Legal Service Productization: what Porobija & Špoljarić did
I rarely meet lawyers that are passionate about their legal service business innovation. And when I do, I make sure to befriend and learn from them.
Marko Porobija is one such lawyer. He observes and judges his business holistically, and makes sure to learn all the time. He is much more than a lawyer - he is a legal entrepreneur.
I first met Marko at the ELTAcon19 - the ELTA annual congress held in 2019 BC (before Corona). He told me about Porobija & Špoljarić, a law office from Croatia that he leads. And he was telling me about his intentions with great passion.
We spoke about the billable hour, our past entrepreneurial endeavors, and - my favorite - legal service productization. It was becoming clear that Marko was a man with a plan.
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Creating legal products - from plans to reality
About a week ago (as of this writing), Marko and his team published their first productized legal service. Their legal product uses trained artificial intelligence (AI) to analyze drafts of most common commercial agreements.
Porobija & Špoljarić LegalSifter (PSOD LegalSifter) enables you to quickly and efficiently review and analyze your agreement, and get all the critical information on its content and relevant provisions. Based on that information, you may decide whether you will revise the document, sign it, or eventually seek additional legal assistance. The system operates 24 hours a day, 365 days a year.
That is the very epitome of scalable legal business. And, as it seems, Porobija & Špoljarić doesn't plan to stop there.
PSOD LegalSifter is an artificial intelligence (AI) system, trained precisely and exclusively for contract review. PSOD LegalSifter is a part of the PSOD Online system we are developing to be able to provide certain types of legal services to our clients in a manner adapted to today's needs – i.e., via the Internet.
There is a 14-day free trial of PSOD LegalSifter, so you can experience it first-hand before subscribing.
How does PSOD LegalSifter feel like
The legal geek I am, I naturally immediately hopped on the opportunity to test the system.
In my line of work, I often work with various commercial contracts (e.g., EULA, SaaS agreements, Privacy policies, and the like). Likewise, I have, at times, outsourced legal review of drafts to outside lawyers. Enough basis for comparing the outcome and the delivery experience.
Creating an account and logging in was as smooth and usual as you would imagine.
Their dashboard presents many different agreement types that you can process. Once you have selected the agreement type, you would upload a document, and the algorithm would do its magic for a few short minutes (under 2 in my experience).
Following that, the interface would annotate all the parts in the document that could be problematic. Potential issues are signaled either because specific clauses are missing, or otherwise.
In addition to signaling, the system would provide suggestions accordingly.
In short, the results were just like getting fully-fledged legal advice from an actual law-school trained human being. The user experience was simply incredible - I was able to get there from the comfort of my
And all just under two minutes.
Indeed, their website describes the experience quite well:
"Practically, by signing up and signing in to PSOD LegalSifter, you are entering a part of our virtual office. The only difference is that the service is provided through software trained by top experts and filled with information and advice made by our attorneys – making every service rendered on par with what you would get personally from our team."
After collecting my impressions, I asked Marko to share his story, their WHY, and HOW of legal innovation with us here.
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Who are Porobija & Špoljarić
Q: By way of introduction, would you please tell us something about Porobija & Špoljarić Law Office?
Marko Porobija: Porobija & Špoljarić Law Office is, by standards of the “New Europe,” an old-school law firm. My father and his partner founded the firm in 1997. They built it on projects such as privatizations of state-owned companies, and first M&As in Croatia. After that, projects like litigations, arbitrations, and debt collections became prevalent.
After my father passed in 2006, his partner Maja Spoljaric took over as managing partner and got us pretty much unscathed through the Great Recession. However, this certainly took a toll on her, and she retired in June 2018.
Even before Maja’s retirement, we had a grand plan of transforming our firm and moving away from being strictly a legacy business.
A final nail in the coffin of the run-of-the-mill system happened for me in September 2018 in London. Back then, I met a few people who convinced me that my ideas were much more than just a faraway dream.
What problem does PSOD LegalSifter solve
Q: Would you tell us something about your legal product? What is it, and what problem does it solve?
MP: What we are offering is an AI-powered contract review tool, available as a direct online service.
The service is called “PSOD LegalSifter” (PSOD is our Firm’s acronym and brand, and LegalSifter is the US-based legal tech company that provides the underlying technology). In general, it is a tech solution that shortens the initial contract review from hours to minutes and offers consistent quality and efficiency of service.
Our product is a result of a partnership with LegalSifter (the company) - it is a partly localized version of their product. We are their Combined Intelligence Partner for the whole CEE/SEE region.
PSOD LegalSifter is slightly adapted for the Croatian and CEE/SEE market (our user support texts are in English and Croatian, and subscription and pricing models are adjusted).
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The AI powered by know-how and data
Q: How does it work? What tech-stack do you use?
MP: It is powered by an AI system that combines NLP (natural language processing) technology and machine learning. Based on the vast amount of data (i.e., legal documents), it can identify more than 500 different legal concepts by reading the contract texts.
Each Sifter (a part of the AI), is dedicated to a single legal concept. Initially, we have introduced nine different types of contracts (the list is likely to expand). We wanted to avoid the clutter, so this is kind of like an MVP.
Likewise, we have defined all potential particular concepts that might be there. Some have around a hundred (some have even way more). Training an AI is quite a preparatory work.
And it is not only about including generally recommended legal concepts. We also paid attention to clauses that only SOME parties tend to put in the contracts, which could be harmful or downright null and void. So it is pretty comprehensive.
Otherwise, using PSOD LegalSifter is easy. You would use it just like any other online service.
Simply upload your draft contract into the system. It will get sifted, and after it's done (usually in less than a minute, depending on the size of the file and format), you get a complete review of the contract.
To be honest, I have some idea of how the tech works, but I’m still just a lawyer (chuckles). LegalSifter’s Chief Science Officer, Lars Mahler, gave me a few in-depth lectures, but that’s just the tip of the iceberg.
The Billable Hour vs. scalability
Q: Why did you decide to productize (a part of) your legal services? Was something wrong with merely stacking billable hours?
MP: I am, in general, a huge fan of scalable business solutions. I even had a startup in 2012, when I tried to start an all-encompassing product review platform. It failed, but it taught me some wonderful lessons about tech business and how technology can be used in any business.
The main problem of the legal industry is its inherent non-scalability. A lawyer earns only when working.
Once the office closes for the day, its revenue is zero until the next morning. You can increase revenue by either working more hours (which takes a toll on a person), increasing fees (which makes the clients unhappy), or hiring more lawyers and paralegals (which increases costs).
Our goal is to change that paradigm. Our vision is to create a scalable legal business, combined with more efficiency and resulting in more satisfied (instead of overworked) employees.
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Hard to change in the legal profession
Q: Introducing a legal product (i.e., a productized legal service) is pretty innovative in general (let alone the Balkans). What does this step mean for your office? How do you all see it internally? How do your clients perceive such a move (if you have any feedback so far)?
MP: It is a huge step, but it is only a first step in our plans for a complete structural and digital transformation. Without going into many details, I am happy to say there is much more to come.
When we first announced the plans to our team, most people were genuinely surprised and even confused. It is hard to imagine such a change in your general work processes. Even more so if you are in a profession that has done things a certain way for decades, centuries even.
On the other hand, the new service is still very young, so not many clients have checked it out. But those that did, they seem to be positively surprised.
A clear focus and the right metrics
Q: What is your product’s focus (i.e., market segment, geographic segment, demographic, ideal user prototype)?
MP: We are targeting a few market and geographic segments. Naturally, we are focusing on businesses, since the document types are mostly those used in commercial ventures.
Geographically, we are focused on Croatia primarily, but there is no reason for the clients in the whole CEE/SEE region not to use the PSOD LegalSifter. I think, as with every new service, there will be some early adopters (mostly those adept in using tech solutions). However, we plan on slowly getting the market used to this service as a “new normal” in the legal industry.
Our ideal user prototype? If you have many contract drafts to deal with daily, no time or budget for lawyers, yet still want to feel secure about what you are approving or signing - you are just the right fit.
Q: Digital products make it ideal to follow SaaS-like metrics (and learn as a result). Do you plan to do so? If yes - which? (e.g., conversion from trial to paid service, retention rate, churn, LTV, etc.)
MP: Yes, of course. We will closely monitor how clients use our service, how our advertising and sales strategies correspond to conversion rates, what segment of potential users is most/least responsive, etc.
There is an abundance of experience in providing online services, and there is no reason for us not to adopt the best practices. We are not a law firm anymore. We are now a legal (service) vendor.
Our mindset has to adapt accordingly, to be successful in that niche.
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What is wrong with the Billable Hour?
Q: The whole world (and their mother) seem to be using the Billable Hour. Why do you go against the herd?
MP: We want to be able to give our clients a sense of security and the finality of potential expense. Amazingly, many clients still ask and even insist on the billable hour model when presented with the alternatives.
However, when the final invoice arrives, they wonder how could our initial offer (based on alternative legal fees) be lower than the invoiced amount (based on the billable hour).
It is a hard battle against the ingrained culture.
On the other hand, people from new industries like that we offer something different than other law firms, and yet much closer to their idea of service valuation.
Q: What legal fee models do you use, if not the clock?
MP: We are heading towards the value-based approach. In some matters, it is hard to achieve due to local regulations (e.g., the lawyers’ tariff). In others, however, it is easy to define.
It is not just about one type of legal fee model—much more about how you calculate the service price. We can use the milestone fee model, fixed fee, success fee, or even rolling fee.
The critical bit is to have a more-less determined figure (or at least readily determinable based on set parameters), which you can quote upfront.
How to use alternative legal fees properly
Q: How are you better-off by using alternative (or, dare we say, appropriate) fee arrangements?
MP: Who said we’re better off? (laughs) Well, for now, we still do not have definitive data since we are still working on converting our clients. However, clients that accepted our new model seem very satisfied and are coming back regularly.
Of course, excellent legal service remains the core. There is no legal fee model that will save you or make you more attractive if you are not the best at what you do.
Q: In my experience, there needs to be some groundwork before an organization is ready to offer alternative legal fees profitably. What is, in your view, necessary to be successful without the Billable Hour?
MP: First of all, you have to clear your mind from thinking about time as a unit for revenue. Even internally, it has to go. So, no timesheets, no time increments, no “if I charged this by the hour, it’d be…” when determining the fixed fee.
You need to have an alternative system to determine the price of a particular project. And there are a lot of methods available - one just needs to examine the best practices of other industries to find a satisfactory solution.
Our system is a part of our trade secret. The other (and much more important) part of a successful system is, as mentioned, excellent service.
Q: How do clients react when they realize they don’t need to approve your (hourly) billing reports?
MP: ”Sooo… That’s it? This is the final price?” they wonder. “Yes,” we reply. “I… I… I…” the tear trickles gently down her cheek, and her whole face smiles.
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Black Swans and new business models
Q: Do you feel the discussion about alternative legal fees is seemingly fading out? If yes, why do you think that is the case?
MP: Until a few weeks ago, times were good. In good times, people don’t see the need to change a lot.
The billable hour, as much as it is the worst possible option for the client, is also a familiar option. Likewise, budgets for legal services were not tight in the last few years (contrary to what every in-house lawyer will claim).
There was not much pressure on fixing what wasn't broken. The further we were getting from the 2008 crisis, the less everyone remembered how it was in those times.
Q: 2008 was a “Black Swan” year that propped the discussion about AFAs among law firms. Do you envisage a “Black Swan” event in (near or not) future that could stir up the AFA conversation once again? Is perhaps the current pandemic the “Black Swan” event we have been talking about and expecting to strike?
MP: I think that the billing vs. pricing will continue to be a battle on the marker. There is no absolute winner in this case.
Since we are entering a new global recession, I think the pricing and generally AFA will now take the front seat in legal services arrangements.
But much more than that, the nature of this crisis, with social distancing, remote working, and uncertainty about the coming months and years, will reshape the whole idea of rendering legal services.
Also, if you ask Taleb, this pandemic was not a “Black Swan.” It was more of an “everyone was aware of the possibility of a pandemic, all the signs were there, but no one was preparing for it.”
Photo by Austin Chan on Unsplash
Beyond Law Firms - association by know-how
Q: Recently, in my chat with John Chisholm, he said he believes current circumstances are going to prop-up law firms to publish their legal products much more than before.
Would you agree with that sentiment? Is the present environment right for upgrading the law firm business model to legal products and subscription legal fee?
MP: This is the perfect moment for the change of paradigm. Anyone not ready (and the majority isn’t) risks losing the race.
Once the situation clears out and the COVID-19 health issue is resolved, there will be a lot of scorched earth in the World. Many economies will take years to recover, but there will always be a need for legal assistance.
What people will not be prepared to do is to pay exorbitant fees if there is an option to subscribe to a legal service or to have fixed legal costs in general.
Q: Is Porobija & Špoljarić a law firm without billable hours?
MP: Not yet. But we are getting there.
Q: How do you see law firms of the future? Do you see them at all?
MP: There will be many new concepts of legal service providers. DAO (Decentralized Autonomous Organizations) will be one.
For instance, lawyers may not be in a legal entity based on partnership and equity alone. One huge concept will be a “gathering” of lawyers based on data sharing.
Imagine most of us won’t even know each other’s identities, yet will jointly operate some AI system and provide the data sets for training and upgrading.
The future will bring excellence and profits to those who will be able to provide their digital assistants with better data. In the end, owning content and know-how will always matter.
Photo by Clark Tibbs on Unsplash
Legal profession is not indestructible
Q: Is there anything else that you would like to share with us?
MP: There is a certain expectation from us lawyers. People tend to think of our profession as “indestructible.” However, that is very far from the truth.
Now, more than ever, the legal services industry needs new leaders, new pathways through which it will be able to transition to the post-COVID era.
We at Porobija & Špoljarić are ready to lead on the way forward. We may not be the biggest firm in the world, but we plan to be the frontrunners of the new legal services industry. And if others decide to follow our lead, we will be happy knowing we have done right in the big scheme of things.
To put it in the immortal words of Eric Cantona:
”When the seagulls follow the trawler, it is because they expect the sardines will be thrown in the sea...”
Marko Porobija is a managing partner at Porobija & Špoljarić. As an attorney, he specialized in investments, M&A, as well as other legal support to clients in the high-tech sector.
Marko strives to make legal services easily accessible by leveraging technology. He is a passionate promoter of legal tech in Croatia, serving as an Ambassador of European Legal Tech Association (ELTA).
Marko's articles on legal tech and the future of legal services were published in Croatia’s leading business and tech magazines.
Ivan Rasic holds the Transnational Trade Law and Finance LLM, a program by Universidad de Deusto (Bilbao, ES), Universiteit van Tilburg (Tilburg, NL), and Goethe Universität (Frankfurt, DE). After his work in law firms and inhouse, he started a legal tech company.
Nowadays, Ivan leads STP Informationstechnologie AG's Sofia RnD center with project/development management, culture, strategy, and special project initiatives.
Ivan is an Ambassador at European Legal Tech Association (ELTA). He closely follows and writes on future of law, legal tech, ALSPs, and new ways of delivering legal services.