Last Friday, We The People USA, , the legal document preparation company that operates through a network of franchisees,  voluntarily filed for chapter 11 bankruptcy protection.  The company and its affiliate, We The People LLC, are subsidiaries of Dollar Financial Group, Inc.  While the companies apparently had $24 million in sales and 138 franchised locations in 2006 , there are only eight remaining franchises and the companies lost $2.4 million on only $1.4 million in revenue in 2009.  By the end of 2009, operating revenues were less than $15,000 per month. For more information click here.

Several years ago I took a closer look at the We the People model and wondered how long it would take to fail. We the People established a network of physical retail stores, some run directly by the company, but most were franchised locations. Customers would complete a paper questionnaire, submit it to the store owner with full or partial payment. The store owner would fax the questionnaire to a central processing center where a paralegal or non-lawyer would input the data from the questionnaire into a desk-top document assembly program which would create the document ready for return to the customer.

Because there is so much friction in this system, the price per document was very high, when compared with comparable documents available over the Internet from either legal form web sites, or paralegal document preparation sites such as LegalZoom. The combination of the cost of real estate,  franchises  fee, the cost of advertising a physical location, and the consistent trend towards reduced pricing for common legal documents was obviously too much for the franchisees of We the People to bear. Plus some franchisees were being harassed by state bar UPL Committees. Because each franchisee purchased a dedicated territory it was never possible for the parent company to create an Internet-based strategy which would enable customers, for example, to purchases documents directly off the Internet, and then pick up the document at a local store, or simply effectively use the Internet to drive traffic to the physical locations maintained by We the People network.

There is a parallel between Turbotax which is a pure play Internet-based tax preparation service and H&R Block which maintains a comparable network of physical locations. Just this week, H& R Block reduced its projections for 2010, attributing the decline to the fact that more people are turning to do-it-yourself services due to the weak economy. This is despite the fact that H&R Block has an online offering. On the other hand, Intuit which operates Turbotax – reports an increased by 11% in projected usage in 2010, and has raised outlook and guidance for 2010 fiscal results. Web-based document preparation services, like LegalZoom, seem to be thriving, while land-based independent paralegals, where they exist, are hurting for business.

High pricing, expensive office space, fixed office hours, commoditized product offerings, expensive advertising, little or no interaction with customers over the Internet, obsolete technology, and low productivity — all conspired to kill We the People.

Does this business model seem familiar? It looks like the same business model used by many (but obviously not all) community-based solo law firms who wait patiently for clients to knock on their doors to buy their services.  There are lessons to be learned  for "retail law firms" that serve moderate to middle income clients from the We the People failure.

Is it too late for solos and small law firms to change?