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In Low-Value Claims, Cost Is More Important Than Skill

You need both. But finding the right cost is harder than finding the right skill.

· FAQs,Competition,Low-Value Claims,Economics,Access-To-Justice

When you sign a contract, you are supposed to get something in return.

It's something the law requires for a contract to be enforceable: parties parties must give (what is called) "consideration." Consideration might be money, a promise, a product or a service. So when you buy something--with money, for example--which is the most common type of consideration that buyers offer--you are entitled to the thing the seller offered as reciprocal consideration.

That does not stop some sellers from reneging on that obligation, however.

And we see this every day at Veeto, as thousands of people reach out for help when a given seller fails to hold up its end of the bargain. Sellers don't do this because they are unaware of their legal obligation under a contract. They do it because, what are you going to do about it?

It's simply a "might makes right" ethic. This phrase, "might makes right," dates back 7,000 years when the powerful city Athens laid waste to the city of Melos, slaughtering its men and enslaving its women and children. Prior to that siege, there was a debate in Athens as to the rightness or wrongness of this proposed course of action, the impetus for which was that the city of Melos simply refused to pay Athens "tribute" (which effectively amounted to a tax). There were obvious, moral reason, for example, to not enslave the women and children. But the debate's conclusion was that...

"The strong do as they will. The weak suffer as they must"

In other words, might makes right, and Athens laid waste to Melos.

This is what I call "little guy problem." Consumers, freelancers, small businesses--any buyer with fewer resources than a given seller is susceptible to this problem. For many people--us "little guy buyers"--enforcing your basic contractual rights is actually a luxury that’s out of reach.

The legal industry has always known this.

While there has long been an informal, "access to justice" movement in the legal industry to address this shortfall, progress has tended to be slow and sparse. One reason for this is that attorneys tend to be the most involved profession in writing laws; many legislators, for example, are attorneys by training, and almost all judges, whose job is to hone the law by interpreting it, are almost all attorneys.

Attorneys are just as susceptible to bias and self-interest as the rest of us. You see this when you look a the laws each state has around the notion of unauthorized practice of law (UPL). In general, these laws try to criminalize any legal help that comes from someone who is not a card-carrying member of the "lawyer club." Despite various arguments offered by advocates of these laws that try to explain the purpose of UPL, most people today--including an increasing number of judges and courts--agree that the effect of UPL is to stifle competition in the legal industry, such that only attorneys may provide any kind of legal service.

The most notable example of this is LegalZoom versus just about every state's bar association (the club practicing attorneys must be members of). Early on, LegalZoom had its hands full defending its own attempt to expand access to justice against thousands of anti-competitive lawyers. But over time, LegalZoom, and the entire access to justice movement, has managed to get the upper hand in most states. The result is a bevy of software-driven legal services that specialize in some previously under-served niche.

Veeto is an example of this. We built Veeto to make enforcing your rights more accessible to the little guy. And interestingly, because our niche has almost zero overlap with the types of cases attorneys handle anyway, between 20% and 30% of our clients are themselves attorneys--LegalZoom does not have this kind of symbiosis. Why is this? I think attorneys like Veeto for the same reason people like Veeto: we serve an important niche that no one else serves; and before Veeto, there was no easy way to solve this kind of legal problem.

Cost vs Skill

One way to characterize the niche Veeto serves is "low-value claims." These are legitimate legal claims--such as when a seller breaches a contract--in which the amount of money at stake does not justify the expense of hiring a lawyer.

With any kind of dispute, you want the caliber of legal help that will maximize your chances of winning. This is also true for "low-value claims." But whereas with higher-value claims the caliber of legal skill seems more important than the cost of pursuing the claim, in lower-value claims, cost matters just as much as skill. Why is this?

It's a simple cost-benefit analysis. If the maximum value of winning is $10,000, would you feel comfortable hiring an attorney to handle your case for $4,000-$5,000, especially given the fact that you cannot guarantee the outcome of a legal case? Most people are not comfortable with that bet, which is why, before software-driven services like Veeto, your decision tended to be that you walked away from your otherwise legitimate contractual rights.

For most of human history, in fact, the demand for legal services has far exceeded the affordability of legal services--which is another way to say that the cost was too high for most people who needed legal help--not because those people had few resources necessarily, but because most legal issues​ tend to be smaller legal issues. Thus, the majority of demand for legal services comes from people facing bite-sized legal problems.

In low-value claims, cost is somewhere between as important as skill and more important than skill, especially given that low-value claims do not tend to be terribly complicated, which means that a higher-skilled legal service might go largely under-utilized. People don't want to make bets with poor, maximum ROIs; but more importantly, people don't want to pay for bells and whistles they'll never use.

Veeto strips out all of the bells and whistles, keeping only the basic pieces you need to enforce a contractual right, and the result is that the price Veeto charges to handle an entire case is equal to what most attorneys would charge just to talk to you for an hour or two--which is how long it might take you, on average, just to tell the attorneys about the issue.

The point is not to choose between a software-driven legal service and a lawyer. The point is to catch the legal matter, and solve it, before you need a lawyer. That is how you expand access to justice while keeping costs really low in a straightforward way.

Cost and skill are both important in deciding how to solve niche legal problems. You need the right degree of both. But finding the right cost is harder than finding the right skill, which is why I say that cost is the more pivotal factor.

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