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In a Legal Dispute—How Much Cash Can Your Small Business Afford To Lose?

The odds are already against you

· Small Business,Low-Value Claims,Economics,Access-To-Justice,Attorney

Problem

Each year, more than 3 million small businesses in the US deal with vendor issues that devolve into contract disputes. Over 60% of them do not hire an attorney. Why not? Two reasons...

  1. Either the stakes of the contract dispute are too small to justify paying an attorney's relatively high fees;
  2. Or the small business just simply cannot afford the attorney's high fees, stakes of the case notwithstanding.

Attorneys are a great option if (a) you can afford their hourly rate at all--which averages about $300/hour in the US--and (b) the stakes of your contract dispute are high enough to justify that high-cost legal help. Most small business contract disputes fail the second condition, which makes the first condition moot.

As a consequence, small businesses are seen as easy targets, punching bags for bigger companies to exploit. Some small businesses just take the punches, do nothing at all to try to resolve the legal dispute, payoff their oppressor, and thereby just accept a default loss.

One of the most common ways that small businesses lose money is by losing legal disputes.

Losing a legal dispute, whether by default or defeat, will cost your small business money. Thus, if your small business cannot afford to lose money, then you cannot afford to lose legal disputes.

Some small businesses decide to fight back "DIY." They just do what they can to try to learn the legal stuff on the job. While noble, this seldom works out well. The opponent to the small business in a legal dispute is often not only better-resourced, but is almost always better at legal disputes than "little guys" learning on the job. This should surprise no one.

The hard costs of litigation weigh heavily against limited
business revenues. Hiring a lawyer to evaluate a dispute and
prepare a complaint or answer can consume many thousands of dollars in fees. Preparing and responding to written discovery can be even more expensive, especially if it is coupled with motion practice and multiple depositions, which (including preparation time, testimony, and transcript costs together) can cost between $2000 to $10,000 per witness. Even a limited expert witness can add tens of thousands of dollars in additional costs and fees. Responding to or bringing a summary judgment motion can often exceed $40,000 in fees for a lawyer to brief and argue. These costly activities are only a partial list of costs and expenses that a litigant
incurs—yet they could continue for six to twelve months or more before there is any prospect for settlement and before any trial.

 

As a result of these factors, almost any litigation scenario will put almost every small business in long-term hardship or worse. The financial consequences not only threaten a small business’s health but also interfere with operations, and can force key people within the business to shift substantial time and energy to the dispute, rather than running and building the company.

Obstacles

The "wave a magic wand" solution would be this: a legal service provider who is at least as good at disputes as the small business's opponent and who can help small businesses at prices significantly lower than the average attorney's billable hour rate. Is this even possible?

It's taken a decade to prove, but yes, the answer is that it is possible. The key lies in answering this question: why must attorneys charge so much? There are two angles to take to answer this question.

The motivation angle points to the high costs people pay to become attorneys. They often pay six figures and several years of their lives to learn the legal stuff that law schools teach. That "investment" must be paid back, and it must also yield a positive ROI. Attorneys worked hard to become proficient in the law. So they cling tightly to the reward that a lifetime of billable hours gives them.
 

The market angle points to external forces awaiting new attorneys on the other side of law school. Enough well-resourced people and businesses can afford to, and do, pay high attorney fees. So the market, in essence, pats rational attorneys on the back for being smart enough to continue charging high prices per hour--if the the market bears those prices, then why not charge them?

You can see counter-examples in the form of law firms who do volume work via pre-paid legal networks such as Legalshield. To the individual lawyer, volume work is not the dream that led him/her to become a lawyer, but to the established firm looking to derive immediate value out of new attorney-hires, it's an interesting opportunity: assign the rookies to the high-volume, low-margin work, and sit back and collect the aggregated profits (at least, until that rookie attorney inevitably burns out and leaves the firm). So virtually all sustainable versions of the traditional law firm business model are not high-volume operations.

There's an element of prestige to charging high prices. But that's not the only reason that most attorneys don't look "down market" to small businesses. It's not just a function of will or price margin.

[A metaphor]

If you buy a 7x11 area rug from a mass retailer, you might pay $200 for it new. If that rug later gets stained, then you might consider having it cleaned. But the problem is that it's often cheaper to buy a new rug for $200 than clean an old one for $250. So the rational consumer would just buy a new rug every time. The enterprising rug cleaner might recognize this glitch and decide to capture that un-served market of people who would prefer to clean a rug if doing so was cheaper than replacing one. The problem? Rug-cleaning--using the current/traditional methods--is time-intensive. So the price rug-cleaners charge is less a product of ego than of opportunity cost. If there were too many rug cleaners to preserve the market price of $250/cleaning, then the opportunity cost of charging less would itself be less, and eventually, the opportunity cost of charging $180 per cleaning, let's say, would be $0 for the rug cleaner, such that, suddenly the rug cleaner could rationally justify serving this massive, historically un-served market. Both cleaners and rug owners would win in that case, since the cost of solving the stain problem would drop from $200 to $180, and the rug cleaner would suddenly be booked for weeks in advance.

[End metaphor]

No such glut of attorneys exists in the legal market. As I said before, there are enough well-resourced people/businesses to support the high billable-hour prices that attorneys have always charged, and thus to support the high opportunity cost for the attorney of doing anything differently--to help small businesses with small legal issues, for example. For as long as attorneys continue to deliver legal services in the same way, no drastic price reduction would be rational in the short-term (which, I'll define as the length of any one attorney's career).

But what if we looked under the hood of that so-called "traditional law firm business model?" Two things jump out at you. First, 95% of legal disputes settle out of court. Second, 84% of costs incurred when you sue someone (or are sued) over a contract dispute are not technically necessary to reach a settlement, which is the most statistically probable outcome in any case. The only necessary steps--the 16%--are intake and negotiation. Intake equips the legal provider to help you devise a case strategy that is oriented around the facts and circumstances of the dispute, while settlement focuses on getting the opponent to agree to a resolution.

What if there were a legal service designed to only provide only the 16% of stuff that you need to resolve 95% of cases? As the small business, you could leave the 84% to someone with money to burn, and focus instead only on what matters for resolving your case.

Further, since attorney intake processes are notoriously inefficient, you could even reduce that percentage from 16% to something closer to 6%, just by making the intake step itself far more efficient. This would give the legal provider a 94% cost advantage over alternative providers. What could the legal provider do with that 94% cost reduction?

The legal provider could go in one of two directions. On one hand, he/she could put $94 out of every $100 in his/her pocket, and enjoy those short-term gains. Or...he/she could open up his/her legal service to a massive, latent market of un-served small businesses, by using the 94% cost reduction to charge up to 94% less.

So, in summary, a solution would entail:

  • A legal provider who is at least as good as your opponent's in the context of a given legal issue;
     
  • Who can provide legal help at a small fraction of the traditional law firm business model's billable hour rate;
     
  • By, among other things, eliminating all of the extraneous services and contingencies from the offering on the basis that these are simply not likely to be needed.

Bingo!

Solution

This wouldn't solve every legal need for every person/business. But it would solve 95% of the legal needs of the massive middle market, which the traditional law firm model, and its persistent unit economics, have ignored. With this solution, the legal provider could give small businesses a fighting chance in each and every legal dispute the small business faces--virtually regardless of how big or small the stakes of that case are.

Surprise! This is exactly what Veeto does, and here are two interesting results from this that might surprise you.

  1. It's neither competitive with nor a substitute for hiring a traditional attorney; it's still a question of "best tool for particular job," which pertains mostly to dispute stakes. Many small businesses are not accustomed to a legal market consisting of different types of providers who offer different services at markedly different prices. But, in effect, that's what Veeto represents. Now, when a small business faces a legal issue, the business can decide, "is this a high-dollar issue or a low-dollar issue?," and then pick the legal provider whose prices and service best match the case.
     
  2. Small law firms are small businesses, too, and as such, they're no different than any other small business with regard to the scarcity of resources and the constant arrival of new legal issues stemming from the contracts the business enters into with vendors and customers. Just like any other small business, small law firms need to figure how to solve those legal issues in order to keep as much of their money as possible in their business bank account. Of course, an attorney small business owner is likely to be better equipped to handle some legal issues DIY than the average small business owner, but there's still the issue of time-cost, and there's also the issue of expertise. For example, a tax attorney, an immigration attorney, or corporate attorney are not actually going to have the requisite legal experience to deftly handle contract disputes. So while they possess a fundamental understanding of the underlying legal concepts, they lack the specific expertise, and attorneys, perhaps as much as any other profession, both respect and understand expertise. For this reason, you might be surprised to learn that about 25% of the small businesses who currently use Veeto are themselves law firms and entrepreneur-attorneys.

Think we're on to something? Efficient intake, laser focus on negotiation and settlement, with a success rate of 100% in many of our "use-cases," and greater than 85% in all use-cases.

attorney alternative

Key insight: nowadays, an attorney might not always be the best tool for the (legal) job.

You already know this: your small business really cannot afford to lose any cash to a legal dispute. That's why you need Veeto.

We help small businesses in primarily two ways.

  • We can help resolve an existing legal issue, by handling all flagship parts of the case;
  • And we can also manage all of your existing vendors/contracts on an ongoing basis so that potential legal issues get squashed before they bloom.

One of our unique differentiators as a legal provider is that we actually sync with your inbox and ghostwrite all legal communications, negotiations, and settlements as you (I bet your attorney doesn't offer that option). Because this happens directly in your inbox, you see it all happening in real-time (so no need to ask for updates and wait around for a response), and we can even act as a pseudo-gatekeeper to your time and attention by handling all vendor/contract issues without you having to delegate each little task to us--we just do it.

Best part? No billable hours. We charge per month what an attorney might charge for two or three hours, and all our prices are fixed. So no worrying about how much your legal might end up costing you. We share that risk with you, in the form of a simple, upfront, fixed price. Small businesses a smart to worry about cost, and that's exactly why we designed it this way. You get 95% of the results for 5% of the cost.

We're really good at this. If you want to protect your small business's cash by delegating your vendor/contract management to a legal ghostwriter your opponents can't slip past, then book a micro-consultation (blue button below) to get started. Attorneys delegate their legal issues to us. Why wouldn't you?

The odds are against you.

Small businesses have it tough. The lifeblood of your small business is cash, yet you have so little of it. Even worse, everyone wants to take it from you.

That's what a legal dispute is, after all: your opponent's attempt to take your cash. Each legal dispute can end in only one of two ways. Either you keep your money, or you lose it. Losing is the default outcome. If you don't prevent your opponents from taking your cash, your business will fail.

That's why half of small businesses fail within five years. They run out of cash, because they fail to protect it.

 

Every time a legal dispute arises, the only thing standing between your cash and your opponent is the legal provider charged with resolving that legal dispute.

Who is protecting your cash?

Simple legal for small businesses.
 

A simple monthly fee gets you ongoing legal help for your day-to-day legal needs with vendors/contracts. It’s like getting a subscription to your own general counsel, whose sole focus is protecting your cash against the threat of unresolved contract disputes with vendors. No limits. No clock counting. Just quality legal help, sync directly with your inbox (and we even do all of your legal ghostwriting for you).

Book a micro-consultation to hear what else is included, discuss your specific legal needs, and get a clear price upfront before we start.

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