I've been having this conversation quite often in investor discussions, and given the growing interest in legal tech and AI, it's worth taking a deeper dive into this topic. The legal tech market is a unique beast. Business models that thrive in other industries often falter in this one. But why is that?
Law: A Profession of Skeptics
First, it's essential to understand that law is inherently a profession of skeptics. Attorneys serve as their clients' rational minds and sober advisors. Their role is to think through every possible way a situation could go wrong and then work to mitigate potential losses. This mindset doesn't just apply to their legal work; it permeates their entire approach to practice. Lawyers don't want to know everything your product can do—they want to know what your product *won't* do. Their first filter is determining which software has the least potential to harm their practice. Only after that do they consider which tool offers the most potential benefit. In a profession where profit is derived from minimizing risk, the focus is inevitably on what could go wrong.
A Decentralized Market: Grandma and the Big Bad Wolf
The second aspect that sets the legal market apart is its surprising decentralization. For those outside the industry, this can be hard to grasp. You see the big white-shoe law firms and the legal departments of mega-corporations and assume they operate like other large organizations—like investment banks, for instance. A large group of high-paid professionals, all with common goals and a well-defined hierarchical structure, right? Wrong.
There's a reason why grandmothers around the world tell their grandchildren to become doctors or lawyers, but never bankers. These professions are fundamentally different. A doctor or a lawyer carries ultimate responsibility and authority for their actions. In a large firm or corporate legal department, each attorney is, in essence, a lone wolf within a pack (for the uninitiated, that’s a Hangover reference). Each lawyer holds their own license, carries their own malpractice insurance, and, most importantly, risks their individual career with every legal decision they make and every software tool they use.
This reality creates a unique challenge: it's not enough to "sell a firm" or "sell a legal department" on your product. You have to convince each individual attorney that your solution won't jeopardize their personal practice or career. And this challenge scales with the number of attorneys involved.
Building Trust in a Market of Product Champions
In the legal market, every attorney is a potential product champion. But to earn their trust, you need to go beyond just selling the product—you need to make the state bar, their peers, partners, judges, courts, and clients comfortable with your solution. If you can achieve this, the legal market becomes scalable in a way few others can match. If you can't, your product won’t gain traction.
Consider this: would you use DocuSign if your attorney advised against it? Probably not. Attorneys wield significant influence over the tools their clients use, and this extends into the realm of AI. The potential for AI in the legal market is enormous, but that potential will only be realized if trust is built first.
Why Legal AI Will Boom
This brings us to why the legal AI market is poised for a massive boom. At the heart of AI's promise is its ability to generate and process language quickly and with remarkable accuracy. Large Language Models (LLMs) and Generative AI represent a breakthrough in language technology, and they are a perfect fit for the legal industry, where words are the core commodity. No other field places as much value on words, measured in dollars per word, as the legal industry does. And within law, intellectual property (IP) law stands out as the pinnacle—where the most valuable words are carefully crafted, protected, and litigated. The efficiency and precision that AI brings to handling these words can dramatically increase productivity, reduce costs, and open up new possibilities for managing and monetizing legal content. The alignment of AI’s strengths with the needs of the legal profession is why we’re on the cusp of a legal tech revolution.
The legal tech market is vast, but it requires a deep understanding of the profession's inherent skepticism and decentralization. Success here depends on more than just a great product—it depends on building trust with a pack of lone wolves, each guarding their practice with an eye for risk. The opportunity is enormous, but so is the challenge. And with the rise of legal AI, the potential rewards have never been greater.