When is a technology start-up like a law firm?

What does a technology-based start-up company have in common with a young, commercial law firm?

Clearly, it depends on the company and the firm. IP Draughts has seen dozens of start-up companies at close quarters, some of them at very close quarters as a virtual, in-house lawyer. He has observed them grow in various ways – through self-financing, through external investment, through listing on Stock Exchanges in the UK and overseas, and through acquisition by larger companies. He has seen some of them fail, when their business model is flawed, when their products in development don’t make it to market, or when they run out of money.

He only has experience of running one young, commercial law firm. Anderson Law LLP has grown steadily from one lawyer to 11 over 23 years. Six of them trained with the firm.

The business model of a start-up company is typically more ambitious than that of a law firm. Many companies want to scale-up to the point where the shareholders make a large return on their investment. Many law firms, by contrast, are closer to the ‘life-style companies’ so despised by the investors in Dragon’s Den – typically, a lawyer sells his time, and the opportunities to scale that up are limited. The lawyer may eventually manage a team of lawyers and generate profit from their time, but there are natural limits to the scale of this activity. Attempts to monetise law firms through outside investment have, so far, largely failed.

Despite these differences, there are some lessons that are common to both types of enterprise.

  1. Provide a good product or service that people want. Without this element, the business will automatically fail. Many start-ups fail because they don’t understand the market or their place in it. Some founders are brilliant in their own way, but lack commercial astuteness. Our law firm is never going to be instructed on the merger of GSK with AstraZeneca, but we have our own set of skills and scale, and we try to match them with client needs.
  2. Develop the market. For a company selling widgets, this may mean finding new customers or developing new products, or both. For a law firm like ours, we hope to have a long-term relationship with clients and get repeat instructions. But inevitably some clients disappear or move on to other firms, and we are also ambitious to grow; the more lawyers we employ, the more work we need for them. Therefore, we need to have a pipeline of new clients over time. In our case, these mostly come from referrals and long-term reputation, rather than advertising or promotion.
  3. Hire good people. Preferably, hire people better than yourself. Finding good people who are self-motivated, and a cultural ‘fit’ with the organisation, is an essential part of growing a business. What can you offer them, to make them want to join a technology start-up or small law firm? In our case, we can offer high-quality work, working with high-quality colleagues, without the pressures of a City law firm.
  4. Create an environment where people want to work. Once you have hired good people, you need to keep them. Have you created a collegiate working environment, where people feel that they are valued, and where they are able to develop their careers and do good work? Regrettably, IP Draughts has seen some organisations where employees are treated as commodities, or where the employee is under pressure to justify their existence, and this is not the type of environment in which he wants to work or employ others to work.
  5. Be clear on your objectives and values, communicate them well. These are two separate points, but both need to be communicated to staff and to the outside world. The organisation needs both a set of values, and a direction of travel for its business. The organisation’s leaders need to establish these and keep communicating them through words and deeds. Some technology start-ups are actually very good at this, particulary when led by a charismatic founder. In our law firm, the values include a strong ethical base, a commitment to technical excellence, and a pragmatic and creative approach. The direction of travel includes developing long-term relationships with clients, maintaining high levels of service, and steadily building the size and reputation of the firm. There are both modern and traditional elements to this mix; some start-up law firms seem so keen to emphasise their difference from what they perceive as ‘stuffy’ traditional law firms that they are in danger of throwing the baby out with the bathwater. Some elements of UK law firms are best-in-class, though it is fashionable to denigrate them.
  6. Plan for growth. The company or firm needs to think about the long-term and not just the day-to-day business of making sales. How are the leaders going to grow the organisation, what people and resources does the organisation need, and how is it going to position its public communications to reflect the longer-term aspirations? Technology start-ups tend to be better than the average SME at doing these things. In our case, moving to Oxfordshire and building new offices, 15 years ago, provided us with the space to grow. Taking on trainees periodically has helped us to develop our complement of staff; there is no immediate financial return from such hirings, but they are an investment for several years ahead.
  7. Succession planning: avoid ‘founder’s syndrome’. Linked to the previous point, the structure of the organisation needs to keep adapting as the organisation grows. There is a phenomenom known as founder’s syndrome, which refers to the problems that can arise where the founder of an organisation becomes a liability as the organisation grows. Some technology start-ups initially need the energy and drive of their technical founder, but later need a professional manager and a more ‘organised’ way of working.  A related issue for law firms is what happens when their founder retires – do his clients stay with the firm, and does the firm have the right management structure to continue without him? In IP Draughts’ case, though he is not planning to retire for many years yet, he has tried to ensure that all clients are used to working with younger members of the firm, and that the partnership includes people with different skills (including management skills), but with all of them being engaging, pragmatic, ethical, technically-excellent lawyers who contribute to the future direction of the firm.

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