LegalZoom: The "Good Enough" Legal Solution

LegalZoom, the leading online provider of legal services to consumers and small business, as predicted here previously, finally filed for an IPO last week. The company is seeking to raise $120 million to expand their services both in the US and internationally.

LegalZoom's data in the S-1 filing is now available for everyone to analyze:

  • In 2011, 490,000 orders were placed through their web site;
  • 20% of all limited liability companies in California were done by LegalZoom;
  • During the past ten years, LegalZoom has served over 2,000,000 customers.
  • Revenue in 2011 was $156 million.

These are impressive statistics and provide support for the proposition that consumers and small business prefer a very limited legal solution that is just good enough to get the job done, rather than pay the high legal fees charged by the typical attorney.

This is LegalZoom's analysis of the legal market for consumers and small business, buried on p. 62 of the S-1 filing: 

"Making the right choices with respect to legal matters can be difficult, especially for those with limited time and resources. The U.S. legal system consists of overlapping jurisdictions at the city, county, state and federal levels, each of which has its own evolving laws and regulations. Businesses may be subject to additional laws, regulations and legal issues applying specifically to the industries in which they operate. In addition, the policies and procedures associated with the creation, filing and certification of legal documents are often arcane and confusing."

        "When in need of legal help, small businesses and consumers lack an efficient and reliable way to find high quality, trustworthy attorneys with the appropriate experience to navigate this complex legal system and handle their specific needs. Small businesses and consumers often do not understand their legal needs or know where to start looking for an attorney. Some are wary of attorneys in general, and others may have heard from friends or family about negative experiences with attorneys or the legal system."

        "The high and unpredictable cost of traditional legal services also presents challenges for many small businesses and consumers. In 2011, the average billing rate for small and midsize law firms was $318 per hour, according to ALM's 2012 Survey of Billing and Practices for Small and Midsize Law Firms. Attorneys are frequently unable to predict the time required to address a client's legal matter, sometimes billing thousands of dollars to research a legal issue they have not previously encountered. This can be particularly true of generalist attorneys that offer many disparate legal services to members of their local communities. Unlike attorneys at large global law firms or specialty boutiques who handle high volumes of similar matters and develop expertise in specific domains, generalists can find it difficult to efficiently address a client's particular legal issue due to their lack of specialized expertise. Due to the high and unpredictable costs of traditional legal services, many small businesses and consumers limit their use of attorneys and instead often attempt to resolve legal issues without assistance."

       "As a result of these factors, many small businesses and consumers often are unsure of or dissatisfied with the legal services available to them, and many either elect not to seek help or take no action to address their important legal needs."

Many lawyers are in denial about the desire of consumers and small business to purchase their services. They will assert that consumers and small business are exposing themselves to liability by using LegalZoom's limited services which will bring regret later. But consumer's don't seem to care. What they get from LegalZoom is "good enough." The numbers tell the story.

Solos and small law firms will find that it will be very difficult to compete against LegalZoom with its superior capital resources. The organized bar (State and ABA) has given up on trying to put LegalZoom out of business on they theory that the company is violating UPL ('unauthorized practice of law") rules. Any organized bar attacks will be resisted by LegalZoom which will now have the capital to fight any challenges to its business model. The American Bar Association has created a Solo and Small Law Firm Resource Center, but it is too little and too late.

LegalZoom is here to stay and will expand its market share as the major provider of the delivery of legal solutions to consumers and small business.

LegalZoom will, inevitably, put many solos and small law firms out of business as it grows and expands its suite of services.  For a related analysis on my theory about the venture capital industry and disruption in the legal industry see video at: Legal Startups - An Overview at PointOneLaw ].

To survive in this fast changing environment, solos and small law firms need to figure out strategies that extend their brand online, without detracting in any way from their role as a trusted adviser in the communities where they live and work.  I see too many solos and small law firms that think they can emulate LegalZoom's success but don't have either the capital or the skills to compete in an online environment.

The competitive response for solos and small law firms should be to create a "click and mortal" strategy that combines what can be learned from LegalZoom with the best management practices of a law firm that has the capacity to deliver "limited" or "unbundled" legal services at a competitive price point, both in the office and online.

Here is a previous blog post which lists steps that solos and small law firms can take to become more competitive in this rapidly changing environment. The cost of adapting to this new competitive environment is not the cost of software, which is relatively inexpensive. The cost is the investment in time that the lawyer has to make to learn new online skills, create more efficient production procedures, and adopt marketing approaches that amplify a lawyer's expertise both online and offline.

It will be interesting to see what the legal landscape for solos and small law firms looks like five years from now. 

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Comments (7) Read through and enter the discussion with the form at the end
Jason Goitia - May 12, 2012 4:16 PM

The reason the UPL dog won't hunt is because they aren't a "provider of legal service" (as you characterize them. They help people do the work themselves. I would agree that isn't enough to do the job properly, but it's not UPL.

Tom - May 12, 2012 6:27 PM

What an informative post - thanks.

TechCrunch and virtually every other tech blog I came across speculated that the 2011 revenue was around $100 million, so seeing $156 million is pretty shocking.

But I think the strongest indicated of the power of "just enough" is that 20% of all LLCs in California were created through LegalZoom.

Do you think there's a reason why the the announcement comes just before Facebook's IPO?

Boyd Butler - May 14, 2012 5:18 AM

Richard, great article. Your American example really shows the future for the UK. I second your comment that the challenge for most firms is clicks and mortar and that the investment is the effort and time required to do this. Many people feel overwhelmed because they don't think they can do it, they don't have the resources and therefore they don't ever start the process. I'm trying to help them start the process and keep them on track Excellent articles like yours can provide the reason why they must start.

Richard S. Granat - May 14, 2012 10:00 AM

Thanks Boyd. My sense is that solos and small law firms in the UK are in the same position as those in the US. LegalZoom is planning to launch their service in the UK sometime next year, probably in a joint venture with a major law firm, so they can bundle legal advice with their document service, which they can't do in the US. It will be interesting to see the impact that this will have on solos and small law firms in the UK. Their experience in the UK with this modified service will generate good data that they can import back into the US. The UK will prove to be a good laboratory for LegalZoom

Ken Adams - May 21, 2012 7:42 AM

When it comes to contract drafting, the notion of "good enough" is a cop out. That's something I discuss in this post: http://www.koncision.com/good-enough-and-stratification-of-the-legal-market/.

And you might want to check out the quality (or lack of it) in what LegalZoom, Rocket Lawyer, and the like have to offer. The following link is to my critique of Rocket Lawyer's confidentiality agreement: http://www.koncision.com/rocket-lawyer-contract-automation-fail/.

Carolyn Elefant - May 23, 2012 7:57 PM

I don't agree that consumers necessarily think LZ is good enough. Many are unaware that there are other low cost options. LZ has been very successful in promoting the view that lawyers cost an arm and a leg for an LLC or will but that's not necessarily the case. Lawyers should be pointing out deficiencies in LZ and they aren't doing it.

Sue Pitt - June 6, 2013 10:36 AM

This is a very informative article. The current 30-50 year old generation has become extremely comfortable with the use of online services; I am not surprised that legal services has become a competitive and regarded product. The real test will be in the next 10 years, to see the lawsuits that come forth as a result of online legal services. Many individuals and businesses may be in for a surprise to see that their interests are not protected as thoroughly as they could be if they had hired a lawyer to tailor a contract specific to their needs.

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