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Decoding Vertical SaaS: Jack Newton on Transforming the Legal Industry
Episode 2413th July 2021 • Decoding Digital • AppDirect
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What does it take to instigate and implement digital transformation in a vertical that’s slow to change? Jack Newton founded Clio, a legal-tech SaaS company, with the idea of revolutionizing legal services through cloud-based technology. 13 years later, Jack is the CEO of the billion-dollar company, an author, and seen as a thought leader in the legal-tech space. In this episode, he shares the obstacles he faced along the way and what the legal industry’s future looks like.

Press play to hear Jack Newton’s thoughts on…

The One-Vendor Advantage

“We could go really deep on a vertical like legal, even though on the surface it looks like a niche opportunity almost. If you provide true and deep value to that vertical, you're going to have an unreasonable right to win categorically, in that vertical... customers really want a vendor of record. As much as possible, they want to be able to buy all of their technology, all of their services, from one vendor.”

Why DIY Integrations Are Not Ideal

“Even though integrations between products are possible, at the end of the day there are very few customers that want to figure out how do I cobble together 15 different products into one through a number of integrations, and maybe a bunch of duct tape, when they can have one cohesive experience in one product?”

Becoming Client-Centric

“[T]here's a whole new way of thinking about legal services, in a way that is client-centered. If you embrace this client-centered thinking, you embrace this new way of thinking about the way you can design, price, and package your legal services. There's an enormous opportunity to drive massive competitive differentiation.”

Transcripts

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When you go deep on a vertical,

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there is huge opportunity

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to expand wallet share and

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expand your average revenue per

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customer over time. Furthermore,

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what's become clear over the

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years is that you can drive much

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more efficient customer

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acquisition economics in a

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vertical play versus a

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horizontal play.

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That's Jack Newton, co-founder

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and CEO of Clio, a company

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that's pioneering SaaS for the

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legal industry. Jack is a cloud

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visionary. He recognized the

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importance of vertical SaaS

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early on and went all in on

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building the legal tech sector.

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Now, 14 years later, Clio is a

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market leader, and in April of

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2021, the company became a newly

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minted unicorn with a valuation

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of $1.6 billion. CEO of a

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billion-dollar company is just

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one of Jack's accomplishments.

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In 2017, he was named Ernst &

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Young's Software-as-a-Service

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Entrepreneur, and in 2020, he

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was named one of Canada's most

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admired CEOs. He's also the

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author of "The Client-Centered

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Law Firm," a top 20 legal book

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on Amazon. Today, Jack shares

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his insights on what it takes to

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build a successful software

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company and how to drive SaaS

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adoption, especially in a sector

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like the legal field, which has

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been slow to change. This is

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Daniel Saks, co-CEO of AppDirect,

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and it's time to decode vertical

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SaaS. Welcome to "Decoding

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Digital," a podcast for

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innovators looking to thrive in

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the digital economy. I'm your

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host, Daniel Saks, and I'll sit

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down with other founders, CEOs,

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and changemakers to decode the

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trends that are transforming the

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way we work. Let's decode. Jack,

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welcome to Decoding Digital.

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Thanks for having me.

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For sure. Before we dive into

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the interview, I want to

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congratulate you on your recent

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funding announcement. Big news,

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Clio reached a $1.6 billion

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valuation, giving you unicorn

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status, so big congrats.

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Thank you.

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I know you were one of the first

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founders to have a vision for

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the potential of vertical SaaS.

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Clio is specifically focused on

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the legal sector. Obviously,

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vertical SaaS has become a huge

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category, and there's a huge

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transformation coming about in

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bringing the legal industry to

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the cloud. Tell us what the

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founding story was and how you

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got Clio started.

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Way back in 2007, and that

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is truly the early days of SaaS

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in general, Salesforce was still

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early in it's growth journey

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back then, and what my co-

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founder Ryan Gauvreau and I saw

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at that moment was the fact that

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the cloud was going to change

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everything. What was really

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obvious to us was that, this was

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a once-in-a-lifetime kind

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of opportunity to catch a wave

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of digital transformation that

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you're lucky if it comes along

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once, or maybe twice, in your

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lifetime, and that it was going

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to radically transform almost

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every industry out there. With

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that conviction, we became what

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I describe sometimes as a, two

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hammers looking for a nail. What

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we really understood deeply was

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the transformative impact that

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the cloud was going to have, and

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then went and turned our

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attention to what industry do we

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think we could apply this

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transformation to and have some

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really profound impact. We were

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looking for an industry that was

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not just a great business

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opportunity, but that we thought

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there would be potentially a

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great mission-driven opportunity

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to help drive transformation in

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that industry, as well. Thanks

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to some work that Ryan was doing

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on the legal side, we pretty

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quickly homed in on legal as

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being one of those industries

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that was ripe for transformation,

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and was in particular ripe for

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transformation by being

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transformed by the Internet. If

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you look at the legal industry --

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I think this was very true in

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2007, and frankly it was still

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mostly true in the year 2020 as

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well -- the legal industry is

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one of the last major industries

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to be fundamentally transformed

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by technology. Furthermore, one

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of the last industries to be

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fundamentally transformed by the

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Internet. If you look at the

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way a lawyer was practicing law

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in the year 2020, it wasn't

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all that different than the way

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they were practicing law in 1980.

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With the benefit of 40 years of

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technology and transformation in

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other industries. What we saw

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pretty quickly, and honed in on

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the legal industry as an

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opportunity, was let's catch

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this massive technology

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opportunity in the form of the

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cloud, and bring that to legal.

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With the underlying thesis that

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what would finally unlock the

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massive opportunity to transform

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legal with technology, was the

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ease of accessing cloud-based

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technology. That the

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traditional, on prem, server-

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based software distribution

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model was so high-friction, that

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it never caught hold in legal,

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but with the benefit of the

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cloud and that lower barrier to

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entry, both from a deployment

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standpoint and a cost standpoint,

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would we potentially be able to

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unlock that opportune in the

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legal industry. We started

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building Clio in 2007. I'm a

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computer science guy by training.

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Ryan had a background in

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technology, and was working on

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his MBA when we founded the

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company. We rolled up our

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sleeves and started doing

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everything. In building the

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software, doing the marketing,

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doing initial sales, and

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launched the product officially

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in 2008. Cut to 13 years later,

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and Cleo is an almost 600-person

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organization, growing extremely

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rapidly. Operating out of five

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offices worldwide, as you

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mentioned, just achieved unicorn

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status with this new 1.6 billion

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US evaluation, and some pretty

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amazing investors coming onboard

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to support us on our next stage

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of the journey.

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It's incredible. I remember in

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2009, when we were starting

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AppDirect, one of the first

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things that we did was create a

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list of the SaaS companies we

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could find out there based on

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category. I remember it had

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everyone from Box, or Dropbox,

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or DocuSign, MailChimp,

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FreshBooks. They were all in

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their infancy. The common thing

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was that they were all

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horizontal. The aggregate market

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value of that list then was

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maybe sub-five billion dollars.

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It's now probably over half a

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trillion. It's funny because I

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think you were ahead of your

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time. Did you see it at the time,

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and saying "look there's going

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to be SaaS for every vertical,

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so I'm going to pick legal

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because that's the best vertical,"

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or did you solve a pain point

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that you identified for the

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legal industry, because it was

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slower to transform and adopt

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technology?

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Yeah, it's a great question. I

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do think we're really early to

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the vertical SaaS party. It's so

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interesting even looking at

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those first years of fundraising

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in 2009, 2010. I could

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tell in the first 10 seconds of

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the VC meeting, whether this was

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going to be a no, or a yes and

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let's learn more. Back in those

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days what was an immediate end

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of the discussion for a lot of

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VCs was the TAM. We've got a

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million lawyers in the US.

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There's five million lawyers

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worldwide. For a lot of VCs,

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when you walk through those

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numbers, like I said, you could

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almost see some glaze over 10

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seconds into the presentation,

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because they've immediately got

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TAM concerns and they're out.

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What we found fairly early in

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our journey -- it was around

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2013, 2014 --

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was that there was a growing

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number of VCs that were building

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conviction around the fact that

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vertical SaaS had, not just an

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ability to build a meaningful

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market, but when you go deep on

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a vertical, there is huge

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opportunity to expand wallet

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share, and expand your average

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revenue per customer over time.

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Furthermore, I think what's

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become really clear over the

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years, is that you can drive

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much more efficient customer

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acquisition, economics, in a

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vertical play, versus a

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horizontal play. I think those

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are some of the things that, way

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back in 2007, 2008, Ryan

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and I understood intuitively

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maybe. That we could go really

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deep on a vertical like legal,

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and even though on the surface

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it looks like a niche

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opportunity almost. If you

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provide true and deep value to

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that vertical, you're going to

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have an unreasonable right to

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win categorically, in that

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vertical. I think in many

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verticals that we've seen other

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companies, like ServiceTitan for

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example, really prove out this

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hypothesis in a big way in the

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field-services industry. I think

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we've seen Clio prove it out in

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legal. You can point to

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examples in almost every other

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vertical, is that customers

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really want a vendor of record.

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As much as possible, they want

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to be able to buy all of their

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technology, all of their

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services, from one vendor. That

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was an early bet we made on with

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Clio in the legal vertical. This

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bet that there's a strong

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preference on the customer's

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side to have a single vendor and

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a unified experience. Even

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though integrations between

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products are possible, at the

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end of the day there's very few

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customers that want to figure

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out how do I cobble together 15

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different products into one

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through a number of integrations,

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and maybe a bunch of duct tape,

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when they can have one cohesive

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experience in one product?

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That's really the heart of our

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thesis for what ended up being

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the huge legal opportunity. I

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believe the other hypothesis we

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had, that ended up proving

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correct, was that the cloud was,

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in fact, an enabling technology

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to unlock this previously

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very low technology adoption

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industry.

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Clearly, digital transformation

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is hard, you had this vision,

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but take me through what the

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lawyer's life was pre-Clio, and

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then the effort that you had to

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go through to get them on, and

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now their life today.

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It's a great question. This was

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the challenge in 2008, and it's

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still the challenge today, but

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there's a lot of lawyers that

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will use pen and paper. They

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will use some aggregate of

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Microsoft Outlook, Excel,

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and Word, to manage

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every day-to-day aspect of their

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law firm. They'll take time

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records, time slips, that

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they've literally recorded on

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pieces of paper, input those

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into Excel, take the Excel sheet,

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go and try to input it into

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Microsoft Word, and create an

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invoice for their client. We

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talked to some law firms that

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literally spend four or five

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days at the beginning of every

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month, where their law firm

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basically grinds to a halt

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collating all of these paper

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documents, going through this

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Excel-based process, putting

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these invoices in Word, going

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through the iterations of the

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pre-bills, and finally getting

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these bills out the door. It's

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just mind-blowing, the amount of

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manual effort that is going on

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in the industry. We're still

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early innings in driving this

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digital transformation in legal.

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There's still a lot of law firms

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that operate that way. Really

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it's a matter of getting in

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front of these customers and

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letting them know there's a

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better way. You need a

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distributive way of working. You

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need to leverage the cloud.

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We'll talk to these stakeholders,

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and it could be the receptionist,

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it could be the paralegal, it

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could be the lawyer themselves,

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we explain what kind of value

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Clio can provide to them, and

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you just see the light bulb go

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off. You can hear the

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excitement in their voice when

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they understand the kind of

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value that Clio can offer their

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law firm.

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It's very powerful, and I know

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that buyers see you as a thought

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leader, educating them on how to

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make this digital transformation.

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I know last year you published a

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book called The Client-Centered

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Law Firm. Can you give some more

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context as to why you wrote the

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book, and some of the takeaways?

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Around 10 years into this

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journey of building Clio, I

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started to feel like I've had

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thousands and thousands of

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conversations with legal

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professionals at the best-run

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law firms in the world, and

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started to feel like I had the

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kind of perspective that maybe a

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McKinsey consulting or Boston

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Consulting group has on

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businesses, where they talk to

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the best of the best. They

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start to understand what the

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best practices are, and what set

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them apart from their peers. I

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felt like this perspective I was

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starting to form on the legal

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industry and the opportunity was

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similar. My takeaway, what I've

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extracted from those thousands

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and thousands of conversations

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was a few things. One, lawyers

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go through law school and learn

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how to become amazing lawyers,

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but over the course of their

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three years of law school they

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learn virtually nothing about

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building a business or being an

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entrepreneur. They don't learn

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how to develop a product. They

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don't learn how to market. They

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don't learn how to even manage

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cash flow. There's a huge risk

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for the average lawyer, that if

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they graduated from law school,

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and they go out and hang a

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shingle, and run their own law

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firm, as a solo, as 50 percent

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of all lawyers do, or they go

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form a small law firm with a

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handful of other colleagues,

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that's around 80 percent of the

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legal market, as either solo or

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firms of less than 10 lawyers,

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they're going to be set up to

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really struggle. Only if you're

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joining a big firm and

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benefiting from the machinery of

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that big firm, will you be set

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up in a way that your pure legal

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knowledge will help you succeed.

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This key insight for me was,

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lawyers need a bit of a handbook

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on how to thrive as a lawyer,

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and how to be a successful

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entrepreneur, but unfortunately,

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precedent is also applied really

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strongly in the business of law,

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where lawyers feel like the only

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way you can run a law firm is in

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the same way it's been ran in

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the past by other lawyers. You

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look at the pervasiveness of the

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billable hour model, for example.

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Something as straightforward as

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that. Most lawyers charge for

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their time by the hour. On the

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other hand, there's virtually no

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clients that want to buy legal

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services by the hour. Other

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professions like accounting have

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shifted fulsomely away from

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billable hour to value-based

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billing, and fixed fee billing,

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and billing based on outcomes.

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There's been an enormous amount

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of friction in that shift in

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legal partially because of the

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inertia that this precedent

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thinking drives in the legal

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profession. What I tried to

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distill in my book is a way of

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proposing a pretty radical shift

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in how lawyers think about

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delivering legal services.

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Instead of thinking about

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delivering legal services in the

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traditional way, which I would

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describe as a lawyer-centric way

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of delivering legal services.

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Even if you look at something as

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foundational as the billable

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hour model. I think it's a great

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example of a very lawyer-centric

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concept. It's good for lawyers,

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it helps protect lawyer's

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profitability, it helps protect

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lawyer's downside risk, but it's

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not at all good for the client.

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It is not client-centered. What

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I posit in this book is there's

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a whole new way of thinking

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about legal services, in a way

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that is client-centered. If you

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embrace this client-centered

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thinking, you embrace this new

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way of thinking about the way

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you can design, price, and

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package your legal services,

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there's an enormous opportunity

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to drive massive competitive

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differentiation, and to tap into

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what I describe as the latent

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legal market. A latent legal

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market is what I've refereed to

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as a portion of the market that

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is not able to access legal

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services. Around 77 percent of

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consumers that have legal issues

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any given year do not see those

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legal issues resolved by a

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lawyer. You've maybe heard the

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term "the access to justice gap."

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That's really the access to

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justice gap, in a nutshell is,

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there's a very small minority of

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legal issues that actually see

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resolution through lawyers and

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the legal system, 77 percent of

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legal issues are not

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resolved by lawyers. That latent

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legal market is something that

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can be unlocked through client-

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centered thinking. This book,

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The Client-Centered Law Firm

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that I wrote, is really a

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handbook and a playbook for how

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to think innovatively about

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designing your legal services.

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How to think like an

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entrepreneur. How to build

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empathy for your clients. How

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to rethink legal service

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delivery in a way that is better

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for consumers, helps consumers

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see better legal outcomes, is

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better for lawyers, in that it

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helps make lawyers more

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successful and more profitable.

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Better for access to justice, in

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that if we actually execute on

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this vision of the client-

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centered law firm, we're going

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to help bridge that access to

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justice gap, and we're going to

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help deliver legal services to

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that vast latent legal market

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that is currently underserved.

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Let's shift to your personal

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psychology, because you've said

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that the legal industry is the

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last major industries that

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resisted digital transformation.

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That must mean you get a lot of

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no's, and a lot of people who

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say you're crazy. How do you

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deal with them?

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For one, I describe myself as a

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pathological optimist, so even

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if I hear no all day long, I'm

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still going to be optimistic

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that there's a yes right around

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the corner. I think that

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resilience is really important,

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and that embedded optimism is

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important in navigating all the

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knows you're going to hear. It's

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been said and commented on many

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times that many of the best

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startup ideas sound crazy to

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start, and some investors talk

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about using a yardstick now, how

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crazy does the idea sound? If

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it doesn't sound crazy enough,

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they're almost not interested in

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it, because it's not

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transformative enough. Certainly

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back in 2008, when I was walking

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around these legal conferences,

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talking about the idea of

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storing your data in the cloud,

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it was a polarizing concept. I

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had deep conviction about back

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in 2008 and still have today is

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the idea that the average solo

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or small firm lawyer is further

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ahead storing their data in the

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cloud than they are trying to

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manage their own on-premise

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system and trying to keep that

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system secure and up to date.

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That was a controversial opinion

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in 2008. I actually think it's

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probably almost generally

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accepted wisdom today. I caught

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a lot of flack for that

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perspective of that opinion back

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in 2008, 2009, 2010. I had

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lawyers calling me and Ryan and

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Clio outright irresponsible for

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even allowing lawyers to store

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their data in the cloud. How

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dare we kind of conversations?

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To navigate all of that to your

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question around mindset I think,

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number one, you do need to have

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optimism, you do need to have

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deep conviction that you're

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right. You also need to be able

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to persuade us not just hearing

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the know and then walking away.

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We listened to the reasons that

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people supported the no with and

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then thought how do we tackle

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these? How do we block by block,

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unpack this resistance and get

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to yes? I'll give you a really

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concrete example of that. The

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number one thing we heard over

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the course of 2008 and 2009 was

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this concern about, is it

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ethical for lawyers to store

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their data in the cloud? Is

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this even allowed from a

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compliance perspective from the

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State Bar, for example, that

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they're licensed to and we

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realized quickly that we can

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either get dragged along by this

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discussion, or we can try to

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lead it? We said, if we can

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lead it, we're going to be able

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to lead the discussion to where

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we want it to go, which is this

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conclusion that storing your

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data in the cloud is more secure

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than storing it on premise.

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What we started doing was

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educating the industry. We

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started writing white papers. We

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started giving talks at every

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conference we could get a

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speaking slot at. We started

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lobbying directly with the State

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Bar associations to get ethics

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opinions that were positive and

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affirmative about the fact that

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storing your data in the cloud

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was ethically acceptable. We

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started to see a huge amount of

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success there and became, over

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time, thought leaders on this

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topic, where we're invited to

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speak at the biggest conferences

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in legal about the security and

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ethics of cloud computing for

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lawyers, and around why this was

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acceptable. In hindsight, now

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we're referred to as the people

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and the company that helped

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drive this transformation in

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legal, and the adoption of cloud

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technology in legal. I think

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listening to the no, and having

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conviction that that person is

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wrong, is really important, but

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then the onus is on you to

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almost persuade them that

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they're wrong, and that might be

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a very long game to get there,

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but that's the long game we

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played, and like I said, 13

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years later, in the legal

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industry it's finally generally

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accepted wisdom that the cloud

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is acceptable for lawyers to use.

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We're even shifting into a new

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world where it's almost viewed

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as a competitive disadvantage if

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you're not leveraging the cloud

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in some way as a law firm.

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I definitely think you

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pinpointed one of the key things

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that we observe, which is,

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change is constant and people

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need to adapt, and if they don't

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they're going to have a

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challenge in the digital ride.

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That became very prevalent in

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COVID, with examples like

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restaurants, or other

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establishments. If you didn't

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have delivery or digital

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footprint, then you'd struggle

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and you'd be forced to

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immediately digital transform.

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With Clio, did you have a

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similar impact in COVID? how did

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COVID impact your business and

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the legal community in general?

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Great question. Like many other

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industries we saw a pretty

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profound and a pretty rapid

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shift in how lawyers needed to

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run their practice as soon as

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COVID hit. What we've seen with

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COVID is 10 years of digital

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transformation in legal, or more,

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I would argue, compressed into

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10 or 12 months. It's really

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been that scale of change. Our

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product roadmap, for example, is

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the product roadmap we would've

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been thinking about in the year

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2030 really. Now it's a product

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roadmap we're thinking about for

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the year 2020. These kinds of

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changes -- especially in an

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industry like legal that is

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fairly slow to evolve -- they

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wouldn't have played out over

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the natural course of events. We

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really needed this crucible that

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ended up being COVID-19, to

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catalyze a lot of this change.

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I think it's a net-positive

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change in a lot of ways, despite

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the obvious, huge human toll,

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and economic hardship it's

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caused for many. For the legal

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industry, it is going to emerge,

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I believe, better positioned to

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thrive, and better position to

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actually deliver legal services

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to more people thanks to the

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transformational change that

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COVID has helped drive. A big

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part of that is around

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technology adoption, and being

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able to lower the barriers to

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accessing legal services, and

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from the lawyer's side, being

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able to lower the cost of

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delivering legal services. To

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give you a really concrete

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example of what that looks like,

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one of the largest structural

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overhead costs any law

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firm has -- beyond it's human

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cost of labor and staffing the

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law firm -- is the physical

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space. The often expensive AAA

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downtown office space that law

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firms invest in to, most of the

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time, impress clients. What

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we've seen with COVID is that, a

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lot of clients, a lot of law

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firms, have realized, we

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actually don't need that

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expensive office space anymore.

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We can deliver legal services

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just as well. In fact, by a lot

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of measures, better, over the

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Internet. With our clients

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sitting at home in their home

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office, with our lawyers sitting

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at home in their home office,

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and everyone's got the

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convenience of instant access to

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that legal advice and legal

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resource, without all the

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friction of a meeting in that

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bricks-and-mortar office.

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That's a pretty exciting time to

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be innovating in legal, because

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it's a brave new world that's

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going to, I believe, help open

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up that latent legal market over

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time.

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You talked about the last 10

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years accelerating, let's fast-

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forward 10 years to 2030, what

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conviction do you have today --

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similar to the conviction that

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you had for cloud -- that's

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going to be equally as

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transformative 10 years for your

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customers?

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The conviction I have for the

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year 2030 is that the vast

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majority of legal services will

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be delivered in that cloud-based

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way. That's a technology shift

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that Clio's hoping to enable.

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The second piece that is more

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aspirational, that I would love

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to help drive into legal

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industry as well, is a shift to

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a more client-centered way of

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delivering legal services.

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That's both a technology problem

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and a mindset problem. We

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need the mindset of the legal

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industry to shift to this client-

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centered way of thinking. The

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way I think about it is that I

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want the book, and other

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educational materials to help

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drive that mindset shift, but I

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also want Clio the technology

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platform to automatically

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encourage lawyers that are

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using it to operate in a client-

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centered way. I want it to

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almost be, call it the default

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way of operating a law firm. If

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you adopt Clio, is to be a

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client-centered law firm. We

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make it easy and frictionless,

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and the software's almost

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opinionated in how you do things.

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Opinionated in the sense that,

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the way you think, you should be

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a client-centered, and we're

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going to make it really easy and

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frictionless for it to be client-

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centered. By the way, the

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benefits of that as a law firm

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are that you're going to be more

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profitable. You're going to have

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happier clients. You're going to

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have better outcomes for your

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clients. You're going to see

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faster growth because they're

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feeding into this flywheel of

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growth for your law firm, by

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leaving positive reviews, by

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referring friends and family to

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you. We want to make that almost

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an automatic side-effect of

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using Clio, is being client-

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centered as well. So the year

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2030, I hope will be a year that

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I can look at and say "We've

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made a huge amount of progress

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in making the legal industry

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both cloud-based, and client-

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centered."

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What exciting times ahead,

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really believe in that mindset

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change, and we look at leaders

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that are transforming the

Speaker:

economy, we call them digital

Speaker:

heroes. I think you exemplify

Speaker:

those characteristics. Congrats

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to you and your recent success,

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and all the opportunity you have

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in the future. Thanks for

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joining Jack.

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Thanks for having me.

Speaker:

On the next episode of Decoding

Speaker:

Digital.

Speaker:

I think it's really easy to

Speaker:

compare your chapter 1 to

Speaker:

someone else's chapter 25. I

Speaker:

think there's a comparison game

Speaker:

we all play. It's just human

Speaker:

psychology, it's human

Speaker:

programming, right? It becomes

Speaker:

overwhelming when you compare

Speaker:

yourself to someone else, so

Speaker:

it's just easier to do you

Speaker:

versus you, one percent better

Speaker:

every single day.

Speaker:

CEO of ClickFlow, and host of

Speaker:

the "Leveling Up" podcast, Eric

Speaker:

Siu.

Speaker:

Thanks for listening to Decoding

Speaker:

Digital. Make sure you never

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miss an episode by subscribing

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to this show in your favorite

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podcast player. To learn more,

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visit decodingdigital.com. Until