Life Beyond the Briefs
At Life Beyond the Briefs we help lawyers like you become less busy, make more money, and spend more time doing what they want instead of what they have to. Brian brings you guests from all walks of life are living a life of their own design and are ready to share actionable tips for how you can begin to live your own dream life.
Life Beyond the Briefs
Your Small Law Firm by 2030: Offshore, Optimized, or Obsolete? | Gabriel Stiritz
It’s April Fools’ Day—but what you’re about to hear is no joke.
The legal industry is facing a quiet revolution. AI tools are writing demand letters. Offshore teams are handling case management. And some of the biggest personal injury firms in the country are pulling in $25,000 per case—while still struggling to turn a profit.
So what gives?
In this episode, Brian Glass sits down with Gabriel Stiritz, founder of Lexamica and one of the sharpest minds in legal tech and strategy, to answer the question that’s on every small firm owner’s mind:
What will your law firm look like in 2030—and will it even exist?
Together, they unpack the rise of cost compression, the ethics of passing AI expenses onto clients, and why operations—not just marketing—now make or break your business. Gabriel also shares why Big Law’s playbook might not be worth copying, and how small firms can win by staying scrappy, service-oriented, and deeply rooted in their communities.
If you've ever wondered whether it’s worth chasing scale, if 40% fees are sustainable, or how to compete in a market increasingly owned by hedge funds and software… this conversation is your roadmap.
This isn’t just a forecast—it’s a challenge. And the time to rethink your strategy is now.
Press play to hear what’s coming—and what to do about it.
Connect with Gabriel:
Follow Gabriel Stiritz on LinkedIn or learn more about Lexamica at lexamica.com
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Brian Glass is a nationally recognized personal injury lawyer in Fairfax, Virginia. He is passionate about living a life of his own design and looking for answers to solutions outside of the legal field. This podcast is his effort to share that passion with others.
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To be good as a small shop just means behaving differently, and I think the biggest mistake that small firm owners can make is to look up market and say, well, let me try to copy those strategies. It's like, well, no, you're going to lose against Amazon, but you can compete really well if you understand how to drive foot traffic on Main Street to your really cool shop. And there's obviously larger versions of that. But I think that's the main thing is I really should just wrap this entire premise in. This is hyper large firms that are doing this, and I don't. I think that to be a small firm is to run away from that stuff. Pick up the games where you can like. You should still use Shopify or Square to run your you know your storefront, because that's a better customer experience, but don't try to be Amazon.
Speaker 2:Hey friends, welcome to Life Beyond the Briefs, the podcast for lawyers who want a life in law practice. By design, not by default, I'm your host, brian Glass, and since it's April Fool's Day, let me start by saying I wish this episode was a joke. I wish I could tell you that AI isn't coming for your job, that offshoring won't squeeze your margins and that your current strategy will still work in 2030,. But the reality. That would be the real punchline.
Speaker 2:Today, I'm joined by Gabriel Stieritz of Lexamica, a guy who's been inside the industry, built the tech and watched the entire model evolve. Together, we're digging into what the future holds for small law firms and the real choices we face offshore optimize or get left behind. We'll talk rising costs, the 40% fee conundrum, tech forward, plaintiff firms and why staying small might be the smartest business strategy of all. If you're ready to future-proof your firm and your freedom, stick around, let's dive in. Hey guys, welcome back to the podcast, and in today's episode, gabriel Sturitz of Lex Amica is going to depress all of us, make us want to quit and talk about how, by 2030, ai bots are going to do your job. So, gabe, welcome to the podcast.
Speaker 1:Thanks, Brian. That's the best intro I've ever received.
Speaker 2:Well, I'm excited to have this conversation because you had this series of posts on LinkedIn, which is why I reached out to you about kind of the future of personal injury law firms, and what I've been trying to figure out for the last 12 or 18 months is whether this is like black mirror, alternative reality stuff, or whether we're just not seeing it in Virginia, or whether I'm playing in a different kind of space than the large law firms that I hear talking at events like National Trial Lawyers Summit, and so I'm interested to dive in with you about the future of AI and marketing and fee splits in the personal injury world, because I think it's going to be a really interesting conversation for me and I hope it translates for the listeners. But, honestly, I run this podcast primarily for my own entertainment. But before we get started, gabriel, tell us about Lex Amica and and your business and how, how you kind of got into this space yeah, absolutely, and thanks for having me on, brian.
Speaker 1:This is great and, like I told you before the podcast, my hope is that you will ask a lot of hard questions, because the LinkedIn posts largely are what? How? I've my current synthesis of where the industry is going, but absolutely sorry that just cop car ran by. It's it my current synthesis of where the industry is going, but absolutely sorry, just cop car ran by. It's a synthesis of what I'm seeing right now, which means that it's probably it is absolutely wrong, but it's unclear what parts of it are wrong and in what ways, and so I love talking to people like yourself, who are having lots of conversations and and trying to understand the space better. So my hope is that I'll come away with a better, clearer understanding and corrections for the places that I don't understand.
Speaker 1:Yet the nickel version of myself is that I came into plaintiff law in 2019, which was a really interesting time to come to the industry, because cloud transformation was happening, filevine Clio had launched and we're seeing significant adoption. It had not fully happened yet, especially not in the personal injury space. You saw a lot of law firms that were on-premise solutions like needles and PC time matters and time slips and so we were in the middle of cloud transformation. Covid hits like six months after I came into the industry and then everyone moved to the cloud. Even the judiciary was immediately okay, we're all on Zoom now. So it rapidly accelerated that transformation and then at the same time right, and then a year after that you get AI, which is maybe the biggest transformation that'll ever happen for legal.
Speaker 1:So I was sitting in a role as the CFO inside of a law firm for about three and a half years and then saw an opportunity to start to build a solution to help injury lawyers contingency lawyers manage the claims that they're referring with each other, which really made sense now that everyone was in the cloud, and then even more since as AI started to take over the space. So I left the legal practice in the beginning of 23 and moved over to a pure technology play, and now we're working with lawyers to manage their referrals in really in the contingency space. So just kind of seeing it from the inside first and now from more of a technology vendor solution, and it's been super, super interesting. I feel like I'm going to tell my kids 20 years from now it's like basically being inside of the dot com boom for e-commerce and, like the early 2000s, like this is what the transformation feels, like it's going to look like in retrospect for legal and medical and all these other industries that are very heavily word focused.
Speaker 2:Yeah, and one of the things that I've been trying to figure out over the last few years is what I'll be telling my kids in 20 years about my practice. Right, because I have a car crash practice, a single event, and probably for the last decade there's just like, oh, we're 10 years away from self-driving cars and the practice area just evaporating, and it feels like that waxes and wanes with what the fear is of the practice area evaporating. But now it's a whole new threat to the practice area, which is AI can summarize the medical records, can write the demand package, can negotiate with an adjuster and can attract all of your clients. And it strikes me, at the end of the day, that this is good for folks who own law firms because it's cheaper to produce cases, but it's bad for folks who work in law firms, and especially bad for folks who work in law firms in the US. Between the dual threats of AI and the virtualization and the overseas capability to buy the cloud, hire somebody in the Philippines to do all the medical records collection, all the summarization, all of that stuff bad for low-skilled US labor.
Speaker 2:And so let's start kind of with the compression in the cost to produce a case. I think it was you who I've been quoting on this podcast, the National Trial Lawyer Summit, saying you know, five years ago it cost 50% roughly to produce a case, 40%, and now we're down to 20% and 25%, and the folks that own law firms that have done this are not taking that additional 15 or 20% homeless profit. They are plowing it back into their marketing costs. So tell us what you've seen in that space.
Speaker 1:Yeah, absolutely, and I think one of the caveats is that and it's the nature of the business that we're doing, which is working with larger statewide or multi-state law firms, because those are the ones that are doing a lot of the referral business at scale, which is what we're working. So I am certainly biased toward the market end of these law firms, but I think kind of taking a first principles approach, which is, how cheaply can you produce cases? The first big trend was offshoring, which has been in play you could probably say better than I, I would say five years. It feels like offshoring has been, like there's been a real push for that which I think.
Speaker 2:I think that's right. Five, six years, something like that.
Speaker 1:And you can reduce costs on low judgment, lower skill tasks and you can push that pretty far. Like some people would say, I'm never going to offshore my intake center, I want onshore American workers to do that. Other people have said forget it, I'm hiring. You know, two thirds of my law firm is in Columbia now and it's amazing and I'm saving 30 to 50% on my low skilled case management, intake etc. Labor. Again, that's a little bit easier to do when you have a scaled practice and you can hire like a management team who is in country and all of that. So I think you can reduce some of those costs just with offshoring. So there was certainly some cost compression. And then you layer AI on top of that.
Speaker 1:I think the first big AI tool that came out was EvenUp, which wasn't necessarily cheaper, but the big firms a lot of them were able to make a switch and start billing that as a client expense, and so when you're looking at your cost structure it ends up as a pass-through cost rather than as a direct cost to produce all of your demands, and so that's one layer of cost savings.
Speaker 1:And then, so I think, intake there's a pretty decent cost cutting. You can probably save 30% on intake in case management. When you look at the ability to mostly automate a lot of your client contact document gathering, like you said medical records, summaries, demand creation, all of that like you can pretty well compress that. And then that also starts to feed into your pre-litigation where you're doing some trial prep summarization, document collection. Again it's kind of started with offshoring where it's like, okay, let's send all of our medical records to India and have them summarized overnight and then we'll bring them in. And now that's getting even cheaper with AI. So I think and again I like to put specific numbers in place, even though they're obviously wrong I think that we've probably gotten a 30 to 45% decrease in human labor needed between intake and the end of the case management cycle. So essentially like before you're going to court, if you were to maximally implement all of those technologies at scale.
Speaker 2:It's really interesting the intake thing and I'm really glad that you brought up the point that the firms that have done this well are the firms that are able to do it at scale and have the whole back office operation handled in Columbia in a space right. So when we first started offshoring intake, we didn't do it very well because it was being handled from somebody's couch in Honduras right, with minimal supervision. And then actually for us, bringing intake back in-house spiked our 2024 numbers. We saw an increase in our conversion rate for cases that we wanted from something like 60% to like 85 plus, just by bringing it back in-house and improving the conversion rate. But if you were doing it overseas in a call center environment or maybe that's not the right, but at least I have the whole team here and I have a supervisor in the team, that's an easier way to do it.
Speaker 2:And I've said from the beginning of the pandemic, small firms are going to get crushed with this because you have everybody who's working from home now in silos and smaller firms are not good at training and mentoring people in that environment.
Speaker 2:If you're larger and you have the scale and you have the profit margin to employ somebody whose job is to intentionally manage the coaching and the mentorship of those people. Sure, and the same thing applies overseas you have somebody whose job it is to walk through the call center, make sure that everybody is following the script Amazing. But if you're a lawyer who now has parked that position somewhere outside of your office and you're not taking the intentional time to review the calls, make sure they're on script and train and train and train, you do have a lot of loss. So, yeah, I think that what has worked best for us for VA offshoring has been all the back of house things records, collection, digital production, all of the things where they don't have to actually correspond with a client but my sense is that's not been the case for larger firms.
Speaker 1:I mean certainly larger firms are often taking that approach and I try not to speak in monolithic terms because there's no such thing as a large firm or a small firm. It's going to operationalize differently and I've talked to firms where they've got their entire call center team onshore and somewhere it's totally offshore and everything in between, and both would swear by their approach and would say that like you're wrong for taking the other right. So there's certainly a range of opinions, but I mean saying you went from a 60 to 85% wanting conversion rate. I think that's really telling because that is the kind of pressure that these big firms are facing, like the big firm masterminds that I'm in, they're all talking about what are the metrics that we have to hit just to stay alive right now? And that's one of them Policy limit settlements is huge right now, maximizing that.
Speaker 1:Everyone across the country is trying to get their average fee up to about $25,000. And it's amazing, 18 months ago two things were true. One, a bunch of these firms whose names you know were around like $12,000, $12,000 average fees and they basically doubled them in 18 months and they're still not more profitable than they were before because the increased competition and the price compression. And then the other thing is that they are yeah, they're doing that, and then they're also just dramatically focused on saving as much as they can on their costs, because their cost of case acquisition has gone way up, which is one of the things that you called out in the LinkedIn post. Which is how can that be true? But I think these volume players, because they're doing a lot of lead buying, they don't have hyperlocal marketing because they can't. Really the cost of acquiring cases at scale has dramatically increased.
Speaker 2:So let me tell you, the thing that every small firm lawyer is trying to figure out is whether the big firm lawyers who are running eight-figure practices are any happier and are making any more money than we are. You said well to increase the average case value. I think you said from 12 to 25, or maybe 18 to 25, but no more profit and that sounds miserable, right? Our average cost to acquire a case last year was $1,400. So 1,401 vertical, 16 in the other, and our average fee is 18. And I'm pretty happy with that. And so we've experimented a little bit with lead buying, and it's costing me $2,400 additional to acquire the lead, on top of whatever else I'm already spending in my marketing department. I don't know I could do more revenue, but I don't know that I would make any more money at the end of the day and I would have an increased monthly nut. That would just stress me out.
Speaker 1:Yeah, absolutely. I think the margins seem to be holding roughly steady. When I'm really so to kind of to try to answer your question. I think the margins have held steady, but it's just become a lot more operations as matters, more today than ever has it used to be.
Speaker 1:10 years ago you wrote a check to a marketing company. You get TV ads, tv billboard, radio going and then you're good, and that's not the case anymore. That is like so far in the past that law firms have had to become way, way better at operations. They have to know all their numbers, they have to have training programs. I mean, when we were talking at NTL, you heard what Rob and Angel were saying about the level of management, scrutiny, training, 90 days of training before someone starts, zoom rooms where everyone's monitored APIs for every single worker. That just wasn't the case 15 years ago. 15 years ago you get a case and you're basically good as long as you don't screw it up too badly.
Speaker 1:So I think that's one of the big things that's been happening inside of the larger scaled firms, because they are competing for a more commoditized type of case than if you're hyperlocal and you, you have real community connections and it's not to say you can't do kind of the hyper local approach which is have like a real strong community brand at a decently large scale.
Speaker 1:I'm not saying that like you have to be like a small town lawyer, but you can't scale that approach over like multiple states. And that's really what I'm talking about is like, let's say you, like you said you want to run a 10 to50 million practice, that kind of community marketing approach I think starts to degrade when you're from like a headcount perspective, maybe like 100 to 150 people in the firm. Because I see some firms that are like pretty decently large that are doing a great job in the community and they've really niched down and that's fantastic. And that, I think, is the biggest note that is protecting firms right now is when they have really invested at the community level. It's very hard for lead buyers, generic ad companies, big box firms to come in and just grab their market share because those people have actually built a relationship with their community.
Speaker 2:One of the points that you make is that the market share is fixed.
Speaker 2:Right, there's a set number of car crashes that are going to happen in Northern Virginia and if I, you know, expand to whatever a sizable market share of that is and I want more clients, then at a certain point I've got to go into Central Virginia or Southwest or something like that.
Speaker 2:And the only way to do that, if I don't have community brand and I don't have boots on the ground, is to buy those leads. Initially. You can eventually grow the size of the team and you can do community events and you can sponsor the high schools and whatever in those areas, but your expansion plan has to involve spending money on digital ad buy when you go into those spaces. So you know, at a certain point you hit that critical mass and that's it, and you've got to decide do we stay here, do we put a bolt on another practice area, do we refer cases, or do we expand and suck up the additional costs? I heard Morgan Morgan claim something like a 3x additional cost to acquire a client every time they go into a new city where they don't already have a presence, and so that's the challenge that small firms face Like, all right, there's only so much space that you can grow into in your own market because you can't create more car crashes.
Speaker 1:Yeah, absolutely, and I think one of the things that is super interesting to me is that, while the average fees have gone up over the past 18 months, which has allowed law firms to maintain roughly the same unit economics and the profitability because there's a hard constraint on the number of cases and you can continue to increase marketing costs indefinitely but you can't increase your average fee because there's fundamental limits to policies and to damages and there's a limit to the number of cases. I think the next 18 months out because law firms have a lot of them have essentially gotten to the maximum fee average that you can get. You can't go and double your fee again to $50,000. That just isn't possible. I think it's going to be really interesting and potentially bloody over the next 18 months as marketing costs continue to rise at the top end, but you can't also just go and double your average fees again, because that's not possible.
Speaker 2:So Virginia at least, and we were talking, I think, before we got on I haven't noticed big players coming into Virginia and I think it's because we have contributory negligence and everybody is afraid of. If it's 1% at fault we can't recover. I'll tell you as a practical matter, for car crash cases that doesn't really matter. I can think of one case a year where that's a problem, but it virtually eliminates slip and fall and black ice and grocery store kind of cases.
Speaker 2:But Virginia did just kind of de facto double the available policy limits by making it so that the default scenario is the underinsured motorist coverage now stacks. So we had a $30,000 limit carrier used to get a credit for that 30. Now you have to elect out of that and I think within two years insurance companies will have figured out how to get most people to elect out of that. But there's going to be this sliver of a window where your default available limit is 60. And so there's two ways to do that right. You can take the tort lobby and you can increase the available limits in your state, or you can increase your fee by raising the percentage that you're charging. What are you seeing for the large marketing firms as the standard contingency fee rate?
Speaker 1:large marketing firms. As the standard contingency fee rate it's still right at, I think it's 40%, is generally 35, 40%. I mean it's not below 30. And sometimes it's statutorily capped. It's like New York State has a statutory cap on what that fee is allowed to be. But they're not like that's not the ground game that's being pushed right now. The ground game is all about getting the MRI every time, getting them to the doctor, getting the medical bills doing the pain management Like it's very focused on medical management in the case. Like that's where a lot of this is driving, I think. I mean, you know judges are going to just destroy firms if they start kicking up the contingent portion and everyone's very aware and they don't want to. It's like a deal or no deal. It's like if you go over you're screwed and then your firm gets basically blacklisted by judges and then you don't get settlements done well anymore.
Speaker 2:Well, I do want to pause on that, though, because I think, for most, small firms are still at a third right, at least for pre-litigation I'm still. I'm at a third across the board, which maybe is a mistake, but what I'm hearing from you is 40 is kind of the new standard, and I've seen 40 and then 40.
Speaker 1:Don't take that as gospel. I'm much less familiar with that. I'm way more on the referral fee side is what I'm familiar with. But no one listening to this podcast should hear me say 40% and try to change anything about their practice. I only have a couple data points.
Speaker 2:But no, but I'll tell you. We've taken cases from Morgan Morgan and their standard fee is 40%. They're really the only big player in our area and so we are seeing that. But the point that attracted me to your LinkedIn post was this 50-50 fee split in referrals, and at 40%. 50-50 makes sense, right, because I'm paying a third on referrals, which means I'm giving away 11% and I'm keeping 22. But if I'm charging 40 and I'm giving away 50%, I'm still keeping 20% as the producing firm, as the firm that's doing the work, and the economics of that actually make sense, right, if I don't have to spend any money to acquire a case because I'm getting it referred to me. I got a call from a lawyer in California who was running a nationwide in-chatting campaign and offering me a 50-50 split. I'm like that doesn't make any sense for me because I'm going to keep 16.5% on the production of the case. It never even occurred to me that if I just charged 40, then I'd still keep the 20%. And now the economics work.
Speaker 1:That is super interesting, honestly, something that I hadn't even connected those dots between that part of it and the referral fees. I was really just looking at it from. Oh well, marketing costs are going up, so the fee splits are. But that's super interesting because you're right, like the take home for you, if you got a 40% contingent fee is way better, on a 50, 50, it washes out and so you can offer that. Man, I've got a bunch of questions. I'm going to a mastermind next week. I have a whole line of questions now to ask people like how?
Speaker 2:is this affecting your practice? And this is awesome. I love it. The other thing that's mind-blowing to me, again as a small firm lawyer who talks to clients, is the pass-through costs. Right, so I'm going to charge you a 40% fee and I'm going to charge you a 40% fee and I'm going to pass through the record summary cost. And if you talk to these vendors, if you talk to the AI record summary vendor and you talk to Even Up and you talk to Synergy, who's a lean resolution company, they all tell you, yeah, just pass the cost through.
Speaker 2:And I'm doing the math like, all right, I'm going to charge 40% and I'm going to charge $500 for Even Up to produce the demand. I'm going to pass that through. I'm going to charge $500 for the AI medical record summary and I'm going to pass that through. The client's going to see these line items and go what am I paying the lawyer to do?
Speaker 2:And as somebody who actually talks to clients and I say that from the position of like, when I look at these volume firms and I hear about lawyers handling two 300 cases, there's no way you could talk to two 300 clients, so maybe they just don't have to. Maybe they say here's what it is and the client just signs because perhaps it's a less sophisticated version of the client who's coming through. These lead gen agencies anyway, and that's a lot of assumptions. Agencies anyway, and that's a lot of assumptions. But I don't know how you can run a high contingency fee practice and also pass all of the cost of production onto the client. Does that come up in these, in the masterminds that you're inside of?
Speaker 1:Absolutely and cost pass through is. There's a vast range of opinions on it. I think that, yeah, there's everything from the hyper pragmatist approach which is I'm just going to pass through everything that I ethically can like, that I'm not going to get in trouble for. There's people that are even more extreme, that are like, well, nobody's going to look at this anyway. Those are that's fewer and far between. All the way to the well, I more of your approach, which is like, on a moral level, like I don't think it's right to do that because I'm already charging the clients and we're going to do this work anyway. So I've not seen any consensus around it and I think the level of aggressiveness with pass-through costs varies widely, even between firms that look pretty similar otherwise, it's just historically.
Speaker 2:That's what our fee has been for the preparation of it.
Speaker 2:That's what you're being paid for yeah, yeah it's wild that you, that you could pass it. I always thought, when even up first came out, it's like, uh, I don't really need you to write my demands, but I'm really interested in the data that you're collecting behind the scenes. You know, and I my, my sense is, ultimately that will be the product is this big plaintiff's side collection of verdicts and settlements that the insurance companies, if they ever thought to work together, would have. Right, if Allstate, state Farm and Progressive just pooled their data, you would have really robust information on the actual market value of a soft tissue case in Fairfax County versus Albemarle County. Right, and that's what I in the back of my mind. I think that they're building, or I hope that they're building, and I would buy a subscription to that thing.
Speaker 1:Well, it's interesting because that was kind of Ray's pitch. Ray is one of the Even Up co-founders. When I talked to him in 21 or heard him talk about something was is Epic, there's some large system.
Speaker 1:Colossus is the large system that is kind of like yeah, like the bad, it kind of floats around on this side, the plaintiff side of things as well. Allstate uses Colossus to devalue the claims and they have all the data, and so the kind of initial even up pitch was we're the Colossus of the plaintiff's bar and I mean they've certainly executed on gathering enough data on that and I think it's certainly are using it. I doubt that they'll release a product that is specifically just the data side, because it's hard to charge a premium Like. You're super sophisticated, brian, in terms of like understanding. You want this tool. I think most people are going to want the product and it probably doesn't make sense for them to just give the data away per se. But yeah, they certainly have that now and it is increasingly valuable as insurance companies are adopting AI and using more sophisticated tools to negotiate settlements on their side.
Speaker 1:Although it is interesting because when I came into the industry I certainly had the impression that and I think it might've been true that insurance companies generally were ahead technologically of plaintiff firms. It was, but that's absolutely not the case anymore. The plaintiff's bar is way further ahead than insurance companies in technology, in large part due to companies like EvenUp or Litify or FileVine just pushing on innovation and then the ability of plaintiff firms to adopt I mean, the tech adoption cycle is way closer to a consumer adoption cycle for plaintiff firms because you have a lot of small it's basically all SMBs and I actually think that the insurance carriers are way behind on technology compared to the plaintiff bar, and that has flipped even in five years.
Speaker 2:Well, it has to do with the margins that you can make on the plaintiff side, and so it is much more investable. Your margins on the insurance side are somewhat capped by regulators and state agencies, and so there's not, I think, the financial incentive to invest the money and to keep up. And also, we're smaller, and so you can be more nimble and you can adopt the technology you know, even in a larger firm that has 500, 700 employees than you can at State Farm.
Speaker 1:There's just a part of it that I don't fully understand, though, because the plaintiff bar could have been pushing tech adoption 20 or 30 years ago, but they weren't. They were behind the insurance companies, and I don't know if that's because it was generally harder to adopt technology when everything was on premise or if it was just so easy to make money in the personal injury space. That tech, you know, like I said, like operations has become increasingly important as as become to become be a profitable law firm. But yeah, I don't know if it's fully explained by, just like, the fundamental differences between the two industries, because those have existed for 50 or 70 years, but something has changed, and the plaintiff's bar is like crushing it right now as far as technology and operations goes.
Speaker 2:Let's talk VC money coming into states where that's an option, so Arizona, utah, dc, I think. Maybe there's one other one.
Speaker 1:Washington just did their ABS in December.
Speaker 2:What is that on the ground? What does that actually look like?
Speaker 1:Yeah, so I'm most familiar with Arizona. So Washington's brand new. I haven't talked to anyone who's I don't know if anyone's even. I'm sure there's some applications and nobody's been approved in Washington yet. Arizona is still taking eight to 12 months to get an ABS approved.
Speaker 1:For the listeners that aren't super familiar with it, ABS is the alternative business structure in Arizona, which there's a whole framework for it, but the kind of the boiled down version is that non-lawyers can start law firms and they can own up to 70% of the equity of that law firm. They still have to have a compliance attorney who runs the day-to-day operations and that attorney or attorneys have to own at least 30% of the law firm. So it's not entirely non-attorney owned and there's a significant application process to in theory move these entities into a place where they are serving legal consumers and they're being run functionally, being run by law firms, even if they're not owned by lawyers. So the Arizona ABS program has been out since the end of 21. I think there's probably about 150 alternative business structure ABSs in Arizona. Utah not as much traction just because it's a sandbox and so it's much more locked down. They change the regulations more. Arizona is a perpetual program. Even Washington. It's a 10-year pilot, and so they may get to the end and say, look, we're just done with this, but Arizona, it's now part of the loss.
Speaker 1:There's a couple of approaches. I mean one is, and there's a. I know a guy who started an ABS, who's not a lawyer, but he's kind of just starting it from, you know, from ground up. It's a smaller shop, Like he's been in, he's been in adjacent parts of the market and he was like this sounds great, Like I want to participate in a personal injury law practice and so we started an ABS.
Speaker 1:I think that's a little bit more unusual. It seems a lot like these are being kind of shut. They're being done in a way where it's really a vehicle for large checks to go and run marketing campaigns and refer personal injury claims out to lawyers that will actually handle them on a 50-50 split or potentially even better, which is not really the intended purpose of the ABS program. And some other states have been pretty opposed to those entities in Arizona, fee sharing with lawyers in those states, and so it's certainly not a done deal that this is going to end well for those early adopters of that play. But I think the upside is large enough, and if you have a large portfolio, if you're a hedge fund with a large portfolio, writing a 10 to even $100 million check on the chance that this is going to work out made sense because the internal rate of return on personal injury claims has been close to 30%, and so that's just too good of an opportunity to pass up.
Speaker 2:What was the original intent of Arizona ABS?
Speaker 1:I think it's a general. I don't want to. I can't speak for them. I think that it was a general move toward deregulation. If you look more broadly at the way Arizona as a state has handled regulation, they're one of the first places to ever allow self-driving cars. They've deregulated. They've been very business friendly, technology friendly as a state for a long time and I think that this is generally along that. But I don't know that I could speak more concretely than that.
Speaker 2:It's interesting. So I know Jason Hennessey did an ABS or got involved in an ABS for, I think, birthinjurylawyercom, misgenerating those cases and referring them out nationwide, and that's starting to pay off for him. It strikes me that the original intent was probably something along the lines of like if my paralegal does an amazing job on the case, I ought to be able to split some of the fee with her right, Because you can't do any kind of fee sharing in personal injury cases or any kind of case with somebody who's not a lawyer, which is a little bit of a ridiculous thing. But it certainly wasn't the case that they wanted every mass marketer to come into Arizona, set up an ABS and turn it into a business opportunity. I don't think.
Speaker 1:No, that wasn't it, and I also just know Linda Shealy, but I don't know her, but I've listened to her talk and that is not the intent. She really architected the program and brought it to fruition and that is not the intent of the program. I think it really is. I think its core really is access to justice and a belief that deregulation is a good thing for an industry. And I mean look, you can allow for non-attorney fee sharing without building an ABS program. Other states have allowed for that in more or less ways to a degree, and there's ways that you can set up even fee sharing inside of the regulatory environment. Where you're not directly fee sharing on existing cases, you can still have incentive structures for paralegals.
Speaker 1:So I don't think that that was really the driving force behind it. I think it was. If we allow for non-attorney ownership, more capital will move into the market, there will be more novel solutions allowing for access to justice, and I think it's an optimistic approach to deregulation which I, for better or for worse, like you, can be an optimist about deregulation. There's a lot of pessimists about it, especially the people that are pointing to what's happened in dental and medical with private equity coming in, but those people are saying this isn't a good idea for these reasons. And you have people on the other side and I think that's where the Arizona program came in. They're saying no, there are examples of when we deregulate, good things happen. And I think that's really the.
Speaker 1:I think that was the driver, but in terms of you, I was going to say you asked about VC money coming in, hedge fund money coming in. I'm happy to chat on that for a little bit, or did you no?
Speaker 2:go ahead, go ahead.
Speaker 1:So what is it? Yeah, absolutely, and just to talk about, because I think M&A and VC are very closely linked with each other. I just asked someone who's pretty knowledgeable how many M&A transactions do you think happened in the plaintiff space in 2024? And he said 20 significant ones with a lot of smaller ones. So that's not a huge number. It's not a tiny number either just because there's not so very many law firms out there. I also don't think that's a huge increase over 2023. So, on the one hand, law firms buying and selling to each other is not a huge driver at this point.
Speaker 1:I think that, and from a VC perspective, the only people that are taking hedge fund VC PE money into their law firms are people that are operating at a 1% scale. They're at the very, very top end of the market and they're doing very sophisticated transactions that aren't even necessarily equity-based, but private equity knows how to structure deals that basically can do an end run around, whatever regulations they need to do an end run around to participate in the upside for those deals. So it's certainly not the kind of thing that I think that any small firm is going to see touch feel in any meaningful way. I mean the only thing that you might see is like a downstream effect of it would be this firm suddenly got a lot more billboards or why are they expanding to other jurisdictions? And it's kind of from the M&A side as well. Like a lot of the M&A transactions that are happening. They're not rebranding firms. You'll have like two firms that didn't used to be connected and now they are under shared ownership, but from the exterior it's not going to be clear. I don't think, maybe ever, that these law firms are joining forces with each other, unless you're. No one believes it's interesting.
Speaker 1:Brand equity is such a weird thing for personal injury because on the one hand, I think there's a sense of like is how much equity really is there when it's just jimmy, who's been in town forever and had 30 years of his face on the billboard, and then when it? But then when it comes time to do like an m&a deal, they're like, oh well, let's keep jimmy's face on the billboard, even if he's retired. So, but then when it comes time to do like an M&A deal, they're like, oh well, let's keep Jimmy's face on the billboard, even if he's retired. So there's a like. I don't think that people really understand brand equity in the PI space. Say what, exactly, exactly, and it's like but does anyone, does that really have that much equity? Or are we doing it because we're afraid, because we don't understand, and so we're just going to leave well enough alone? So I don't, I don't know.
Speaker 2:All right. So what does small law firms do? So you've got the conclusion of your LinkedIn series. Three paths forward. Number one hyper-effective marketing. Number two tech enabled volume practice. Number three become a specialized litigation shop. I guess I should start by asking does this even apply to the law firm with fewer than 10 lawyers operating regionally in a state?
Speaker 1:I think the short answer is no, and I think I spoke with Ben Glass about this and he did some good poking on my viewpoint here. I think that this whole thing I should wrap in this probably applies when you're like $10 million plus or maybe $5 million plus annual rent, probably 10. Because I just don't think below that scale that the same type of issues applies as directly to firms. I think that there are some takeaways for small firms that are basically what you're preaching, brian, which is know your clients, understand your local community, do a good job, be service oriented, like there are still to go in a completely different vertical. Amazon is the biggest retailer of all time. It's absolutely dominating. Walmart is a close. You know they're just head to head, but there's still a thriving downtown retail strip right outside of my office, right.
Speaker 1:So it's not that it's all going to consolidate, but to be real, to be good as a small shop, just means behaving differently, and I think the biggest mistake that small firm owners can make is to look up market and say, well, let me try to copy those strategies. That's like a retail shop saying like, let me try to be Amazon. It's like, well, no, you're going to lose against Amazon, but you can compete really well if you understand how to drive foot traffic on main street to your really cool shop and there's obviously like larger versions of that. But I think that's the main thing is. I really should just wrap this entire premise in. This is hyper large firms that are doing this and I don't. I think that to be a small firm is to run away from that stuff. Pick up the gains where you can like. You should still use Shopify or Square to run your you know your storefront, because that's a better customer experience, but don't try to be Amazon.
Speaker 2:I think that's really good. Understand who you are and don't go to a large national conference and decide that you should start a lead gen campaign or learn how to do PPC, because it's not the best use of your next dollar an hour. And I think it can be intimidating to go to one of these events where, frankly, half the people in the crowd are vendors, half the attendees are dollar an hour and I think it can be intimidating to go to one of these events where, frankly, half the people in the crowd are vendors, half the attendees are vendors and everybody's got an AI something right. Most of them is like a white-labeled LLM that's bolted onto the thing that existed 12 months ago and it's really hard and challenging as the small firm owner to figure out what's true, what applies to me and what is absolute bullshit figure out what's true, what applies to me and what is absolute bullshit If it makes you feel better.
Speaker 1:the large firm owners don't feel any differently.
Speaker 2:They just have to spend a lot more money to figure it out. Nobody knows what they're doing.
Speaker 1:But yeah, one of my favorite business books of all time is Small Giants by Bo Burlingham, because I don't know if you're familiar, but it's such a great book because it's a whole series of case studies on companies that specifically stayed small. Because they wanted to stay small for a reason that might be a lifestyle thing that they can take better care of their employees because they're not trying to grow at all costs. And I think so many business books are just focused on scale and systems. And big, like all of your, like Jim Collins, great to Last, your Peter Drucker's, your Vern Harnish's, even your EOS methodology it's like what is happening, those businesses.
Speaker 1:It's always about up and to the right, and what I love about small giants is it's like no, there are a, there are valid reasons and principles for not growing your business as big and fast as it possibly can. And those can be because, as a business owner, you want to have more time with your family, you want to do more traveling, you want to be able to give back to your community in different ways, you want to take care of your employees, you want to be able to do cool stuff that you couldn't do if you're driving every dollar back into expansion. So I just think that, like that's not. I read that book probably 15 years ago and that's always been this amazing counterpoint to everything else. That's just saying grow and scale and get bigger, and I would say anyone who owns a business. There's probably other books like it, but it's the only one that I've encountered where it's just like a really powerful portrait of why you could stay small and not feel bad about it.
Speaker 2:I think that is a perfect place to land, because I am not depressed, I am happy with what I'm building and I think the hack for going to these conferences is exactly what you said. It's like pick up the one or two or three things you can use and implement in your office, but don't try to become the person on the stage, because you have no idea whether they're any happier or if they're making any more money, and you don't know what their goals are and they might not be aligned with yours.
Speaker 1:Absolutely. It's hard not to, but that is absolutely the way.
Speaker 2:It's really hard not to. I know this shit and I do it every time. Gabe, where can people find out more about you and more about Lex Amica if they want to connect?
Speaker 1:Absolutely. I'm pretty active on LinkedIn, Gabriel Steeritz and lexamicacom for the business. Brian, thanks so much for having me on. This was a real pleasure.
Speaker 2:Thank you, this was fun.
