We understood that there are many unhappy lawyers out there who would like to work differently. We allow our lawyers to dictate their workloads — they have no billing targets or comparable expectations.
Canada-based Cognition provides in-house counsel services to companies. Cognition keeps its overhead low by relying on cloud technology and a team of senior lawyers who work either from the clients’ locations or from their own home offices. In January, 2016 (subsequent to this interview), Cognition announced that it would split its business into two, one serving large companies that have in-house legal departments, and the other serving small and medium-sized companies. This split was in order to enable US-based Axiom to acquire Cognition’s large company business. Cognition’s small and medium sized company business would be renamed Caravel Law.
Cognition was founded by two people who formerly held senior in-house counsel positions, and many of our lawyers also formerly held in-house counsel positions. On that basis, we like to boast that in our firm we host significantly more in-house experience than any law firm in the country. This experience enables us to provide unique service to companies in two ways: (i) to provide in-house counsel like service to companies that otherwise don’t have in-house counsel, and (ii) to supplement a company’s existing in-house counsel team during those times when it needs greater resources, or for discrete projects/buckets of work historically sent to a traditional outside firm.
We use technology in a way that makes our work more efficient and smarter. We price far less expensively than most other law firms as we spend very little on bricks & mortar offices and we otherwise keep our fixed costs and overall owner profit expectations in reasonable check.
We both worked at big law firms, and then in-house, Joe in the telecom industry and Rubsun in technology. We both arrived at a point in our careers where we were trying to figure out what to do next. While we were trying to figure that out, people that we knew were often asking us to assist them with consulting of some sort — people in starts-ups and small businesses who needed legal help. In helping them, we came to the realization that it made no sense for these companies to be paying “Bay Street” (big law firm) rates, that it was possible to provide them with the same quality of service but at much lower rates.
We got many referrals doing this, we became very busy. Finally we decided to formally organize ourselves to bring in other people. We did this with the mindset that we would not carry the large overhead of a big firm. Neither of us have subscribed to the trappings of big law. We understood that clients want to pay us for our legal expertise, but not for large overheads.
Another thing that makes us unique is the flexibility that we offer to our lawyers. We also understood that there are many unhappy lawyers out there who would like to work differently. We allow our lawyers to dictate their workloads — they have no billing targets or comparable expectations. They tell us how much they want to work, and they are paid on that basis. Often our lawyers work from our clients’ offices — if they are not there, they can work from home — that gives them a lot of flexibility in organizing their work and their working day.
When we started, we were not sure what kind of supply we would have, but it turns out we have been able to attract very good, highly trained experienced lawyers who like to work in the model. It sounds cliché, but it’s a win-win for everyone.
We price our work in a combination of ways, depending upon the client. Often it is fixed fees, but it may be hourly if that is what works for the client. We also work on fixed retainers for regular, recurring tasks or what we call “bulk” work.
We have about 50 lawyers now. The majority of them are independent contractors, whereas the handful of junior lawyers that we have are employees.
In some ways our model is similar to Clearspire’s, but with one difference — they invested heavily — upwards of $6 million on proprietary technology, if we are not mistaken. In contrast, at Cognition we recognize that we are not technologists. We understand technology, but it is not our area of expertise to go out and build our own. So, what we have done is take available technology and adopt it for our needs. That means that we do everything on the cloud. We service our clients and we service our lawyers on the cloud. This has enabled us to avoid many upfront fixed costs, and to make many of our expenses variable ones. The other great thing is that technology evolves over time, without our having to spend our own time and resources. We provide feedback to our providers about our needs and priorities, and they take that into account, together with the feedback they get from their other customers. In our experience, cloud infrastructure and applications just keep getting better and better.
It has been extremely busy for the past few years. We brought on 14 or 15 lawyers in the past 8 months or so. This is the fastest period of growth we’ve had. We are constantly on the lookout for new people. Also, a lot of lawyers come to us. They see the writing on the wall. They are attracted by the fact they can work differently.
Many things have been written about how jobs in the 21st century will change. That people with good skills and experience will move to some form of consulting without the need (or desire) for employment in the traditional dependent sense. We believe that we have been able to do it in a nice way, that we have been able to find the right balance of autonomy and group cohesion. We are trying to establish a culture that is not focused on making as much money as possible for our partners but instead is focused on providing value to our clients as well as an attractive working environment for our lawyers. Big business law firms have a lot of miserable lawyers — many partners in those “machines” make a lot of money, but quite frankly it comes at the expense of paying clients and the associates and other partners on whom the leverage is based.
Our lawyers are not obliged to take on endless quantities of work — they are not squeezed like sponges like fixed-price associates, and they can choose to say yes or no to the type of work that we bring them. Our lawyers can have better balance, but also – and this was a surprise for them — many lawyers find that on a time-worked basis, if not on an overall basis, that they are doing better financially than they were before. At the same time, the clients are saving a half to sometimes two-thirds to what they would pay to a traditional firm.
Here is why our lawyers can find themselves better off: Say you have a very senior associate at a big law firm who is billed at $500 per hour. Say that person’s salary is $180,000 a year and that they are expected to bill 1800 hours or more per year. That means they are getting paid essentially $100 per hour. That means there is $400 per hour left over for overhead and partner draws. Let’s say we take that person, we cut their hourly rate to $250 per hour, and we pay that person $150 per hour. If they can work 1500 or 1600 hours, they are going to make more money than they did as an associate. We also get a lot of people from in-house positions, and we can usually match or beat in-house salaries.
The firm’s profits are certainly respectable compared to the average income in Canada, but the profits are very low compared to what large law firm partners expect to make. On the other hand, there are just two owners, the two of us — we don’t have hundreds of partners expecting to make $1 million plus each. Our profit expectations are much more in line with economic reality.
Our firm does not offer a traditional partnership track, where you pay your dues and then you make partner. That’s just not what we are. We would not expect to bring in another lawyer as partner unless that person was business oriented and was able to make a strategic contribution.
The fact that we only have two decision makers means that it is easy for us to make decisions. We don’t have to assemble a big group of people or manage by committee. We’re very interested in the recent CBA Futures report recommending that firms be open for outside investment — we see taking on a strategic investor who could help us to expand quicker as a very real possibility, if the rules in Canada change and permit us to do that.
Under the current regulations in Canada, we have felt limited. We have had to bootstrap our operations for ten years. Our ability to grow is limited by available capital, and it is never easy to borrow from a bank when you have limited hard assets. If we had had the opportunity to have outside investment from the beginning, we could have grown more quickly. We have had people approach as and say they are interested in investing in us, but we have to turn them away because of current regulations.
If we had access to outside investment right now, we would use it in a number of ways. First, to bring in more lawyers and accelerate our technology deployment, to enable us to serve a greater number of customers in the most efficient, value-accretive manner. Second, we would develop our marketing and sales functions more aggressively, notably to develop into new markets, including new countries. Third. we would grow our senior management team, in order to bring more specialized people, with our most immediate needs being in finance and product development.
What we see right now is attitudes changing. The legal market is by nature very conservative. But we see that the UK is able to develop low-cost centers. We look at companies like Riverview Law and we see how things can be done in an innovative, more cost effective way. We also see that clients are more open to doing things differently. We are not supportive of everything in the CBA Futures report, but we are supportive of changes that would give us more flexibility to be more than a traditional law firm. We see the proposed regulatory changes as offering us an opportunity — we could act on them faster than our largest competitors could.
Something that is definitely changing is where your competition is. It used to be that your competition was next door or across the street. Now in the legal market competition can come from anywhere, including another country. And the competition isn’t just other lawyers — it can also be two people in a garage who have come up with a new technology that will completely disrupt how lawyers work and deliver their services.
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