Scaling with Legal Subscriptions: Interview with Lachlan McKnight, CEO of LegalVision

February 7, 2022

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Lachlan McKnight is the CEO and co-founder of LegalVision. A fast-growing, innovative law firm based out of Australia. Among many accolades, they’ve been noted as the fastest-growing law firm in Asia-Pacific by the Financial Times (2021), law firm of the year by Australasian Law Awards (2021, 2020-2018 finalist), as well as being awarded an assortment of innovative honours every year since 2015 from groups like Australasian Law Awards, Australasian Lawyer and Victorian Law Awards. 

Before founding LegalVision, Lachlan worked as a lawyer in investment banking in Europe, Hong Kong, and Australia with Norton Rose and Barclays. He would eventually leave that profession to start LegalVision in 2012.

LegalVision has quickly grown its team since being founded. At the time of this writing, they have over 138 staff members. Their team is comprised of three central departments: legal, growth, and operations.

I initially learned about LegalVision because of their focus on legal subscription services. They’re among a small group of early-adopting law firms that offer subscriptions. And, not only are they offering them, but it’s a significant focus for their firm. As I learned, they’re leaning deeper into the model as a source of their growth. As we discussed in the interview, it’s something that’s made a huge difference for them

The way they’re blending technology, legal services, and an aggressive growth mindset is truly unique, which seems to be, at least one, of their secret weapons.

Kurt

Your business is pretty unique. Your law firm is structured like a technology company with marketing and operations, from what I understand. You've even raised venture capital funding rounds. Maybe you can give a quick background on how you started and ran your firm?

Lachlan

We started the business about nine years ago. The initial idea was more of an online legal document-style offering. We actually didn’t start as a law firm. We thought that there wasn't really anyone offering online legal documents in Australia very well.

We thought there was an opportunity here for someone to do that. But what happened was we quickly realized that although there is a market for online legal documents, in pretty much every jurisdiction, it's a small market. It's really a micro-business. 

I didn’t think the opportunity to build a meaningful, large business was there for online legal documents, at least not in a small jurisdiction. What we did find was a lot of small and medium-sized businesses getting in touch, saying, "Look, I don't actually want to use the document. I want a lawyer to help me."

So, at that stage, we built a powerful marketing funnel. We thought there would be an opportunity to start acquiring these small-medium business clients and assist them with the legal work, employing lawyers to do it. But, we wanted to do it in a structured way, using technology, system, process and ultimately to deliver a different offering to the market.

And that's how it all started. Initially, we were working more on a fixed fee structure, but in the last few years, we've moved to a subscription offering for many reasons. And that's been going super well. So, that's how we got to where we are now.

Kurt

That’s a fascinating genesis story. And the way you’ve structured, it seems like it's helped you grow fairly aggressively. I'm curious, how is the revenue from your practice distributed? For example, 25% revenue from hourly, 50% from flat fee, 25% from subscriptions, etc.

Lachlan 

Right now, about half our revenue is subscription revenue, and 25% would be hourly rates. The hourly rates are two things. The first is litigation disputes, and the second is corporate transactions, so capital raising and M&A deals. We don't do them under our subscription offerings; we do them separately at hourly rates.

We have about 25% of our revenue, which is still fixed-fee, mainly from legacy clients who haven't yet moved to the full subscription offering. 

It's a mix still, but the direction we're moving in is ultimately going to be a subscription. We’ll offer hourly rates for those practice areas that don’t fit well with a subscription offering.

Kurt

What were the reasons you transitioned over to subscriptions?

Lachlan

There are a whole bunch of reasons. The first is from a client perspective; the big issue with the way legal services are delivered by almost every law firm is that it's a very transactional offering, a very transactional way of delivering services. Say a client comes to you when they have a need, and you service them, whether it's hourly rates or fixed fees. Once the project is complete, it's like, "The deal is done; we’ll see you next time when there's something else to do."

The downside of that is it means the client is not necessarily coming to you for all of the things that they should come to you for, especially in the small-medium business space. It can be expensive to work with a lawyer, and not so much the cost but the time for the client.

It usually means that small business owners end up in disputes that could be avoided if they had a real, ongoing relationship with their lawyers. Now, the subscription offering really encourages that relationship because the client signed up for a subscription. There are no extra fees for getting in touch to get help with relatively small issues. 

What happens is they get in touch more frequently than they otherwise would, which means, you can solve things early on. For instance, if you're regularly making changes to their business’ terms and conditions, privacy policy, and/or registering their trademarks.

It’s a much more front-foot service. We're looking for ways in which to help the client in order to provide that ongoing value. So, from a client perspective, it offers a much, much better way of accessing legal services (for the right type of business)

The end result for the client is that it's more cost-effective. But more important than the cost is that they know everything is being looked after. They know that when they come to you about an issue, and you say, “you should really get this document drafted”, you’re not saying that just because you want another piece of work, but because it’s what is needed. Because it's part of the subscription, and they're not paying anything more for it. So it becomes very powerful from a client perspective.

From a business of law perspective, as a transactional law firm [which is pretty much every law firm], you’re starting from zero at the beginning of every month. You've got to get out there and find clients and bill and build up your revenue for the month. Month, after month. Year after year. Decade after Decade. Your law firm starts from zero every month.

Which is actually not a particularly good business model. A subscription model means that at the beginning of the month, you kind of know what your revenue is going to be and your goal is obviously two-fold. From a business perspective, it's to onboard more members, subscribers and to minimize churn, because churn is obviously absolutely critical.

It depends on how you want to run your business, but from my perspective and from our management team’s perspective, it makes for a better way of running the business. So, both from a client and business side, that's why we've implemented this subscription model. I don't think it's suitable for every law firm. Many law firms are trying to do subscriptions that are not suited to the model.

And look, the big message as well, I think, is for traditional law firms. The goal every year is to maximize profit per equity partner; to maximize the amount of profit that the partners are taking out of the firm in a given year. That does not work if you are building a subscription model because it's a longer-term business proposition. For example, say you're acquiring members now that over a long period of time, will be valuable to the business, but in the first year, there’s a good chance that you will lose money on any given client. This is something that only works if you have a longer term horizon the way that you're thinking about your business. Therefore, it doesn't particularly work in a traditional law firm where you have partners who are really wanting to squeeze as much out of the lemon as possible in any given financial year.

Kurt 

You’ve given your company a unique position.  You're a law firm with a huge focus on tech and a modern business model. How has the client reception been with that position? Have they got it from the start?

Lachlan 

I think the reality is small-medium business owners couldn't care less about your legal tech, they don’t care about the fact that you've structured things differently, that you're doing the work differently. It doesn’t affect them. What they care about is if you can deliver the solution to their needs. 

What you're saying to those small-medium businesses is “we’ll take care of it”. It'll be done in a structured way, the things that matter are the turnaround times like five business day turnarounds and high-quality delivery. We offer a 30-day money-back guarantee if you're not happy when you sign up for a membership.

All those things are what matter to the client. We don't talk much about the technology that we use to deliver the service at the back-end because that's something that some lawyers find interesting. But not the clients; they don’t care much about it. I think it’s a mistake many people make in this space, considering that the clients care.

Kurt

I read an article where you mentioned that you have about a few thousand clients on the subscription plan. I’m curious about your approach to client acquisition; how have you brought on so many members to the subscription plan?

Lachlan 

The acquisition side of things isn't different from how you would normally acquire clients. For us, we've focused on the digital marketing sales funnel, and a partnership sales funnel. Those are our primary acquisition funnels. Then we have a structured inbound sales team that has been in charge of closing those leads. 

In the past, we would be selling products on a fixed fee basis; then we shifted to selling subscription products. So the way in which we acquired leads didn’t change very much.

What’s really important is how you put forward the value proposition of a subscription offering, as opposed to a traditional hourly rate offering or a fixed fee offer. The challenge that a lot of smaller businesses or smaller law firms have with subscriptions is that they don't work very well when they're subscale. Subscriptions work when you get a certain amount of scale.

In my view, it's like $25 million, top-line, annualized. That sort of number. Minimum you need to be getting to. Obviously, you're not going to get that straight away. But if you're planning on running a subscription offering doing one or two million dollars a year of top-line revenue, I think it's going to be challenging for you.

The reason it's challenging is that things work on a cohort basis in subscriptions. You will always have a chunk of members, customers, subscribers who overuse from a time perspective and some who underuse. Now, if you have large cohorts, that all evens out. If you have very small cohorts and you only have a small team, two or three people in your law firm, you can get blown out and it can be very difficult to manage the volume. It's very up and down.

I think that's a key challenge. I think if you're planning on doing a subscription offering and you're going to be smaller and you're not planning on getting too big, you need to make it more niche. I think you need to focus on something. It can't just be... ‘Our model isn't an all-you-can-eat, business as usual legal aid. Anything you need, we'll do it for you.’

I think that's hard to do if you're not at scale. If you're going to be smaller, you need something that is super unique. So it could be, I don't know, privacy policies where we'll do your privacy policy and update it and whatever. And you charge a very small amount of money, $5 a month or whatever it is. But because you're limiting the scope of what you're offering in your subscription, you know that no particular client's going to blow you out from a cost perspective.

So, to summarize, either you go, we're going to do something relatively niche or we're going to aim to get to a kind of minimum $25 mil top-line, minimum. And if you're doing that, you can go, "Right, in that case, we'll deliver a broader offering." But you need to be cognizant of the fact that you're going to burn cash for a good period of time before you get to break even if that's the way you're doing it.

Kurt 

Great point. Would you recommend starting a niche and then growing that? If you're not looking to just blow it out (i.e. general offering) right from the beginning?

Lachlan 

I think it depends.  If what you're looking to do in the small-medium business space is a business as usual sale offering, and that's what you want to do, then you need to be prepared to lose a bunch of money.  You've got to raise some capital or use cash reserves. If you have a very profitable practice, say litigation, you can use that to finance your subscription offering.

Or, you start off with a more niche offering that you know you're going to be able to service with your existing team, but you have to be mindful of the fact that because it's more niche, you're going to sell less of them.

Ultimately, with the subscription stuff, as with any business model, it depends on what you want to build as a business. Do you want to build a big business? A really big business? Or do you just want to have a nice smaller business that provides for the family, gives you a nice lifestyle, that sort of thing? And then, from there, you work out the model you’re going to go for.

Rally's ebook for lawyers who want to offer subscription legal services at their firm

Kurt 

What's been the biggest challenge for yourself and your team in adopting the subscription delivery model?

Lachlan

There are many challenges with making any change to your business model. I think for us, a big one was we were very successful in the fixed fee space. We grew very, very fast. And what happens when you move from a fixed-fee or hourly rate-business model to a subscription-based model is that you are going to have a dip in top-line revenue.

And the reason for that is, for example, say you have a client that comes to you and asks "I want a piece of work done and it'll be $3,000," Which is straight-forward if it was a fixed fee. But then if you're offering a subscription for $300 per month, it will then take you 10 months of subscription revenue before you get to the $3,000 you would've got if you had a fixed fee.  

There's a thing called a fish curve, which anyone who moves from a fixed fee or hourly rate business model to a subscription business model should look up. You will go through that. And so you have to be prepared to either have a dip in revenue or at least for your growth to flatline over a period of time as you shift to the subscription business model.

And that's probably one of the harder things to deal with, particularly if you're a successful business because you're kind of going, "We're successful now and so we have something to lose by moving to a new model." And again, that's why the subscription model certainly isn't for everyone. I think you need to really think about what you're willing to put into it because that's what you'll get out of it at the end of the day. 

Kurt 

What was your thought process at that time? It sounds like you had a successful law firm, you were doing well with a fixed fee. What were your goals when you made the switch?

Lachlan 

One of our key drivers at LegalVision is that change is our constant. We're constantly changing what we're doing. And that's because we want to be the most successful business we possibly can. There's a multi-billion dollar opportunity in the small-medium business space in Australia, in the UK, and in the US. It's a multi, multi, multi-billion dollar opportunity.

Our thought process is always, “what do we think is going to help us build the best possible business in five, 10, 15 years?” I guess you could say it's a bit of a risk, but then all the changes we constantly make to our product, our delivery, our acquisition funnel, the jurisdictions we're operating in, all that sort of thing, are a risk as well. It's all about taking a calculated decision to it.

Once you've made the call, you just do it and don't worry too much. But again, these are things that work in a business-like ours because we have a corporate structure, we've raised external capital, we don't need to pay partners a large amount of money every year, and we don't pay out the profits. We're focused on growth; we’re focused on the future. So if your business isn't set up for that, then, again, question whether the subscription model is suitable for you, or at least how we're doing it.

Kurt 

I was interested in your corporate structure. It makes a ton of sense, but it’s counter-intuitive from how traditional law firms are structured. What was your thinking behind that?

Lachlan

It wasn't really thought through to be honest. Because we started as more of an online legal document tech business and then shifted into this model, it’s evolved organically. Having said that, the way traditional law firms are run has never been of tremendous interest to me.  I see us as a high-quality service to small-medium businesses. The fact that it’s legal services is neither here nor there.

It could be accounting, it could be something else. The question is what's the best model to run a business? There’s a reason that the limited liability company was invented in the 1600s in the Netherlands and is the predominant structure that everyone uses to run a business today.

There's a reason for it, and so I would argue that the way that a traditional law firm is run is the outlier in terms of overall businesses. We are just running a normal business. Imagine if  every year Microsoft was paying out every cent, that the whole goal was to create a whole bunch of profit every year. You'd never build a big business, would you?

And that's what happens with traditional law firms. That's not good business. It's good from a cash side perspective for individual partners, but you're not building anything of value when you're building a traditional law firm. So, it was never really a consideration for doing things that way.

Kurt

I was listening to a podcast or an interview that you were on, and they were talking about sales and how, traditionally, partners lead sales. Your team has this very impressive inbound machine and a dedicated sales team. From my understanding, when you hire lawyers, they first go on sales. This makes sense as, for example, a pipeline full of leads from digital advertising would take away a lot of a partner's time. I’d love to hear more about your strategy here. 

Lachlan 

Partners in a traditional law firm frankly have no idea how to close an inbound AdWords [inbound] driven lead, right? It's a very different process, a very different structure. But partly, that's driven by the space that we're in, which is a small-medium business. So, partners in big law firms wouldn't even really be focused on acquiring those clients.

These clients are underserved… so where would they go? They can't go to a big law firm; it is going to be way too expensive for them. Their alternative is the suburban solicitor, the jack-of-all-trades who does a will on Monday, a criminal DUI on a Tuesday and then on Wednesday, they draft a shareholder's agreement for you.

Now, is that going to be a quality shareholder's agreement? No. Not saying this person isn’t good; they are, that's why they're doing a bit of everything. But that is the only alternative for many our clients. So, that's the offering. Our specialized small-medium business is super high quality because of the quality of our lawyers and the system, process, structure, and technology that sits behind it. That's why we can deliver at scale a super high-quality experience.

Look, there are lots of different models. There's no model that's right or wrong, and it's a multi, multi, multi-billion dollar industry, meaning there's much space for people to do many different things. Indeed, what doesn't work is trying to copy someone else's model. Some people have been attempting to copy our model, and frankly, they're doing okay. They're doing about 10% of our revenue because if you're copying, you don't know. You're not staying ahead of the game. You have to be thinking, ‘What am I best at? What's unique to our business?’ Adapt continuously if you're making a subscription offering, as opposed to going, "Ah, I saw that thing, I'll do that," It rarely works.

Kurt 

One more quick question on the marketing stuff. I read that you’re getting many leads driven by a considerable amount of traffic from your site. I know this is in part built from writing articles for well over a decade, so it doesn’t happen overnight. But, would you have any advice for lawyers trying to build up their marketing channels?

Lachlan 

Don't compete with others in Australia. That's number one! 

Kurt 

Haha. 

Lachlan 

We have a content strategy, which we started years ago, and we've executed on over those years. The learnings from that are, number #1,  just keep doing it. So many lawyers come and start writing blog posts articles, posting them on LinkedIn or whatever it is. And then they give up in three, four, five, six months when they do not see a return from the effort they're putting in. You don't see a return on this sort of thing for years. So it's a matter of time in the game and grinding it out. 

Number two is our model. We've raised a bunch of external capital, which we invested heavily in content. There's a considerable investment that we've made that is difficult for a smaller law firm, a lawyer, or a couple of partners, whomever, to compete with. So, don't try to compete with the volume and cover everything. The best thing to do, I think, if there's one, two, three of you in your firm, is to focus on a niche and dominate that niche.

Our website has many articles on privacy policies. We have 20, maybe 30 articles on privacy policies. If you were to go in and decide, "We're going to dominate privacy," you can very rapidly outrank us for privacy if that's all you write about. You get 200 articles up there, and you'll be number one for privacy-related queries in Australia.

It's picking the niche. It’s got to be something that you want to do the work in and expertise in.  Focus on that, hone in on that and keep narrow, rather than trying to go too wide. The only way you can compete if you're going to go wide is with a large amount of money.

Kurt 

That’s great. We did the same thing, and we’re seeing the effects of it now; it takes about 6-8 months.

I have a couple more questions. Your team has grown quickly for about nine years, you started with two, and you're at over 130 now. What would you say is the biggest driver of that kind of growth? It looks very rapid.

Lachlan 

Yeah. It is, and it isn't. Maybe for law firms, it is, but if you look at tech startups, it's not. To me, the number one thing is as lawyers; we look at other law firms, which I think is not a very good benchmark. I think you're much better off looking at successful businesses in other industries as the benchmark of rapid growth. 

I'd like to be growing a lot quicker. You could say it's more challenging in legal services or tech-enabled services. Where we are is tech-enabled services, right? Scaling a pure software product is easier than scaling a tech-enabled service because half your offering is from the people. 

I'd say the growth in team members has gone hand in hand with revenue growth. We’ve gotten to the stage of 130 team members and growing so quickly we'll soon be 200-plus, which needs to go hand in hand with revenue growth unless you're raising huge amounts of capital. For us, the challenge with everything is hiring slightly ahead of the curve to make sure that people are getting trained up before the team's hitting capacity.

What happens is that when you're small, your planning cycle is next month, and then when you get bigger and bigger and bigger, it's about the next quarter, then the next two quarters, then the next financial year, it's in three financial years. I think that's the key; if you're going on this growth journey, make sure that you're planning for the right amount of time.

There's no point in planning three years when there's just a couple of you, but by the time you're bigger, that's when you need to start saying, "We've got more scale, so we've got to focus on things that are going to matter in a year, in two years etc."

Kurt

Where you've been doing law, and with a very modern approach, with different offerings, has it been tough to find lawyers who buy into the vision or are they kind of there?

Lachlan 

We have a great team of people. Firstly, we have graduates who came through and have grown up in our business. They've grown up with the way we do things, and I guess they like that over the traditional approach. Over the years, we’ve had many, many, many lawyers join the team. They moved from conventional law firms thinking, "I don't like the traditional law firm model. I don't like the way traditional law firms are run; I don't like the mindset." And they're looking for something different.

We have also had people who think they want something different but later realize that a non-traditional approach isn't for them.  We've had people who've come from traditional law firms and gone, "You know what? This isn't for me. I'm going back to a traditional law firm."

Because how we work has more structure, there's a bit more process to it. There's more technology that people need to learn how to use, and for those who aren't very good with technology, it's not the best business to be in. Hiring the best people for our company has always been challenging, and I think that's across the board in tech startups, law firms, and every type of business. Finding the people who are the right fit for your business and want to be there, who get what you're doing, who believe in what you're doing is always challenging.

As you get more scale, the investment you need to start is your people, operations, and hiring side of things. You are investing in that pipeline. Legal services, as an industry, is one where people move around a lot. So it's also about making sure that your training is excellent so you can get people on board and have them working productively relatively quickly because the reality is people will leave. 

And, that’s fair because younger people, in particular, are trying out different business services. They’re moving jobs quicker. It's not like starting at a law firm and then staying there for the next 40 years, and you get a gold watch on your way out. That's just not the way the world works now. Being cognizant of that, our goal for our team members is that being at LegalVision advances them in their career, whether it advances them at LegalVision and they move up the levels, or it's that it gets them a job down the track somewhere else. That's what we want for our employees. That's the employee value proposition here.

Kurt 

I heard that you developed some of your tech in-house?  What does your tech stack look like?

Lachlan 

Most of our tech stack we build in-house. Everything from the way we onboard clients or members to our practise management system, we've made internally. We couldn't find anything that would enable us to run things the way we wanted to run them. 

Such as enabling us to run this scale of business with the subscription offering and hourly rates, fixed fees, all the other types of ways we do things. 

My co-founder is a developer, and we have an internal tech team that's built our tech stack from day one. We now have a complete practice management system and analytics platform to run the business.  

In terms of the tools we use, email and document management are G-Suite. For the subscription and payments, Stripe is the platform we use for all that. We use Slack for internal communication. And we have a whole bunch of tools that the dev team uses to do things. But that's broadly the stack.

Kurt 

Interestingly, you have a dev team building a lot of the technology you use. 

Lachlan

Yeah, it is! It has many advantages. From a traditional law firm perspective, the disadvantage is that there's a cost to that.  You have to pay your dev team. If you're in a traditional law firm, it's like, "I can just buy something off the shelf, it might not be quite as good, but as a partner, I can take a bigger draw."

Our mindset is, "Okay, we don't care about profit right now. What we care about is, can we get to the top-line revenue number that we're aiming for in three, four, five years knowing that at scale, you can generate this kind of an EBIT margin?" The main difference is you start from the goal, and then having a tech team either makes sense or doesn't, depending on your end goals.

Kurt 

My final question. What do your plans look like for the next five to ten years at LegalVision?

Lachlan

We're still moving towards this pure subscription model. There's a bunch of time and activity that needs to happen for us to do that. We're growing at 30% plus year-over-year here in Australia, and we've now launched it in New Zealand, which is going very well. We're looking at other jurisdictions that we can expand to.

Ultimately, it comes down to two critical things in Australia and New Zealand. We want to sell as many subscriptions as possible. So, we focus on that. Churn minimization is essential in subscriptions; minimizing churn is super important. Then the second key challenge for us is scaling our legal team and our ability to provide this fantastic service alongside revenue growth. That's going to be a key challenge in the coming years.

Ultimately, we want to be growing at 30% year on year for the next five to ten years. There's an opportunity there to build a long-term billion-dollar revenue business in this space, in tech-enabled legal services focused on the SME market. I'm very convinced of that.

Kurt 

That’s exciting. Thanks for taking the time to speak with us about it. Appreciate you coming on.

Lachlan

No problem, thanks.

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Learn more about Lachlan and his team over at their website. Or explore their subscriptions by hopping over to their membership page. 

If you want to see how Rally’s software covers everything you need to start offering legal subscription services, you can learn more here. 

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