The Rise of Axiom Law
Anyone interested in the evolution of the legal market should read The Disruptive Innovation at Axiom’s Legal Outsourcing Division in the July issue of the The American Lawyer.
Highlights of Axiom from AmLaw Article. Key facts and quotes from the article:
- Axiom is a C-class corporation, not a corporation, and has “more than $30 million in venture capital” in backing
- 2011 revenue of $130m, up 62% from the prior year. This revenue would place it around 170 on the AmLaw 200 list
- Axiom started as a legal staffing company and now offers outsourcing or “managed legal services” that account for 25% of 2011 revenue, up from 10% in 2010.
- Customers include Hewlett-Packard Co., Kraft Foods Inc., and Vodafone Group plc
- Axiom has 800 lawyers: 450 in the staffing group and 350 in the outsourcing group.
- “In the past Axiom often bragged about the average $225,000 salaries of its temp lawyers, who typically have 15 years of work experience and bill out at $150-$350 an hour”
- HP was looking for “efficient and cost-effective way to negotiate, draft, and execute sales-related contracts, licensing deals, and follow-on agreements” and choose Axiom from a filed of 17 bidders, including law firms
- Axiom has managed service centers in Houston, Belfast, and Chicago.
- Axiom “is attempting to pave a middle ground between legal process outsourcers and law firms (both traditional and alternative) by providing solutions to legal challenges that may rise above mere document review tasks but don’t require the bench strength and extensive talent infrastructure (read: cost) of an Am Law 200 firm.”
Axiom Growth and Margins. A few calculations on the data in the article reveal that the company’s 2010 to 2011 growth rate for staffing was 35% and for managed services was 300% (three hundred percent). As for margins, if staffing lawyers charge $250/hour, the mid-point of the cited range, and each bills 1,500 hour/year (my assumption), that yields $375,000 dollars/year per lawyer for a gross margin of 40% on the cost of $225k. I suspect net margins are healthy: The Axiom Law website reports the the company has 900 people. Less their 800 lawyers, that leaves 100 “headquarters” staff. So the company operates at a lawyer to staff ratio of 8 to 1 as opposed to Big Law, which is typically at 1 to 1. Furthermore, since Axiom staffing lawyers work at client sites, it has much lower occupancy cost.
The Future of Axiom Axiom has a big price advantage over Big Law. Clients, however, consider more than price. But for how long and for what range of work. Consider the answer Aric Press, ALM editor-in-chief, offers in his June 27th column about Axiom, Don’t Look Back. He cites innovation-guru Clayton Christensen to conclude:
“How much of the work by grand-firm lawyers fits the description of being repetitive and ripe for commoditization? More than most admit. And once Axiom proves adept (assuming it does) at that labor, why would it stop at the basic legal work that has made a generation of partners wealthy?”
Axiom also has another advantage over many law firms: it only has institutional clients. Lateral partner moves create an inherent tension between the interests of partners and firms. This gap may be shrinking, as Jordan Furlong pointed out last week in The dying cult of the corner partner. Nonetheless, it’s a gap that presumably does not exist at all at Axiom.
Conclusion. With high revenue growth, healthy margins, lower prices than law firms, and the ability to raise outside capital, law firm management should keep an eye not only on Axiom. And on a range of other alternative providers.
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