Atrium lays off lawyers, pivots to tools
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These founder raise pre product market fit because they can, and often raise too much money. Having too much money when you don’t really have a viable product that people want can easily turn your company into a zombie, where people are just sort of going through the motions because there’s nothing else to do but chug along.
I’ve seen it many times. Some end up eventually finding the market after a few pivots but it’s really not a fun place to be as an employee with little decision making power. And the founders are usually wealthy enough at that point independent of the success of this current company that it isn’t “do or die” for them which creates another layer of zombie-esque behavior.
But I do agree with the second point, which is when the founder isn't going to have that "do or die" mentality and the startup starts to sputter, then it's straight into zombie land. Reading the blog post on the company website it sounds that this is basically a corporate structure for Justin Kan to give people advice on how to fundraise and build their companies, which might be a useful service but obviously not a growth startup.
I've spent my whole career in the legal field and built a number of legal tech automation tools with varying degrees of sophistication and commercial success, and I genuinely have no idea how he thought Atrium was going to work.
From the outside, the only audacious thing I see is that Atrium tried to do something that's famously impossible to do.
Lawyers can't directly solicit funding and M&A deals. Whatever a "Fundraise Concierge" is, it can cold call founders all day long.
Wouldn't be surprised to hear they're ramping up direct sales.
I've seen the issue with wealthy enough employees at all the startups I've been at too. Once you get people who no longer feel a certain hunger, they lose ambition and direction quickly. I've seen it happen as startups go from mildly successful to unicorn. Where the founders were able to cash out enough to buy a house in the bay, they suddenly were way less eager about being acquired or IPOing. And I've seen it with people who are on the tail end of their careers, exiting one startup with a very sizeable amount to enter another. The hunger is gone for them, they're just coasting, and they don't seem to have any real reason to even be working beyond avoiding boredom in retirement.
And the worst part is that it feels like these types of people are way too well represented at the top of the hierarchy. The part of the hierarchy where these attitudes matter the most!
There are so many examples of serial entrepreneurs doing it over and over. Likewise of employees of startups going on to do even better in the next startup they join.
Serial entrepreneurs do get to raise more money, markets reward success, and I am with you that it’s not always deservingly. I also think many startups can and do pivot and serial founders aren’t more likely to pivot than the non serial kind.
I would bet on Justin Khan finding a way to success, much more so than not.
Still not sure if it was a good thing that I didn't know, because I probably would have quit at the end of the beginning of the recession. I'll never know if finding a new job would have been any less stressful than staying, but I'm still feeling the effects of that period.
For someone who has spent so much telling founders to cut buzzwords and speak in plain and simple English, this blog post by Justin Kan is something special. Case in point:
> Similarly, at Atrium, we’ve made the tough decision to restructure the company to accommodate growth into new business services through our existing professional services network.
Simple facts hidden in positive-sounding buzzwords, as if, they believe that the reader doesn't know better. It seems like a variation of 'Our incredible journey..' template
Honest question, why do companies do this? It seems disrespectful to everyone - employees (both fired and current), customers, and any adult for that matter.
generally because it keeps the person who wrote it hire-able post closure, and makes those that lost money or effort on the deal feel as if their loss is actually being spun into something else, like concepts, innovation, future profitable IP, whatever.
I agree, I think it's disrespectful, but then again there's a lot about business that I feel that way towards.
Bigger red flag from his tweet is there’s basically zero engagement from others in the tech community. For someone who is that high profile to tweet something big about his startup and get almost no responses is really strange.
This tweet from December 10 seems pretty weird now: Justin Kan @justinkan "Early-stage fundraising: - need a great narrative - can get by with bad metrics - but MUST know those metrics"
The corporate legalese speak made things worse, of course.
I guess I underestimated the anger this would cause, so makes sense people are not going to touch it.
And this is Justin Kan. Not somebody who ruminates, and somebody who went through a ton of pivots with Justin TV. This sort of result is no big deal to somebody like him.
American business communication, especially when addressing mass audiences, has its own special modes. I find a lot of it gross, and I'm a native.
I will say, ability to cut the nonsense is definitely a positive distinguishing factor when interviewing, but that's hit or miss; there are lots of smart, decent people with whom I just don't "click" and I imagine that's the case for most folks.
You could even imagine a case where the lane was closed to customers but perhaps in use for a training. This sign would avoid confusion, whereas a ‘closed’ sign would invite answers.
I had bought into their philosophy at first but the experience showed me why law firms have the partner-oriented structure they do. Legal work is built around trust in the lawyer in most cases and that's hard to automate.
For his reason I’ve always been puzzled why law firms merge. You ever pay multiples of revenue; it’s just literally a pro data merge with a little goodwill thrown in from one side.
Companies tend to do the opposite, though, right? Apple could increase its margins by selling iOS and the Ax processor IP. But it makes more “boatloads of money” selling hardware, even at lower margins. Instead of selling IP, Apple uses its superior IP to dominate the market for phones.
Its likely the issue isn’t margins, but scalability. Scaling a law firm is difficult to impossible due to conflict of interest rules. That’s why the largest international law firms have 4,000 lawyers while PWC has 230,000 accountants and advisors. That puts a low ceiling on how much you can scale while doing actual legal work.
When you buy Apple hardware, you are locked in to use Apple software and nothing else. A hardware vendor like LG/Oppo/Xiaomi would rely on Android, a commodity software, and thus, have very little pricing power against its competitors. Even though the technical specs of these phones might be better than the iPhone, they would struggle to sell for half the price.
The software lock is further amplified by those custom chips that are used across the Apple ecosystem. You're likely to pay exorbitant prices for the software on MacBook and iPad as well.
Remember, Apple usually doesn't touch a single phone throughout the manufacturing process (Most of the components are manufactured by third-party vendors squeezed into razor-thin margins). After paying these vendors off, they get to turn around and sell the same hardware for $600-650 more on the market. That wouldn't have lasted if they had licensed iOS out, their pricing power would be severely diminished.
That's why I've long thought the conflict disqualification rules should apply only to individual lawyers, with suitable ethical walls. I strongly suspect that the traditional disqualification rules evolved in a bygone era where sole practitioners and one- or two-man (yes, man) law firms served as trusted advisers to clients who weren't that sophisticated about legal matters. It's not at all clear that firmwide disqualification for conflicts is still appropriate in an era of (i) giant global law firms and (ii) in-house counsel who are the client's actual trusted advisers and who use law firms strictly on a project basis as hired help.
Kan was quoted in 2018 as saying "The goal with the tech side has always been...to help attorneys spend more of their time on meaningful work and less of their time on crank-turning work."
Time spent on "crank-turning work" constitutes a relatively negligible portion of billable time for any attorney billing at a reasonably high rate. They delegate as much of it as possible to people who bill at lower rates, like assistants, paralegals and junior associates. So you're not really automating much of the attorney's work at all. Even if you build an ergonomic software platform for routine tasks (like Atrium's glorified Dropbox), the amount of time/money it would save over the course of a large engagement is de minimis. And if you aren't dramatically saving time, you can't dramatically reduce client costs under any fee structure.
So they end up with this software group making tools that don't help the legal side make more money. And the tools don't contribute meaningfully to the legal side's pitching for work in part because they don't save the prospective client much money. Meanwhile, the software side can't sell the tools to other law firms because the software side is tied to a law firm. Ultimately, they end up with a bunch of lawyers and software developers who can't help each other. This outcome is so predictable that it's downright hilarious they ever thought it would be a money-making strategy, and apparently the investors didn't understand or think it through, either.
What Kan mostly got wrong was thinking that automation would be profitable for a law firm. There are lots of automation tools that would be extremely valuable to a law firm, but that usually means you should be selling them to a law firm, not from a law firm.
Maybe they really poured years and millions of dollars into a stupid idea, or maybe they just failed in a planned pivot?
All in all, I actually feel I overpaid for subpar legal services.
I will credit them with a smooth and enlightening (albeit overpriced) corporation formation, and maybe they are pearing down the product to just that - because that was the only thing that worked, IMO.
I felt as if they were taking advantage of early stage startups preparing to raise capital. You can’t bill their rates and then ghost them, those are precious dollars and precious time.
“I have been trying to cancel for over a week, and more of the same. NO ONE RESPONDS FOR WEEKS! These are ATTORNEYS! Waste of money.
I’ve dealt with many lawyers coming from my last startup which was in a highly regulated space.
Atrium is like an expensive legal zoom, but overpriced. Understand it’s cheaper to use a lawyer at any other law firm because your retainer is a deposit on future services.
With Atrium your paying $6k a year in subscription fees for “legal advice” which is otherwise baked into any other law firm, and they don’t provide much advice.
They really specialize in financing, using ycombinator docs. These docs are publicly available templates. All other services are limited to their “al la crate menu”... again all templates. It takes days to get a email back from them. It takes a week to get a call setup, if they have the time, and if they will even discuss the matter.
Litigation? Find someone else
Overseas? Find someone else
Doing something outside of California like an asset purchase? Find someone else
So you basically need other lawyers anyways if you use atrium, The rest of their menu is boiler employment agreements, NDAs, and terminations - all of which are 2x local rates.
They custom quote TOS and privacy policies - and again it’s all template based - and 2x local rates.
I asked them about the impact of California’s new AB5 and yep, ask someone else! Save your money - don’t buy the hype.
All your doing is helping VCs cover their recurring legal expenses by paying Atrium to overcharge you and build valuation based on their “tech” which is just a drop box and bad customer service, and no legal support.”
They had a flat monthly rate, and then a la carte billing if you needed extra things, IIRC. The real problem was, when we needed something reviewed or worked on, they couldn't deliver on time or promise any guaranteed deadline. My CEO was very frustrated.
This is such a gross way of putting it.
This isn't a publicly listed company ffs, just say what everyone knows it means: "our startup's Plan A performed unexpectedly so some of our great colleagues, who believed in us and worked hard for up to 2.5 years, are losing their jobs, and this sucks, but based on what we all learned, including thanks to the valuable work the in-house guys did, we're kicking off Plan B today".
tech tools it developed for lawyers and law firm clients, and for new areas it will expand into.
Justin Kan sold Twitch to Amazon for nearly $1B after 7 years, Socialcam for $60M in 18 months, and Exec for "under $10M" in 2 years.
That's how he raised $75M. The company/product was completely irrelevant.
Justin raised $75mm because he's Justin, and for all VCs posture like they're contrarian risk-takers, they're absolutely not and would have invested in shit in a box if Justin said it was his.
There are three types of legal work (exceptions, yada yada, but mostly):
1. Normal people shit. Parking tickets and most criminal law, etc. Flat fees fine and usually nice so your clients understand (and understand their ability to actually pay your rate). Work itself can be pretty predictable, or taken on contingency for civil stuff.
2. Line of business legal work. If you fuck this up it sucks, but rarely is it a material risk to the value of the company. This work is usually brought in-house ASAP, to control costs. Before that point, you see both hourly and flat fee work, mostly based on client sophistication to negotiate such things.
3. Bet-the-company (and white collar/wealthy criminal) work. Here clients only care about one thing: WINNING. You win M/A by closing. You win regulatory work by clearing the way for profit making activity. You win bet the company litigation by....winning. The cost of legal services, even at hourly rates, are negligible compared to the profit making ability success unlocks (or unlocks the continued existence of the company, a guy not going to prison). Clients rarely give a shit what or how you charge as long as you win. They will pay whatever "winners" charge. They will only bitch about costs if they percieve themselves to not be winning.
You cant talk about this as if legal work is the same. That's probably why you percieve a disconnect as an outsider.
Any word on what they actually were doing to gain these efficiencies?
Legal firms bill hourly. Efficiency means less billable hours.
(warning: moving into personal experience and conjecture) Yes, boilerplate forms for repetitive use cases seems like it should be a thing, but in my experience building businesses, every lawyer I have dealt with has found any reason possible to have custom documents.
It's also not clear they ever found Product/Market Fit. [2,3] > This week Kan confirmed that the company has completed its fundraising process, raising $10.5 million > as Atrium goes through its product development phase and tries to achieve product-market fit.
[0] https://abovethelaw.com/2017/09/competition-is-for-losers-th... [1] https://abovethelaw.com/2017/10/justin-kan-answers-the-call-... [2] https://techcrunch.com/2017/06/15/justin-kan-atrium-lts-fund... [3] https://techcrunch.com/2018/09/10/atrium-legal/
"Thank goodness my law firm is saving me money by generating these documents for cheap!"
And
"You know this is kinda important but I'm not sure I want discount lawyer's on this who automate paperwork...."
The asymmetries of the cost of improper legal work versus saving some amount upfront may not seem worth it.
There is probably some cognitive bias in play here.
I evaluated Atrium out of curiosity when I was looking for a law firm for incorporation purposes. I filtered them out after the first call because they weren’t set up to handle the slightly unusual setup I had, which other law firms had no trouble with.
Also I never got the impression that the really profitable customers are shopping for those kinds of efficiencies....
The premise they started with was that its hard to sell efficiency enhancing software to lawyers because the billable hour discourages increasing efficiency. The solution was to become a law firm, offering fixed fees to secure business and leveraging the software to increase efficiency and enhance profitability.
> Atrium LLP is trying to solve this by charging fixed pricing for work. It plans on doing this by building models to predict how much work will be needed for different types of projects. Even if the models aren’t perfect at first, it doesn’t really matter: regardless of whether it is higher or lower margin initially, the point is that when are have a fixed price for service, it is your internal incentive to reduce cost over time. That is how the market drives lower cost for customers. When you have buyers who pay suppliers based on cost plus, you get high prices that don’t trend down over time (think government contractors). When you have fixed pricing, costs generally come down over time.
By shifting away from charging for services to selling software, you’re back to the initial problem: law firms don’t want to pay for efficiency enhancing software because the billable hour discourages it.
Good lawyers in the Valley should indeed be giving startups the boilerplate for free, not charging for board meetings, not charging for the partner time (not that you’ll get much — or need it) but charging for associate time. This is what I’m used to and expect, whether Gunderson Dettmer, Cooley, Orrick etc. From startups they make the money on the financing even though those docs are mostly boilerplate too. Oh no billable hours until you get a term sheet.
Then if you get big they also make the big bucks, especially on exits.
But it’s not worth chasing the scraps of billing from startups. I mean how much lawyering do you typically need in the first couple of years anyway?