sample and not necessarily whom he spoke with) about merging firms. But the consensus was these lawyers had made a conscious decision to be autonomous, and autonomous they would stay.

Enter the Business Law Network.

It was a way to keep the autonomy everyone desired but to attract larger business matters that two or more members could team up on. It functions much like Legati — as an intake service for clients and a referral network for lawyers — but does not have a formal list of prices.

“It’s a concept that I think has a place in the market,” said Schumacher, of Kopecky Schumacher Bleakley & Rosenburg. “When you’re with a big firm, I think your big advantage is your firm has wide expertise across a broad range of practices.

“What Andy has conceptualized brings that expertise. … There’s somebody in the network that I can reach out to or who can help me” offer a similar broad range of practices.

Greene believes in that concept, but the BLN was also something else — a test of trend No. 2: Will clients hire lawyers they found via a Google search?

After all, the BLN’s most prominent home was the Internet.

“We’ve found through the Business Lawyers Network that there are a lot of small businesses that are looking for legal resources through Web searches, through Google,” Greene said.

“We’ve gotten a feel for what types of people look for legal services through the Web. Some of our members have very effectively used websites and Google search to reach business clients.”

One prime example is Richards, the former McDermott attorney. His business tripled last year. He hired three new lawyers. Three of the firm’s four lawyers, including himself, could maintain a packed schedule on clients received through Google searches alone, he said.

“I think his concepts are great,” Richards said of Greene. “I think what he’s doing is going to be a success. It might take a longer growth curve than I had, because my practice is so specialized that I think that makes it easier to stand out.”

Legati’s prospects

But to Greene, BLN was only a first step. The natural evolution always involved something like Legati, which would advertise the real difference-maker that this coalition of small-firm lawyers presents: price savings and near-absolute certainty.

“If we want to convince people that that’s what we’re doing, we can’t just talk in vague terms about being more cost-effective or using alternative billing,” Greene said.

“Everyone uses those terms, but most clients out there have heard it and some of them have been burned. So we said, ‘If we’re really going to do this, we’ve got to put our prices out there.’”

At least according to a survey of general counsels by management consulting firm Altman Weil, Greene is right that talking about fixed-fee prices seems more prevalent than actually offering them.

When asked to rate how serious they believed their law firms were about providing alternative fees on a 1 (“not at all serious”) to 10 (“doing everything they can”) scale, the median response of more than 200 chief legal officers was a 3. Meanwhile, general counsels said they were still demanding alternative fees to the same extent as in prior years.

“I’m seeing a level of frustration (among general counsels) that law firms aren’t responding to their requests or their needs and so they are starting to take things into their own hands,” said Daniel J. DeLucchio Jr., an Altman Weil consultant.

“And I think as the (general counsels) who are really under pressure to control costs and manage legal services, as they continue to do more and more things on their own or find more alternatives to the firms, I think the firms will start to feel a little more pain.”

Consider that trend No. 3: More sophisticated legal purchasers are demanding price certainty, and those demands have been difficult for large firms to meet.

To Greene, it assuages concerns that a move from Big Law to a smaller shop inherently means less-interesting cases. Others in the network, though, admitted that is a concern.

“I absolutely believe that once you get out of the mega-firm environment, that question is always out there,” Schumacher said. “Our hope is that Legati attracts clients with interesting, quality cases. And I think those are some of the cases that Andy’s focusing on.”

Greene also believes general counsels will continue to look for innovative pricing structures, and, he hopes, Legati will be among their choices.

“Complex, meaty cases — they’re not by any stretch limited to Fortune 200 clients. They exist on every spectrum of the business world,” Greene said. “I haven’t found it to be a problem. I haven’t found my own practice lacking since I left a big firm six years ago. I actually think there will be more and more in the future.”

Greene remains confident his business model will prove itself — and there’s nobody holding him back from pursuing it. So far, he’s only gained momentum. He stopped accepting applications to BLN because he couldn’t review the lawyers’ credentials fast enough. He doesn’t want to grow if that means diminishing the group’s overall quality.

“I think everybody in our industry recognizes that it’s changing and that it needs to change,” Greene said. “And so whether it’s me or somebody else, whenever anybody talks about really trying to move the ball forward, people get excited and people want to be a part of that.

“And if Legati can actually generate new clients for people and expand the market, then people will absolutely continue to buy in.”

But what if his bet doesn’t pan out?

“There’s always a risk of failure,” he said. “But we’ve got to try. It’s just unacceptable to be in an industry that doesn’t service most of its potential clients.”