New Business Model
Antidote for Law Firm Burnout
By Sarah Ruby
Save the Lawyers. That’s the cause to which Alec Guettel, MBA ’97, has dedicated himself since 1999, when he and an attorney friend cofounded a company bent on using technology to liberate lawyers from the tyranny of the billable hour.
In the process Guettel and his company, Axiom Legal, also have spared clients the exorbitant fees required to keep traditional law firms afloat. Axiom hires high-powered lawyers from top firms and corporations and matches them up with interesting projects—mostly short-term assignments from corporate general counsel. These attorneys give up the promise of making partner, a sacrifice that some 170 lawyers in New York, San Francisco, and London so far have been delighted to make.
“There’s got to be a better way to do things in this industry,” Guettel said. “[Law firms] can be frustrating and inefficient for clients and very unhappy homes for attorneys.”
Burnout is a common complaint among lawyers, some of whom are expected to bill clients for as many as 2,000 work hours each year. Attrition rates are high, with some 80 percent of associates leaving fancy law firm jobs within five years of being hired, according to figures compiled by the Project for Attorney Retention at UC Hastings College of the Law’s Center for WorkLife Law in San Francisco. Of the associates that stay on, more than half doubt they’ll be working at a law firm in five years.
Guettel’s partner, attorney Mark Harris, had taken a job at a prominent New York law firm where in one month he billed the equivalent of his entire annual salary. For the next 11 months his work helped pay off the firm’s overhead. Frustrated by what he saw as inefficiency, Harris sat down with Guettel in 1999 to brainstorm a new legal business model. The result: Axiom attorneys work from home or clients’ offices, eliminating 30 percent of a traditional firm’s overhead. Axiom also abandoned the partner structure, in which top attorneys are paid with revenue generated by younger lawyers, and passed that savings on to clients: Rich partner salaries account for another 30 percent of a typical firm’s operating budget.
Axiom’s business model is made possible by the internet. Initially, the company provided researchers and secretaries for its lawyers, but they didn’t get used. The days of dictation and longhand drafting are over, and as long as Axiom pays for online research tools, its attorneys are self-sufficient. “Lawyers can access the resources they need from anywhere they can operate a laptop,” Guettel said. “So why pay for a mahogany-paneled office in midtown?”
At first it was tough to convince clients to take a chance on a legal startup. But in 2001, Axiom landed Reuters, its first blue-chip client, which was making acquisitions in the financial information services industry. Axiom was able to ride on the reputation of Reuters and other early clients as it began to develop a brand of its own.
Today its clients include Cisco Systems, Google, Yahoo, eBay, Goldman Sachs, and Genentech, and the company has just about doubled revenues each year since 2003, when it first turned a profit. Last year Axiom took in $31 million.
“Everyone [in Silicon Valley] is using Axiom to some extent and considering how to use [the company] more because of the flexibility,” said Michael Callahan, general counsel for Yahoo, who started hiring Axiom attorneys for in-house assignments in mid-2006. “You’re getting really experienced people. You’re not dealing with the overhead of the law firm. … [Axiom attorneys] can walk right in and pick it up.”
Guettel’s firm caught on relatively quickly because it fills a demand in the marketplace, said Peter Zeughauser, an attorney and chairman of the Zeughauser Group, an international legal consulting firm based in Newport Beach, Calif. “Globalization has generated more work for lawyers, but it also increased competitiveness among firms for new business,” he said. Because top lawyers are in short supply, firms pay incredible salaries to hire and retain the best, the cost of which is passed on to clients. Lawyers, meanwhile, are pressured to bill thousands of hours each year to keep firms afloat, he said.
Clients are looking for ways to cut legal costs at the same time many lawyers are looking for an alternative to the partner track, in which they work for the better part of a decade to become partner, a position that nets even more work and more money. Axiom meets the demand for change by hiring experienced lawyers, charging less for their services, and giving attorneys a say in how they want to structure their work week. It’s an “elegant” solution to several problems, Zeughauser said.
Axiom doesn’t compete with law firm salaries, but it does pay a bit more than what attorneys would make as in-house counsel, Guettel said. Lawyers join Axiom as paid employees with benefits, and about three-fourths of them choose to work full time. If they decide to work less, they take home less money. Given this flexibility, Axiom employs more moms than a typical firm, but the overall gender breakdown is about half and half.
Guettel’s mission is to change the legal profession in a permanent way, but he doesn’t predict the end of the traditional law firm. Large mergers and acquisitions are still the domain of big firms, as are class action and other contingency cases. Besides, Axiom enjoys a “healthy symbiosis” with law firms, Guettel said. The law firm model relies on armies of young lawyers to support a few partners at the top. Burnout and attrition aside, the imbalance creates a constant stream of qualified, firm-trained attorneys from which Axiom can choose.
Axiom’s early backers envision it outgrowing its current niche as a high-end legal outsourcing agency. Bob Kagle, MBA ’80, an Axiom investor and partner at Benchmark Capital, sees Axiom leading an industry-wide revolution facilitated by the internet. He envisions a clearinghouse of highly qualified attorneys and interesting projects, an online marketplace that does for legal services what eBay did for garage sales and flea markets.
“It would be really great if you could find the world’s authority in a few keyboard strokes,” said Kagle, an early investor in eBay and other consumer internet companies.
Kagle also was drawn to Axiom because of its potential to empower lawyers. “It was almost as if [Axiom’s founders] were seeing this as a liberation of the attorneys,” he said.
Among the liberated is Marlene McLarty, a 1990 Stanford graduate and a Columbia Law School grad who quit her New York City law firm job after she had her second child. She stayed home with her children for a year and a half, psyching herself up for a career change or an eventual return to full-time work. She didn’t think she would get anything part time.
Then she found Axiom. The company hired her about a year ago, and she now works four days a week, part time, at a financial services company 10 minutes from her Westchester home. She turned down a few full-time assignments in the first six months with Axiom, holding out for a gig that would fit with her family’s needs, she said. She credits Axiom with the fact that she’s still a lawyer.
“A lot of what I hated [about being a lawyer] was tied to the fact that it was in a law firm setting,” she said. “This flexibility I now have makes me enjoy being a lawyer so much more.”