Factor CEO Arun Mehta
On Monday, Varun Mehta took over as CEO of Factor, an Axiom spinoff previously known as Axiom Managed Solutions. Mehta and Factor aim to take a bite out of the segment of the legal market that has previously been off-limits to anyone except Biglaw attorneys: challenging, sophisticated contract negotiations and compliance.
If Axiom’s history is any indicator, Factor is going to be a force in the industry. Axiom manages over $1 billion in active contracts and has over 2,000 legal professionals working under its banner.
The days of Biglaw lawyers ignoring alternative legal service providers are coming to an end. To find out what it means, Mehta spent part of one of his first days on the job talking with me about the legal industry and what’s ahead.
Why You Never Sell Legal Tech To Lawyers
Like so many of the movers and shakers in the legal tech space, Mehta is not a lawyer. He went to school for biomedical engineering but found himself on the founding team of Clutch Group, a legal analytics and compliance company. After spending time there as EVP and CRO, he ran Clutch for a year following its merger into Morae Global in 2017.
After exiting Morae in 2018, Mehta said he took some time off to evaluate the legal landscape and consult with tech incubators interested in the legal space. His advice was highly sought after. “Everyone knows legal is hot, but there’s not enough information out there about it,” he explained.
The conclusion Mehta eventually reached was counterintuitive: if you want to break into legal tech, you need to stop selling to lawyers. Unlike the corporate world, which has defined procurement procedures and obvious entry points for salespeople, Mehta found law firms have no internal drive to onboard new tech and no clear place for developers to sell. As a result, law firms remain permanently behind the tech curve, and even the best technologies marketed to law firms can wither and die. “It’s not the best tech that wins, it’s the technology that finds users and empowers them, helping them become owners and experts.”
Enter Factor, which tapped Mehta to lead its ambitious expansion efforts. Mehta said the opportunity was a perfect match for his views on the industry and his goals as a leader. Factor wasn’t building a product to sell to lawyers; it was building a platform to sell to clients, to eat the lawyers’ lunch in a way no other company was daring to try. Factor was “one of the few companies working from this premise of complex legal work and scale.”
JDs Need Not Apply
Factor’s secret sauce is leveraging a few attorneys with expansive nonattorney support. Factor’s in-house lawyers oversee large teams of nonattorneys specially trained in contract management and compliance issues. The goal seems to be to ethically entrust as much work to those nonattorneys as possible, bringing the cost of even highly complex transactions down to a minimum.
A short time ago this sort of thinking would have been anathema to in-house lawyers, but the pendulum is swinging steadily away from the traditional monopoly of the JDs and toward alternative legal service providers like Factor and other cost-saving approaches. Call it a drive for increased access to the legal system, call it a grab for cash, the legal and business worlds are getting more comfortable with nonlawyers handling issues traditionally reserved for attorneys, and businesses like Factor are taking advantage of the change in the public’s temperature.
Mehta doesn’t see the role of attorneys going away. In addition to the lawyers overseeing Factor’s work, Mehta believes there will always be a place in the legal market for “the artisans, the Michelin Star Chefs” who do truly unique work at the highest level. There will always be lawyers needed to figure out how a company interfaces with the world at large, or a new regulatory regime, or how it navigates a highly complex strategic decision.
That’s a small part of a company’s overall legal spend, however. In Mehta’s vision, it’s when those bespoke decisions need to be rolled out at scale that companies like Factor can shine. A lawyer can decide what language to include in a company’s new vendor agreement; Factor can manage the thousands of agreements that ultimately get signed. Mehta wants to build Factor to the size of an Am Law 50 firm, but with drastically higher capacity and less overhead. At 500 legal professionals currently, most of whom are not JDs, they’re off to an impressive start.
Will Firms Strike Back?
Factor is biting off a lot, but those of us in Biglaw would be foolish if we didn’t take note. If Factor can competently figure out how to offer our traditional complex services without the overhead of paying salaries on full-blown JDs, they’re going to have a price advantage we can’t beat. Today, Factor curates other company’s products for its customers. If Mehta and its leaders can also bring in a cutting-edge business tech sheen, one starts to wonder what lawyers can offer besides pointing to the diploma on the wall.
Make no mistake: a new front has opened up in the war between alternative legal service providers and traditional law firms. Even if Factor stopped growing today, which is unlikely, it’s identified a market opening that others will want to attack. The upper tiers of the transactional legal world are officially up for grabs. As litigation gets more expensive and private arbitration more efficient, it’s not hard to imagine the complex litigation world might also start to feel the heat of nonattorney competition as well. The ALSPs have money, business savvy, and momentum. No one’s book remains safe.
All is of course not lost. Firms could choose to strike back by expanding their own nonattorney staffs and trying to offer similar cost and efficiency savings. Firms could also choose to slim down, consolidate, or otherwise brace themselves for a long pricing battle with the ALSPs, one that will only get longer if trends toward nonattorney ownership and fee-splitting continue to pick up speed.
Whatever firms do, simply sitting pretty is no longer an option. Varun Mehta and Factor are making sure of that.
James Goodnow
James Goodnow is an attorney, commentator, and Above the Law columnist. He is a graduate of Harvard Law School and is the managing partner of NLJ 250 firm Fennemore Craig. He is the co-author of Motivating Millennials, which hit number one on Amazon in the business management new release category. As a practitioner, he and his colleagues created a tech-based plaintiffs’ practice and business model. You can connect with James on Twitter (@JamesGoodnow) or by emailing him at James@JamesGoodnow.com.