1 00:00:03,062 --> 00:00:04,675 How are you this afternoon? 2 00:00:04,792 --> 00:00:06,002 I'm doing well, thank you. 3 00:00:06,002 --> 00:00:06,820 How are you doing? 4 00:00:06,820 --> 00:00:08,383 It's good to be here. 5 00:00:08,527 --> 00:00:13,291 Yeah, I'm glad you, uh you carved some time out of your calendar. 6 00:00:13,291 --> 00:00:22,009 I've been really enjoying your writings on LinkedIn and now you have the uh frame break kind of newsletter. 7 00:00:22,009 --> 00:00:23,260 Yeah. 8 00:00:23,260 --> 00:00:25,081 Which I think is excellent. 9 00:00:25,081 --> 00:00:33,629 And you write a lot about the professional services industry, which law firms are a part of that little bit of a different angle. 10 00:00:33,629 --> 00:00:36,665 um But before we get into oh 11 00:00:36,665 --> 00:00:37,735 all of that. 12 00:00:37,735 --> 00:00:39,066 Let's get you introduced. 13 00:00:39,066 --> 00:00:41,056 So I found you on LinkedIn. 14 00:00:41,056 --> 00:00:49,039 had a really interesting article about a blueprint towards a future state in professional services. 15 00:00:49,039 --> 00:00:53,460 um yeah, we'll dive into that. 16 00:00:53,460 --> 00:00:57,121 But you are a managing director of High Output Ventures. 17 00:00:57,162 --> 00:01:02,253 Tell us a little bit more about kind of your background and um what you're doing today. 18 00:01:02,486 --> 00:01:03,646 for sure. 19 00:01:05,446 --> 00:01:09,626 Well, started my path of entrepreneurship started 2003. 20 00:01:09,626 --> 00:01:14,766 So that's when I set up my first company while I was in college. 21 00:01:15,346 --> 00:01:18,966 And 22 years later, here I am. 22 00:01:18,966 --> 00:01:27,866 And the career has sort of like gone through multiple sort of like cycles and industries whereby I initially started off with 23 00:01:28,110 --> 00:01:29,830 print design and graphic design. 24 00:01:29,830 --> 00:01:33,990 Then we went into advertising with a firm that I ran called Hatch Media. 25 00:01:33,990 --> 00:01:43,590 We sold that in 2010, got into tech, HR tech specifically around performance management software for large MNCs. 26 00:01:44,169 --> 00:01:54,350 2015, 16 got into the crypto space very early with a company called Alt Manager to help traders trade and execute on the exchanges right in the early days of Ethereum. 27 00:01:55,266 --> 00:02:08,494 We exited that business 2017 and then since 2018, I was primarily involved in the technology uh VC investing space, primarily investing in South Asia and Southeast Asia's 28 00:02:08,494 --> 00:02:12,956 focus with core verticals that we were really focusing on were e-commerce. 29 00:02:12,956 --> 00:02:18,679 So e-commerce was what I was focusing on, a bit of SaaS in the spaces that we knew. 30 00:02:18,780 --> 00:02:23,066 And that I did till around 2022. 31 00:02:23,286 --> 00:02:28,348 Which is when valuation started to go completely out of whack during that period. 32 00:02:28,408 --> 00:02:34,671 And I started looking at services businesses as avenues for, you know, alternative investing. 33 00:02:34,671 --> 00:02:47,066 And instead of betting on the, the, the gold rush sell the picks and shovels sort of like a technique was the way I had built up the capabilities of outsourcing in Philippines 34 00:02:47,066 --> 00:02:47,527 quite a bit. 35 00:02:47,527 --> 00:02:51,038 So it was like, okay, so we have the capability of spinning up. 36 00:02:51,064 --> 00:02:53,105 quite a lot of people in the Philippines. 37 00:02:53,105 --> 00:02:54,995 So how do we leverage that? 38 00:02:55,155 --> 00:02:59,897 And we did a bunch of development studios, design studios. 39 00:02:59,897 --> 00:03:10,349 And then around 18 months ago, I got involved in a private equity fund, which was doing accounting firm roll-ups, which is when I got very close to the professional services 40 00:03:10,349 --> 00:03:19,288 space and discovered how many of these firms which were built for human leverage were struggling with the shift towards the 41 00:03:19,288 --> 00:03:25,263 the technology leverage era that we're entering and the opportunities that it was creating. 42 00:03:25,323 --> 00:03:27,875 And that led me down a rabbit hole. 43 00:03:27,875 --> 00:03:36,613 And since the start of the year, I've been writing about the space, learning about the space, connecting with lots of people in the space as we navigate. 44 00:03:36,773 --> 00:03:47,052 And the goal being to ideally come up with a playbook for what services or software could sort of like look like for startups and new firms. 45 00:03:47,064 --> 00:03:56,526 And then perhaps uh a fund around that, which would focus squarely on what I'm calling NuCo companies doing the server-to-server software play. 46 00:03:56,526 --> 00:04:00,170 that's a quick round of how I got here. 47 00:04:00,823 --> 00:04:02,565 Okay, yeah, super interesting. 48 00:04:02,565 --> 00:04:16,956 And um you have highlighted some of the challenges with the partnership model, with internal firm compensation models with, and this is really outside of law, but many of 49 00:04:16,956 --> 00:04:18,598 these things apply. 50 00:04:19,018 --> 00:04:28,406 Consensus driven decision making, um know, legacy commitments for retirement. 51 00:04:28,406 --> 00:04:29,747 um 52 00:04:29,913 --> 00:04:37,788 all of those sorts of things that also exist, I would say, in the legal world. 53 00:04:37,929 --> 00:04:47,025 And I see the biggest challenge from us getting to current state to future state is multifaceted. 54 00:04:47,025 --> 00:04:52,219 But if I look at where I see the most friction, it's around culture. 55 00:04:52,459 --> 00:04:57,909 And one thing I think that uh the big four 56 00:04:57,909 --> 00:05:07,863 have that law firms don't is innovation is really baked into their DNA and um it's not illegal. 57 00:05:07,863 --> 00:05:22,910 In fact, I would say that it's probably close to last on the list in terms of innovation and that is changing rapidly now because there's a gun, know, the law firms are staring 58 00:05:22,910 --> 00:05:26,631 down the barrel of a gun with clients 59 00:05:26,701 --> 00:05:33,714 with their finger on the trigger saying change, you know, I want better, faster, cheaper, or I pull this trigger. 60 00:05:33,754 --> 00:05:41,128 So that's what's, that's what's driving, um, driving the, the motivation to actually make some changes here. 61 00:05:41,128 --> 00:05:51,353 But how do you see, like, what are the barriers in the professional services world that you think provide the most friction from where we are now to where we're ultimately going 62 00:05:51,353 --> 00:05:52,143 to be? 63 00:05:53,056 --> 00:06:05,710 Yeah, I think when we zoom out, it was interesting what you said about Big Law, sort of not having the same pressures of, let's say, Big Four, because there was a type of work 64 00:06:05,710 --> 00:06:06,400 that they did. 65 00:06:06,400 --> 00:06:16,554 Like when I think about the Big Four and all of their auditing departments, those departments have stayed relatively the same and still do the same uh work year in and year 66 00:06:16,554 --> 00:06:17,314 out. 67 00:06:17,706 --> 00:06:27,572 it's a pretty profitable business for all of them, which is why divesters have been difficult with it, even though it creates a lot of compliance and regulation problems 68 00:06:27,572 --> 00:06:31,894 within the consulting divisions because of conflict. 69 00:06:32,054 --> 00:06:40,669 But I think I see law perhaps a lot more like the auditing part of work, where it's very structured and you know what you're going to get. 70 00:06:40,669 --> 00:06:46,262 Here's the contract for a partnership agreement, a sale agreement, whatever it may be. 71 00:06:46,326 --> 00:06:47,407 I think it's well defined. 72 00:06:47,407 --> 00:07:01,785 The other parts of the big four, as they sort of rotated back into consulting by acquiring a lot of their capability after the end-run divesters that they had to do, was that those 73 00:07:01,785 --> 00:07:07,038 parts of the business were always dependent on the market and how the market was changing. 74 00:07:07,038 --> 00:07:12,781 Because there was not one thing that they were doing, whether that was, let us get you ready for the cloud. 75 00:07:12,781 --> 00:07:15,022 Let us get you ready for. 76 00:07:15,114 --> 00:07:20,196 the blockchain, let us get you ready for remote, like whatever the flavor of the month may be. 77 00:07:20,196 --> 00:07:30,179 I think they rotate onto that very quickly because there's always a gap in capabilities of what firms need to get done versus internal capability of getting done. 78 00:07:30,179 --> 00:07:40,352 And so they always go to these firms and these firms have to continuously ride this information arbitrage wave because they have this. 79 00:07:40,352 --> 00:07:45,686 expert lawyers that they either acquire or hire for internally and then provide as a service. 80 00:07:45,687 --> 00:07:50,651 And I think like that's perhaps the way that they've been able to evolve. 81 00:07:50,672 --> 00:07:58,138 And these deals have just got bigger and bigger because there's just one transformation after the next transformation that you're selling into. 82 00:07:59,300 --> 00:08:05,998 the biggest thing was that outcomes have been, you know, when you're doing a hundred million dollar 83 00:08:05,998 --> 00:08:12,178 transformation project, it's pretty difficult to really nail down what is the exact outcome that you want. 84 00:08:12,178 --> 00:08:14,698 There are probably a multitude of outcomes. 85 00:08:15,358 --> 00:08:21,738 And tracking has been hard, which has kept the time and materials and project and fixed price projects coming. 86 00:08:21,738 --> 00:08:32,738 And I think that's the challenge that I see today with both the big four and then law, because this information arbitrage is collapsing. 87 00:08:32,738 --> 00:08:33,958 You have 88 00:08:34,018 --> 00:08:39,662 technology which is capable of doing a lot of the grunt work that was being done before. 89 00:08:40,164 --> 00:08:46,019 And I think the pressure for delivering outcomes is coming from the top. 90 00:08:46,019 --> 00:08:53,795 So you have margin compression from the top, then you have automation compression from the bottom, sort of like eroding the base of the pyramid. 91 00:08:54,296 --> 00:08:58,540 And many of these firms now are, all of them are in the same boat. 92 00:08:58,540 --> 00:09:01,472 Like if your business scaled by adding 93 00:09:01,472 --> 00:09:05,063 more people to your organization to grow revenue. 94 00:09:05,724 --> 00:09:10,526 I think the public markets are voting as we see. 95 00:09:10,526 --> 00:09:14,467 I cover public stocks pretty much every week on Tuesday. 96 00:09:14,627 --> 00:09:23,971 And if you are not doing the rotation and technology leverage, the market just keeps punishing you quarter after quarter because they're like, I don't believe that this is 97 00:09:23,971 --> 00:09:24,992 sustainable. 98 00:09:24,992 --> 00:09:29,394 And I think that's what truly triggers uh change in this. 99 00:09:29,394 --> 00:09:30,638 There's one, the 100 00:09:30,638 --> 00:09:32,470 culture aspect that you talked about. 101 00:09:32,470 --> 00:09:39,426 And then the second is market and economic forces forcing these companies to change. 102 00:09:39,426 --> 00:09:48,453 Otherwise, what will happen is that your stock continues to get destroyed and private equity will just come in and buy your company for what it's worth. 103 00:09:48,453 --> 00:09:55,179 And they probably can split it up and make a lot more by uh doing what they do best. 104 00:09:55,179 --> 00:09:57,341 And I think this is where they're stuck. 105 00:09:57,341 --> 00:09:58,796 uh 106 00:09:58,796 --> 00:10:11,118 It's a fascinating spot to be in, but I wouldn't want to be leading a 300,000 person firm right now and saying like, we're gonna rotate because I think several very difficult 107 00:10:11,118 --> 00:10:12,820 decisions need to be made. 108 00:10:12,943 --> 00:10:16,495 Yeah, well law firms don't get to nearly that size or scale. 109 00:10:16,495 --> 00:10:22,807 The largest law firms in the world are all under 20,000 employees, typically under five. 110 00:10:22,807 --> 00:10:28,130 um There are a few outliers, Dentons, Kirkland and Ellis, a few others. 111 00:10:28,130 --> 00:10:39,355 um So you mentioned the market penalizing companies for um their people leverage and 112 00:10:39,355 --> 00:10:49,435 Something popped up, think was at Monday.com last week, who got lost like, I don't know, 20%, 30%. 113 00:10:49,435 --> 00:10:59,555 And that was based on a call around their SEO strategy that they seemed to not demonstrate a good level of understanding. 114 00:10:59,555 --> 00:11:01,495 This is me just reading articles. 115 00:11:01,495 --> 00:11:04,195 You may know more about it, but... 116 00:11:04,195 --> 00:11:17,407 Apparently, you know, the AI summaries in Google have destroyed their SEO strategy and they didn't seem to have the answers that investors were looking for. 117 00:11:17,407 --> 00:11:20,288 But that is one hell of a drop. 118 00:11:20,349 --> 00:11:29,897 You know, I mean, normally that's the kind of drop where there's a scandal that, like is, are we, um, I don't know if you know anything about that situation, but are we going to 119 00:11:29,897 --> 00:11:32,259 see more of this type of thing? 120 00:11:32,550 --> 00:11:36,475 I think Gartner was down 35 % on the year as well right now. 121 00:11:36,475 --> 00:11:42,961 And so ah they released earnings and the market did not take to them very well. 122 00:11:43,942 --> 00:11:55,063 because they're having other problems, like the Monday problem is customer acquisition costs will go up because SEO ah is just not driving as much. 123 00:11:55,063 --> 00:11:55,754 so 124 00:11:55,790 --> 00:11:58,292 Once your cat goes up, margins get compressed. 125 00:11:58,292 --> 00:12:06,898 So essentially, the market is saying that if this channel doesn't work for you and it's going to cost you a lot more to get your customers, I don't see you inflating margins 126 00:12:06,898 --> 00:12:09,479 anywhere else or making difficult decisions. 127 00:12:09,479 --> 00:12:13,052 And I think all these firms are getting compressed in the same way. 128 00:12:13,052 --> 00:12:24,009 It's either you're not rotating or if you're a technology company and you're not figuring out how to play all of these changes, and there are just far too many changes happening. 129 00:12:24,009 --> 00:12:25,420 For Gartner, it's 130 00:12:25,428 --> 00:12:30,622 It's that this very big analyst network and they are plugged into all of these companies. 131 00:12:30,622 --> 00:12:32,943 They speak with all of the CEOs. 132 00:12:33,144 --> 00:12:37,977 But the problem that they're having is a lot of people are uploading a lot of Gartner reports straight into JachiBD. 133 00:12:37,977 --> 00:12:43,491 then when you and I sort of like query it, we get pretty close responses to it. 134 00:12:43,491 --> 00:12:53,634 Will we see them go towards a DRAM sort of solutions that we saw the music guys go before and say, okay, these PDS are going to be protected if... 135 00:12:53,634 --> 00:12:56,506 But we all know how that ended up for all the music people. 136 00:12:56,506 --> 00:13:00,599 Like at the end of the day, it's a cat and mouse game with these. 137 00:13:00,740 --> 00:13:06,264 And now they're doing Ask Gartner, which is their version of, you know, ask us a question. 138 00:13:06,264 --> 00:13:15,472 And I think in the lowest rates, have LexisNexis, which also has LexisNexis AI, which is the same sort of like way to do it. 139 00:13:15,472 --> 00:13:23,426 And I think for all of these firms, if you rotate to subscription and a per query uh pricing model, 140 00:13:23,426 --> 00:13:31,549 then your analyst structure needs to change fundamentally because I'm going to be calling analysts a lot less and I'm going to get the answer over there. 141 00:13:31,549 --> 00:13:36,531 you're again, peeling off revenue and margin from the top. 142 00:13:36,531 --> 00:13:39,893 And I think this just eats your tail from the back slowly. 143 00:13:39,893 --> 00:13:49,097 And the market is basically saying that I, you know, they release us Gartner in the last call, but the market didn't buy it. 144 00:13:49,097 --> 00:13:52,938 And um they're like, you've got to do something, but. 145 00:13:53,814 --> 00:14:03,221 Lots of people are saying that the market's overreacting right now, but when you see this part of the market and then you see the rest of the market reaching all time highs and 146 00:14:03,382 --> 00:14:13,580 tech stocks rotating to God knows what levels, ah I'm pretty sure there will be a reversion to the mean, but that's really the scene. 147 00:14:13,869 --> 00:14:17,581 Yeah, it does seem like there's a bit of a jagged edge. 148 00:14:17,802 --> 00:14:30,081 We always talk about the jagged edge in AI capabilities, which is, uh I feel like a good metaphor, but also in the market, you know, um the fact that Monday didn't have the right 149 00:14:30,081 --> 00:14:31,993 answers on an analyst call. 150 00:14:31,993 --> 00:14:36,476 um mean, you can look at ratios, you can look at CAC to LTV. 151 00:14:36,476 --> 00:14:40,599 I mean, there's numeric representations that show trends. 152 00:14:40,763 --> 00:14:46,003 Um, I thought, I thought it was interesting and, know, with Gartner specifically, that's a pay to play network. 153 00:14:46,003 --> 00:14:54,403 Like if you want to be, if you want to be on their radar and be part of their research, mean, it's as close to a six figure investment. 154 00:14:54,403 --> 00:14:58,883 Um, we've talked to them and, I think, I think that you're right. 155 00:14:58,883 --> 00:15:05,123 The, the type, the, the level of output that you can get out of these AI models now is staggering. 156 00:15:05,123 --> 00:15:07,923 I've, I've done research on my own company. 157 00:15:08,059 --> 00:15:10,671 through it, which, you know, we're 50 employees, right? 158 00:15:10,671 --> 00:15:13,703 Like there's not a ton of information available. 159 00:15:13,903 --> 00:15:23,010 And, um, it has done, it crawled the website went in, you know, if you're using Gemini, it'll look at YouTube video, transcripts. 160 00:15:23,010 --> 00:15:28,734 It has mechanisms to go out and find information and has done surprisingly well. 161 00:15:28,734 --> 00:15:32,516 I've done comparisons with us against competing vendors. 162 00:15:32,516 --> 00:15:36,511 I've had it build go to market plans, which, eh, you know, 163 00:15:36,511 --> 00:15:39,272 little pieces and parts have been useful. 164 00:15:39,272 --> 00:15:48,056 But again, it's if you look at the trend, you know, two years ago, what you would get out versus today is very, very different. 165 00:15:48,056 --> 00:15:49,016 What do you think? 166 00:15:49,016 --> 00:15:55,329 What is your perspective on how far AI can go with kind of the high value knowledge work? 167 00:15:55,329 --> 00:16:03,442 think you had a McKinsey post and talked a little bit about this, like how, how far up the value chain 168 00:16:04,004 --> 00:16:06,143 Do you think, can it go all the way to the top? 169 00:16:06,143 --> 00:16:09,143 Is there going to be, we're to hit our heads on a ceiling? 170 00:16:09,831 --> 00:16:17,775 Yeah, I wrote a post which was a reaction to a pretty prominent VC saying that if he was going to start a company today, it be McKinsey software. 171 00:16:17,776 --> 00:16:20,968 And I thought it was an interesting angle that he took. 172 00:16:20,968 --> 00:16:24,319 It got a lot of views on X. 173 00:16:24,319 --> 00:16:28,623 And I wrote a post which said, OK, let's try to decompose McKinsey. 174 00:16:28,623 --> 00:16:34,766 And when at the core of the essence, there are a lot of tasks like analysis, pattern matching. 175 00:16:35,048 --> 00:16:41,992 you know, structural analysis and problem solving and all of these core grunt work, which gets done. 176 00:16:41,992 --> 00:16:53,028 And I think my post argued that most of that work can be to a degree done today by the systems that we have with proper guardrails and training. 177 00:16:53,228 --> 00:16:57,450 Equivalent to what aid most juniors would produce. 178 00:16:57,551 --> 00:17:03,512 I think those were the top three that I, I did, which was analysis, pattern matching and 179 00:17:03,512 --> 00:17:06,144 problem solving sort of like levels. 180 00:17:06,144 --> 00:17:19,454 And then there were two more levels which were uh political cover and plausible deniability, which I have become uh to appreciate a lot more of as I have talked to a lot 181 00:17:19,454 --> 00:17:21,676 of people on their client side as well. 182 00:17:21,676 --> 00:17:30,700 I think those are the parts where I don't see that much uh infiltration just yet because the boards, if... 183 00:17:30,700 --> 00:17:36,934 I was speaking to a consulting firm leader at a Canadian uh mining firm. 184 00:17:36,934 --> 00:17:41,156 And he was telling me that, you know, that spent six figures on a report. 185 00:17:41,156 --> 00:17:52,456 And he said, like, I'm pretty sure that, you know, spending some money on expert interviews and resources that we have, probably could have got that 200K report done for 186 00:17:52,456 --> 00:17:53,544 30, 40K. 187 00:17:53,544 --> 00:17:58,036 But he's like, the chair of the meeting does not 188 00:17:58,060 --> 00:18:03,482 would not trust a 30 to 40K deliverable because they're like, we've always spent 200 on this. 189 00:18:03,482 --> 00:18:06,544 So it probably should be like, you I won't trust this. 190 00:18:06,544 --> 00:18:19,259 And I think this is where the person in the seat matters, whereby you come in and you provide that confidence, you provide the skateboard, you provide whatever it is to make 191 00:18:19,259 --> 00:18:23,520 sure a decision goes through and you do the necessary work. 192 00:18:23,601 --> 00:18:27,022 And then the second part, I think there was lots of articles 193 00:18:27,052 --> 00:18:37,673 recently about McKinsey, but one of them raised a good point that they carry so much indemnity coverage that when they make a recommendation, and let's say that it goes 194 00:18:37,673 --> 00:18:48,053 horribly wrong, like in the case of Purdue Pharma, and they're on the hook for like 800 million, well, they probably have insurance coverage that manages quite a bit of that for 195 00:18:48,053 --> 00:18:48,843 them. 196 00:18:48,884 --> 00:18:51,266 And I think clients are... 197 00:18:51,362 --> 00:18:52,113 betting on that. 198 00:18:52,113 --> 00:18:59,488 So if they make a mistake, they're going to make them whole, or there's going to be some sort of uh cover for them. 199 00:18:59,488 --> 00:19:00,939 And I think those are the parts. 200 00:19:00,939 --> 00:19:11,807 So I said, don't think McKinsey as a whole becomes uh software, but it's McKinsey to platform, which is what I ended it with, whereby you're still going to need human judgment 201 00:19:11,807 --> 00:19:15,399 and people along the way with a certain type of structure. 202 00:19:15,399 --> 00:19:17,601 But will you need the entire base of the pyramid? 203 00:19:17,601 --> 00:19:19,462 I don't think so anymore. 204 00:19:19,650 --> 00:19:20,070 Yeah. 205 00:19:20,070 --> 00:19:32,864 And for those that don't know with the Purdue Pharma, that was the OxyContin um scenario where McKinsey had come in and basically done kind of a go-to-market, I guess you would 206 00:19:32,864 --> 00:19:37,255 call it, strategy that was a little bit too successful. 207 00:19:37,255 --> 00:19:40,936 And by a little bit, I mean a lot. 208 00:19:40,936 --> 00:19:46,718 that's why the opioid epidemic has gotten so much 209 00:19:47,195 --> 00:19:47,896 publicity. 210 00:19:47,896 --> 00:19:50,397 mean, people are dying uh from it. 211 00:19:50,397 --> 00:20:00,184 So yeah, I would say that that is an interesting angle that I hadn't really considered is that when you hire McKinsey, there is a little bit of a backstop, but you know, those 212 00:20:00,184 --> 00:20:01,965 sorts of situations are rare. 213 00:20:01,965 --> 00:20:12,112 Like how many times does, you know, one out of a hundred thousand consulting engagements end up in some sort of a payout? 214 00:20:12,112 --> 00:20:15,774 um But that's a really good point about 215 00:20:15,827 --> 00:20:18,103 there is a little bit of a backstop there. 216 00:20:19,602 --> 00:20:30,092 Yeah, I think, yeah, probably not completely covered, but for the people sitting on the board, I think there's A, McKinsey told us to do this, B, there is something at the back 217 00:20:30,092 --> 00:20:41,062 of this in case it messes up, especially with, let's say that Adobe's move from CDs to Creative Cloud was consulted on, which, oh, by a thing, and it didn't work out. 218 00:20:41,062 --> 00:20:45,826 Like, I don't know what their callback would that be, but I see it as a... 219 00:20:45,920 --> 00:20:48,712 as just insurance, which is purely what it is. 220 00:20:48,712 --> 00:20:51,934 And you're paying a premium for that insurance. 221 00:20:51,934 --> 00:20:56,437 And sometimes these moves are extremely difficult to make without external third party. 222 00:20:56,437 --> 00:21:08,216 And I can see that, having spoken to a lot of clients, there is a lot of political maneuvering that needs to happen when three board members want something and four want 223 00:21:08,216 --> 00:21:08,946 something else. 224 00:21:08,946 --> 00:21:13,069 And how do you get ah everyone aligned? 225 00:21:13,089 --> 00:21:14,510 I think that's a skill. 226 00:21:14,510 --> 00:21:17,870 and most underestimate that skill. 227 00:21:17,870 --> 00:21:20,670 think lawyers are very good at that skill as well. 228 00:21:20,670 --> 00:21:23,950 And that's why I don't think it goes away. 229 00:21:23,950 --> 00:21:32,270 Now, the problem becomes is that the skill is built through reps and judgment over a period of time. 230 00:21:32,270 --> 00:21:37,830 And when the bottom collapses, I think that's the risk a lot of people are seeing. 231 00:21:37,990 --> 00:21:40,830 When I speak to leaders, there are two risks that they're seeing. 232 00:21:40,830 --> 00:21:44,706 One is that people just below partner are 233 00:21:44,706 --> 00:21:48,887 being a little more cautious about moving into the partner role nowadays. 234 00:21:48,887 --> 00:21:55,929 The reason is that there's a lot of pressure at the partner level these days across all firms because of what's happening in the world. 235 00:21:55,929 --> 00:22:03,591 while the last year was a good year, there's a lot of uncertainty in the next year and Doge did not help in the beginning of this year. 236 00:22:03,691 --> 00:22:09,433 And so a lot of those APs are like, don't know whether I want to go to partner yet. 237 00:22:09,433 --> 00:22:13,632 I would much rather have optionality as an associate partner 238 00:22:13,632 --> 00:22:19,827 or VP and see what other options I have because private equity is becoming very interesting. 239 00:22:19,827 --> 00:22:22,549 What are all these VCs doing in this space? 240 00:22:22,690 --> 00:22:26,133 And so they're like, a lot of their key people are not moving up. 241 00:22:26,133 --> 00:22:35,261 And then the bottom, because they've cut graduate recruitment to the level that they have, and attrition at these firms still runs north of 15 plus percent. 242 00:22:35,261 --> 00:22:41,036 There is a lot of calling at the bottom end of the pyramid as well. 243 00:22:41,036 --> 00:22:45,248 which then creates a pipeline problem to the top. 244 00:22:45,249 --> 00:22:56,977 I think structurally, either that's just preparing for what the new structure will look like, which is a lot fewer people, a lot leaner structure with judgment concentrate at the 245 00:22:56,977 --> 00:22:57,597 top. 246 00:22:57,597 --> 00:23:03,241 I just hired the top five, 10 % of the class, which is okay, 5 % of the class. 247 00:23:03,241 --> 00:23:10,886 mean, all Amlog 200, magic circle firms will take that big because they're like, we get a lot more utilization per 248 00:23:11,092 --> 00:23:12,722 new person coming in. 249 00:23:12,923 --> 00:23:25,747 and yeah, that's structurally sort of like then we'll have knock on effects to the universities, the programs, everyone sort of like studying to get into these industries, 250 00:23:25,747 --> 00:23:36,290 because they're just going to be far fewer roles if this continues at the rate that it is the top 510 % remains and someone the other day said, 251 00:23:36,406 --> 00:23:43,488 I hope knowledge work doesn't become like professional sports where, you know, just a few people at the top make all the money. 252 00:23:43,628 --> 00:23:47,780 And it's not like no one else plays basketball or no one else plays soccer. 253 00:23:47,780 --> 00:23:54,912 There are a lot of people who do that, but, know, there's a very big difference from major league players and everyone else. 254 00:23:55,072 --> 00:23:57,823 And could knowledge work go to that end? 255 00:23:57,823 --> 00:24:00,404 I don't know, but it was an interesting thought. 256 00:24:00,729 --> 00:24:01,089 Yeah. 257 00:24:01,089 --> 00:24:05,261 I mean, that's, you know, especially for economies like the U S that's so heavily dependent. 258 00:24:05,261 --> 00:24:11,624 We manufacture very little here and you know, so much of what we do is knowledge work these days. 259 00:24:12,485 --> 00:24:24,051 before, the last time that you and I spoke, we were talking a little bit about, Booz Allen and you know, they're a big government contractor and the struggle with sometimes 260 00:24:24,051 --> 00:24:30,082 customers and the industry in this case, consulting partners where 261 00:24:30,082 --> 00:24:42,587 It's actually the customers who are holding back the firms from implementing, you know, alternative fee structures, for example, like, um, how are you seeing that in professional 262 00:24:42,587 --> 00:24:43,699 services broadly? 263 00:24:43,699 --> 00:24:50,106 Is it still, are clients still holding back or are they more willing to experiment with new models? 264 00:24:52,930 --> 00:25:05,281 I think for this one, clients, so when I speak to client side, there's very little incentive alignment for them to move away from their current way of working. 265 00:25:05,281 --> 00:25:12,707 Because our current way allocates budgets to people who need to spend it in certain sort of like areas to get it done. 266 00:25:12,707 --> 00:25:21,254 And if I get a budget allocation for marketing for 500,000 and I've got to spend it in some shape or form, well, 267 00:25:21,282 --> 00:25:33,429 you know, if you come to me and say like, okay, I'm going to help you with generative SEO instead of SEO now, and I'll charge you not for the time I spend, but for every person 268 00:25:33,429 --> 00:25:34,670 that signs up. 269 00:25:34,670 --> 00:25:37,631 And let's just say that every person is worth a thousand dollars to you. 270 00:25:37,631 --> 00:25:40,223 And I suddenly deliver a thousand people to you. 271 00:25:40,223 --> 00:25:46,206 Like suddenly your budget's like out of whack now, because how do you fill the extra 500 K that you've got to pay me? 272 00:25:46,206 --> 00:25:48,377 And there's no budget for it. 273 00:25:48,377 --> 00:25:49,676 And so you're like, 274 00:25:49,676 --> 00:25:53,909 I'll have to go to someone and then figure out how to make this deal work. 275 00:25:54,029 --> 00:26:02,555 But I don't get paid when this deal does a thousand signups instead of 500 signups because I have some target that I have to hit. 276 00:26:02,555 --> 00:26:11,021 And I think like it becomes so complicated because the incentive structures and the compensation structures are not aligned with this, which makes outcome based pricing 277 00:26:11,021 --> 00:26:13,802 extremely difficult to do. 278 00:26:14,163 --> 00:26:18,906 What I'm seeing in the market right now is though large projects 279 00:26:19,074 --> 00:26:25,966 Usually these very large transformation projects are now not being bid on like as a single project. 280 00:26:25,966 --> 00:26:33,318 What a lot of these firms are doing now is taking a 10 million, $50 million project and breaking it down into five parts. 281 00:26:33,578 --> 00:26:37,869 And they're doing this as risk adjustment from their part. 282 00:26:37,869 --> 00:26:42,470 Like they don't want to take another 50 million head and nothing happens on their side. 283 00:26:42,470 --> 00:26:44,241 So they're spreading the risk. 284 00:26:44,241 --> 00:26:48,302 And I actually believe like this is a great opportunity for new goals because 285 00:26:48,820 --> 00:27:00,533 when you are doing a million dollar engagement, it's far easier to figure out how to drive an outcome for the million that you're spending when it's, let's say that we have to fix 286 00:27:00,533 --> 00:27:05,615 the data structure for a law firm and you're like, okay, all of this is all, but we'll have to do this. 287 00:27:05,615 --> 00:27:12,577 We'll put Barentier in for you or whatever and do the ontology exercises and get all the workflows done. 288 00:27:12,637 --> 00:27:15,998 And at the end of the day, you'll be able to do X, Y, Z. 289 00:27:15,998 --> 00:27:17,250 And then if they can do it, 290 00:27:17,250 --> 00:27:18,671 you know, mission accomplished. 291 00:27:18,671 --> 00:27:25,636 But if it was part of an entire workflow transformation exercise, it's far harder to negotiate. 292 00:27:25,636 --> 00:27:36,463 And I think I always tell new codes, especially in our portfolio, that the further you go away from the PNL, the harder it becomes to justify outcome based pricing. 293 00:27:36,463 --> 00:27:40,436 And then you've got to figure out which budgets you're allocated towards. 294 00:27:40,436 --> 00:27:42,977 And then that is the limit on the upside. 295 00:27:42,977 --> 00:27:47,070 But I think ultimately most firms get forced into this. 296 00:27:47,374 --> 00:27:52,175 ah as the market adjusts how it deals with bigger projects. 297 00:27:52,175 --> 00:27:53,055 Yeah. 298 00:27:53,075 --> 00:28:06,369 And when we were talking last time, you also had mentioned how your perspective has evolved, I guess, from more kind of fear, uncertainty, and doubt into like hope and 299 00:28:06,369 --> 00:28:07,109 opportunity. 300 00:28:07,109 --> 00:28:18,562 how, what has happened or what has transpired that has really shifted your perspective on where we're going in the future? 301 00:28:20,866 --> 00:28:36,116 I think, So the death of consulting or the death of law, whatever the headlines these days are, I personally, having spoken to a lot of clients, I don't believe the profession or 302 00:28:36,116 --> 00:28:38,308 external counsel is going anywhere. 303 00:28:38,308 --> 00:28:47,844 I think it very much stays there because people are not gonna put all of this competency into their payroll because it costs too much and they don't need it all the time. 304 00:28:47,844 --> 00:28:49,705 So I believe it stays there. 305 00:28:50,638 --> 00:29:02,324 What is really optimistic about new codes that I speak to these days is that the technology leverage part allows them to do so much more with so much less. 306 00:29:02,324 --> 00:29:13,379 When I'm talking to a firm that was doing some work with uh medical ambulance systems and based on how the dispatch was being done before versus how they're doing now and they've 307 00:29:13,379 --> 00:29:16,250 done this entire sort of like mapping exercise. 308 00:29:16,342 --> 00:29:25,847 And these are very niche sort of like areas where I'm seeing firms go in and they're actually making tangible differences to these businesses. 309 00:29:25,847 --> 00:29:40,255 that net is positive, I believe, for the space as a whole, because I consulting law, whichever has also got a pretty bad rep because you you'd never know what you're going to 310 00:29:40,255 --> 00:29:45,658 get, what the bill is going to be, how big the bill suddenly becomes, is it going to be worth it? 311 00:29:46,010 --> 00:29:56,654 And I mean, brand names get you so far, but ultimately businesses are still uh controlled by the market. 312 00:29:56,654 --> 00:30:07,408 I had the pressure off the market and the market is a pretty difficult space to navigate these days with margin pressure all over, uncertainty, people pulling back budgets, people 313 00:30:07,408 --> 00:30:09,630 being reluctant to spend. 314 00:30:09,931 --> 00:30:14,194 And so I think NetNet, it's good for 315 00:30:14,242 --> 00:30:18,824 the craft of people who could come in and deliver outcomes. 316 00:30:18,845 --> 00:30:21,266 So I think that's what I'm hopeful for. 317 00:30:21,266 --> 00:30:29,486 We move away from the slides into the tech and the platforms and uh see change happen. 318 00:30:29,486 --> 00:30:32,389 Yeah, and hopefully I'll make a lot of money. 319 00:30:32,389 --> 00:30:33,550 What do you think? 320 00:30:33,550 --> 00:30:37,833 So I have a theory on what the market. 321 00:30:37,833 --> 00:30:43,698 So in legal, uh in the law firm world, it's extremely fragmented. 322 00:30:43,698 --> 00:30:47,441 So the AmLaw 100 revenue is about 140 billion. 323 00:30:47,441 --> 00:30:55,307 As you know, uh Deloitte's 80 plus billion at the high end and KPMG is 40 billion. 324 00:30:55,307 --> 00:30:58,136 If you add all the big four up, it's like 220 billion. 325 00:30:58,136 --> 00:31:02,668 So four firms almost double what 100 law firms are, right? 326 00:31:02,668 --> 00:31:04,229 So very fragmented. 327 00:31:04,229 --> 00:31:10,711 uh I see consolidation coming and which it's overdue. 328 00:31:10,711 --> 00:31:12,952 Honestly, it's not a sustainable. 329 00:31:12,952 --> 00:31:17,114 The AmLaw 200 is not a sustainable model, in my opinion. 330 00:31:17,114 --> 00:31:26,478 It uh has remained that way because of the way the law firm structures, the business structures, they're run by lawyers. 331 00:31:26,578 --> 00:31:29,880 And, um, you know, they don't bring in professional management. 332 00:31:29,880 --> 00:31:37,274 They don't have a board of directors that, you know, that shareholders, um, elect that install management and hold them accountable. 333 00:31:37,274 --> 00:31:40,105 It's not a traditional governance model. 334 00:31:40,105 --> 00:31:43,237 And, um, there are other scalability challenges too. 335 00:31:43,237 --> 00:31:51,812 It's, know, lawyers can leave their firm and take their book of business with them where that's not, you know, that's much more difficult in other industries. 336 00:31:51,812 --> 00:31:55,974 Um, but the ABA rules allow that. 337 00:31:56,185 --> 00:31:57,296 really require that. 338 00:31:57,296 --> 00:32:01,699 uh You have to operate in what's best for the client. 339 00:32:01,699 --> 00:32:08,484 So what I see is, I see the big firms that can actually afford to do the R &D. 340 00:32:08,484 --> 00:32:11,986 I don't think buying off the shelf tools is going to create differentiation. 341 00:32:11,986 --> 00:32:15,829 mean, by its definition, it's not differentiating. 342 00:32:15,829 --> 00:32:21,533 If you can buy it down the street and I have it, we're not different, right? 343 00:32:21,533 --> 00:32:23,654 But what is different is the data. 344 00:32:24,294 --> 00:32:33,262 that these law firms have, the collective wisdom, the documents that led to successful outcomes and are battle tested in courts of law. 345 00:32:33,262 --> 00:32:42,749 um So I think on the big end that they have the scale to invest um in ways to leverage that data. 346 00:32:42,749 --> 00:32:44,471 I see advantages there. 347 00:32:44,471 --> 00:32:49,234 And on the very small end, you're able to be nimble. 348 00:32:49,375 --> 00:32:53,838 So being a challenger firm now is a really interesting dynamic. 349 00:32:53,970 --> 00:32:56,532 Um, we're starting to see a few firms. 350 00:32:56,532 --> 00:32:58,773 there's one in New York called Crosby. 351 00:32:58,993 --> 00:33:04,137 they're still kind of in stealth mode, but it's, it's, it's a AI first law firm. 352 00:33:04,137 --> 00:33:13,984 And as these regulatory rules start to, um, propagate that allow outside investment into law firms, historically that's been a walled garden. 353 00:33:13,984 --> 00:33:21,869 The, non-lawyers can't own any piece of a law firm except in Arizona and Utah. 354 00:33:21,869 --> 00:33:23,670 And I think they might've rolled that. 355 00:33:23,716 --> 00:33:25,276 alternative business structure back. 356 00:33:25,276 --> 00:33:27,407 I'm not sure what the status is there. 357 00:33:27,407 --> 00:33:37,600 But anyway, let me get to my question, which is I see opportunity at the high end of the scale, because again, the ability to capitalize on data and at the small end with just 358 00:33:37,600 --> 00:33:43,871 being nimble and being able to try new things and experimental and move quickly, where I see risk is in that middle. 359 00:33:43,871 --> 00:33:46,602 um And not everybody agrees with me. 360 00:33:46,602 --> 00:33:49,213 Some people think that the opportunity lies in the middle. 361 00:33:49,213 --> 00:33:53,103 Maybe they're right, but um for law firms that are 362 00:33:53,103 --> 00:34:01,351 too big to be nimble or agile, but don't have the capital to deploy. 363 00:34:01,563 --> 00:34:02,203 I don't know. 364 00:34:02,203 --> 00:34:04,435 How do you see the market? 365 00:34:04,435 --> 00:34:07,778 you, one end have an advantage over the other? 366 00:34:08,462 --> 00:34:11,902 Yeah, I agree with your thesis. 367 00:34:11,902 --> 00:34:14,682 it's going to take... 368 00:34:14,682 --> 00:34:30,002 So I wrote about an Indian BPO firm a couple of weeks ago called WNS, and the firm has 1.3 billion in revenue and was growing well, had moved 24 % of billing to outcome-based 369 00:34:30,002 --> 00:34:36,198 billing, but it did have 60,000 employees, which was legacy that they had. 370 00:34:37,998 --> 00:34:40,478 The firm was growing at a decent rate. 371 00:34:40,998 --> 00:34:56,078 And the cost or the price to play in the R &D game, let's just say on a billion three or a billion, they have like six or 10 % R &D allocation, which is quite a lot because they're 372 00:34:56,078 --> 00:34:57,318 not running on major. 373 00:34:57,318 --> 00:35:03,018 Most of these operating margins, well, their operating margin, I think, was close to 23%, 24%. 374 00:35:03,018 --> 00:35:06,752 But the market expects a 375 00:35:06,752 --> 00:35:13,707 a certain type of company to maintain certain levels of margin for them to retain their share price. 376 00:35:13,867 --> 00:35:25,015 And I wrote an article and I said WNS hit the investment ceiling because the price to play now is so much higher for these large SIs that Capgemini bought them. 377 00:35:25,015 --> 00:35:26,416 They raised $4 billion in debt. 378 00:35:26,416 --> 00:35:35,072 They're like, okay, we'll buy you and then we'll sort of like roll something else up because Capgemini's book balance sheet allows for that level of debt. 379 00:35:35,106 --> 00:35:39,568 come in and the deal was accretive for Capgemini as soon as they bought it. 380 00:35:39,969 --> 00:35:46,873 And that's a good example of middles which are stuck. 381 00:35:46,873 --> 00:35:55,938 But let's just say like this Crosby firm maybe in a couple of years it becomes a bigger firm and you know, your cook sees this and says like, okay, cool. 382 00:35:55,938 --> 00:36:04,162 I think they have something interesting, but maybe Crosby can't get into the larger accounts for Fortune 100. 383 00:36:04,162 --> 00:36:07,264 because they don't have the relationships and things like that. 384 00:36:07,264 --> 00:36:19,113 And this week I'm writing all about trust infrastructure, which is, know, if firms do not, I think most professional services firms are, especially new calls, discount the 385 00:36:19,113 --> 00:36:22,525 importance of trust in this whole selling process. 386 00:36:22,525 --> 00:36:26,138 And they feel like the best solution is gonna get them through, it's not. 387 00:36:26,138 --> 00:36:28,960 Superior technology does not sort of like be through that. 388 00:36:28,960 --> 00:36:31,968 Like if a trust, and tomorrow my, 389 00:36:31,968 --> 00:36:33,659 my public company. 390 00:36:33,659 --> 00:36:40,853 I was trying to find a company which is in the professional services space, which uh had to evolve, but use this trust infrastructure. 391 00:36:40,853 --> 00:36:44,686 There's a defense contractor called CACI. 392 00:36:44,686 --> 00:36:47,897 It's a pretty big American defense contractor. 393 00:36:47,897 --> 00:36:51,609 I think they have like eight to $10 billion in revenue. 394 00:36:51,830 --> 00:36:55,572 so 2016, I researching the firm. 395 00:36:55,572 --> 00:36:59,744 They strategically bought a lot of businesses in the middle. 396 00:36:59,802 --> 00:37:09,252 built that trust infrastructure layer, and then they bought technology firms uh onto their books, fitted onto their rails. 397 00:37:09,252 --> 00:37:18,681 And today, like I saw their earnings was last week, 55 % of revenue is now not coming from time and materials, it's coming from technology sales that are happening. 398 00:37:18,681 --> 00:37:24,434 And this firm has done it at this scale and size with 20,000 employees. 399 00:37:24,492 --> 00:37:26,183 And I thought it was like a master class. 400 00:37:26,183 --> 00:37:34,268 Like maybe I should have written it as a case study, but it's going out tomorrow as a firm which was able to do this in the public markets. 401 00:37:34,368 --> 00:37:37,050 And I think like that's the gap over here. 402 00:37:37,050 --> 00:37:40,412 Like if you have the balance sheet, you will buy out the key people in the middle. 403 00:37:40,412 --> 00:37:48,797 The ones in the middle which are not investing, maximizing profit taking right now by not rotating will slowly wither away. 404 00:37:48,797 --> 00:37:50,698 And the bottom is like, 405 00:37:51,372 --> 00:37:53,263 will always be there with Challenger. 406 00:37:53,263 --> 00:37:56,865 I think this is where the new core concept for me sits. 407 00:37:56,865 --> 00:38:02,529 And I always say that it's probably through wedges these people figure out how to maneuver upwards. 408 00:38:02,529 --> 00:38:05,190 Like they can't be full service law firms, right? 409 00:38:05,190 --> 00:38:10,333 And there was a UK firm which was, I think it was called Garfield AI or something. 410 00:38:10,333 --> 00:38:17,438 was specifically a legal sort of like a firm which was doing like uh invoice chasers and stuff like that. 411 00:38:17,438 --> 00:38:18,230 Like, you know, 412 00:38:18,230 --> 00:38:19,690 It was like a small wedge. 413 00:38:19,690 --> 00:38:20,631 I said, okay, cool. 414 00:38:20,631 --> 00:38:28,313 It's like a nice, interesting business, but how are you sort of like embedding yourself into workflows and what's happening over there? 415 00:38:28,633 --> 00:38:36,505 And oh so that's what we're seeing at the new core level, which they have to figure out how can I deliver the outcome and then how do I get the trust? 416 00:38:36,505 --> 00:38:39,756 And it's uh a challenging spot. 417 00:38:40,056 --> 00:38:47,438 I, with you on that, the top will hopefully sort of like pay attention to the middle and acquire their way through that. 418 00:38:47,596 --> 00:38:53,028 And then the bottom will just be the challengers, which is the Palantir of the world, which come in. 419 00:38:53,028 --> 00:38:56,629 But people discount the fact that Palantir is over 20 years old. 420 00:38:56,629 --> 00:38:57,850 So it's not a new co. 421 00:38:57,850 --> 00:39:00,771 It's basically been doing this for a long time. 422 00:39:00,891 --> 00:39:10,024 And ah hopefully, we're in a cycle where those cycle times are greatly accelerated, where it doesn't take 20 years to get to that spot. 423 00:39:10,744 --> 00:39:11,054 Yeah. 424 00:39:11,054 --> 00:39:21,043 And you know, why aren't more firms like, so I see a real, interesting scenario with valuation. 425 00:39:21,063 --> 00:39:24,836 a traditional, like my wife and I own five gyms here in St. 426 00:39:24,836 --> 00:39:25,627 Louis. 427 00:39:25,627 --> 00:39:30,601 If we were to sell these gyms, we would get three to four times EBITDA, right? 428 00:39:30,601 --> 00:39:33,174 That's, that's what a traditional business operates. 429 00:39:33,174 --> 00:39:37,137 You know, sells for a multiple of, of EBITDA or net profit. 430 00:39:37,137 --> 00:39:38,159 Um, 431 00:39:38,159 --> 00:39:43,441 you know, growing software companies sell for a multiple of revenue, six to eight times revenue, right? 432 00:39:43,441 --> 00:39:58,437 So if you're a, if you're a, let's say for round numbers, you're a hundred million dollar business and you are operating at a 20 % margin, you can expect, um, 60 to 70 million, um, 433 00:39:58,437 --> 00:39:59,947 sale price, right? 434 00:39:59,947 --> 00:40:06,389 Whereas if you're a growing software company operating at a hundred million, you're going to sell for six to $800 million, right? 435 00:40:06,389 --> 00:40:08,066 Six to eight times revenue. 436 00:40:08,066 --> 00:40:12,589 And that multiple fluctuates with the market, but that's about where we are right now. 437 00:40:12,610 --> 00:40:27,261 So it seems like a very compelling move to try to build a tech enabled legal service delivery mechanism and scale it. 438 00:40:27,261 --> 00:40:28,794 um 439 00:40:28,794 --> 00:40:40,734 But I don't see, like there's been in the legal market, there's been one acquisition that I know of, a client of ours, Cleary bought a gen AI startup called Springbok. 440 00:40:40,754 --> 00:40:42,434 And it seemed more like an aqua hire. 441 00:40:42,434 --> 00:40:43,434 I mean, they were fairly small. 442 00:40:43,434 --> 00:40:45,554 I don't know if they had a ton of revenue. 443 00:40:45,554 --> 00:40:47,954 I'm guessing, I really don't know. 444 00:40:47,954 --> 00:40:57,114 But it seems like there would be more kind of spin-offs that these kind of going back to your blueprint where take 445 00:40:57,114 --> 00:41:05,457 20 % of know, net margin at the end of the year and allocate it towards your new co and start to build that over time. 446 00:41:05,457 --> 00:41:16,021 So as your legacy business starts to feel pressure, downward pressure on revenue, you've been funding this new business over here that potentially scales. 447 00:41:16,021 --> 00:41:18,982 Why aren't we seeing more companies do this? 448 00:41:19,106 --> 00:41:24,269 because partners don't want to get a 20 % cut on their paycheck at end of the year. 449 00:41:24,269 --> 00:41:25,310 That's why. 450 00:41:25,310 --> 00:41:30,513 Because if my tenure ends in five years, why am I funding this, which may or may not work? 451 00:41:30,613 --> 00:41:32,654 It's the incentive structure. 452 00:41:32,654 --> 00:41:41,433 I mean, we talk about partners doing that, but when Ford tried to do EVs versus combustion and the CEO was like, I'm going to go all EV. 453 00:41:41,433 --> 00:41:43,766 I'm going to be the CEO of the EV division. 454 00:41:43,766 --> 00:41:45,942 18 months later, it was rolled in. 455 00:41:46,220 --> 00:41:50,551 I think it's very difficult because compensation incentive structures don't allow it. 456 00:41:50,551 --> 00:42:02,995 think with the way that I speak to legacy co-owners is that you've got to spin out new co, ah hopefully get some alternative capital into that where you're not the sole capital. 457 00:42:02,995 --> 00:42:14,188 I think Volkswagen did that with Polestar, which is their EV play and they spun it out and you know, over time, it wasn't the most successful deal, but. 458 00:42:14,188 --> 00:42:20,422 That is an example of where a company said, I don't think that we can build EVs inside. 459 00:42:20,422 --> 00:42:30,788 And I don't think you're going to build the next generation advisory firm within the existing structure because the incentives and compensation models. 460 00:42:31,718 --> 00:42:37,464 A lot of the time, connect with uh bright senior guys at these big four MBBE firms. 461 00:42:37,464 --> 00:42:43,566 And the reason why they're leaving is that they're like, I'm doing my work so much more efficiently. 462 00:42:43,566 --> 00:42:50,060 ah I operate half the pyramid, but you know, I get a one-off bonus and I'm not getting compensated for the amount of value I'm bringing. 463 00:42:50,060 --> 00:42:55,013 So I might as well go out and bring that value somewhere else. 464 00:42:55,014 --> 00:43:04,740 And I think that attrition from that side, the other talent problems, think internally they'll have to figure out how to do this. 465 00:43:04,741 --> 00:43:13,114 my, my go-to whenever I speak to legacy cores, you've got to spin out cleanly with a new entity structure and 466 00:43:13,114 --> 00:43:25,919 do not allow, like therefore then new code can uh attack certain deals that legacy code might be going after as well after a period of time, but that's what you ultimately want 467 00:43:25,919 --> 00:43:27,059 to do. 468 00:43:27,099 --> 00:43:35,102 Adobe trying to buy Figma and stuff like that, like, you know, they're trying to do a lot of the things, but you know, for... 469 00:43:35,494 --> 00:43:42,849 Adobe was like the Photoshop file and for Figma, was this new way of working on a design file, which was not a file. 470 00:43:42,849 --> 00:43:54,467 And they had a completely different workflow and a way to structure the entire business, which means that Adobe copied them completely, but still couldn't beat Figma. 471 00:43:54,487 --> 00:43:58,390 And I think like that case study I did was like there. 472 00:43:58,390 --> 00:44:01,252 then Chien versus Zara or Inditex. 473 00:44:01,252 --> 00:44:03,563 We see examples of this over and over again. 474 00:44:03,563 --> 00:44:05,078 I shared them on Thursday. 475 00:44:05,078 --> 00:44:13,192 It always comes from the outside and uh someone's got to just invest in it and feel like this is a great thing. 476 00:44:13,192 --> 00:44:24,987 I have five years left as senior partner in a firm and I'm looking at the next 20 years and you see this coming on the horizon, why wouldn't you put 20 % of your paycheck into 477 00:44:24,987 --> 00:44:25,177 this? 478 00:44:25,177 --> 00:44:30,850 Because you could use your distribution to really blow up this firm and make it the next big thing. 479 00:44:32,046 --> 00:44:35,746 Well, the market offers you six or 7 % risk free. 480 00:44:36,026 --> 00:44:42,686 And you know, the core five S 500 is sort of like growing at a very decent clip. 481 00:44:42,866 --> 00:44:47,346 So it's opportunity cost and it's do I believe in this future? 482 00:44:47,546 --> 00:44:51,068 Well, those yacht payments aren't going to make themselves, right? 483 00:44:51,989 --> 00:44:58,272 So, uh all right, we're almost out of time, but just kind of one last question, because I talk about this a lot. 484 00:44:58,412 --> 00:45:02,715 The partnership model itself, I think, is a huge limiter. 485 00:45:02,715 --> 00:45:14,921 And for the reasons that we've kind of touched on, um is there a partnership 2.0, or do we really need to ditch the partnership model as a whole? 486 00:45:16,300 --> 00:45:25,782 adopt a traditional C Corp structure with a traditional governance model in order to really for new code of scale. 487 00:45:27,534 --> 00:45:30,596 Yeah, it's a I think it's a great question. 488 00:45:31,517 --> 00:45:34,378 I still believe like the partnership structure. 489 00:45:35,620 --> 00:45:37,321 I don't have a problem with the partnership. 490 00:45:37,321 --> 00:45:46,907 I think what I've written is that when the size and the structure of your business outgrows the limitations of the partnership structure and the governance, that's when the 491 00:45:46,907 --> 00:45:54,272 problems really come when you need consensus across hundreds of thousands of people, then you can't move ah fast enough. 492 00:45:54,272 --> 00:45:57,396 And we can see you try to figure out how to do this with a 493 00:45:57,396 --> 00:46:03,768 advisory board with the person who leads and they've tried to come up with innovations within it. 494 00:46:03,888 --> 00:46:14,511 But maybe Partnership 2.0 won't have a lot of these problems because if that firm will have fewer people, will have technology leverage on their side, outcome-based pricing. 495 00:46:14,511 --> 00:46:25,314 I still think as independent business owners, if you and I were in a business and we're 50-50 partners and we go in and we hire a few people to do the work, I still think 496 00:46:25,314 --> 00:46:27,786 that could work at a certain scale and size. 497 00:46:27,786 --> 00:46:33,681 think once we hit a size and scale, that's where the problems really arise. 498 00:46:33,681 --> 00:46:43,710 But several very large like Cargill or any of these family owned businesses have retained structures with ownership concentrated at the top with very few people. 499 00:46:43,710 --> 00:46:45,310 I think it's possible. 500 00:46:45,411 --> 00:46:46,752 Perhaps that's where it's going to go. 501 00:46:46,752 --> 00:46:54,378 And it sort of like lines in pretty well with knowledge work being oh controlled by a lot fewer people in the future. 502 00:46:54,618 --> 00:46:57,560 And if that works out, then that's what it looks like. 503 00:46:57,560 --> 00:47:08,799 We're still partnerships because why will I like, is it worth floating the company and getting public sort of like scrutiny when I don't need to get it? 504 00:47:08,799 --> 00:47:11,311 Like, think like going public is tough. 505 00:47:11,311 --> 00:47:16,945 Like when I review these public professional services companies, it's tough out there. 506 00:47:16,945 --> 00:47:21,558 Like lots of people will be saying like, thank God we're not public right now. 507 00:47:21,662 --> 00:47:31,508 And several of them are becoming targets for private equity to just take off because they're like, just getting punished so much that, you know, they've overly punished them. 508 00:47:31,609 --> 00:47:35,581 And now it's opportunity for private equity to, to, to make money. 509 00:47:35,581 --> 00:47:39,753 So it's a fascinating spot right now. 510 00:47:39,833 --> 00:47:41,935 Yeah, it's good stuff. 511 00:47:41,935 --> 00:47:47,050 Well, I really appreciate you spending a little bit of time with me here today. 512 00:47:47,050 --> 00:47:50,713 I know our listeners are going to be interested in hearing what you have to say. 513 00:47:50,713 --> 00:47:59,342 ah Before we jump off though, how do folks find more about you and the writing that you do? 514 00:47:59,342 --> 00:48:01,110 What's the best way for them to do that? 515 00:48:01,110 --> 00:48:01,450 Right. 516 00:48:01,450 --> 00:48:14,358 ah Well, you can look me up on LinkedIn, where I post most of my articles, or then you can go to my uh website, osmonecheikh.com, where you can sign up for my newsletter. 517 00:48:14,358 --> 00:48:19,121 It's a daily newsletter that goes out where you can subscribe. 518 00:48:19,121 --> 00:48:22,042 And that's probably the best way to keep in touch. 519 00:48:22,198 --> 00:48:24,761 Okay, yeah and we'll include those links in the show notes. 520 00:48:24,761 --> 00:48:30,079 So um listen, again, you're not a legal guy but I love this. 521 00:48:30,079 --> 00:48:36,037 I love the writing that you're doing in the professional services world, much of which applies to legal. 522 00:48:36,037 --> 00:48:39,961 um So thanks for spending some time with us today. 523 00:48:40,170 --> 00:48:41,551 Yeah, it was great. 524 00:48:41,551 --> 00:48:51,800 I look forward to doing the reverse and asking you a whole bunch of questions about Amlo 200 because I felt like ah there's so much that I want to know about the consolidation 525 00:48:51,800 --> 00:48:55,583 that you mentioned and the opportunities over there. 526 00:48:55,583 --> 00:49:08,684 I saw that UDL raised from general catalyst like $105 million for this law firm that they're creating where VCs are taking your playbook and saying, let's fund the tech. 527 00:49:08,684 --> 00:49:13,667 And then when the tech sort of like solidifies, we'll go out and acquire the firms with debt. 528 00:49:13,749 --> 00:49:17,368 And that's an interesting VC angle to what you were saying as well. 529 00:49:17,368 --> 00:49:27,825 Yeah, it's so in the here in the US again, the ABA rules get in the way of outside investment, but there's a little bit of a workaround that just is hitting the press. 530 00:49:27,825 --> 00:49:37,602 Recently, there was a Financial Times article about a company called Burford Capital, I think, and they're essentially spinning up a I don't know if it's a sister company or a 531 00:49:37,602 --> 00:49:46,400 subsidiary, and it's essentially an uh MSO, a managed services organization that does kind of the blocking and tackling almost 532 00:49:46,400 --> 00:49:51,074 In legal, we have ALSPs, which are alternative legal service providers. 533 00:49:51,074 --> 00:49:53,035 So it's almost ALSP type work. 534 00:49:53,035 --> 00:50:02,823 But the difference between ALSP and an MSO is an MSO, a uh client would outsource an entire function. 535 00:50:03,684 --> 00:50:06,606 maybe it's your IP. 536 00:50:06,606 --> 00:50:08,267 They're going to do all of your IP work. 537 00:50:08,267 --> 00:50:11,710 uh ALSPs are very horizontal and tactical. 538 00:50:11,962 --> 00:50:22,318 today, but it man there's a lot of overlap and crossing lines and so yeah, anytime you want to chat I would uh You're overdue for a podcast man. 539 00:50:22,318 --> 00:50:34,074 Your content is phenomenal and I don't I don't say that often So I would encourage folks to look you up and if you start a podcast, I'd love to be I'd love to be a guest 540 00:50:34,584 --> 00:50:36,078 Sounds good. 541 00:50:36,121 --> 00:50:39,774 Well, thanks for having me on and looking forward to our next shot. 542 00:50:39,875 --> 00:50:41,661 All right, take care. 00:00:04,675 How are you this afternoon? 2 00:00:04,792 --> 00:00:06,002 I'm doing well, thank you. 3 00:00:06,002 --> 00:00:06,820 How are you doing? 4 00:00:06,820 --> 00:00:08,383 It's good to be here. 5 00:00:08,527 --> 00:00:13,291 Yeah, I'm glad you, uh you carved some time out of your calendar. 6 00:00:13,291 --> 00:00:22,009 I've been really enjoying your writings on LinkedIn and now you have the uh frame break kind of newsletter. 7 00:00:22,009 --> 00:00:23,260 Yeah. 8 00:00:23,260 --> 00:00:25,081 Which I think is excellent. 9 00:00:25,081 --> 00:00:33,629 And you write a lot about the professional services industry, which law firms are a part of that little bit of a different angle. 10 00:00:33,629 --> 00:00:36,665 um But before we get into oh 11 00:00:36,665 --> 00:00:37,735 all of that. 12 00:00:37,735 --> 00:00:39,066 Let's get you introduced. 13 00:00:39,066 --> 00:00:41,056 So I found you on LinkedIn. 14 00:00:41,056 --> 00:00:49,039 had a really interesting article about a blueprint towards a future state in professional services. 15 00:00:49,039 --> 00:00:53,460 um yeah, we'll dive into that. 16 00:00:53,460 --> 00:00:57,121 But you are a managing director of High Output Ventures. 17 00:00:57,162 --> 00:01:02,253 Tell us a little bit more about kind of your background and um what you're doing today. 18 00:01:02,486 --> 00:01:03,646 for sure. 19 00:01:05,446 --> 00:01:09,626 Well, started my path of entrepreneurship started 2003. 20 00:01:09,626 --> 00:01:14,766 So that's when I set up my first company while I was in college. 21 00:01:15,346 --> 00:01:18,966 And 22 years later, here I am. 22 00:01:18,966 --> 00:01:27,866 And the career has sort of like gone through multiple sort of like cycles and industries whereby I initially started off with 23 00:01:28,110 --> 00:01:29,830 print design and graphic design. 24 00:01:29,830 --> 00:01:33,990 Then we went into advertising with a firm that I ran called Hatch Media. 25 00:01:33,990 --> 00:01:43,590 We sold that in 2010, got into tech, HR tech specifically around performance management software for large MNCs. 26 00:01:44,169 --> 00:01:54,350 2015, 16 got into the crypto space very early with a company called Alt Manager to help traders trade and execute on the exchanges right in the early days of Ethereum. 27 00:01:55,266 --> 00:02:08,494 We exited that business 2017 and then since 2018, I was primarily involved in the technology uh VC investing space, primarily investing in South Asia and Southeast Asia's 28 00:02:08,494 --> 00:02:12,956 focus with core verticals that we were really focusing on were e-commerce. 29 00:02:12,956 --> 00:02:18,679 So e-commerce was what I was focusing on, a bit of SaaS in the spaces that we knew. 30 00:02:18,780 --> 00:02:23,066 And that I did till around 2022. 31 00:02:23,286 --> 00:02:28,348 Which is when valuation started to go completely out of whack during that period. 32 00:02:28,408 --> 00:02:34,671 And I started looking at services businesses as avenues for, you know, alternative investing. 33 00:02:34,671 --> 00:02:47,066 And instead of betting on the, the, the gold rush sell the picks and shovels sort of like a technique was the way I had built up the capabilities of outsourcing in Philippines 34 00:02:47,066 --> 00:02:47,527 quite a bit. 35 00:02:47,527 --> 00:02:51,038 So it was like, okay, so we have the capability of spinning up. 36 00:02:51,064 --> 00:02:53,105 quite a lot of people in the Philippines. 37 00:02:53,105 --> 00:02:54,995 So how do we leverage that? 38 00:02:55,155 --> 00:02:59,897 And we did a bunch of development studios, design studios. 39 00:02:59,897 --> 00:03:10,349 And then around 18 months ago, I got involved in a private equity fund, which was doing accounting firm roll-ups, which is when I got very close to the professional services 40 00:03:10,349 --> 00:03:19,288 space and discovered how many of these firms which were built for human leverage were struggling with the shift towards the 41 00:03:19,288 --> 00:03:25,263 the technology leverage era that we're entering and the opportunities that it was creating. 42 00:03:25,323 --> 00:03:27,875 And that led me down a rabbit hole. 43 00:03:27,875 --> 00:03:36,613 And since the start of the year, I've been writing about the space, learning about the space, connecting with lots of people in the space as we navigate. 44 00:03:36,773 --> 00:03:47,052 And the goal being to ideally come up with a playbook for what services or software could sort of like look like for startups and new firms. 45 00:03:47,064 --> 00:03:56,526 And then perhaps uh a fund around that, which would focus squarely on what I'm calling NuCo companies doing the server-to-server software play. 46 00:03:56,526 --> 00:04:00,170 that's a quick round of how I got here. 47 00:04:00,823 --> 00:04:02,565 Okay, yeah, super interesting. 48 00:04:02,565 --> 00:04:16,956 And um you have highlighted some of the challenges with the partnership model, with internal firm compensation models with, and this is really outside of law, but many of 49 00:04:16,956 --> 00:04:18,598 these things apply. 50 00:04:19,018 --> 00:04:28,406 Consensus driven decision making, um know, legacy commitments for retirement. 51 00:04:28,406 --> 00:04:29,747 um 52 00:04:29,913 --> 00:04:37,788 all of those sorts of things that also exist, I would say, in the legal world. 53 00:04:37,929 --> 00:04:47,025 And I see the biggest challenge from us getting to current state to future state is multifaceted. 54 00:04:47,025 --> 00:04:52,219 But if I look at where I see the most friction, it's around culture. 55 00:04:52,459 --> 00:04:57,909 And one thing I think that uh the big four 56 00:04:57,909 --> 00:05:07,863 have that law firms don't is innovation is really baked into their DNA and um it's not illegal. 57 00:05:07,863 --> 00:05:22,910 In fact, I would say that it's probably close to last on the list in terms of innovation and that is changing rapidly now because there's a gun, know, the law firms are staring 58 00:05:22,910 --> 00:05:26,631 down the barrel of a gun with clients 59 00:05:26,701 --> 00:05:33,714 with their finger on the trigger saying change, you know, I want better, faster, cheaper, or I pull this trigger. 60 00:05:33,754 --> 00:05:41,128 So that's what's, that's what's driving, um, driving the, the motivation to actually make some changes here. 61 00:05:41,128 --> 00:05:51,353 But how do you see, like, what are the barriers in the professional services world that you think provide the most friction from where we are now to where we're ultimately going 62 00:05:51,353 --> 00:05:52,143 to be? 63 00:05:53,056 --> 00:06:05,710 Yeah, I think when we zoom out, it was interesting what you said about Big Law, sort of not having the same pressures of, let's say, Big Four, because there was a type of work 64 00:06:05,710 --> 00:06:06,400 that they did. 65 00:06:06,400 --> 00:06:16,554 Like when I think about the Big Four and all of their auditing departments, those departments have stayed relatively the same and still do the same uh work year in and year 66 00:06:16,554 --> 00:06:17,314 out. 67 00:06:17,706 --> 00:06:27,572 it's a pretty profitable business for all of them, which is why divesters have been difficult with it, even though it creates a lot of compliance and regulation problems 68 00:06:27,572 --> 00:06:31,894 within the consulting divisions because of conflict. 69 00:06:32,054 --> 00:06:40,669 But I think I see law perhaps a lot more like the auditing part of work, where it's very structured and you know what you're going to get. 70 00:06:40,669 --> 00:06:46,262 Here's the contract for a partnership agreement, a sale agreement, whatever it may be. 71 00:06:46,326 --> 00:06:47,407 I think it's well defined. 72 00:06:47,407 --> 00:07:01,785 The other parts of the big four, as they sort of rotated back into consulting by acquiring a lot of their capability after the end-run divesters that they had to do, was that those 73 00:07:01,785 --> 00:07:07,038 parts of the business were always dependent on the market and how the market was changing. 74 00:07:07,038 --> 00:07:12,781 Because there was not one thing that they were doing, whether that was, let us get you ready for the cloud. 75 00:07:12,781 --> 00:07:15,022 Let us get you ready for. 76 00:07:15,114 --> 00:07:20,196 the blockchain, let us get you ready for remote, like whatever the flavor of the month may be. 77 00:07:20,196 --> 00:07:30,179 I think they rotate onto that very quickly because there's always a gap in capabilities of what firms need to get done versus internal capability of getting done. 78 00:07:30,179 --> 00:07:40,352 And so they always go to these firms and these firms have to continuously ride this information arbitrage wave because they have this. 79 00:07:40,352 --> 00:07:45,686 expert lawyers that they either acquire or hire for internally and then provide as a service. 80 00:07:45,687 --> 00:07:50,651 And I think like that's perhaps the way that they've been able to evolve. 81 00:07:50,672 --> 00:07:58,138 And these deals have just got bigger and bigger because there's just one transformation after the next transformation that you're selling into. 82 00:07:59,300 --> 00:08:05,998 the biggest thing was that outcomes have been, you know, when you're doing a hundred million dollar 83 00:08:05,998 --> 00:08:12,178 transformation project, it's pretty difficult to really nail down what is the exact outcome that you want. 84 00:08:12,178 --> 00:08:14,698 There are probably a multitude of outcomes. 85 00:08:15,358 --> 00:08:21,738 And tracking has been hard, which has kept the time and materials and project and fixed price projects coming. 86 00:08:21,738 --> 00:08:32,738 And I think that's the challenge that I see today with both the big four and then law, because this information arbitrage is collapsing. 87 00:08:32,738 --> 00:08:33,958 You have 88 00:08:34,018 --> 00:08:39,662 technology which is capable of doing a lot of the grunt work that was being done before. 89 00:08:40,164 --> 00:08:46,019 And I think the pressure for delivering outcomes is coming from the top. 90 00:08:46,019 --> 00:08:53,795 So you have margin compression from the top, then you have automation compression from the bottom, sort of like eroding the base of the pyramid. 91 00:08:54,296 --> 00:08:58,540 And many of these firms now are, all of them are in the same boat. 92 00:08:58,540 --> 00:09:01,472 Like if your business scaled by adding 93 00:09:01,472 --> 00:09:05,063 more people to your organization to grow revenue. 94 00:09:05,724 --> 00:09:10,526 I think the public markets are voting as we see. 95 00:09:10,526 --> 00:09:14,467 I cover public stocks pretty much every week on Tuesday. 96 00:09:14,627 --> 00:09:23,971 And if you are not doing the rotation and technology leverage, the market just keeps punishing you quarter after quarter because they're like, I don't believe that this is 97 00:09:23,971 --> 00:09:24,992 sustainable. 98 00:09:24,992 --> 00:09:29,394 And I think that's what truly triggers uh change in this. 99 00:09:29,394 --> 00:09:30,638 There's one, the 100 00:09:30,638 --> 00:09:32,470 culture aspect that you talked about. 101 00:09:32,470 --> 00:09:39,426 And then the second is market and economic forces forcing these companies to change. 102 00:09:39,426 --> 00:09:48,453 Otherwise, what will happen is that your stock continues to get destroyed and private equity will just come in and buy your company for what it's worth. 103 00:09:48,453 --> 00:09:55,179 And they probably can split it up and make a lot more by uh doing what they do best. 104 00:09:55,179 --> 00:09:57,341 And I think this is where they're stuck. 105 00:09:57,341 --> 00:09:58,796 uh 106 00:09:58,796 --> 00:10:11,118 It's a fascinating spot to be in, but I wouldn't want to be leading a 300,000 person firm right now and saying like, we're gonna rotate because I think several very difficult 107 00:10:11,118 --> 00:10:12,820 decisions need to be made. 108 00:10:12,943 --> 00:10:16,495 Yeah, well law firms don't get to nearly that size or scale. 109 00:10:16,495 --> 00:10:22,807 The largest law firms in the world are all under 20,000 employees, typically under five. 110 00:10:22,807 --> 00:10:28,130 um There are a few outliers, Dentons, Kirkland and Ellis, a few others. 111 00:10:28,130 --> 00:10:39,355 um So you mentioned the market penalizing companies for um their people leverage and 112 00:10:39,355 --> 00:10:49,435 Something popped up, think was at Monday.com last week, who got lost like, I don't know, 20%, 30%. 113 00:10:49,435 --> 00:10:59,555 And that was based on a call around their SEO strategy that they seemed to not demonstrate a good level of understanding. 114 00:10:59,555 --> 00:11:01,495 This is me just reading articles. 115 00:11:01,495 --> 00:11:04,195 You may know more about it, but... 116 00:11:04,195 --> 00:11:17,407 Apparently, you know, the AI summaries in Google have destroyed their SEO strategy and they didn't seem to have the answers that investors were looking for. 117 00:11:17,407 --> 00:11:20,288 But that is one hell of a drop. 118 00:11:20,349 --> 00:11:29,897 You know, I mean, normally that's the kind of drop where there's a scandal that, like is, are we, um, I don't know if you know anything about that situation, but are we going to 119 00:11:29,897 --> 00:11:32,259 see more of this type of thing? 120 00:11:32,550 --> 00:11:36,475 I think Gartner was down 35 % on the year as well right now. 121 00:11:36,475 --> 00:11:42,961 And so ah they released earnings and the market did not take to them very well. 122 00:11:43,942 --> 00:11:55,063 because they're having other problems, like the Monday problem is customer acquisition costs will go up because SEO ah is just not driving as much. 123 00:11:55,063 --> 00:11:55,754 so 124 00:11:55,790 --> 00:11:58,292 Once your cat goes up, margins get compressed. 125 00:11:58,292 --> 00:12:06,898 So essentially, the market is saying that if this channel doesn't work for you and it's going to cost you a lot more to get your customers, I don't see you inflating margins 126 00:12:06,898 --> 00:12:09,479 anywhere else or making difficult decisions. 127 00:12:09,479 --> 00:12:13,052 And I think all these firms are getting compressed in the same way. 128 00:12:13,052 --> 00:12:24,009 It's either you're not rotating or if you're a technology company and you're not figuring out how to play all of these changes, and there are just far too many changes happening. 129 00:12:24,009 --> 00:12:25,420 For Gartner, it's 130 00:12:25,428 --> 00:12:30,622 It's that this very big analyst network and they are plugged into all of these companies. 131 00:12:30,622 --> 00:12:32,943 They speak with all of the CEOs. 132 00:12:33,144 --> 00:12:37,977 But the problem that they're having is a lot of people are uploading a lot of Gartner reports straight into JachiBD. 133 00:12:37,977 --> 00:12:43,491 then when you and I sort of like query it, we get pretty close responses to it. 134 00:12:43,491 --> 00:12:53,634 Will we see them go towards a DRAM sort of solutions that we saw the music guys go before and say, okay, these PDS are going to be protected if... 135 00:12:53,634 --> 00:12:56,506 But we all know how that ended up for all the music people. 136 00:12:56,506 --> 00:13:00,599 Like at the end of the day, it's a cat and mouse game with these. 137 00:13:00,740 --> 00:13:06,264 And now they're doing Ask Gartner, which is their version of, you know, ask us a question. 138 00:13:06,264 --> 00:13:15,472 And I think in the lowest rates, have LexisNexis, which also has LexisNexis AI, which is the same sort of like way to do it. 139 00:13:15,472 --> 00:13:23,426 And I think for all of these firms, if you rotate to subscription and a per query uh pricing model, 140 00:13:23,426 --> 00:13:31,549 then your analyst structure needs to change fundamentally because I'm going to be calling analysts a lot less and I'm going to get the answer over there. 141 00:13:31,549 --> 00:13:36,531 you're again, peeling off revenue and margin from the top. 142 00:13:36,531 --> 00:13:39,893 And I think this just eats your tail from the back slowly. 143 00:13:39,893 --> 00:13:49,097 And the market is basically saying that I, you know, they release us Gartner in the last call, but the market didn't buy it. 144 00:13:49,097 --> 00:13:52,938 And um they're like, you've got to do something, but. 145 00:13:53,814 --> 00:14:03,221 Lots of people are saying that the market's overreacting right now, but when you see this part of the market and then you see the rest of the market reaching all time highs and 146 00:14:03,382 --> 00:14:13,580 tech stocks rotating to God knows what levels, ah I'm pretty sure there will be a reversion to the mean, but that's really the scene. 147 00:14:13,869 --> 00:14:17,581 Yeah, it does seem like there's a bit of a jagged edge. 148 00:14:17,802 --> 00:14:30,081 We always talk about the jagged edge in AI capabilities, which is, uh I feel like a good metaphor, but also in the market, you know, um the fact that Monday didn't have the right 149 00:14:30,081 --> 00:14:31,993 answers on an analyst call. 150 00:14:31,993 --> 00:14:36,476 um mean, you can look at ratios, you can look at CAC to LTV. 151 00:14:36,476 --> 00:14:40,599 I mean, there's numeric representations that show trends. 152 00:14:40,763 --> 00:14:46,003 Um, I thought, I thought it was interesting and, know, with Gartner specifically, that's a pay to play network. 153 00:14:46,003 --> 00:14:54,403 Like if you want to be, if you want to be on their radar and be part of their research, mean, it's as close to a six figure investment. 154 00:14:54,403 --> 00:14:58,883 Um, we've talked to them and, I think, I think that you're right. 155 00:14:58,883 --> 00:15:05,123 The, the type, the, the level of output that you can get out of these AI models now is staggering. 156 00:15:05,123 --> 00:15:07,923 I've, I've done research on my own company. 157 00:15:08,059 --> 00:15:10,671 through it, which, you know, we're 50 employees, right? 158 00:15:10,671 --> 00:15:13,703 Like there's not a ton of information available. 159 00:15:13,903 --> 00:15:23,010 And, um, it has done, it crawled the website went in, you know, if you're using Gemini, it'll look at YouTube video, transcripts. 160 00:15:23,010 --> 00:15:28,734 It has mechanisms to go out and find information and has done surprisingly well. 161 00:15:28,734 --> 00:15:32,516 I've done comparisons with us against competing vendors. 162 00:15:32,516 --> 00:15:36,511 I've had it build go to market plans, which, eh, you know, 163 00:15:36,511 --> 00:15:39,272 little pieces and parts have been useful. 164 00:15:39,272 --> 00:15:48,056 But again, it's if you look at the trend, you know, two years ago, what you would get out versus today is very, very different. 165 00:15:48,056 --> 00:15:49,016 What do you think? 166 00:15:49,016 --> 00:15:55,329 What is your perspective on how far AI can go with kind of the high value knowledge work? 167 00:15:55,329 --> 00:16:03,442 think you had a McKinsey post and talked a little bit about this, like how, how far up the value chain 168 00:16:04,004 --> 00:16:06,143 Do you think, can it go all the way to the top? 169 00:16:06,143 --> 00:16:09,143 Is there going to be, we're to hit our heads on a ceiling? 170 00:16:09,831 --> 00:16:17,775 Yeah, I wrote a post which was a reaction to a pretty prominent VC saying that if he was going to start a company today, it be McKinsey software. 171 00:16:17,776 --> 00:16:20,968 And I thought it was an interesting angle that he took. 172 00:16:20,968 --> 00:16:24,319 It got a lot of views on X. 173 00:16:24,319 --> 00:16:28,623 And I wrote a post which said, OK, let's try to decompose McKinsey. 174 00:16:28,623 --> 00:16:34,766 And when at the core of the essence, there are a lot of tasks like analysis, pattern matching. 175 00:16:35,048 --> 00:16:41,992 you know, structural analysis and problem solving and all of these core grunt work, which gets done. 176 00:16:41,992 --> 00:16:53,028 And I think my post argued that most of that work can be to a degree done today by the systems that we have with proper guardrails and training. 177 00:16:53,228 --> 00:16:57,450 Equivalent to what aid most juniors would produce. 178 00:16:57,551 --> 00:17:03,512 I think those were the top three that I, I did, which was analysis, pattern matching and 179 00:17:03,512 --> 00:17:06,144 problem solving sort of like levels. 180 00:17:06,144 --> 00:17:19,454 And then there were two more levels which were uh political cover and plausible deniability, which I have become uh to appreciate a lot more of as I have talked to a lot 181 00:17:19,454 --> 00:17:21,676 of people on their client side as well. 182 00:17:21,676 --> 00:17:30,700 I think those are the parts where I don't see that much uh infiltration just yet because the boards, if... 183 00:17:30,700 --> 00:17:36,934 I was speaking to a consulting firm leader at a Canadian uh mining firm. 184 00:17:36,934 --> 00:17:41,156 And he was telling me that, you know, that spent six figures on a report. 185 00:17:41,156 --> 00:17:52,456 And he said, like, I'm pretty sure that, you know, spending some money on expert interviews and resources that we have, probably could have got that 200K report done for 186 00:17:52,456 --> 00:17:53,544 30, 40K. 187 00:17:53,544 --> 00:17:58,036 But he's like, the chair of the meeting does not 188 00:17:58,060 --> 00:18:03,482 would not trust a 30 to 40K deliverable because they're like, we've always spent 200 on this. 189 00:18:03,482 --> 00:18:06,544 So it probably should be like, you I won't trust this. 190 00:18:06,544 --> 00:18:19,259 And I think this is where the person in the seat matters, whereby you come in and you provide that confidence, you provide the skateboard, you provide whatever it is to make 191 00:18:19,259 --> 00:18:23,520 sure a decision goes through and you do the necessary work. 192 00:18:23,601 --> 00:18:27,022 And then the second part, I think there was lots of articles 193 00:18:27,052 --> 00:18:37,673 recently about McKinsey, but one of them raised a good point that they carry so much indemnity coverage that when they make a recommendation, and let's say that it goes 194 00:18:37,673 --> 00:18:48,053 horribly wrong, like in the case of Purdue Pharma, and they're on the hook for like 800 million, well, they probably have insurance coverage that manages quite a bit of that for 195 00:18:48,053 --> 00:18:48,843 them. 196 00:18:48,884 --> 00:18:51,266 And I think clients are... 197 00:18:51,362 --> 00:18:52,113 betting on that. 198 00:18:52,113 --> 00:18:59,488 So if they make a mistake, they're going to make them whole, or there's going to be some sort of uh cover for them. 199 00:18:59,488 --> 00:19:00,939 And I think those are the parts. 200 00:19:00,939 --> 00:19:11,807 So I said, don't think McKinsey as a whole becomes uh software, but it's McKinsey to platform, which is what I ended it with, whereby you're still going to need human judgment 201 00:19:11,807 --> 00:19:15,399 and people along the way with a certain type of structure. 202 00:19:15,399 --> 00:19:17,601 But will you need the entire base of the pyramid? 203 00:19:17,601 --> 00:19:19,462 I don't think so anymore. 204 00:19:19,650 --> 00:19:20,070 Yeah. 205 00:19:20,070 --> 00:19:32,864 And for those that don't know with the Purdue Pharma, that was the OxyContin um scenario where McKinsey had come in and basically done kind of a go-to-market, I guess you would 206 00:19:32,864 --> 00:19:37,255 call it, strategy that was a little bit too successful. 207 00:19:37,255 --> 00:19:40,936 And by a little bit, I mean a lot. 208 00:19:40,936 --> 00:19:46,718 that's why the opioid epidemic has gotten so much 209 00:19:47,195 --> 00:19:47,896 publicity. 210 00:19:47,896 --> 00:19:50,397 mean, people are dying uh from it. 211 00:19:50,397 --> 00:20:00,184 So yeah, I would say that that is an interesting angle that I hadn't really considered is that when you hire McKinsey, there is a little bit of a backstop, but you know, those 212 00:20:00,184 --> 00:20:01,965 sorts of situations are rare. 213 00:20:01,965 --> 00:20:12,112 Like how many times does, you know, one out of a hundred thousand consulting engagements end up in some sort of a payout? 214 00:20:12,112 --> 00:20:15,774 um But that's a really good point about 215 00:20:15,827 --> 00:20:18,103 there is a little bit of a backstop there. 216 00:20:19,602 --> 00:20:30,092 Yeah, I think, yeah, probably not completely covered, but for the people sitting on the board, I think there's A, McKinsey told us to do this, B, there is something at the back 217 00:20:30,092 --> 00:20:41,062 of this in case it messes up, especially with, let's say that Adobe's move from CDs to Creative Cloud was consulted on, which, oh, by a thing, and it didn't work out. 218 00:20:41,062 --> 00:20:45,826 Like, I don't know what their callback would that be, but I see it as a... 219 00:20:45,920 --> 00:20:48,712 as just insurance, which is purely what it is. 220 00:20:48,712 --> 00:20:51,934 And you're paying a premium for that insurance. 221 00:20:51,934 --> 00:20:56,437 And sometimes these moves are extremely difficult to make without external third party. 222 00:20:56,437 --> 00:21:08,216 And I can see that, having spoken to a lot of clients, there is a lot of political maneuvering that needs to happen when three board members want something and four want 223 00:21:08,216 --> 00:21:08,946 something else. 224 00:21:08,946 --> 00:21:13,069 And how do you get ah everyone aligned? 225 00:21:13,089 --> 00:21:14,510 I think that's a skill. 226 00:21:14,510 --> 00:21:17,870 and most underestimate that skill. 227 00:21:17,870 --> 00:21:20,670 think lawyers are very good at that skill as well. 228 00:21:20,670 --> 00:21:23,950 And that's why I don't think it goes away. 229 00:21:23,950 --> 00:21:32,270 Now, the problem becomes is that the skill is built through reps and judgment over a period of time. 230 00:21:32,270 --> 00:21:37,830 And when the bottom collapses, I think that's the risk a lot of people are seeing. 231 00:21:37,990 --> 00:21:40,830 When I speak to leaders, there are two risks that they're seeing. 232 00:21:40,830 --> 00:21:44,706 One is that people just below partner are 233 00:21:44,706 --> 00:21:48,887 being a little more cautious about moving into the partner role nowadays. 234 00:21:48,887 --> 00:21:55,929 The reason is that there's a lot of pressure at the partner level these days across all firms because of what's happening in the world. 235 00:21:55,929 --> 00:22:03,591 while the last year was a good year, there's a lot of uncertainty in the next year and Doge did not help in the beginning of this year. 236 00:22:03,691 --> 00:22:09,433 And so a lot of those APs are like, don't know whether I want to go to partner yet. 237 00:22:09,433 --> 00:22:13,632 I would much rather have optionality as an associate partner 238 00:22:13,632 --> 00:22:19,827 or VP and see what other options I have because private equity is becoming very interesting. 239 00:22:19,827 --> 00:22:22,549 What are all these VCs doing in this space? 240 00:22:22,690 --> 00:22:26,133 And so they're like, a lot of their key people are not moving up. 241 00:22:26,133 --> 00:22:35,261 And then the bottom, because they've cut graduate recruitment to the level that they have, and attrition at these firms still runs north of 15 plus percent. 242 00:22:35,261 --> 00:22:41,036 There is a lot of calling at the bottom end of the pyramid as well. 243 00:22:41,036 --> 00:22:45,248 which then creates a pipeline problem to the top. 244 00:22:45,249 --> 00:22:56,977 I think structurally, either that's just preparing for what the new structure will look like, which is a lot fewer people, a lot leaner structure with judgment concentrate at the 245 00:22:56,977 --> 00:22:57,597 top. 246 00:22:57,597 --> 00:23:03,241 I just hired the top five, 10 % of the class, which is okay, 5 % of the class. 247 00:23:03,241 --> 00:23:10,886 mean, all Amlog 200, magic circle firms will take that big because they're like, we get a lot more utilization per 248 00:23:11,092 --> 00:23:12,722 new person coming in. 249 00:23:12,923 --> 00:23:25,747 and yeah, that's structurally sort of like then we'll have knock on effects to the universities, the programs, everyone sort of like studying to get into these industries, 250 00:23:25,747 --> 00:23:36,290 because they're just going to be far fewer roles if this continues at the rate that it is the top 510 % remains and someone the other day said, 251 00:23:36,406 --> 00:23:43,488 I hope knowledge work doesn't become like professional sports where, you know, just a few people at the top make all the money. 252 00:23:43,628 --> 00:23:47,780 And it's not like no one else plays basketball or no one else plays soccer. 253 00:23:47,780 --> 00:23:54,912 There are a lot of people who do that, but, know, there's a very big difference from major league players and everyone else. 254 00:23:55,072 --> 00:23:57,823 And could knowledge work go to that end? 255 00:23:57,823 --> 00:24:00,404 I don't know, but it was an interesting thought. 256 00:24:00,729 --> 00:24:01,089 Yeah. 257 00:24:01,089 --> 00:24:05,261 I mean, that's, you know, especially for economies like the U S that's so heavily dependent. 258 00:24:05,261 --> 00:24:11,624 We manufacture very little here and you know, so much of what we do is knowledge work these days. 259 00:24:12,485 --> 00:24:24,051 before, the last time that you and I spoke, we were talking a little bit about, Booz Allen and you know, they're a big government contractor and the struggle with sometimes 260 00:24:24,051 --> 00:24:30,082 customers and the industry in this case, consulting partners where 261 00:24:30,082 --> 00:24:42,587 It's actually the customers who are holding back the firms from implementing, you know, alternative fee structures, for example, like, um, how are you seeing that in professional 262 00:24:42,587 --> 00:24:43,699 services broadly? 263 00:24:43,699 --> 00:24:50,106 Is it still, are clients still holding back or are they more willing to experiment with new models? 264 00:24:52,930 --> 00:25:05,281 I think for this one, clients, so when I speak to client side, there's very little incentive alignment for them to move away from their current way of working. 265 00:25:05,281 --> 00:25:12,707 Because our current way allocates budgets to people who need to spend it in certain sort of like areas to get it done. 266 00:25:12,707 --> 00:25:21,254 And if I get a budget allocation for marketing for 500,000 and I've got to spend it in some shape or form, well, 267 00:25:21,282 --> 00:25:33,429 you know, if you come to me and say like, okay, I'm going to help you with generative SEO instead of SEO now, and I'll charge you not for the time I spend, but for every person 268 00:25:33,429 --> 00:25:34,670 that signs up. 269 00:25:34,670 --> 00:25:37,631 And let's just say that every person is worth a thousand dollars to you. 270 00:25:37,631 --> 00:25:40,223 And I suddenly deliver a thousand people to you. 271 00:25:40,223 --> 00:25:46,206 Like suddenly your budget's like out of whack now, because how do you fill the extra 500 K that you've got to pay me? 272 00:25:46,206 --> 00:25:48,377 And there's no budget for it. 273 00:25:48,377 --> 00:25:49,676 And so you're like, 274 00:25:49,676 --> 00:25:53,909 I'll have to go to someone and then figure out how to make this deal work. 275 00:25:54,029 --> 00:26:02,555 But I don't get paid when this deal does a thousand signups instead of 500 signups because I have some target that I have to hit. 276 00:26:02,555 --> 00:26:11,021 And I think like it becomes so complicated because the incentive structures and the compensation structures are not aligned with this, which makes outcome based pricing 277 00:26:11,021 --> 00:26:13,802 extremely difficult to do. 278 00:26:14,163 --> 00:26:18,906 What I'm seeing in the market right now is though large projects 279 00:26:19,074 --> 00:26:25,966 Usually these very large transformation projects are now not being bid on like as a single project. 280 00:26:25,966 --> 00:26:33,318 What a lot of these firms are doing now is taking a 10 million, $50 million project and breaking it down into five parts. 281 00:26:33,578 --> 00:26:37,869 And they're doing this as risk adjustment from their part. 282 00:26:37,869 --> 00:26:42,470 Like they don't want to take another 50 million head and nothing happens on their side. 283 00:26:42,470 --> 00:26:44,241 So they're spreading the risk. 284 00:26:44,241 --> 00:26:48,302 And I actually believe like this is a great opportunity for new goals because 285 00:26:48,820 --> 00:27:00,533 when you are doing a million dollar engagement, it's far easier to figure out how to drive an outcome for the million that you're spending when it's, let's say that we have to fix 286 00:27:00,533 --> 00:27:05,615 the data structure for a law firm and you're like, okay, all of this is all, but we'll have to do this. 287 00:27:05,615 --> 00:27:12,577 We'll put Barentier in for you or whatever and do the ontology exercises and get all the workflows done. 288 00:27:12,637 --> 00:27:15,998 And at the end of the day, you'll be able to do X, Y, Z. 289 00:27:15,998 --> 00:27:17,250 And then if they can do it, 290 00:27:17,250 --> 00:27:18,671 you know, mission accomplished. 291 00:27:18,671 --> 00:27:25,636 But if it was part of an entire workflow transformation exercise, it's far harder to negotiate. 292 00:27:25,636 --> 00:27:36,463 And I think I always tell new codes, especially in our portfolio, that the further you go away from the PNL, the harder it becomes to justify outcome based pricing. 293 00:27:36,463 --> 00:27:40,436 And then you've got to figure out which budgets you're allocated towards. 294 00:27:40,436 --> 00:27:42,977 And then that is the limit on the upside. 295 00:27:42,977 --> 00:27:47,070 But I think ultimately most firms get forced into this. 296 00:27:47,374 --> 00:27:52,175 ah as the market adjusts how it deals with bigger projects. 297 00:27:52,175 --> 00:27:53,055 Yeah. 298 00:27:53,075 --> 00:28:06,369 And when we were talking last time, you also had mentioned how your perspective has evolved, I guess, from more kind of fear, uncertainty, and doubt into like hope and 299 00:28:06,369 --> 00:28:07,109 opportunity. 300 00:28:07,109 --> 00:28:18,562 how, what has happened or what has transpired that has really shifted your perspective on where we're going in the future? 301 00:28:20,866 --> 00:28:36,116 I think, So the death of consulting or the death of law, whatever the headlines these days are, I personally, having spoken to a lot of clients, I don't believe the profession or 302 00:28:36,116 --> 00:28:38,308 external counsel is going anywhere. 303 00:28:38,308 --> 00:28:47,844 I think it very much stays there because people are not gonna put all of this competency into their payroll because it costs too much and they don't need it all the time. 304 00:28:47,844 --> 00:28:49,705 So I believe it stays there. 305 00:28:50,638 --> 00:29:02,324 What is really optimistic about new codes that I speak to these days is that the technology leverage part allows them to do so much more with so much less. 306 00:29:02,324 --> 00:29:13,379 When I'm talking to a firm that was doing some work with uh medical ambulance systems and based on how the dispatch was being done before versus how they're doing now and they've 307 00:29:13,379 --> 00:29:16,250 done this entire sort of like mapping exercise. 308 00:29:16,342 --> 00:29:25,847 And these are very niche sort of like areas where I'm seeing firms go in and they're actually making tangible differences to these businesses. 309 00:29:25,847 --> 00:29:40,255 that net is positive, I believe, for the space as a whole, because I consulting law, whichever has also got a pretty bad rep because you you'd never know what you're going to 310 00:29:40,255 --> 00:29:45,658 get, what the bill is going to be, how big the bill suddenly becomes, is it going to be worth it? 311 00:29:46,010 --> 00:29:56,654 And I mean, brand names get you so far, but ultimately businesses are still uh controlled by the market. 312 00:29:56,654 --> 00:30:07,408 I had the pressure off the market and the market is a pretty difficult space to navigate these days with margin pressure all over, uncertainty, people pulling back budgets, people 313 00:30:07,408 --> 00:30:09,630 being reluctant to spend. 314 00:30:09,931 --> 00:30:14,194 And so I think NetNet, it's good for 315 00:30:14,242 --> 00:30:18,824 the craft of people who could come in and deliver outcomes. 316 00:30:18,845 --> 00:30:21,266 So I think that's what I'm hopeful for. 317 00:30:21,266 --> 00:30:29,486 We move away from the slides into the tech and the platforms and uh see change happen. 318 00:30:29,486 --> 00:30:32,389 Yeah, and hopefully I'll make a lot of money. 319 00:30:32,389 --> 00:30:33,550 What do you think? 320 00:30:33,550 --> 00:30:37,833 So I have a theory on what the market. 321 00:30:37,833 --> 00:30:43,698 So in legal, uh in the law firm world, it's extremely fragmented. 322 00:30:43,698 --> 00:30:47,441 So the AmLaw 100 revenue is about 140 billion. 323 00:30:47,441 --> 00:30:55,307 As you know, uh Deloitte's 80 plus billion at the high end and KPMG is 40 billion. 324 00:30:55,307 --> 00:30:58,136 If you add all the big four up, it's like 220 billion. 325 00:30:58,136 --> 00:31:02,668 So four firms almost double what 100 law firms are, right? 326 00:31:02,668 --> 00:31:04,229 So very fragmented. 327 00:31:04,229 --> 00:31:10,711 uh I see consolidation coming and which it's overdue. 328 00:31:10,711 --> 00:31:12,952 Honestly, it's not a sustainable. 329 00:31:12,952 --> 00:31:17,114 The AmLaw 200 is not a sustainable model, in my opinion. 330 00:31:17,114 --> 00:31:26,478 It uh has remained that way because of the way the law firm structures, the business structures, they're run by lawyers. 331 00:31:26,578 --> 00:31:29,880 And, um, you know, they don't bring in professional management. 332 00:31:29,880 --> 00:31:37,274 They don't have a board of directors that, you know, that shareholders, um, elect that install management and hold them accountable. 333 00:31:37,274 --> 00:31:40,105 It's not a traditional governance model. 334 00:31:40,105 --> 00:31:43,237 And, um, there are other scalability challenges too. 335 00:31:43,237 --> 00:31:51,812 It's, know, lawyers can leave their firm and take their book of business with them where that's not, you know, that's much more difficult in other industries. 336 00:31:51,812 --> 00:31:55,974 Um, but the ABA rules allow that. 337 00:31:56,185 --> 00:31:57,296 really require that. 338 00:31:57,296 --> 00:32:01,699 uh You have to operate in what's best for the client. 339 00:32:01,699 --> 00:32:08,484 So what I see is, I see the big firms that can actually afford to do the R &D. 340 00:32:08,484 --> 00:32:11,986 I don't think buying off the shelf tools is going to create differentiation. 341 00:32:11,986 --> 00:32:15,829 mean, by its definition, it's not differentiating. 342 00:32:15,829 --> 00:32:21,533 If you can buy it down the street and I have it, we're not different, right? 343 00:32:21,533 --> 00:32:23,654 But what is different is the data. 344 00:32:24,294 --> 00:32:33,262 that these law firms have, the collective wisdom, the documents that led to successful outcomes and are battle tested in courts of law. 345 00:32:33,262 --> 00:32:42,749 um So I think on the big end that they have the scale to invest um in ways to leverage that data. 346 00:32:42,749 --> 00:32:44,471 I see advantages there. 347 00:32:44,471 --> 00:32:49,234 And on the very small end, you're able to be nimble. 348 00:32:49,375 --> 00:32:53,838 So being a challenger firm now is a really interesting dynamic. 349 00:32:53,970 --> 00:32:56,532 Um, we're starting to see a few firms. 350 00:32:56,532 --> 00:32:58,773 there's one in New York called Crosby. 351 00:32:58,993 --> 00:33:04,137 they're still kind of in stealth mode, but it's, it's, it's a AI first law firm. 352 00:33:04,137 --> 00:33:13,984 And as these regulatory rules start to, um, propagate that allow outside investment into law firms, historically that's been a walled garden. 353 00:33:13,984 --> 00:33:21,869 The, non-lawyers can't own any piece of a law firm except in Arizona and Utah. 354 00:33:21,869 --> 00:33:23,670 And I think they might've rolled that. 355 00:33:23,716 --> 00:33:25,276 alternative business structure back. 356 00:33:25,276 --> 00:33:27,407 I'm not sure what the status is there. 357 00:33:27,407 --> 00:33:37,600 But anyway, let me get to my question, which is I see opportunity at the high end of the scale, because again, the ability to capitalize on data and at the small end with just 358 00:33:37,600 --> 00:33:43,871 being nimble and being able to try new things and experimental and move quickly, where I see risk is in that middle. 359 00:33:43,871 --> 00:33:46,602 um And not everybody agrees with me. 360 00:33:46,602 --> 00:33:49,213 Some people think that the opportunity lies in the middle. 361 00:33:49,213 --> 00:33:53,103 Maybe they're right, but um for law firms that are 362 00:33:53,103 --> 00:34:01,351 too big to be nimble or agile, but don't have the capital to deploy. 363 00:34:01,563 --> 00:34:02,203 I don't know. 364 00:34:02,203 --> 00:34:04,435 How do you see the market? 365 00:34:04,435 --> 00:34:07,778 you, one end have an advantage over the other? 366 00:34:08,462 --> 00:34:11,902 Yeah, I agree with your thesis. 367 00:34:11,902 --> 00:34:14,682 it's going to take... 368 00:34:14,682 --> 00:34:30,002 So I wrote about an Indian BPO firm a couple of weeks ago called WNS, and the firm has 1.3 billion in revenue and was growing well, had moved 24 % of billing to outcome-based 369 00:34:30,002 --> 00:34:36,198 billing, but it did have 60,000 employees, which was legacy that they had. 370 00:34:37,998 --> 00:34:40,478 The firm was growing at a decent rate. 371 00:34:40,998 --> 00:34:56,078 And the cost or the price to play in the R &D game, let's just say on a billion three or a billion, they have like six or 10 % R &D allocation, which is quite a lot because they're 372 00:34:56,078 --> 00:34:57,318 not running on major. 373 00:34:57,318 --> 00:35:03,018 Most of these operating margins, well, their operating margin, I think, was close to 23%, 24%. 374 00:35:03,018 --> 00:35:06,752 But the market expects a 375 00:35:06,752 --> 00:35:13,707 a certain type of company to maintain certain levels of margin for them to retain their share price. 376 00:35:13,867 --> 00:35:25,015 And I wrote an article and I said WNS hit the investment ceiling because the price to play now is so much higher for these large SIs that Capgemini bought them. 377 00:35:25,015 --> 00:35:26,416 They raised $4 billion in debt. 378 00:35:26,416 --> 00:35:35,072 They're like, okay, we'll buy you and then we'll sort of like roll something else up because Capgemini's book balance sheet allows for that level of debt. 379 00:35:35,106 --> 00:35:39,568 come in and the deal was accretive for Capgemini as soon as they bought it. 380 00:35:39,969 --> 00:35:46,873 And that's a good example of middles which are stuck. 381 00:35:46,873 --> 00:35:55,938 But let's just say like this Crosby firm maybe in a couple of years it becomes a bigger firm and you know, your cook sees this and says like, okay, cool. 382 00:35:55,938 --> 00:36:04,162 I think they have something interesting, but maybe Crosby can't get into the larger accounts for Fortune 100. 383 00:36:04,162 --> 00:36:07,264 because they don't have the relationships and things like that. 384 00:36:07,264 --> 00:36:19,113 And this week I'm writing all about trust infrastructure, which is, know, if firms do not, I think most professional services firms are, especially new calls, discount the 385 00:36:19,113 --> 00:36:22,525 importance of trust in this whole selling process. 386 00:36:22,525 --> 00:36:26,138 And they feel like the best solution is gonna get them through, it's not. 387 00:36:26,138 --> 00:36:28,960 Superior technology does not sort of like be through that. 388 00:36:28,960 --> 00:36:31,968 Like if a trust, and tomorrow my, 389 00:36:31,968 --> 00:36:33,659 my public company. 390 00:36:33,659 --> 00:36:40,853 I was trying to find a company which is in the professional services space, which uh had to evolve, but use this trust infrastructure. 391 00:36:40,853 --> 00:36:44,686 There's a defense contractor called CACI. 392 00:36:44,686 --> 00:36:47,897 It's a pretty big American defense contractor. 393 00:36:47,897 --> 00:36:51,609 I think they have like eight to $10 billion in revenue. 394 00:36:51,830 --> 00:36:55,572 so 2016, I researching the firm. 395 00:36:55,572 --> 00:36:59,744 They strategically bought a lot of businesses in the middle. 396 00:36:59,802 --> 00:37:09,252 built that trust infrastructure layer, and then they bought technology firms uh onto their books, fitted onto their rails. 397 00:37:09,252 --> 00:37:18,681 And today, like I saw their earnings was last week, 55 % of revenue is now not coming from time and materials, it's coming from technology sales that are happening. 398 00:37:18,681 --> 00:37:24,434 And this firm has done it at this scale and size with 20,000 employees. 399 00:37:24,492 --> 00:37:26,183 And I thought it was like a master class. 400 00:37:26,183 --> 00:37:34,268 Like maybe I should have written it as a case study, but it's going out tomorrow as a firm which was able to do this in the public markets. 401 00:37:34,368 --> 00:37:37,050 And I think like that's the gap over here. 402 00:37:37,050 --> 00:37:40,412 Like if you have the balance sheet, you will buy out the key people in the middle. 403 00:37:40,412 --> 00:37:48,797 The ones in the middle which are not investing, maximizing profit taking right now by not rotating will slowly wither away. 404 00:37:48,797 --> 00:37:50,698 And the bottom is like, 405 00:37:51,372 --> 00:37:53,263 will always be there with Challenger. 406 00:37:53,263 --> 00:37:56,865 I think this is where the new core concept for me sits. 407 00:37:56,865 --> 00:38:02,529 And I always say that it's probably through wedges these people figure out how to maneuver upwards. 408 00:38:02,529 --> 00:38:05,190 Like they can't be full service law firms, right? 409 00:38:05,190 --> 00:38:10,333 And there was a UK firm which was, I think it was called Garfield AI or something. 410 00:38:10,333 --> 00:38:17,438 was specifically a legal sort of like a firm which was doing like uh invoice chasers and stuff like that. 411 00:38:17,438 --> 00:38:18,230 Like, you know, 412 00:38:18,230 --> 00:38:19,690 It was like a small wedge. 413 00:38:19,690 --> 00:38:20,631 I said, okay, cool. 414 00:38:20,631 --> 00:38:28,313 It's like a nice, interesting business, but how are you sort of like embedding yourself into workflows and what's happening over there? 415 00:38:28,633 --> 00:38:36,505 And oh so that's what we're seeing at the new core level, which they have to figure out how can I deliver the outcome and then how do I get the trust? 416 00:38:36,505 --> 00:38:39,756 And it's uh a challenging spot. 417 00:38:40,056 --> 00:38:47,438 I, with you on that, the top will hopefully sort of like pay attention to the middle and acquire their way through that. 418 00:38:47,596 --> 00:38:53,028 And then the bottom will just be the challengers, which is the Palantir of the world, which come in. 419 00:38:53,028 --> 00:38:56,629 But people discount the fact that Palantir is over 20 years old. 420 00:38:56,629 --> 00:38:57,850 So it's not a new co. 421 00:38:57,850 --> 00:39:00,771 It's basically been doing this for a long time. 422 00:39:00,891 --> 00:39:10,024 And ah hopefully, we're in a cycle where those cycle times are greatly accelerated, where it doesn't take 20 years to get to that spot. 423 00:39:10,744 --> 00:39:11,054 Yeah. 424 00:39:11,054 --> 00:39:21,043 And you know, why aren't more firms like, so I see a real, interesting scenario with valuation. 425 00:39:21,063 --> 00:39:24,836 a traditional, like my wife and I own five gyms here in St. 426 00:39:24,836 --> 00:39:25,627 Louis. 427 00:39:25,627 --> 00:39:30,601 If we were to sell these gyms, we would get three to four times EBITDA, right? 428 00:39:30,601 --> 00:39:33,174 That's, that's what a traditional business operates. 429 00:39:33,174 --> 00:39:37,137 You know, sells for a multiple of, of EBITDA or net profit. 430 00:39:37,137 --> 00:39:38,159 Um, 431 00:39:38,159 --> 00:39:43,441 you know, growing software companies sell for a multiple of revenue, six to eight times revenue, right? 432 00:39:43,441 --> 00:39:58,437 So if you're a, if you're a, let's say for round numbers, you're a hundred million dollar business and you are operating at a 20 % margin, you can expect, um, 60 to 70 million, um, 433 00:39:58,437 --> 00:39:59,947 sale price, right? 434 00:39:59,947 --> 00:40:06,389 Whereas if you're a growing software company operating at a hundred million, you're going to sell for six to $800 million, right? 435 00:40:06,389 --> 00:40:08,066 Six to eight times revenue. 436 00:40:08,066 --> 00:40:12,589 And that multiple fluctuates with the market, but that's about where we are right now. 437 00:40:12,610 --> 00:40:27,261 So it seems like a very compelling move to try to build a tech enabled legal service delivery mechanism and scale it. 438 00:40:27,261 --> 00:40:28,794 um 439 00:40:28,794 --> 00:40:40,734 But I don't see, like there's been in the legal market, there's been one acquisition that I know of, a client of ours, Cleary bought a gen AI startup called Springbok. 440 00:40:40,754 --> 00:40:42,434 And it seemed more like an aqua hire. 441 00:40:42,434 --> 00:40:43,434 I mean, they were fairly small. 442 00:40:43,434 --> 00:40:45,554 I don't know if they had a ton of revenue. 443 00:40:45,554 --> 00:40:47,954 I'm guessing, I really don't know. 444 00:40:47,954 --> 00:40:57,114 But it seems like there would be more kind of spin-offs that these kind of going back to your blueprint where take 445 00:40:57,114 --> 00:41:05,457 20 % of know, net margin at the end of the year and allocate it towards your new co and start to build that over time. 446 00:41:05,457 --> 00:41:16,021 So as your legacy business starts to feel pressure, downward pressure on revenue, you've been funding this new business over here that potentially scales. 447 00:41:16,021 --> 00:41:18,982 Why aren't we seeing more companies do this? 448 00:41:19,106 --> 00:41:24,269 because partners don't want to get a 20 % cut on their paycheck at end of the year. 449 00:41:24,269 --> 00:41:25,310 That's why. 450 00:41:25,310 --> 00:41:30,513 Because if my tenure ends in five years, why am I funding this, which may or may not work? 451 00:41:30,613 --> 00:41:32,654 It's the incentive structure. 452 00:41:32,654 --> 00:41:41,433 I mean, we talk about partners doing that, but when Ford tried to do EVs versus combustion and the CEO was like, I'm going to go all EV. 453 00:41:41,433 --> 00:41:43,766 I'm going to be the CEO of the EV division. 454 00:41:43,766 --> 00:41:45,942 18 months later, it was rolled in. 455 00:41:46,220 --> 00:41:50,551 I think it's very difficult because compensation incentive structures don't allow it. 456 00:41:50,551 --> 00:42:02,995 think with the way that I speak to legacy co-owners is that you've got to spin out new co, ah hopefully get some alternative capital into that where you're not the sole capital. 457 00:42:02,995 --> 00:42:14,188 I think Volkswagen did that with Polestar, which is their EV play and they spun it out and you know, over time, it wasn't the most successful deal, but. 458 00:42:14,188 --> 00:42:20,422 That is an example of where a company said, I don't think that we can build EVs inside. 459 00:42:20,422 --> 00:42:30,788 And I don't think you're going to build the next generation advisory firm within the existing structure because the incentives and compensation models. 460 00:42:31,718 --> 00:42:37,464 A lot of the time, connect with uh bright senior guys at these big four MBBE firms. 461 00:42:37,464 --> 00:42:43,566 And the reason why they're leaving is that they're like, I'm doing my work so much more efficiently. 462 00:42:43,566 --> 00:42:50,060 ah I operate half the pyramid, but you know, I get a one-off bonus and I'm not getting compensated for the amount of value I'm bringing. 463 00:42:50,060 --> 00:42:55,013 So I might as well go out and bring that value somewhere else. 464 00:42:55,014 --> 00:43:04,740 And I think that attrition from that side, the other talent problems, think internally they'll have to figure out how to do this. 465 00:43:04,741 --> 00:43:13,114 my, my go-to whenever I speak to legacy cores, you've got to spin out cleanly with a new entity structure and 466 00:43:13,114 --> 00:43:25,919 do not allow, like therefore then new code can uh attack certain deals that legacy code might be going after as well after a period of time, but that's what you ultimately want 467 00:43:25,919 --> 00:43:27,059 to do. 468 00:43:27,099 --> 00:43:35,102 Adobe trying to buy Figma and stuff like that, like, you know, they're trying to do a lot of the things, but you know, for... 469 00:43:35,494 --> 00:43:42,849 Adobe was like the Photoshop file and for Figma, was this new way of working on a design file, which was not a file. 470 00:43:42,849 --> 00:43:54,467 And they had a completely different workflow and a way to structure the entire business, which means that Adobe copied them completely, but still couldn't beat Figma. 471 00:43:54,487 --> 00:43:58,390 And I think like that case study I did was like there. 472 00:43:58,390 --> 00:44:01,252 then Chien versus Zara or Inditex. 473 00:44:01,252 --> 00:44:03,563 We see examples of this over and over again. 474 00:44:03,563 --> 00:44:05,078 I shared them on Thursday. 475 00:44:05,078 --> 00:44:13,192 It always comes from the outside and uh someone's got to just invest in it and feel like this is a great thing. 476 00:44:13,192 --> 00:44:24,987 I have five years left as senior partner in a firm and I'm looking at the next 20 years and you see this coming on the horizon, why wouldn't you put 20 % of your paycheck into 477 00:44:24,987 --> 00:44:25,177 this? 478 00:44:25,177 --> 00:44:30,850 Because you could use your distribution to really blow up this firm and make it the next big thing. 479 00:44:32,046 --> 00:44:35,746 Well, the market offers you six or 7 % risk free. 480 00:44:36,026 --> 00:44:42,686 And you know, the core five S 500 is sort of like growing at a very decent clip. 481 00:44:42,866 --> 00:44:47,346 So it's opportunity cost and it's do I believe in this future? 482 00:44:47,546 --> 00:44:51,068 Well, those yacht payments aren't going to make themselves, right? 483 00:44:51,989 --> 00:44:58,272 So, uh all right, we're almost out of time, but just kind of one last question, because I talk about this a lot. 484 00:44:58,412 --> 00:45:02,715 The partnership model itself, I think, is a huge limiter. 485 00:45:02,715 --> 00:45:14,921 And for the reasons that we've kind of touched on, um is there a partnership 2.0, or do we really need to ditch the partnership model as a whole? 486 00:45:16,300 --> 00:45:25,782 adopt a traditional C Corp structure with a traditional governance model in order to really for new code of scale. 487 00:45:27,534 --> 00:45:30,596 Yeah, it's a I think it's a great question. 488 00:45:31,517 --> 00:45:34,378 I still believe like the partnership structure. 489 00:45:35,620 --> 00:45:37,321 I don't have a problem with the partnership. 490 00:45:37,321 --> 00:45:46,907 I think what I've written is that when the size and the structure of your business outgrows the limitations of the partnership structure and the governance, that's when the 491 00:45:46,907 --> 00:45:54,272 problems really come when you need consensus across hundreds of thousands of people, then you can't move ah fast enough. 492 00:45:54,272 --> 00:45:57,396 And we can see you try to figure out how to do this with a 493 00:45:57,396 --> 00:46:03,768 advisory board with the person who leads and they've tried to come up with innovations within it. 494 00:46:03,888 --> 00:46:14,511 But maybe Partnership 2.0 won't have a lot of these problems because if that firm will have fewer people, will have technology leverage on their side, outcome-based pricing. 495 00:46:14,511 --> 00:46:25,314 I still think as independent business owners, if you and I were in a business and we're 50-50 partners and we go in and we hire a few people to do the work, I still think 496 00:46:25,314 --> 00:46:27,786 that could work at a certain scale and size. 497 00:46:27,786 --> 00:46:33,681 think once we hit a size and scale, that's where the problems really arise. 498 00:46:33,681 --> 00:46:43,710 But several very large like Cargill or any of these family owned businesses have retained structures with ownership concentrated at the top with very few people. 499 00:46:43,710 --> 00:46:45,310 I think it's possible. 500 00:46:45,411 --> 00:46:46,752 Perhaps that's where it's going to go. 501 00:46:46,752 --> 00:46:54,378 And it sort of like lines in pretty well with knowledge work being oh controlled by a lot fewer people in the future. 502 00:46:54,618 --> 00:46:57,560 And if that works out, then that's what it looks like. 503 00:46:57,560 --> 00:47:08,799 We're still partnerships because why will I like, is it worth floating the company and getting public sort of like scrutiny when I don't need to get it? 504 00:47:08,799 --> 00:47:11,311 Like, think like going public is tough. 505 00:47:11,311 --> 00:47:16,945 Like when I review these public professional services companies, it's tough out there. 506 00:47:16,945 --> 00:47:21,558 Like lots of people will be saying like, thank God we're not public right now. 507 00:47:21,662 --> 00:47:31,508 And several of them are becoming targets for private equity to just take off because they're like, just getting punished so much that, you know, they've overly punished them. 508 00:47:31,609 --> 00:47:35,581 And now it's opportunity for private equity to, to, to make money. 509 00:47:35,581 --> 00:47:39,753 So it's a fascinating spot right now. 510 00:47:39,833 --> 00:47:41,935 Yeah, it's good stuff. 511 00:47:41,935 --> 00:47:47,050 Well, I really appreciate you spending a little bit of time with me here today. 512 00:47:47,050 --> 00:47:50,713 I know our listeners are going to be interested in hearing what you have to say. 513 00:47:50,713 --> 00:47:59,342 ah Before we jump off though, how do folks find more about you and the writing that you do? 514 00:47:59,342 --> 00:48:01,110 What's the best way for them to do that? 515 00:48:01,110 --> 00:48:01,450 Right. 516 00:48:01,450 --> 00:48:14,358 ah Well, you can look me up on LinkedIn, where I post most of my articles, or then you can go to my uh website, osmonecheikh.com, where you can sign up for my newsletter. 517 00:48:14,358 --> 00:48:19,121 It's a daily newsletter that goes out where you can subscribe. 518 00:48:19,121 --> 00:48:22,042 And that's probably the best way to keep in touch. 519 00:48:22,198 --> 00:48:24,761 Okay, yeah and we'll include those links in the show notes. 520 00:48:24,761 --> 00:48:30,079 So um listen, again, you're not a legal guy but I love this. 521 00:48:30,079 --> 00:48:36,037 I love the writing that you're doing in the professional services world, much of which applies to legal. 522 00:48:36,037 --> 00:48:39,961 um So thanks for spending some time with us today. 523 00:48:40,170 --> 00:48:41,551 Yeah, it was great. 524 00:48:41,551 --> 00:48:51,800 I look forward to doing the reverse and asking you a whole bunch of questions about Amlo 200 because I felt like ah there's so much that I want to know about the consolidation 525 00:48:51,800 --> 00:48:55,583 that you mentioned and the opportunities over there. 526 00:48:55,583 --> 00:49:08,684 I saw that UDL raised from general catalyst like $105 million for this law firm that they're creating where VCs are taking your playbook and saying, let's fund the tech. 527 00:49:08,684 --> 00:49:13,667 And then when the tech sort of like solidifies, we'll go out and acquire the firms with debt. 528 00:49:13,749 --> 00:49:17,368 And that's an interesting VC angle to what you were saying as well. 529 00:49:17,368 --> 00:49:27,825 Yeah, it's so in the here in the US again, the ABA rules get in the way of outside investment, but there's a little bit of a workaround that just is hitting the press. 530 00:49:27,825 --> 00:49:37,602 Recently, there was a Financial Times article about a company called Burford Capital, I think, and they're essentially spinning up a I don't know if it's a sister company or a 531 00:49:37,602 --> 00:49:46,400 subsidiary, and it's essentially an uh MSO, a managed services organization that does kind of the blocking and tackling almost 532 00:49:46,400 --> 00:49:51,074 In legal, we have ALSPs, which are alternative legal service providers. 533 00:49:51,074 --> 00:49:53,035 So it's almost ALSP type work. 534 00:49:53,035 --> 00:50:02,823 But the difference between ALSP and an MSO is an MSO, a uh client would outsource an entire function. 535 00:50:03,684 --> 00:50:06,606 maybe it's your IP. 536 00:50:06,606 --> 00:50:08,267 They're going to do all of your IP work. 537 00:50:08,267 --> 00:50:11,710 uh ALSPs are very horizontal and tactical. 538 00:50:11,962 --> 00:50:22,318 today, but it man there's a lot of overlap and crossing lines and so yeah, anytime you want to chat I would uh You're overdue for a podcast man. 539 00:50:22,318 --> 00:50:34,074 Your content is phenomenal and I don't I don't say that often So I would encourage folks to look you up and if you start a podcast, I'd love to be I'd love to be a guest 540 00:50:34,584 --> 00:50:36,078 Sounds good. 541 00:50:36,121 --> 00:50:39,774 Well, thanks for having me on and looking forward to our next shot. 542 00:50:39,875 --> 00:50:41,661 All right, take care. -->