“Turns out that probably for the first time since the industrial revolution that you can’t build a company that’s fit for the future unless you build a company that’s fit for human beings.”
Breaking New Ground
A few of the innovations Optim Legal introduced were designed to make high-quality legal advice more accessible, including:
- Eliminating unnecessary costs which don’t add value to clients (such as marble clad offices with harbour views);
- Passing cost savings on to clients through lower charge-out rates (base rates are up to 40% less than the top 8 firms);
- Being fair and transparent on fees, with a unique billing system which allows clients to control how much they pay using a score-card system (imagine legal fees determined by your level of satisfaction with the services received);
- Offering innovative pricing structures by designing alternative billing models to suit clients and their circumstances (such as fixed fees, flexible retainers and hybrid solutions);
- Focusing on client relationships rather than billing more and more time with legal teams that operate without ‘minimum billing targets’ to address the root cause of over-servicing and over-charging.; and
- Investing in technology that lawyers need to get the job done efficiently and enables the flexibility clients want from their advisers.
Plaudits on Firm Spy are a very scarce commodity, but we were genuinely excited by the proposition that Nick James, founder of Optim Legal (and former associate to Kirby J at the High Court), heralded with his new firm. But apparently the market wasn’t quite ready to embrace the no-nonsense offering that Optim Legal presented. It appears to have closed its doors. Founder Nick James’ LinkedIn profile has been pulled and several of the firm’s previous lawyers seem to have gone solo too (click here, here and here).
From The Founder, Nick James
We emailed Nick to get the official word on the firm’s apparent closure. He sent us the following comments:
OL is unfortunately no longer. It is a pretty short and common story. Just a simple question of the two equal shareholding founders wanting to go in different directions. We were a start up law firm, funded primarily by friends and family on the verge of taking the next step up, when the split happened [the firm ultimately disbanded in April 2011]. The firm was performing well in its last 6 months but had some residual start up related debt which needed to be cleared up to continue. Having a disunited shareholding group predictably meant that no existing investors or new investors could put money into the company; which meant the OL vehicle was basically broken and despite working comprehensively though various options, couldn’t move forward. I have been gently testing the waters about possibility of establishing a new firm based on Optim Legal’s ideas, but have taken a few months off to work out of the legal industry, just to have a rest.
The FS team is bitterly disappointed by this development.We thought Optim Legal was an excellent response to some of the industry changes we perceived (and continue to perceive) in the market.
The Need For Change
The case against the partnership was insightfully articulated by Michael Bradley, Managing Partner of Marque Lawyers, in the AFR last year (02/07/10):
…Law firms have gotten as big as they’re ever going to get in our lifetimes. In fact, they peaked about 5 years ago and now they’re just going to shrink… [and] if you work in a mega firm and your face isnt in the equity partner trough yet, it’s something of an existential threat. If the firm isn’t going to get bigger, then your path to the glorious riches of partnership is reduced to a narrow and crowded lane.
…Competitive pressure driven by an overcrowded market and increasingly less pliable clients… progressively took the fat out of the business model… A liesurely retirement plan disappeared and the personal pressure on partners to produce ever-increasing revenue grew exponentially.
Firms will get smaller … because the shrinking pool of equity partners will not become any less attached to the personal incomes they now enjoy, and in the absence of continuous growth that can only be maintained by attrition. It’s a zero-sum game, but that’s fine if you’re already at the table.
The question really is whether they will continue to be able to attract the best talent and, therefore, maintain their competitive edge in the absence of genuine growth.
Bradley’s comments were later substantiated by an AFR survey (10/12/10) which revealed that Australia’s fastest growing partnerships were Tresscox (12.9%), HWL Ebsworth (8.1%), Hall & Wilcox (7.1%), while Norton Rose, Holding Redlich, Middletons and Cooper Grace Ward also posted significant mid-tier growth. Note the absence of the top-tiers; they were all constricting in December last year and are reasonably stagnant now.
Bradley’s views last year were also consonant with the observations of John Chisholm, who made a case against the partnership model in The Australian (02/07/10). Chisholm wrote:
Since law-firm partnerships began involving more than three people, there have been a number of legal commentators, advisors and observers saying there just has to be a better model, that the traditional partnership model is outdated and inefficient, is ineffective, stifles creativity and innovation, lacks quick decision making, fails to separate ownership from control and often rewards the lowest common denominator.
The traditional partnership model…, like most business models… has a life cycle … and [it] has well and truly reached the maturity stage. It should be, and is being, replaced by other models that better serve and reflect modern business as well as the interests of the profession and, importantly, the profession’s customers.
Clients are also among the growing chorus of people calling for an end to the partnership model, itself made possible by inefficient billing practices such as the 6-minute billable unit. The AFR reported last year (16/07/10):
Risk sharing is the new vogue in the legal world and the days of the traditional hourly billing model may be numbered as sophisticated clients clamp down on legal costs… Fixed-fee offerings [and alternative billing options] are becoming more common.
Parting Thoughts
Unfortunately, Optim Legal proved incapable of responding to industry challenges ventilated above. Not because of the ideas, we might add. To this end, we turn to the parting comments of founder Nick James:
These ideas will be back. They do work. Its just a question of time.
He also pointed us to the following videos (here and here) which offer insights into what he terms the “human side of innovation management”.
Firm Spy wishes Nick James and the rest of the team behind Optim Legal the best of luck moving forward. We certainly hope this isn’t the last we hear from you.
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There’s not even a hint of self reflection called for here FS? You anoint a firm your “firm of the year” based on little more than a corporate ‘mission statement’ that you thought sounded impressive, yet our own commentators knew at the time they were in trouble, and four months later the firm is gone.
For a site which prides itself on seeing through firm spin and PR, you seem to have not only been sucked in once, but appear determined to double down by maintaining faith in the feel good fluff, despite the implosion of the firm concerned.
Without doubt they fell apart because they were not making any money. No one will invest in a law firm not making any money.
Cutting your hourly rates by 40% means the principals are working (and taking all that risk) for probably no return. The revenue would have covered staff costs and operating costs – it would not have even covered your notional salary as principal, let alone a return for the risk taken.
This stuff might have sounded great over a few beers after drafting yet another High Court judgement in the sheltered public service, but welcome to the real world boys. Sorry to say but it isn’t as easy on the other side of the bench.
Lots of haters out there. I think nick should be congratulated for trying something novel like this
Agree that FS might have been premature with the award but there can be little doubt that Optim Legal, at least on paper, is an excellent idea
Good work following up on this FS.
You might also want to follow up on Optim’s previous senior employees and enquire why none of them did not see it worthwhile investing in such a business model?
Very easy to speculate without knowing the facts. An admirable concept that has rattled some old bones.
The Optim Legal business model was (and remains) valid. I know a bit about their model and what they were trying to do, and I know a lot about traditional professional services firms. The ideas, concepts and philosophies that Optim applied are dynamic and we’ll see them being adopted in due course. Yes the model needed some “tweaking” in my opinion, but that’s the case with all new business models. I believe that other factors, including the impact of the GFC on a new business, lead to it closing. The business model as such didn’t fail.
Firms operating with ethics and integrity have to compete against the other firms with less august values.