Atrium, the Silicon Valley tech company and law firm, is laying off the bulk of its law firm staff. Justin Kan, the tech company’s CEO and co-Founder, wrote that Atrium “will continue expanding outside of legal services as trusted startup advisors by building a professional services network dedicated to founders.” Translation: we are no longer in the law firm/practice business but welcome its patronage of our platform.
The legal industry press has pounced on Atrium’s course correction like a fumble at the Super Bowl. Why has the company’s closure of its small, niche law firm drawn such outsized attention? Atrium Law’s wind-down—with due respect to those affected– impacts far fewer legal professionals and clients than other recent firm closures. The firm operated for only two years and was not a significant player in a market filled with tech heavyweight firms like Cooley and Wilson Sonsini. Atrium Law’s pedigreed, tech and business savvy legal professionals should have little difficulty taking their talents elsewhere. They will not be mired in litigation and financial liability as have partners in other failed firms. One more time with feeling: why is this such a big story?
Atrium: The Latest Poster Child For The Industry’s Revolutionary Hype
Law loves shiny new objects, and Atrium was just that when it launched to considerable fanfare in 2017. Atrium’s hype had several ingredients: a high-profile, tech wunderkind Founder, Justin Kan; his bold promise to “revolutionize the legal industry;” eight-figure investment capital out of the gate; an additional $65M investment from venture capital heavyweight Andreessen Horowitz; Silicon Valley panache and connections; and a frothy legal tech market. Atrium’s two-company model—a law firm and a tech-enabled legal services company—enabled it to circumnavigate regulatory restrictions on legal entity ownership, management, and institutional investment.
Atrium’s two-company model is not new; it was pioneered by Clearspire, the next-big-thing that wasn’t, a decade earlier. This became another ingredient of the Atrium hype: would it fulfill the disruptive promise that Clearspire had failed to achieve? For many, Atrium became a proxy for legal market evolution. It has also spawned lively debate in the legal blog world –are comparisons to Clearspire warranted?; did Atrium ever intend to operate as a two-company model or was it a tech company masquerading as one?; and a legion of other questions. This is another reason why the Atrium announcement has drawn such an exaggerated response.
Atrium’s decision to jettison its two-company model is a reminder that legal transformation is not about bold predictions, splashy market entrances, and media coverage. It’s tough yards gained by unwavering customer focus; adherence to mission; differentiation; investment in human and technological resources; demonstrable results that positively impact customers; brand building; and constant improvement. Atrium’s launch intrigued the legal tabloids and created market buzz, but that’s entirely different than landing customers. The Atrium model—like Clearspire nearly a decade earlier—left legal consumers to question: “What is it and how can it help us?” In a maturing legal market where differentiation is more important than ever, Atrium’s mixed message about its identity did not resonate with buyers.
Kan may have believed that he could transform the legal industry, but he quickly learned that legal practice and legal delivery are two different businesses. Each has its unique challenges—talent acquisition, competition, marketing, and customer point of entry, among others. Practice is about differentiated expertise, model, “safe hands,” and capacity. Technology is about capital, minimum viable product (MVP), modification, and scale. Kan learned that integrating the two is not easy, especially as a two-company model start-up. Bob Ambrogi, writing about the Atrium “restructure” observed, “The unanswered question is why the Atrium/Clearspire concept of streamlined, tech-enhanced legal services delivery did not work.” Short answer: the two-company model works, but not for start-ups.
The Two-Company Model Is Alive And Well– But Not For Start-Ups
Clearspire and Atrium have demonstrated—albeit at different times and for different reasons–that the two-company model does not work for new entrants to the marketplace. Both lacked brand recognition, a track record, and a clearly defined identity. They failed to convince prospective buyers what they offered—was it tech that could be applied to the legal function or a law firm enabled by tech? This is a distinction with a critical marketing difference. The lead-with tech strategy is directed to legal providers and is a B2B play. The law firm play is a B2C model. This goes well beyond which customer door to knock on. It’s about brand identity and the culture, resources, customer focus, and value proposition that builds and sustains it.
Clearspire would have succeeded had it launched as a pure-play technology company licensing its platform to other legal providers. Its technology was what the market wanted, not its law firm. Clearspire’s unwillingness to make this early adjustment and to pursue the tech play/licensing route was its undoing. Its election to build the platform for the exclusive use of its own law firm placed an enormous financial strain on its lawyers and created friction between the law firm and the service business. In the end, both suffered.
Jason Kan apparently did not learn from Clearspire’s experience when Atrium Law was launched as the Siamese twin of the tech company. Its strains credulity that any institutional investors would commit $75M to a small, unproven law firm. That’s why Atrium’s course correction was likely made well in advance of its announcement to wind-down the firm. This supports the conclusion that Atrium Law was never intended to be more than a beta tester for its tech arm. Kan now recognizes that Atrium’s value to start-ups did not derive principally from legal acumen but from its technology stack, fundraising expertise, and business prowess. His blog post announcing the law firm wind-down confirms this: “founders (Atrium’s target market) are seeking holistic business services and advice for the key issues they face.”
The two-company model—albeit in a staged, scaled, and integrated form– is alive and well. UnitedLex, Axiom, and the Big Four are melding legal, technology, and business expertise fueled by capital. These providers developed strong brands, a breadth and depth of expertise, deep industry knowledge and customer relationships, a strong track record, and a global footprint before they attempted to meld legal practice and the delivery of legal services. They evolved into end-to-end providers and built on their existing brands; they did not attempt to disrupt the legal industry on day one. For them, industry change is more evolution than revolution and more differentiation than sensation.
The biggest takeaways from Atrium’s decision to wind-down its law firm to focus on tech are: (1) the susceptibility of the legal industry to hype; (2) its fixation with “disruption” and relative inattentiveness to culture, business models, technology, resources, upskilling, and data that align provider to customer and promote impactful results and satisfaction; (3) the importance of customer focus and brand development; and (4) differentiation in a maturing, consolidating legal industry.
The legal revolution is well underway, and, to borrow from the late Gil Scott Heron, “it will not be televised.” Customers are driving it. Providers that respond to their needs for holistic, integrated, value-driven, transparent, accessible, agile, and constantly-evolving solutions will survive the revolution and thrive—others will not.
Clearspire and Atrium both boldly sought to revolutionize the legal industry. Their vision to integrate legal practice with the business of delivering legal services was sound, but they lacked the ability to realize it as a start-up. Clearspire and Atrium lacked the requisite foundation—brand, track record, depth and breadth of talent, proven technology, and customer base—necessary to achieve that integration. The better play would have been a narrower focus—a new model, tech-enabled version of a law firm or a legal service provider with a technology platform licensed to established firms seeking competitive advantage.
Clearspire and Atrium attempted too much too soon. Their revolutionary fervor overtook them. It’s a reminder of Mallet du Pain’s famous observation of the French Revolution, “The Revolution eats its children.”