I think there's a place for SimpleLegal and services like it, but when it comes to managing professional service fees, some things are worth pointing out:
1. In many cases, clients have themselves to blame for "unnecessary" costs. Lots of clients fail to educate themselves on legal issues before they engage with their attorneys, so interactions are lengthier than they need be, and often some work that clients can do themselves (organization and preparation of materials, etc.) gets offloaded to the law firm. Many costly litigation matters arise because clients aren't proactive on the prevention front.
2. Clients often choose the wrong providers. The OP writes:
"Buried in those 200 pages were charges from a law student. It wasn't much. But charging over $200/hr for someone less than halfway through law school is one of those self-inflicted image hits that's tough to stomach."
If you use a large, full-service law firm, you should not be at all surprised that a summer associate billed against a matter. Do some clients push back on summer associate hours? Sure. But if you expect an experienced attorney to perform all of the work for you and you have a low tolerance for summer associate time billed at substantially less than what you would pay for even a mid-level associate, you should probably not be using a large, full-service law firm in the first place.
3. Ultimately, if you do not trust your law firm or are not comfortable with the relationship between the cost of services and the value you receive, you should find a new firm. Unless you're a multinational corporation that purchases ungodly amounts of services from a firm and thus has significant leverage, you absolutely do not want to be known as the stingy client who is always complaining about cost.
Bottom line: if you're not thoughtful about how you consume legal services, scrutinizing your bills is not the most effective use of your time.
Post author here. Definitely agree that clients should take time to educate themselves. That's actually the point of the post and the point of reviewing the bill. We can't all start off knowing everything.
Hopefully being able to forecast legal expense is part of that learning process. In this case, the client was able to separate the one-time from the ongoing legal spend.
Reviewing your bill is great way to make better decisions in the future. The point in the post about investor-driven costs is a good example of something they can do differently the next time around. Hopefully it's also something that startup founders reading the post can be proactive about.
The post was not meant to be anti-lawyer in any way. I know much of the commentary around law firms turns out that way. But it's certainly not my intent.
"you should not be at all surprised that a summer associate billed against a matter"
"you should probably not be using a large, full-service law firm"
"you should find a new firm"
I think a lot of what SimpleLegal is trying to do is eliminate a lot of these information-dependent "shoulds", and replace them with simple clarity instead.
Its startling how generalizable to other specialties that advice is - web design, marketing, analytics, online advertising - that advice above applies to _most_ of the businesses I've worked for/with in the last decade…
This kind of post hoc analysis may be useful for folks who didn't know or realize what kind of firm it was that they retained in the first place when the matter began, and so are, if not objectively, at least subjectively "entrenched" with that firm.
There is probably a point where such analysis costs more than the cost of switching to a firm that can be trusted.
SimpleLegal is a fantastic idea for a service. It's horribly sad that it's even needed, but I love the work you've done. If the 200+ legal bill is a like a log file, SimpleLegal is like an analytics dashboard. Question: is there enough standardization in the way legal fees are presented or are there a fair amount of edge cases you have to handle?
Edit: Do any firms subscribe to your service on behalf of their clients? That would be a firm I'd love to do business with.
We're talking to a few law firms now. Small/mid-size firms believe their structure is a competitive advantage over Big Law firms. Our dashboard is a good way for their customers to see that advantage.
We just added integration to Xero. Quickbooks and Netsuite will follow, so we'll be well positioned to help small/mid sized law firm.
Re: standardization. It's industry and matter specific. Patents and IP work is very different from litigation and insurance work. But, within each vertical we have opportunity for price discovery which is really exciting to me. Fixed fee legal work is growing in popularity because attorneys and their clients are tired of watching the clock.
I like your analogy of a a legal bill to a log file. Though, hopefully SimpleLegal isn't "like" an analytics dashboard. Hopefully it is an analytics dashboard. Or at least a giant spotlight pointed at one of the largest P&L line items where companies currently have almost no data.
Now someone needs to replicate this for accountants specially CPAs. My CPA's bill always exceeds my expected number by 20% at least and I am clueless as to how he gets to that calculation. Am I crazy not to ask him for his timesheets ?
Hi. Founder here. In 2012 $20B was billed by the top 100 audit firms. $14B+ on accounting consulting services. Another $14B+ on tax advisory.
We're headed in that direction and consulting services as well.
Really all time-based billing suffers from an inherent conflict of interest. The supplier controls the inventory. They control the amount, price, and quality of inventory consumed while the buyer has little if any data.
For your own situation, when you ask your CPA for a budget follow up with a request for a fixed fee proposal. If the two numbers differ significantly, ask for an explanation of why costs might exceed budget. That at least gives you a starting point. You could ask for time sheets, but if it's a one-person show, there may not be any time sheets. Fixed fee is the answer.
Our CPA works at a fixed cost which we agreed to after a lengthy discussion and initial upfront investigation fee for his time. We're really happy with this arrangement, and we use Xero (included with the CPA, not an extra) to make sure the work is being done and with no surprises.
I can't imagine that this kind of mindset will last into the future. The way you set incentives drives behavior, so paying per hour for a law partner to talk to investors just gives him incentive to talk as long as he can, not provide you with substantial value. There has to be a better business model.
I don't think you'll see he billable hour model go away. I've worked on internal investigations that were like onions. Client did something wrong and the deeper you go the more you find problems with their process, etc. That's going to stay billed by the hour because there is no predictable way to value the service. However, I think there will be a lot of movement towards more predictable billing of say transactional matters. Some high end firms now structure fees as a percentage of deal value. Right now they use it to get a premium for big deals, but the percentages could be adjusted to bring the average fee in line with what similar transactions cost under billable hour models.
What new fee models won't change of course is the average cost. That's just a mater of supply and demand. If a service like this one say highlights bills for summer associates, and firms stop charging for them, then they'll just raise rates elsewhere. If you were willing to pay $X today for the overall service, you can only change X by increasing supply (say considering a wider range of firms instead of just big well known ones), or decreasing demand. Playing with the itemization won't do it.
There are two traditional ways you can incentivise someone outside your company to do custom work for you.
If you pay them a fixed price for the job, their incentive is to do as few hours as possible, to ignore your phone calls and e-mails, to test/mitigate risk as little as possible, to push work back to you, to produce no documentation, to refuse any change of scope without a big cost increase, and to deliver the least they can within your contract. IT example: Elance
If you pay them by the hour, their incentive is to increase complexity, to investigate every possible risk in painstaking detail, to re-do work you've already done, to call and e-mail and hold meetings with as many people as possible for as long as possible, to produce more (and more carefully produced) documentation than you want, to interpret every cough and sneeze as an instruction to widen the scope, and to deliver late and over any estimated budget. IT example: Government IT and defense projects.
Theoretically it's possible to come up with an agreement that doesn't have either set of flaws - but in my experience if you've got the expertise and to do that, you've got the expertise and time not to need to hire outsiders.
Post author here. That quote was just his shorthand for saying that if he's advising clients or investors, he's billing for that time. He talks to his clients to tell them how to set boundaries for investors and how to best communicate with them.
But yes, time-based billing sets up an inherent conflict of interest. Flat fee is great when it makes sense. Our company advisor setup a flat fee matter at his prior company to cover any phone calls or emails. No more watching the clock.
In some states there is a mandate by the bar that you must charge hourly. In California, for instance, you cannot do a flat rate for a pre-nup agreement. I believe the logic is that if it becomes more complicated, the incentive to do a good job disappears. With an hourly rate, an hour on a complicated prenup == an hour in court, with the same expectation of quality and effort.
Am I missing the link to actually get a peek at the dashboard?
All I see are account walls. I like the idea, and I'm interested -- but pardon me if I say this looks like an astroturfed conversion funnel and not a genuine submission.
Odd, video on the site works for me on Firefox (25.0.1 on OS X), and we're actually using mediaelement.js which is listed on the page you link to. What OS/version of Firefox are you using?
[+] [-] 7Figures2Commas|12 years ago|reply
1. In many cases, clients have themselves to blame for "unnecessary" costs. Lots of clients fail to educate themselves on legal issues before they engage with their attorneys, so interactions are lengthier than they need be, and often some work that clients can do themselves (organization and preparation of materials, etc.) gets offloaded to the law firm. Many costly litigation matters arise because clients aren't proactive on the prevention front.
2. Clients often choose the wrong providers. The OP writes:
"Buried in those 200 pages were charges from a law student. It wasn't much. But charging over $200/hr for someone less than halfway through law school is one of those self-inflicted image hits that's tough to stomach."
If you use a large, full-service law firm, you should not be at all surprised that a summer associate billed against a matter. Do some clients push back on summer associate hours? Sure. But if you expect an experienced attorney to perform all of the work for you and you have a low tolerance for summer associate time billed at substantially less than what you would pay for even a mid-level associate, you should probably not be using a large, full-service law firm in the first place.
3. Ultimately, if you do not trust your law firm or are not comfortable with the relationship between the cost of services and the value you receive, you should find a new firm. Unless you're a multinational corporation that purchases ungodly amounts of services from a firm and thus has significant leverage, you absolutely do not want to be known as the stingy client who is always complaining about cost.
Bottom line: if you're not thoughtful about how you consume legal services, scrutinizing your bills is not the most effective use of your time.
[+] [-] nwenzel|12 years ago|reply
Hopefully being able to forecast legal expense is part of that learning process. In this case, the client was able to separate the one-time from the ongoing legal spend.
Reviewing your bill is great way to make better decisions in the future. The point in the post about investor-driven costs is a good example of something they can do differently the next time around. Hopefully it's also something that startup founders reading the post can be proactive about.
The post was not meant to be anti-lawyer in any way. I know much of the commentary around law firms turns out that way. But it's certainly not my intent.
[+] [-] blake8086|12 years ago|reply
"you should not be at all surprised that a summer associate billed against a matter"
"you should probably not be using a large, full-service law firm"
"you should find a new firm"
I think a lot of what SimpleLegal is trying to do is eliminate a lot of these information-dependent "shoulds", and replace them with simple clarity instead.
[+] [-] bigiain|12 years ago|reply
[+] [-] pattisapu|12 years ago|reply
There is probably a point where such analysis costs more than the cost of switching to a firm that can be trusted.
[+] [-] toddmorey|12 years ago|reply
Edit: Do any firms subscribe to your service on behalf of their clients? That would be a firm I'd love to do business with.
[+] [-] nwenzel|12 years ago|reply
We're talking to a few law firms now. Small/mid-size firms believe their structure is a competitive advantage over Big Law firms. Our dashboard is a good way for their customers to see that advantage.
We just added integration to Xero. Quickbooks and Netsuite will follow, so we'll be well positioned to help small/mid sized law firm.
Re: standardization. It's industry and matter specific. Patents and IP work is very different from litigation and insurance work. But, within each vertical we have opportunity for price discovery which is really exciting to me. Fixed fee legal work is growing in popularity because attorneys and their clients are tired of watching the clock.
I like your analogy of a a legal bill to a log file. Though, hopefully SimpleLegal isn't "like" an analytics dashboard. Hopefully it is an analytics dashboard. Or at least a giant spotlight pointed at one of the largest P&L line items where companies currently have almost no data.
[+] [-] codegeek|12 years ago|reply
[+] [-] nwenzel|12 years ago|reply
We're headed in that direction and consulting services as well.
Really all time-based billing suffers from an inherent conflict of interest. The supplier controls the inventory. They control the amount, price, and quality of inventory consumed while the buyer has little if any data.
For your own situation, when you ask your CPA for a budget follow up with a request for a fixed fee proposal. If the two numbers differ significantly, ask for an explanation of why costs might exceed budget. That at least gives you a starting point. You could ask for time sheets, but if it's a one-person show, there may not be any time sheets. Fixed fee is the answer.
[+] [-] marquis|12 years ago|reply
[+] [-] csmuk|12 years ago|reply
The number of IFA's is now dropping rapidly. They're moving into real estate and selling cars where they can continue to rip people off.
[+] [-] dsugarman|12 years ago|reply
I can't imagine that this kind of mindset will last into the future. The way you set incentives drives behavior, so paying per hour for a law partner to talk to investors just gives him incentive to talk as long as he can, not provide you with substantial value. There has to be a better business model.
[+] [-] rayiner|12 years ago|reply
What new fee models won't change of course is the average cost. That's just a mater of supply and demand. If a service like this one say highlights bills for summer associates, and firms stop charging for them, then they'll just raise rates elsewhere. If you were willing to pay $X today for the overall service, you can only change X by increasing supply (say considering a wider range of firms instead of just big well known ones), or decreasing demand. Playing with the itemization won't do it.
[+] [-] michaelt|12 years ago|reply
If you pay them a fixed price for the job, their incentive is to do as few hours as possible, to ignore your phone calls and e-mails, to test/mitigate risk as little as possible, to push work back to you, to produce no documentation, to refuse any change of scope without a big cost increase, and to deliver the least they can within your contract. IT example: Elance
If you pay them by the hour, their incentive is to increase complexity, to investigate every possible risk in painstaking detail, to re-do work you've already done, to call and e-mail and hold meetings with as many people as possible for as long as possible, to produce more (and more carefully produced) documentation than you want, to interpret every cough and sneeze as an instruction to widen the scope, and to deliver late and over any estimated budget. IT example: Government IT and defense projects.
Theoretically it's possible to come up with an agreement that doesn't have either set of flaws - but in my experience if you've got the expertise and to do that, you've got the expertise and time not to need to hire outsiders.
[+] [-] nwenzel|12 years ago|reply
Check out what Spark Capital is doing to help alleviate this problem: http://bijansabet.com/post/48787521538/picking-up-our-own-ta...
But yes, time-based billing sets up an inherent conflict of interest. Flat fee is great when it makes sense. Our company advisor setup a flat fee matter at his prior company to cover any phone calls or emails. No more watching the clock.
[+] [-] phamilton|12 years ago|reply
[+] [-] Shivetya|12 years ago|reply
[+] [-] ogreyonder|12 years ago|reply
All I see are account walls. I like the idea, and I'm interested -- but pardon me if I say this looks like an astroturfed conversion funnel and not a genuine submission.
[+] [-] outericky|12 years ago|reply
http://blog.simplelegal.com/simplelegal-reports
Though it does make sense to open things up a bit more for people to see.
[+] [-] scott_s|12 years ago|reply
[+] [-] outericky|12 years ago|reply
[+] [-] jdlshore|12 years ago|reply
[+] [-] brett|12 years ago|reply
Odd, video on the site works for me on Firefox (25.0.1 on OS X), and we're actually using mediaelement.js which is listed on the page you link to. What OS/version of Firefox are you using?
[+] [-] nwenzel|12 years ago|reply