Enrico Schaefer - March 11, 2020 - Business Law
Traverse Legal, PLC is a national law firm that focuses on representation of companies at all stages of growth. In fact, we have an entire practice focused on providing fractional, right-sized outside general counsel services, namely TraverseGC. Since our founding, we know that the more organized a company, the better positioned to receive legal assistance. For us, that has meant we can prioritize legal spend in order to ensure our clients achieve a return on their legal investment. We also have experienced how being proactive in the attorney/client relationship can mitigate against, and potentially avoid, certain legal issues, not to mention enable your company to more efficiently seize opportunities. As a result, we have developed the Traverse Snapshot. It includes a curated outline of information so you can focus further on the following parts of your business: 1. Corporate 2. Intellectual Property 3. Contracts 4. Compliance 5. Litigation History
We consider this the latest in how Traverse Legal is Changing the Way Law is Practiced.®
Welcome to Traverse Legal Radio, the Tech Law podcast. A show dedicated to helping entrepreneurs, CEOs, and founders navigate legal issues, grow revenue, and increase their valuation. This podcast is sponsored by the IP and Litigation attorneys at Traverse Legal, PLC. Now, here’s your host, trial attorney, Enrico Schaefer.
Enrico Schaefer: Welcome to Tech Law Radio. My name is tech attorney, Enrico Schaefer. And today on the show we’ve got my partner and managing partner of the Austin office, Brian Hall. And we’re going to be talking about something today that we’re very excited about. Obviously, this is a show that is going to involve the law firm Traverse Legal. We’re both founders of this law firm, and so there’s a little bit of self-interest here.
And we’ll be transparent about the fact that we really want to share this new part of our law firm, this new business model with you, as other attorneys who are looking to innovate, as perspective clients who are looking for new and innovative business models, and for existing clients who are trying to understand this new product and service offering of Traverse Legal. So this podcast format is such a good way for us to discuss things and share information. So with that disclosure, welcome to the show, Brian.
Brian Hall: Great to be here, Enrico.
Enrico Schaefer: So we’ve been at this a long time, Brian. And just give the audience a sense of the context here. Traverse Legal has been around for 15 years or so. The concept of changing the way law is practiced has always been a big part of who we are. We don’t like the way of business of law works and we’ve always been trying to innovate new and exciting business models for legal practice.
And we, unusually, I think, from some people’s point of view, typically share that with the world, for other lawyers and law firms to be able to mimic what we’re doing. So give us a little context on what we’re going to be talking about today, which is this fractional, outside counsel, fractional legal services model. And how it is you came to want to bring this onto the web through traversegc.com and start offering it to perspective clients.
Brian Hall: Absolutely, Enrico. As you know, when we started thinking about what we wanted to do next as a law firm, what we weren’t out there to try and do is just create some offering and see if it has legs and see if it sticks. What we did is what we think the most successful companies in the world do, and what we’ve seen our most successful clients do, which is we identified a problem, and it was a massive problem.
And we figured out a way to solve it. And that problem was that the traditional old school, I call it grandfather’s law firm model, does one thing. It bills hours. And it bills hours by creating paper, sometimes when paper is not necessary. Not having an idea of what the client’s goal is. And, ultimately, using a client as a transaction, recognizing that there is plenty of clients out there that could be the next one to employ that law firm. We saw that as a fundamental problem. And we saw it as a fundamental problem for several reasons. One, we were interested in the transaction. We were interested in relationships. And that’s something that we built this firm on, as you know. And it’s something that we have always prioritized and want to prioritize moving forward. And more specific to the actual offering itself, TraverseGC was meant to solve the problem that clients are asking for something more than just the billable hour. They’re asking for someone that can come in alongside them — not spitting advice and information down to them — but alongside them to understand their business and work with them on an as-needed, on-demand basis. No different than what is happening across all other industries right now. And what I mean by that is think about there’s fractional CMOs that are providing marketing services. There’s fractional, especially in the accounting and finance space. So that model had already existed, but it had never been accurately and, I’d say, efficiently applied to the legal system. So we said, “Why not us?” Hence, the birth of TraverseGC.
Enrico Schaefer: And for everyone, you can find more information about the TraverseGC business model at traversegc.com, which is a website that Brian really spearheaded and is developing to help perspective clients and clients understand what this offering is all about. And as you look at the website, the legal help your company needs, when it needs it, all for a fixed monthly fee. A modern law firm for modern businesses. Tell us a little bit about how the fractional outside counsel or fractional general counsel model is designed to work.
Brian Hall: Absolutely. Look, I definitely appreciate at the outset of this the disclosure and the appearances of some self-interests, but at the end of the day you and I talked about the importance of being a megaphone for this. And being on the forefront because we know that the traditional law firm model isn’t working for clients anymore. And that whole landscape needs to change.
So when we look at TraverseGC, what we want to do is be different not just to be different, but be different than what’s offered to clients because clients are demanding it. And what TraverseGC allows us to do is come in and learn, number one, what the client’s goal is. And once we understand what the client’s goal is we can curate specific to that client legal services. And it varies. This isn’t a law firm in a box model, where we’re simply going to provide five contracts, the same, exact contracts. Maybe it’s an LLC, an independent contractor agreement, some online terms of use, and maybe an employment agreement. That’s not what this is. There is definitely the ability to provide those items. But what we do is we think about, number one, what’s their goal. And number two, in light of their goal, here’s the things that are most important to them. And we create a list. We curate that list and we talk to the client about it, and then we prioritize it. And that’s the most important thing, Enrico. Like I said at the outset, this isn’t a one-off transaction. This is a relationship. So we want to prioritize what’s most important to the client now and recognize that there’s fluidity in that. You and I both know that a client might say, “This is my most important thing and I want to put all of my legal dollars to it,” until the next day when they get an LOI or a term sheet that says, “We’re looking to acquire your company.” That will shift everything. So the real secret sauce, so to speak, of this is in that method, in that process of going through and curating what the needs of that particular client are.
Enrico Schaefer: And so let’s talk about that curating. There are small companies, there are startups, there are growth-based companies that are trying to get from $8 million to $80 million. They’re all at different stages, and they all have different levels of needs in legal. And so what is the curation process? How do you go about determining here’s the list of things that the client is looking to achieve over the next three months, over the next 12 months, and here’s the way we’re going to attack it?
Brian Hall: You’re already touching on some of the ways that that’s done, which is what does the runway look like over the next 12 months, 24 months, etcetera. But then it gets a lot more granular than that. It’s asking the question of where are you spending most of your legal department time? When I say legal department, I’m using that generally.
But we have clients within this model that don’t have a legal department. And we are their outsourced general counsel. So we are the legal department. We have others where we’re, essentially, technology-specific counsel to an existing legal department made up of anywhere from one to five-plus people. So what we do is we go in and we say, “Where are you spending your time? Where are you spending your current legal dollars with potentially outside counsel, or others that aren’t delivering what you think you need?” And the two examples that I’ll give that seem to be resonating the most with clients as a need and a real sweet spot for this model are, number one, commercial contracts. If you think about it, Enrico, obviously you know we represent so many software, software-as-a-service, and tech-related companies that day in and day out are getting MSAs, Master Services Agreements, and statements of work, and NDAs, and all kinds of paper put in front of them. Figuring out what is the best paper. Figuring out what is the contact playbook so that they can use this when they need to. But know that if not option A, go with option B without it risking the company, and those kinds of things. So that’s the first example that we see making a lot of sense. The other one, which goes back to our roots as a law firm, as you know, Enrico, is the IP portfolio management. And that really comes into play when we’re talking about trademarks, copyrights, patents, and domain names. The whole list of IP that companies either currently have or need to maintain docket, and due to necessary filings it could be enforcement efforts around those. So doing monitoring to see unauthorized third-party uses, and then putting together a campaign that works to send out a letter, and if necessary litigate. But all within — and this is the important part — all within the client’s risk tolerances. And that’s so important, Enrico, because one thing that we never want to do as a law firm, nor have we ever done, is impose our risk tolerance on our clients. The beauty of TraverseGC is we sit alongside the client and we learn their risk tolerances. We can advise them that we might think it’s better this way or that way, but once we know their risk tolerances we are in a much better position to advise them and to mark up an agreement, or to not raise an issue that we’ve already discussed. Whatever it might be so that we can get to the ultimate end zone here, which is whatever the client is looking to accomplish for that particular matter we’re working on.
Enrico Schaefer: It’s funny, because one of the things you and I really dislike about the practice of law, and one of the things that is a consequence of this billable hour approach that most law firms take to legal representation is, if all you’re thinking about is the billable hour, then that really drives all of your behavior. It drives the way that you approach things with the client.
And then you wrap it in this, “Oh, well, ethically the attorney is required to leave no stone unturned.” And so when a client says, “Hey, here’s an agreement. I need you to review and negotiate this to conclusion,” the lawyer, without really listening to the client or doing a risk assessment, is off and running and leaving no stone unturned. Well, clients can make judgments about what kind of risks they are willing to take. And as importantly, what their budget is. If a client has only got $5,000 dollars or $10,000 dollars to devote to getting this contract across the finish line, then those are two different approaches. And the client is going to be taking more risk at a $5,000 dollar price point, then a $10,000 dollar price point. And they understand that and they can take that risk. The most important thing is getting to the revenue that the contract is going to spit out, and so the risk is worth it. And so instead of leaving no stone unturned, it’s really getting in and thinking like the business and acting like the business. And helping the business actually achieve its goal of getting the contract executed and getting the revenue, rather than acting like an attorney that tends to just simply say, “No. Here’s a big risk. You shouldn’t do this because of this legal principle or that legal principle.” Get in and understand the client’s business and help them grow the business within their budget. Let’s talk a little bit about budget. How does the client’s budget figure into this fractional general counsel model?
Brian Hall: I go back to what I said at the outset. It’s part of the curation process. Obviously, we’d like to know how much has been spent on legal historically, but we have clients that are early stage startups, who might have only taken in their first financing, if any financing at all. We have those that have bootstrapped and they’re very cognizant of dollars spent and want to make sure there is a return on investment, and that includes legal investment.
So what I always tell clients is, let’s just be reasonable here. If you’re expecting to get a full-service law firm that’s sitting alongside of you for a number that isn’t reasonable to us, then this relationship doesn’t work. So pricing is just part of that curation process. And the beauty of it, compared to a lot of other law firms and definitely compared to an in-house legal department, is the flexibility. And what I mean by that is, think about if you’re a company and you hire in-house counsel. And you’re paying that in-house counsel a salary and benefits and all that goes with it. And if there is a legal need it’s going to that in-house person. That legal need can be a very simple, rudimentary, repetitive process that can be done by, let’s say, a paralegal. Well, we have that paralegal. So what we always say is we will assign whatever is being asked of us to the person that is the most competent, but at the lowest billing rate possible. And that speaks to clients. And it especially speaks to clients when they know that at the end of the day we’re going to fix the fee for a particular month based upon what those needs are. And, again, go through the reprioritization process. And after a quarter, if we look at it and say, “Man, you’re needs are definitely outpacing what you had agreed to pay,” then we need to revisit it. And it goes both ways. And it’s conversations we have all the time. Enrico, I remember early on in my career when you said to a client, “I’m always happy to have a conversation about value delivered.” And that’s a conversation we welcome all of the time, and it’s one that needs to be continuously happening so there’s no resentment on either side, be it the client side or us as the law firm providing the service.
Enrico Schaefer: So let’s get into the nuts and bolts. I’m a tech company, a software company. I’m going to be offering software-as-a-service. I’ve built up the platform. I’ve got some revenue. I’m looking to grow. Historically, I’ve been spending some months $5,000 dollars, some months $1,000 dollars, some months $10,000 dollars in legal, depending on what’s going on.
I’m really interested in stabilizing my legal spend. And I’m really interested in getting a lawyer who is going to be on my team and helping my business grow. How does this actually work? What is it that I’m signing up for? What do I pay? When do I pay? When do things get adjusted?
Brian Hall: Sure. So the first question I would ask is, in terms of where you’re at as a company what is your number on need? And let’s assume for purposes of this exercise that you’re number one need is commercial contracts. You’re at a point of stabilization. Your goal is to be spending legal dollars that are going to lead to revenue, which means, like I said earlier, MSA, statements of work, and all that goes with it.
So let’s get a sense of what the volume of that is. And once we have a better idea we might say, “Let’s start with a $5,000 dollar per month fixed fee.” And what we’ll do is we’ll work within that at agreed upon rates. And at the end of the first quarter we will review and see and make sure that we’re within the range of what you said your needs are, and what we said our services to be delivered would be. And oftentimes, Enrico, as you know and as we’ve seen, as we get into the company and we work with people and we identify what does and does not exist, what pain points haven’t been solved, we’re flagging other items. And we’re adding them to that list of things that should be on their radar. And then we’re reprioritizing, or there’s the recognition of, “Wow! There’s some real value add here. Let’s go from $5,000 dollars per month to $10,000 dollars per month,” because of all the additional things that you’ve pointed out that we now see as an important item. Again, it’s something that is critically important, to have that point of contact. And that’s what you always get with TraverseGC. You have one attorney point of contact. No different than if you had an in-house counsel. The company needs to know who they need to go to for purposes of legal. And you have that person that can then walk through whatever the change, if anything, needs to be at the end of that first quarter.
Enrico Schaefer: So let’s say I have budgeted $5,000 dollars a month. At the end of the first quarter, instead of $20,000 I spent $30,000. And I authorized the work. So I’m $10,000 dollars over my budget. Now, the good news here, I guess, if I’m the client is we’ve been talking about budget the entire time, from beginning throughout the entire process. So that is a primary consideration, as opposed to simply you put me on a $5,000 dollar retainer and I’m just getting billed every month. And whatever the bill is, the bill is.
But let’s say I get to the end of that and I’m like, “You know what? Annually I know what my budget is. Can I get back on track? Can I scale down my legal for the next three months in order to get back within my annual budget?” Is that a possibility?
Brian Hall: Absolutely. And that’s the beauty of it. We’re taking risk with the client. And what I mean by that is — let’s use your example. Let’s say it was a $5,000 dollar per month fixed fee engagement. After the first quarter of three months presumably $15,000 was paid and $15,000 dollars of value was delivered. But maybe we delivered $25,000 or $30,000 because things happened or ramped up or was a little bit different than we thought.
The key then is over those coming months, in that next quarter. We say, “Look, we need to scale back to very little, if any.” Or there needs to be that recognition of a true up of the amount that’s been paid, and then we stay on whatever model is there. So it’s no different than if you were working in-house and have a lawyer there and recognize, okay, there’s too much that that lawyer can handle. And you’re going out and you’re using a third-party service provider, or bringing in temp help, whatever it might be. Except the big difference being that we’re there with the client, and we’re supporting the client by taking that risk and make the adjustment on the backend as needed.
Enrico Schaefer: And when I’m talking to the clients that are on the TraverseGC program, or who are wanting to learn more about the program, the thing that tends to resonate the most is the concept of being in control of their budget. Being able to say, “Annually I want to spend this. Let’s target this number. Traverse Legal, can you stay within this number? Here’s my list of things that I’m thinking about doing.”
If it turns out that we think we could provide the value that the client is expecting within that budget, we put them onto that flat fee, that fixed fee model with a true up at the end of each quarter. They’re in control of their budget. They get to decide whether or not they are going to go over budget, or whether or not they’re going to prioritize that budget point as a priority.
And it’s interesting, because you would think, “Okay, well, that’s something. That’s interesting.” No. To clients it’s huge. It’s the number one thing, the sense of control. And I guess the reason why that is is because compared to the hourly billing model, where you simply pay whatever bill I send you, it’s a big difference.
Brian Hall: Absolutely. And, look, think about the roots of Traverse Legal. The roots of Traverse Legal were in alternative fee models, with the most important being flat fees. And I remember oftentimes in the early days us licking our wounds because we had quoted a flat fee, only to learn that it took a lot longer, or maybe some things happened that changed it. We stuck to the flat fee and we learned along the way.
And what we say now is, the reason we’re able to do fixed monthly budgets and fix the fee that way is because we have a better sense of what things should take. And having that discussion with the client, and managing the expectation, and educating them so that there are no surprises is much better than the traditional model of client asks for A. A is ultimately delivered when the attorney gets to it and wants to deliver it. And then client gets this bill and is shocked by it. That’s not good for anyone. And we hate that model. And that’s the point of TraverseGC. It’s let’s get past that. Let’s educate the client. Let’s work with the client. Let’s agree on fees. Because the practice of law and the delivery of legal services is hard enough without the fee discussions there. So let’s get back to the side and let’s get on with what are the real value adds of an attorney sitting in this role.
Enrico Schaefer: The other big thing that we hear again and again when you’re having these budget discussions, when budget has become primary, which then results in the, “Okay, we need to curate your needs.” Yes, doing an IP inventory would be valuable. Yes, filing three more trademarks, or extending your trademark registrations into other countries might be valuable. Yes, getting your corporate documents together for a potential next financing round might be valuable. But we have $5,000 dollars a month that we’re allocating.
So what is the most important thing, what are we going to do first becomes the key question. And so this concept of budget and curation tends to complete the circle. And you’re constantly going, “Okay, so within this budget what’s the next, most important thing to do?” And let’s face it. If your next financing round hasn’t started and it may be 18 months off, then do you really need to get all those corporate documents together in the next quarter? Probably not. If part of that financing round is extending your IP value so you can get a higher valuation, which might be more registrations, which might be protecting your trademarks online from third-party infringers you know that are out there, to improving your licensing agreements to add more value to those agreements as part of a valuation, again, all important. But is that the next quarter? No. The next quarter might be, “Look. We’ve got this opportunity over here to do this deal that is going to spit out a potential $20,000 dollars a month in revenue, which is going help finance some more things and help the company grow.” Okay, let’s focus on that. And let’s get that one done. The client is taking risk by leaving these other things undone, but it’s a manageable risk. It’s a tolerable risk. It’s an appropriate risk. Let’s get to the things that it’s going to get to revenue, and that being the most important thing for the quarter. Having those discussions with the client all of the time happens as a part of the TraverseGC model. It doesn’t necessarily happen, in fact it rarely happens, as part of the straight hourly billing model. And it’s because lawyers get up in the morning to do one of two things; either bill hours, or achieve client goals. The fractional model is all about achieving the client’s goals. So with so many smart attorneys out there who do such amazing things and such great work, why are you putting them into an hourly model where the only thing that counts is how many hours they billed a day? Set them loose on solving a client problem, of adding client value. I will guarantee that if you wind them up, they can do all those amazing things as long as they’re in the right business model. And that’s why you and I have always shared our business models with the world. Because for some, perhaps, idiotic reason we feel it’s really important to change the way law is practiced and that we want other attorneys to do this, too. We want our competitors to adopt some of these business models. And part of it is because we feel like we owe something to the practice of law, and we don’t like the business model of law. It’s not been very innovative, quite frankly, for many decades. But also because, until clients start demanding fractional general counsel services, they tend to be finding us by dumb luck. We want the market demand to be there, so that people are like, “No, no. Sorry. Not interested in hourly billing lawyers. I’m looking for someone that’s going to offer fractional outside counsel services.” And until clients start to actually demand that in the market, our potential market for clients is probably less than it would otherwise be.
Brian Hall: That’s well said, Enrico. And if you think about the legal landscape and the transition that had occurred in the last 15, 10, even five years, it used to be one model, the law firm model. Then the Legal Zooms of the world came along. And they found and carved out a niche place for themselves. There’s all kinds of third-party service providers now doing things similar to that. There is now tech more so than ever in the legal space in particular areas
But what hasn’t really taken hold yet is this kind of fractional model that doesn’t solve all problems. Let’s be very clear here. This isn’t a, “Okay, plug in TraverseGC and everything is good to go.” Litigation will probably never be on a fixed fee or flat fee basis because there are too many variables, most important of which is a judge. But on things like this, commercial contracts, IP prosecution items, those kinds of items, unless your attorney can give you an idea of what it should cost, your attorney probably hasn’t done it enough times to know. So why not give the certainty to the client? Why not sit alongside the client and, like I said, take that risk with the client because you’re confident in all those years of experience and having done this that many times to know what it’s going to take? By doing so you round out that client’s capabilities, especially on the legal side. And you and I both know, Enrico, there’s been times where we’ve had people come to us that need help, and maybe they’re pre-revenue. And we say, “Look. Now is not the time for us, but here are two alternatives.” And one might be a Legal Zoom type option, or self-help type option. And the same applies in the TraverseGC model. There are times when somebody says, “Hey, we want to use the TraverseGC model.” And then, boom, next thing, either litigation pops. Or maybe an M&A transaction comes down the pipe. This isn’t the model for that. But, man, let me tell you. From that time where you start getting revenue to that time where there is that exit opportunity, I’m not sure there is a bigger problem for companies that can be filled by this model.
Enrico Schaefer: And the TraverseGC fractional general counsel model handles the nuts and bolts of the legal issues that companies face week in and week out. It’s really designed to be like general counsel in the sense that your general counsel will sometimes hire out litigation or other things that are special. But in terms of the day-to-day growth of the company, general counsel can add tremendous value.
If you can’t afford a half-a-million dollars to pay a general counsel to come onboard and be full-time, what’s the next best option? Well, buying a piece of a general counsel to do those same types of things makes perfect sense. On the website that is out there, traversegc.com, there is some pricing that’s there. There’s three general slots that you might fit into. One, a startup slot at $1,000 dollars a month, a growth slot at $2,500 dollars a month, and an enterprise slot at $5,000 dollars a month. Obviously, some bigger clients are doing more than that. But those are the three general slots that many of the clients are going to fit into. And at $1,000 dollars a month we’re going to be leveraging all of our templates, our all of forms, all of our commoditized documents for those clients. Because, yes, they can only afford a four-door sedan. They can’t afford a Rolls Royce yet in terms of that document. But that’s okay. It’s still going to get them around and it’s going to accomplish the immediate need. They can always scale up. They can always iterate later. Tell the people out there, whether they’re our current clients, or whether they’re prospects, where can they go to find more information? How is it that they learn more about the TraverseGC model, and whether or not it’s going to be right for their company?
Brian Hall: Absolutely. You just hit the nail on the head whether it’s going to be right for the company. And what we say about TraverseGC is that it’s the right size legal. And the only way to truly know that is for us to go through that discussion and curation process. To ask the questions and get the answers we need to provide that curated solution.
Enrico, you mentioned it a couple of times, traversegc.com. Plenty of information out there. I would start there. Contact us, the law firm Traverse Legal. And we can go through that entire process and put the company in a better position to know what its options are moving forward. Because, as you know, Enrico, I don’t think fractional general counsel from a nomenclature standpoint has quite caught on as it has in maybe fractional accountants, and fractional CMOs, and all those. But it’s coming. And the need already exists. And this is how we solve that problem.
Enrico Schaefer: So kudos to you, Brian, for really putting all this together. For taking so many different elements of things that have been percolating, and packaging it up into something that really is tangible, that can be understood and be implemented. What are the final thoughts you have about traversegc.com and what folks should be thinking about?
Brian Hall: Any company should be thinking about this. It’s any company at any stage. Because like you alluded to earlier, there are different slots that can fit in here, or plans as we like to say. It’s no different than subscription-based services for anything else that a company uses. So don’t think it’s too early or it’s too late. We work with clients of all sizes as long as they’re a company and moving towards growth. That’s where we want to be. And we want to be helping them, because it keeps the practice of law exciting. And since day one that’s always been our mantra.
Enrico Schaefer: This has been Tech Law podcast on Traverse Legal Radio. Thank you to all of our listeners who follow along week in and week out as we share some of the best ideas in law. We help growth companies get that next stage of growth and increase their revenue. We really like helping companies grow.
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