What Founders Need to Know About Fractional General Counsel

What Founders Need to Know About Fractional General Counsel

[Austin, Texas]. In this episode of Tech Law Radio, Traverse Legal Managing Partner Brian A. Hall discusses the growing need for fractional general counsel services and Traverse Legal’s new offering to address that need: TraverseGC.


[Rough transcript of this show]

Enrico Schaefer: Welcome to Tech Law Radio. My name is Tech Attorney Enrico Schaefer. Today on the show we’ve got my law partner and the managing partner of the Austin, Texas office, Brian A. 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, 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 prospective 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, look we’ve been at this a long time, Brian. Just give the audience kind of 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 the 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. 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. How it is you came to want to bring this onto the web through traversegc.com and start offering it to prospective clients.

Brian Hall: Yeah, 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, right? What we did is what we think the most successful companies in the world do and what we’ve seen as most of our 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. 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’s plenty of clients out there that could be the next one for that law firm. We saw that as a fundamental problem. And we saw it as a fundamental problem for several reasons.

We weren’t interested in the transaction, right? We were interested in relationships and that’s something that we built this firm on, as you know and it’s something we have always prioritized and want to prioritize moving forward. And more specific to the actual offering itself, TraverseGC.com 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. What I mean by that is think about there’s fractional CMO’s that are providing marketing services. There are fractionals especially in the accounting and finance space. So, that model had already existed, but it had never been accurately and efficiently applied to the legal system. So, we said, “why not us”? Hence, the birth of TraverseGC.com.

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 in developing to help prospective 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: Yeah, absolutely. I definitely appreciate on the onset of this the disclosure, the appearances of some self-interest, 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. What TraverseGC.com allows us to do is come in and learn number one, what is the client’s goal? And once we understand what the client’s goal is, we can curate, specific to that client, legal services. And it varies, right?

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, 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 alright, 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 here, Enrico. This isn’t a one-off transaction; this is a relationship. So, we want to prioritize what’s most important to the client now, recognizing there’s fluidity in that, right? You and I both know that a client might say, “this is my most important thing and I want to put all my legal dollars to it”. Until the next day when they get a LOI or term sheet that says we’re looking to acquire your company, right? That will shift them. 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: Let’s talk about that curating, so there’s small companies, there’s start-ups, there’s growth-based companies that are trying to get from $8 million to $80 million. They are 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 3-months, over the next 12-months and here’s the way we’re going to attack it?

Brian Hall: So, 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, etc.? But then it gets a lot more granulated than that, right? It’s asking the question, “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 1 to 5+ 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, right? And the 2 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:

  1. Commercial contracts. If you think about it, Enrico, obviously you know, we represent so many software, software as a service, tech-related companies that day in and day out are getting  master services agreements (“MSAs”) and statements of work (“SOWs”) and non-disclosure agreements (“NDAs”) and all kinds of paper put in front of them. Figuring out what is the best paper, figuring out what is the contract playbook, so that they can use us when they need to, but know that if not option “a”, go to option “b” without risking the company, 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, which is:
  2. IP Portfolio management. And that really comes into play when we’re talking about Trademarks, Copyrights, Patents, the whole list of IP that companies either currently have and need to maintain, docket and do the 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 clients’ 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.com is we sit alongside the client. 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 way 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’s 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 just 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 only has $5,000-$10,000 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 price point than at a $10,000 price point and they understand that and they can take that risk. The most important thing is getting to the revenue that the contracts 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 saying and thinking like the business and acting like the business and helping the business actually achieve its goal of getting the contract executed, getting the revenue, rather than acting like an attorney that tends to just simply say, “no” and “here’s a big risk” and “you shouldn’t do this because of this legal principal or that legal principal”. Like, get in, 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 clients 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 would like to know how much has been spent on legal historically, but we have clients that are early stage start-ups, might have only taken in their first financing, if any financing at all. We have those that have bootstrapped and they are 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. You’re paying that in-house a salary and benefits and all that goes with it and if there’s 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. 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 re-prioritization process and after a quarter if we look at it and say, “man, your needs are definitely outpacing what you’ve agreed to pay”, then we need to revisit it and it goes both ways and it’s conversations we have all the time and Enrico, I remember early on in my career when you said to a client, you said, “I’m always happy to have a conversation about value delivered”  And that’s a conversation we welcome all the time and it’s one that needs to be continuously happening so there’s no resentment on either side, be it the client’s side or us as the law firm providing the service.

Enrico Schaefer: So, let’s get into the nuts and bolts. So, I’m a tech company, a software company, I’m going to be offering software as a service. I’ve built out the platform. I’ve got some revenue; I’m looking to grow. Historically, I’ve been spending some months $5k, some months $1k, some months $10k 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’s 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 one need?” Let’s assume for purposes of this exercise that your 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, right? Which means, like I said earlier, MSAs, SOWs, 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 $5k/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 range of what you said your needs are and what we said our services to be delivered would be.

And often times, 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 either re-prioritizing or there’s the recognition of wow, there’s some real value add here, let’s go from $5k/month to $10k/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’s 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 in-house counsel. The company needs to know who they need to go to for purposes of legal, right? You have that person that can then walk through whatever the change, if anything needs to be, at the end of the quarter.

Enrico Schaefer: So, let’s say I budgeted $5k/month, at the end of the first quarter instead of $20k, I spent $30k, right? I authorized the work and so I’m $10k 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 and so that is a primary consideration, as opposed to simply you put me on a $5k 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, right? We’re taking risks with the client and what I mean by that is, let’s use your example, let’s say it was a $5k/month fixed fee engagement. After the first quarter or three months, presumably, $15k was paid and $15k of value was delivered. But maybe we delivered $25k or $30k because things happened to ramp up or be a little bit different than we thought. The key then, is over those coming months, in that next quarter is 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’re working in-house and have a lawyer there and recognize that, ok, 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 making the adjustment on the back end as needed.

Enrico Schaefer: Right and it gets down to like 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, TraverseGC 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 can provide the value that the client is expecting within that budget. We’ve 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’re 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 ok, 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 think about the roots of Traverse Legal, right? The roots of Traverse Legal were in alternative fee models. With the most important being flat fees and I remember, often times, 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 there’s not surprises is way 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, right? That’s not good for anyone and we hate that model and that’s the point of TraverseGC is let’s get past that. Let’s educate the client, lets 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 that 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 is when you’re having these budget discussions, when budget has become primary. Which then results in okay, we need to curate your needs. 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 potential next financing round might be valuable, but we have $5k/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, 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 is maybe 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 on line 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 look it, we’ve got this opportunity over here to do this deal that is going to spit out potential $20k/month in revenue, which is going to help finance some more things and help the company grow, 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’s going to get to revenue and that being the most important thing for the quarter.

Having those discussions with the client all the time happens as 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. 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 bill today. Set them loose on solving a client problem of adding client value. I will guarantee it, lawyers will, 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 until clients start demanding fractional general counsel services they tend to be finding us by dumb luck. We want to 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. Until clients start demanding that in the market, our potential market for clients is probably less than it would otherwise be.

Brian Hall: That is well said, Enrico, and if you think about the legal landscape and the transition that’s occurred in the last fifteen, ten, even five years is 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 are all kinds of 3rd party service providers now doing things similar to that. There’s now tech, more so than ever in the legal space in particular areas, but you know 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 “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, 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, “now is not the time for us, but here’s two alternatives”, and one might be a legal zoom type option or a self-help type option. And the same applies in the traversegc.com model. There are times where 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’s a bigger problem for companies that can be filled by this model.

Enrico Schaefer: It’s really the TraverseGC fractional general counsel model is it 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 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 $500,000 to pay a general counsel to come on board 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. And of course, the difference between a client that is on the website that is out there, traversegc.com. There is some pricing that is there. There are three general slots that you might fit into. A startup slot at $1,000/month, a growth slot at $2,500/month, an enterprise slot at $5,000/month. Obviously, some bigger clients are doing more than that. Those are the 3 general slots that many of the clients are going to fit into and at $1,000/month we’re going to be leveraging all our templates, all our forms, all our commoditized documents for those clients. 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, 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 “right size legal”. The only way to truly know that is for us to go through that discussion and curation process, to ask the questions, to get the answers we need to provide that curated solution. Enrico, you’ve mentioned a couple of times, traversegc.com, plenty of information out there. I would start there, contact us, the law firm Traverse Legal can go through that entire process and put the company in a better position to know what it’s 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: Kudos to you, Brian, for really putting all of this together, for taking so many different elements of things that have been percolating and packaging it up into something that really is tangible, can be understood and be implemented. Let us know, what is 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’s 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. 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, then 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, increase their revenue. We really like helping companies grow and this tech law podcast is really designed to fill in that information space that so many clients are looking for. How do I get from A to Z? How does my legal fit into my business growth? We’re here to help, week in and a week out, so subscribe to the podcast, invite your friends and we will see you next time.

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