Yesterday Bloomberg Law released an interview with Mark Harris (CEO & Co-founder of Axiom Law). It is a must watch. Despite its growing notoriety, Axiom Law remains a mystery to most lawyers. Very few people outside of Axiom Law itself have well-developed understanding of its business model or the services it offers. It is not a law firm. It is not an e-discovery company. It is not a pure LPO. But it is one of the most important companies in the legal services industry.
Mark Harris, Axiom’s co-founder and CEO, admits that there is currently no satisfying label which can be placed on Axiom:
“Part of the challenge of innovating or creating a new category is that there is no vocabulary to support that category.”
Nonetheless, agreeing upon the nomenclature used to describe an organization is far less important than the specifics of its business model, the services it provides and its organizational structure. Developing a better understanding of Axiom Law will give law firm managers a new perspective on the current state of the legal services industry and help them re-evaluate their firm’s place within it. I have no doubt Axiom will accomplish its mission of becoming the largest and most innovative provider of legal services in the world within the next ten years.
The Basics: Location, Size and Revenue
Axiom HQ Employees = 170 2010 Revenue = 80 million
Axiom Attorneys = 830 2011 Revenue = 130 million
Total Employees = 1,000 2012 Revenue = 150 million
I estimated the headcount breakdown by reviewing the information available on Axiom Law’s website. The overview section of the home page states that Axiom is a 1,000 person firm. The HQ personnel breakdown lists 170 names. If both of those numbers are correct then Axiom must employ roughly 830 attorneys.
The revenue estimates are based on information in Mr. Harris’s interview on Bloomberg Law as well as prior articles in the National Law Journal and The American Lawyer.
Axiom serves clients through 11 offices and 4 delivery centers:
Office Locations = Atlanta, Boston, Chicago, Hong Kong, Houston, London, Los Angeles, New York, San Francisco, Singapore and Washington DC
Delivery Center Locations = Belfast, Chicago, Gurgaon and Houston
Axiom Law’s Business Model
I created a “Business Model Canvas” (BMC) that diagrams Axiom’s business model. The BMC is an elegant and convenient way to visually represent an organization’s business model. Unfortunately, I could not fit the diagram into this blog post. Please click this link to view it in a Prezi window. Prezi is a presentation software that allows for nearly infinite zooming and is ideal for viewing large diagrams.
For those who are interested in learning more about the BMC method of analysis, I would highly suggest purchasing a copy of Business Model Generation by Alexander Osterwalder & Yves Pigneur.
Axiom’s Customer Segments
Axiom’s primary customer segments are Fortune 500 Corporations. When asked to discuss what customers Axiom Law is working with mark Harris responded as follows:
“We are very active with a lot of the large banks, so we have got deep specialization capability across financial services and we do a fair bit of work in compliance . . . financial services compliance.”
Its marketing materials provide additional evidence of a focus on financial institutions. In Axiom’s most recent promotional video Al Giles, Managing Director of Europe and Asia, expresses optimism about Axiom’s ability to effectively service the needs of financial institutions:
“As you scale up internationally, the attractiveness of your composition gets more and more attractive, when you stitch together such important financial centers such as New York, London and Hong Kong, you have a very, very powerful story.”
Therefore, it is fairly clear that Axiom is generally targeting large corporations with a particular focus on large financial institutions.
The legal needs of large corporations, even those that within the same industry, are varied. But it is possible to identify some common themes. First, large corporations operate internationally and are therefore subject to multiple legal regimes. For example, if a US-based company also operates in Brazil, India and China then it must comply with US law as well as the laws of Brazil, India and China. Additionally, the company must ensure that engaging in activities abroad that are allowed under the relevant local laws will not subject it to legal liability in its home jurisdiction or any other jurisdiction in which it operates. Second, governments across the globe are requiring large financial institutions to document and disclose more data about their business activities than ever before. Governments are demanding this from financial institutions because the consensus among policymakers is that a lack of transparency was one of the primary causes of the 2008 financial crisis. The hope is that increased reporting and vigorous monitoring will help prevent future systemic failures of the global financial system. Third, corporations need all of these services delivered continuously and cost effectively. With some exceptions, the legal department in a large corporation is a cost center. It helps the other business units avoid losing money but it is rarely able to directly generate revenue. Therefore, the general counsel of a company is rewarded to the extent she or he can fully protect the company’s interests while spending as little money as possible.
Axiom’s Value Proposition
A new entrant in any given industry will not survive, let alone grow, if it does not offer a solution to a customer segment’s problem that is substantially superior to what is currently available. Axiom is growing at an impressive rate. Therefore, it must be offering a compelling value proposition to Fortune 500 corporations. Its growth also implies that law firms are failing to effectively address all of the legal needs of large corporations. What is Axiom doing that large law firms are not? The answer is that they are performing customized legal tasks at the same level of quality as a law firm but at a cheaper and more consistent price point. Axiom has designed its business strategy around two realities that many lawyers deny the existence of or fail to recognize.
The first reality is that a substantial portion of large law firm revenues are derived from “routine” legal work. Every AM Law firm emphasizes the fact that they are capable of handling difficult and unprecedented matters that arise on the cutting edge of the law. That may be true. But it is doubtful that most large firms derive the majority of their revenue from those matters. In fact, the opposite is probably true. A law firm with thousands of salaried attorneys would instantly go out of business if it had to rely solely on the revenues generated from “bet-the-company cases or transactions.” For example, assume Firm A has 2,000 non-partner salaried attorneys and each of them makes $150,000 a year. Firm A’s attorney payroll alone (i.e. excluding benefits, administrative costs etc.) would be 300 million dollars a year. To put that in perspective, Joe Jamail’s contingency fee in Pennzoil v. Texaco (a paradigmatic example of bet-the-company litigation) was roughly 345 million dollars. This means that Firm A would have to win and collect on a Pennzoil v. Texaco-sized case every year just to make payroll. Since such a feat would be impossible, it is logical to assume that many large law firms generate the majority of their revenue by billing hours on important but relatively common work.
The second reality is that customers are not always willing to pay a high price for important services. An analogy to the healthcare industry is apt. It is now well known that the healthcare industry’s ability to effectively provide routine preventive care has more of an impact on a patient’s health than its ability to effectively treat advanced illnesses. Therefore, one would think that patients would be willing to pay more for preventative care than intensive care. Ironically, the exact opposite is true. Patients are willing to pay the most for medical services when they are extremely ill. The same dynamic is occurring in the legal industry. Fortune 500 corporations are willing to pay astronomically large amounts of money when they face substantial liability but are less willing to pay for routine legal work that could have prevented subsequent large problems.
The primary driver of Axiom’s value proposition is its organizational structure. All of its attorneys are seasoned experts that have been trained by large law firms. Therefore, Axiom is just as capable of creating innovative solutions to a corporation’s legal problems as any large law firm. Exclusively using seasoned attorneys also decreases Axiom’s costs because it does not have to internalize the cost of training and managing inexperienced attorneys. But the centerpiece of its cost advantage is its ability to provide its attorneys with powerful technology and well designed project management processes. The technology and processes super charge Axiom’s highly capable attorneys and help them provide a high quality product to the client at 50% of the cost. This shows that integrating non-attorneys (i.e. information technology professionals, professional managers, database engineers etc.) into an organization that provides legal services can be extremely valuable. It is a tactic that many law firms have failed to execute successfully. Law firms have not been creative enough with their organizational structures. They are delivering legal services the same way it has been delivered for over a century. Axiom, on the other hand, is investing heavily in technology and data delivery centers to further strengthen its structural advantage.
Axiom showed its hand in this regard by admitting that it is spending the majority of the outside capital it received on technology infrastructure. When asked what Axiom spent the 28 million dollars it recently received in outside funding, Mark Harris responded as follows:
“We are mostly deploying that in the areas of development of technology and tools and also some investments in delivery infrastructure. . . all in support of our managed services business.”
The Bottom Line
Axiom is not an LPO and it is not doing low-end work. It is striking at the core of what large law firms do. Therefore, the best thing law firms can do is follow the age old adage, if you can’t beat ’em, join ’em. Law firms should mimic Axiom and attempt to improve on the innovations Axiom is pioneering.