AmLaw Daily has a great interview with Richard Susskind about his new book The End of Lawyers?: Rethinking the Nature of Legal Services. It is essentially about the fundamental changes that are coming in the business models of lawyers due to changes in technology in general and the economy as a whole.

The book points to a future in which conventional legal advisers will be much less prominent in society than today and, in some walks of life, will indeed have no visibility at all. This, I believe, is where we will be taken by two forces: by a market pull towards commoditization and by pervasive development and uptake of information technology. At the same time, I identify a whole new set of jobs for lawyers who are prepared to spread their wings.

The fact of the matter is that almost everything that is not highly specialized has come down in price due to technology and commoditization. Richard argues that lawyers have fought against this for too long and need to start changing the way they do business or they will loose for good.

The cost for entrepreneurs of almost all repetitive non specialized things is trending towards zero. We all know that having our own server farm is now pretty much a silly thing to do, unless you are in the server farm business.

Ruby on Rails and Agile methodologies also introduced us to the innovative concept that our smartest most creative people shouldn’t spend 90% of their time on boring repetitive things like configuration and requirements documents.

Why should we still pay top dollars to lawyers for them to fill out word templates or advice us on simple things that google could solve just as easy for us? Why use a law firm to pay a premium on incorporation when 100s of companies who do this well are competing for your business via Google Ads?

Fear, Uncertainty and Doubt

The simple fact is that we pay big bucks to lawyers for silly tasks because of the centuries old campaign of FUD spread by the law industry about people doing things for themselves.

Like Interior Designers lawyers have essentially managed to run an outdated protection racket in the US. Each state has a private association known as a Bar Association which has a state granted monopoly on deciding who can practice law and also pretty much in deciding what “practice of law” means.

Nolo Press and Agree2 are forced by these rules to put silly disclaimers like this on our sites and books:

These also try as much as they possibly can to retain the lawyers monopoly on filling out word templates.

Legalese is another weapon for creating FUD in entrepreneurs. If you look at a contract and can’t understand it, the theory goes you should call a lawyer and have him revise it. Most don’t and hope everything is fine.

Law scholar Adam Freedman who wrote the brilliant Party of the First Part argues that legalese as a concept was pretty much invented and has been preserved by the law profession as a method of job protection over 500 ago.

The current argument I most hear from people who should know better is that each silly little piece of legalese is there because it has a specific legal meaning within the court.

I call total BS on this. If engineers believed in this we would still be riding our cotton to market on a horse drawn carriage. Judges are people. The vast majority of them very intelligent and perfectly able to understand plain English. If some new precedents have to be created so be it.

I know many programmers who live by these same principles. Talking technical BS where it isn’t necessary and overcomplicating architectures and code to preserve their jobs. It’s BS when we do it, it is BS when lawyers do it.

The good news is that the programmers who broke with this BS of the secret brotherhood of programmers now have more work than they can handle and bill at much higher rates, due to previously unheard levels of trust between the client and the programmer. I’m certain the same will be true for the lawyers who break the ranks of secret hand shakes, double talk and word templates.

the lawyers who break with tradition and build new traditions will probably end up with more work than they can handle. The ones who don’t will loose out to Agile US Lawyers, Online services and offshoreing, just like what happened in the US IT industry.

We need more simple on-line legal services

In the comments to the above interview Patrick McKenna says:

Online subscription services typically require a significant initial investment in non-billable time to establish and then take about three years to break-even. Those on-line services that were launched by many UK law firms five or more years ago are proving to be extremely profitable today. Meanwhile, too many US firms are obsessively intent on short-term billable hour requirements to consider making longer-term investments of this nature.

Just imagine the cool and profitable services a smart innovative (Agile) lawyer could come up with working with one or two good programmers.

Online company registration systems are a great example. They can and should be a lot more innovative. In the UK there are several law firms and Accountancies that offer legal/accounting services as complete package deals. Almost all US services are stuck in the Web 1.0/AOL era.

A corporate structure can easily be standardized with an online service to handle meetings, share registers and all standard form documents people use now. Innovate and make a lot more than you would billing people for dum repetitive work. Then focus on being their on standby for more traditional creative work for your now much larger client roster.

Shameless self promotion alert: We at Agree2 are trying to create a system for both lawyers and non-lawyers to manage agreements and legal templates. Our API would allow you to easily create and manage such services. If you have any ideas or would like to talk to us about it please email me personally at [email protected].

Be the next Lawrence Lessig

The GPL revolutionized software. Several years later Lawrence Lessig helped revolutionize the world of publishing with the Creative Commons License.

There are lots of other things that need revolutionizing. I’m in the Legal Committee of the Open Web Foundation where we are trying to create an open standard IPR license to allow employees of companies to be able to work on web specs without fear of IP attacks. This is important work, but there are lot more interesting things that should be commoditized.

Imagine when talking to prospective employees or investors that you could say we are incorporated under the CCA (Common Corporate Agreement). This imaginary package would be a standard Articles of Incorporation, Memoranda of Incorporation etc. It would be written in as plain English as possible and be sufficiently good to protect both founders and investors. The idea is like the GPL it is a common non negotiated concept that everyone understands.

Y Combinator have graciously published their package of Series AA Equity Financing Documents which offers some of this. Y Combinator have managed to standardize a lot of these things as part of their own business model, which is great. However they are not a well analyzed immutable generic object like the GPL. For more on these documents checkout The Startup Lawyers Analysis.

This is where someone like Lawrence Lessig comes in. A sharp charismatic lawyer who is willing to take on the existing traditions. We the entrepreneurs are willing to follow you. If you are such a lawyer read Seth Godin’s Tribes which should provide great inspiration.

Are you a MySQL or Postgresql scalability expert? Here’s an idea for you. Create and manage a MySQL and/or Postgresql cluster on SliceHost and one on Amazon’s Ec2 cloud. The customers would be people hosting their services in these clouds.

Your job would be to manage scaling, security, monitoring, backups and all of those things. We your customers would sign up and you would give us our connection details, provide monitoring services and links to backups on s3. As a matter of fact the gui would probably benefit if it was as nice and simple as the SliceHost gui.

EngineYard already does something similar as part of their hosting plan. More than the individual slices I feel this is their real value add.

The business model? You could either do tiered plans ala slicehost. Hook it up with Amazon’s Flexible Payment System and you could offer nice metered plans ala EC2.

Future services? How about remote mirroring between slicehost and ec2? Your customers could switch at will.

A simple version of this could be launched into beta by a single dba and a half decent rails programmer. If you’re both, what are you waiting for?

Starting costs? The cost of two slices at slicehost or two on EC2. You could make serious money doing this quickly. You would probably only need 10 or so paying customers to break even. This you could almost certainly get within a month. This is good steady monthly cashflow I’m telling ya.

Customers? Well me for one. I know it’s not that hard to setup MySQL clusters. I’d just rather not have to. I’d happily pay $10-20 for a low volume plan and considerably more for high volume. I’d be perfectly happy with a metered plan as well. With that I wouldn’t hesitate in moving all my rails projects onto it.

Go on do it, and let me know when I can sign up.

Update: See the comments below ScatterHost is being launched offering exactly this service for MySQL on EC2. Great news.

There have been two related blog posts in the last couple of days :The Cure to Our Economic Problems by Mark Cuban and Amen Brother Cuban by Matt Maroon that I can absolutely sympathise with. True entrepreneurs are so focused on their idea that they will find a way.

Mark says:

The impact of tax rates on productivity and development is something economists masterbate about, enterpreneurs don’t waste their time thinking about it. We have business to do.

Matt replies:

Exactly. When I started my first company I’d never even heard of capital gains taxes, and had no clue what I’d be paying even at the personal rate. All I knew was that I had an idea for a web site that I thought would be pretty successful (and it was) and I wanted the corporate veil for protection.

The current tax rates in the US aren’t so bad that they necessarily stop entrepreneurs. In particular entrepreneurs who aren’t focused yet on profits or business models are not particular worried. However before we start voting in more taxes, please listen to this cautionary example of Denmark.

It is possible to kill entrepreneurship through taxes. In my country Denmark taxes are pretty much double than what they are here in the US. When it reaches those levels it plays mind tricks on even the most devout entrepreneur. It colors your strategy and makes you do things you wouldn’t normally do if you were living in a more forgiving tax world. In the US Matt doesn’t have to know about Capital Gains Tax in Denmark he does.

Many Danish entrepreneurs that I know leave the country and go to more forgiving tax climates before they start their business. Just think of all the potential great business ideas that get left on the floor because potentially great people end up fearful to start their business in their own country.

If you start your business and then move to England or Spain you are forced to sell your business to yourself and pay at least %33 capital gains on it. Just imagine if you had to do that moving from say California to Oregon. Rather than face this many Danes never end up pursuing their dreams.

There are all sorts of loopholes and tricks that people who really want to pursue their dream in Denmark have to learn and go through. Isn’t it better to focus on your business than whether or not the computer you are buying to run your business is tax deductible or not.

You can read more about the problems facing startups in Denmark or my bootstrappers guide for Denmark.

One thing that Denmark has that the US doesn’t is a fairly reasonable corporate tax rate. Most European countries now have fairly low corporate taxes yet get you on their sky high personal income taxes and sales taxes.

The US could definitely do with a lower corporate income tax. We have the second highest in the OECD. As a startup the workaround for this is S Corps or LLC’s, where you are taxed at individual rates.

More important though than plain lower taxes would be a simplification of the tax structure. The US tax code is extremely complex. Intuit and various accounting firms have been lobbying to keep it as it is for years as it is obviously beneficial for them. We the individuals as well as startups suffer the consequences of this. It needs to be made simpler. Like what Mart Laar did in Estonia.

While I do think Taxation borders on the immoral, I think that an even worse side effect of taxation than taking your money is that it changes the way you think and manage your business and daily life. Lower it, but more important simplify it.

Are you contracting or freelancing? Would you like to but don’t want to deal with the hassle of all the paperwork? Hire an Umbrella Company to handle all that for you. The only problem if you are outside the UK is that there aren’t any. It’s an obvious business opportunity with a real need and real income, ready for the taking with plenty of space for competition.

Umbrella Companies are hired by their employees to handle invoicing, accounting and payroll for them. They provide a similar service to Professional Employer Organization’s with the exception that the customer is the contractor who becomes an employee and not the employer.

If you are a contractor or freelancer you become an employee of the umbrella company. Most companies in the UK provide a system where you enter your hours or invoice details via a web application. The umbrella company in turn invoices your client on your behalf. They then deduct whatever payroll tax they need to deduct and pay you your salary. In the UK most charge a fixed monthly fee, but I’m sure there are all sorts of other supplementary business models.

Where umbrella companies compete are on the benefits they offer, tax deductions you can take etc. You could imagine an umbrella company offering you the latest top model MacBook Pro. Behind the scenes they would lease it and deduct it from your invoices pretax. I seem to remember hearing about Companies in the UK offering car leasing and all manners of other kinds of deductions, all without the red tape you would normally deal with as a freelancer.

Really there are lots of ways you could do this. All you really need to do this is one or two good programmers and someone with payroll and/or accounting experience. You could probably even outsource the payroll part of it to one of the many Payroll companies out there like PayCycle or PayChex.

As an employer there are risks involved, but with proper advise from an account none greater than any other employer faces.

Umbrella companies became very popular for IT contractors in the UK a few years ago because of new tax legislation making it difficult to work through your own company (or corp 2 corp as they say here in the US). The great site Contractor UK has a List of Umbrella Companies but you can also google the term to see what you find.

With the face of business changing in the US, there are more and more reasons why people would hire an umbrella company.

Update: MBO Partners seem to offer an umbrella company option, which seems to support most of everything I talk about above. Anyone have experience with them?

We’ve already seen what happens when you leave drafting your agreements entirely to an uninterested legal team.

Yet people still have their lawyers draft up an agreement, which more than likely for most contracts really is a paralegal filling out a word template. There are lots of myths surrounding agreements that I wrote about earlier in It wont hold up in Court.

I can’t stress enough that an agreement is not between lawyers, it’s between it’s parties. You as the entrepreneur and the other party, whether it is your users in a User Agreement, your client in a consulting agreement or an investor in a term sheet.

Yes for many of these you need to bring lawyers in. In particular high value risky agreements such as Term Sheets you need lawyers to help you out. That does not remove your responsibility however to understand the core of the agreement.

The mysterious Uncle Saul who is now one of my favorite bloggers says in his great post Roping in the Legal Eagles :

As the businessperson with the most intimate knowledge of a particular deal, you should draft as much of the “business-oriented text” of your contracts as possible. At the very least, you or the appropriate member of your team should document the primary deal points in bullet-point form. The more specifically you document the business terms, the fewer iterations will be required to finalize the agreement. Even a highly attentive, business-oriented lawyer cannot put himself in your shoes. They do not work at your company, so there is no way they will have your insights. Thus, the more work you do upfront to document the business issues, the less you will ultimately be charged and the more closely the agreement will reflect the spirit of your verbal negotiations.

Your Lawyers do NOT and can NOT understand every aspect of your business. Only you and your team have that knowledge. Uncle Saul continues:

There is no magic language which makes an agreement legally binding; in fact, in most cases, the simpler the text, the better. Many a binding contract has been written on the equivalent of the back of a napkin. Once you draft the straightforward text, sans the legal mumbo-jumbo, ask your lawyer to review the text to ensure your layman descriptions do not result in an unintended interpretation. As noted in Tom and Huck, plans and agreements written in plain language reduce confusion and benefit all parties. If you select the right lawyer, he will not load up your text with gratuitous legal jargon (leave that job to the BDC’s legal squad).

Go read the rest of Roping in the Legal Eagles for more tips on how to create and deal with a good legal team.

I guess my best advise here is to remember that it is your job as an entrepreneur to take risks. It is the lawyers job to avoid risk. Don’t let the lawyer talk you out of risks worth taking, have him educate you so you can make the decision if the risk is worth taking.