When you go deep on a vertical,

there is huge opportunity

to expand wallet share and

expand your average revenue per

customer over time. Furthermore,

what's become clear over the

years is that you can drive much

more efficient customer

acquisition economics in a

vertical play versus a

horizontal play.

That's Jack Newton, co-founder

and CEO of Clio, a company

that's pioneering SaaS for the

legal industry. Jack is a cloud

visionary. He recognized the

importance of vertical SaaS

early on and went all in on

building the legal tech sector.

Now, 14 years later, Clio is a

market leader, and in April of

2021, the company became a newly

minted unicorn with a valuation

of $1.6 billion. CEO of a

billion-dollar company is just

one of Jack's accomplishments.

In 2017, he was named Ernst &

Young's Software-as-a-Service

Entrepreneur, and in 2020, he

was named one of Canada's most

admired CEOs. He's also the

author of "The Client-Centered

Law Firm," a top 20 legal book

on Amazon. Today, Jack shares

his insights on what it takes to

build a successful software

company and how to drive SaaS

adoption, especially in a sector

like the legal field, which has

been slow to change. This is

Daniel Saks, co-CEO of AppDirect,

and it's time to decode vertical

SaaS. Welcome to "Decoding

Digital," a podcast for

innovators looking to thrive in

the digital economy. I'm your

host, Daniel Saks, and I'll sit

down with other founders, CEOs,

and changemakers to decode the

trends that are transforming the

way we work. Let's decode. Jack,

welcome to Decoding Digital.

Thanks for having me.

For sure. Before we dive into

the interview, I want to

congratulate you on your recent

funding announcement. Big news,

Clio reached a $1.6 billion

valuation, giving you unicorn

status, so big congrats.

Thank you.

I know you were one of the first

founders to have a vision for

the potential of vertical SaaS.

Clio is specifically focused on

the legal sector. Obviously,

vertical SaaS has become a huge

category, and there's a huge

transformation coming about in

bringing the legal industry to

the cloud. Tell us what the

founding story was and how you

got Clio started.

Way back in 2007, and that

is truly the early days of SaaS

in general, Salesforce was still

early in it's growth journey

back then, and what my co-

founder Ryan Gauvreau and I saw

at that moment was the fact that

the cloud was going to change

everything. What was really

obvious to us was that, this was

a once-in-a-lifetime kind

of opportunity to catch a wave

of digital transformation that

you're lucky if it comes along

once, or maybe twice, in your

lifetime, and that it was going

to radically transform almost

every industry out there. With

that conviction, we became what

I describe sometimes as a, two

hammers looking for a nail. What

we really understood deeply was

the transformative impact that

the cloud was going to have, and

then went and turned our

attention to what industry do we

think we could apply this

transformation to and have some

really profound impact. We were

looking for an industry that was

not just a great business

opportunity, but that we thought

there would be potentially a

great mission-driven opportunity

to help drive transformation in

that industry, as well. Thanks

to some work that Ryan was doing

on the legal side, we pretty

quickly homed in on legal as

being one of those industries

that was ripe for transformation,

and was in particular ripe for

transformation by being

transformed by the Internet. If

you look at the legal industry --

I think this was very true in

2007, and frankly it was still

mostly true in the year 2020 as

well -- the legal industry is

one of the last major industries

to be fundamentally transformed

by technology. Furthermore, one

of the last industries to be

fundamentally transformed by the

Internet. If you look at the

way a lawyer was practicing law

in the year 2020, it wasn't

all that different than the way

they were practicing law in 1980.

With the benefit of 40 years of

technology and transformation in

other industries. What we saw

pretty quickly, and honed in on

the legal industry as an

opportunity, was let's catch

this massive technology

opportunity in the form of the

cloud, and bring that to legal.

With the underlying thesis that

what would finally unlock the

massive opportunity to transform

legal with technology, was the

ease of accessing cloud-based

technology. That the

traditional, on prem, server-

based software distribution

model was so high-friction, that

it never caught hold in legal,

but with the benefit of the

cloud and that lower barrier to

entry, both from a deployment

standpoint and a cost standpoint,

would we potentially be able to

unlock that opportune in the

legal industry. We started

building Clio in 2007. I'm a

computer science guy by training.

Ryan had a background in

technology, and was working on

his MBA when we founded the

company. We rolled up our

sleeves and started doing

everything. In building the

software, doing the marketing,

doing initial sales, and

launched the product officially

in 2008. Cut to 13 years later,

and Cleo is an almost 600-person

organization, growing extremely

rapidly. Operating out of five

offices worldwide, as you

mentioned, just achieved unicorn

status with this new 1.6 billion

US evaluation, and some pretty

amazing investors coming onboard

to support us on our next stage

of the journey.

It's incredible. I remember in

2009, when we were starting

AppDirect, one of the first

things that we did was create a

list of the SaaS companies we

could find out there based on

category. I remember it had

everyone from Box, or Dropbox,

or DocuSign, MailChimp,

FreshBooks. They were all in

their infancy. The common thing

was that they were all

horizontal. The aggregate market

value of that list then was

maybe sub-five billion dollars.

It's now probably over half a

trillion. It's funny because I

think you were ahead of your

time. Did you see it at the time,

and saying "look there's going

to be SaaS for every vertical,

so I'm going to pick legal

because that's the best vertical,"

or did you solve a pain point

that you identified for the

legal industry, because it was

slower to transform and adopt

technology?

Yeah, it's a great question. I

do think we're really early to

the vertical SaaS party. It's so

interesting even looking at

those first years of fundraising

in 2009, 2010. I could

tell in the first 10 seconds of

the VC meeting, whether this was

going to be a no, or a yes and

let's learn more. Back in those

days what was an immediate end

of the discussion for a lot of

VCs was the TAM. We've got a

million lawyers in the US.

There's five million lawyers

worldwide. For a lot of VCs,

when you walk through those

numbers, like I said, you could

almost see some glaze over 10

seconds into the presentation,

because they've immediately got

TAM concerns and they're out.

What we found fairly early in

our journey -- it was around

2013, 2014 --

was that there was a growing

number of VCs that were building

conviction around the fact that

vertical SaaS had, not just an

ability to build a meaningful

market, but when you go deep on

a vertical, there is huge

opportunity to expand wallet

share, and expand your average

revenue per customer over time.

Furthermore, I think what's

become really clear over the

years, is that you can drive

much more efficient customer

acquisition, economics, in a

vertical play, versus a

horizontal play. I think those

are some of the things that, way

back in 2007, 2008, Ryan

and I understood intuitively

maybe. That we could go really

deep on a vertical like legal,

and 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. I think in many

verticals that we've seen other

companies, like ServiceTitan for

example, really prove out this

hypothesis in a big way in the

field-services industry. I think

we've seen Clio prove it out in

legal. You can point to

examples in almost every other

vertical, is that 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. That

was an early bet we made on with

Clio in the legal vertical. This

bet that there's a strong

preference on the customer's

side to have a single vendor and

a unified experience. Even

though integrations between

products are possible, at the

end of the day there's 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?

That's really the heart of our

thesis for what ended up being

the huge legal opportunity. I

believe the other hypothesis we

had, that ended up proving

correct, was that the cloud was,

in fact, an enabling technology

to unlock this previously

very low technology adoption

industry.

Clearly, digital transformation

is hard, you had this vision,

but take me through what the

lawyer's life was pre-Clio, and

then the effort that you had to

go through to get them on, and

now their life today.

It's a great question. This was

the challenge in 2008, and it's

still the challenge today, but

there's a lot of lawyers that

will use pen and paper. They

will use some aggregate of

Microsoft Outlook, Excel,

and Word, to manage

every day-to-day aspect of their

law firm. They'll take time

records, time slips, that

they've literally recorded on

pieces of paper, input those

into Excel, take the Excel sheet,

go and try to input it into

Microsoft Word, and create an

invoice for their client. We

talked to some law firms that

literally spend four or five

days at the beginning of every

month, where their law firm

basically grinds to a halt

collating all of these paper

documents, going through this

Excel-based process, putting

these invoices in Word, going

through the iterations of the

pre-bills, and finally getting

these bills out the door. It's

just mind-blowing, the amount of

manual effort that is going on

in the industry. We're still

early innings in driving this

digital transformation in legal.

There's still a lot of law firms

that operate that way. Really

it's a matter of getting in

front of these customers and

letting them know there's a

better way. You need a

distributive way of working. You

need to leverage the cloud.

We'll talk to these stakeholders,

and it could be the receptionist,

it could be the paralegal, it

could be the lawyer themselves,

we explain what kind of value

Clio can provide to them, and

you just see the light bulb go

off. You can hear the

excitement in their voice when

they understand the kind of

value that Clio can offer their

law firm.

It's very powerful, and I know

that buyers see you as a thought

leader, educating them on how to

make this digital transformation.

I know last year you published a

book called The Client-Centered

Law Firm. Can you give some more

context as to why you wrote the

book, and some of the takeaways?

Around 10 years into this

journey of building Clio, I

started to feel like I've had

thousands and thousands of

conversations with legal

professionals at the best-run

law firms in the world, and

started to feel like I had the

kind of perspective that maybe a

McKinsey consulting or Boston

Consulting group has on

businesses, where they talk to

the best of the best. They

start to understand what the

best practices are, and what set

them apart from their peers. I

felt like this perspective I was

starting to form on the legal

industry and the opportunity was

similar. My takeaway, what I've

extracted from those thousands

and thousands of conversations

was a few things. One, lawyers

go through law school and learn

how to become amazing lawyers,

but over the course of their

three years of law school they

learn virtually nothing about

building a business or being an

entrepreneur. They don't learn

how to develop a product. They

don't learn how to market. They

don't learn how to even manage

cash flow. There's a huge risk

for the average lawyer, that if

they graduated from law school,

and they go out and hang a

shingle, and run their own law

firm, as a solo, as 50 percent

of all lawyers do, or they go

form a small law firm with a

handful of other colleagues,

that's around 80 percent of the

legal market, as either solo or

firms of less than 10 lawyers,

they're going to be set up to

really struggle. Only if you're

joining a big firm and

benefiting from the machinery of

that big firm, will you be set

up in a way that your pure legal

knowledge will help you succeed.

This key insight for me was,

lawyers need a bit of a handbook

on how to thrive as a lawyer,

and how to be a successful

entrepreneur, but unfortunately,

precedent is also applied really

strongly in the business of law,

where lawyers feel like the only

way you can run a law firm is in

the same way it's been ran in

the past by other lawyers. You

look at the pervasiveness of the

billable hour model, for example.

Something as straightforward as

that. Most lawyers charge for

their time by the hour. On the

other hand, there's virtually no

clients that want to buy legal

services by the hour. Other

professions like accounting have

shifted fulsomely away from

billable hour to value-based

billing, and fixed fee billing,

and billing based on outcomes.

There's been an enormous amount

of friction in that shift in

legal partially because of the

inertia that this precedent

thinking drives in the legal

profession. What I tried to

distill in my book is a way of

proposing a pretty radical shift

in how lawyers think about

delivering legal services.

Instead of thinking about

delivering legal services in the

traditional way, which I would

describe as a lawyer-centric way

of delivering legal services.

Even if you look at something as

foundational as the billable

hour model. I think it's a great

example of a very lawyer-centric

concept. It's good for lawyers,

it helps protect lawyer's

profitability, it helps protect

lawyer's downside risk, but it's

not at all good for the client.

It is not client-centered. What

I posit in this book is there'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, and to tap into

what I describe as the latent

legal market. A latent legal

market is what I've refereed to

as a portion of the market that

is not able to access legal

services. Around 77 percent of

consumers that have legal issues

any given year do not see those

legal issues resolved by a

lawyer. You've maybe heard the

term "the access to justice gap."

That's really the access to

justice gap, in a nutshell is,

there's a very small minority of

legal issues that actually see

resolution through lawyers and

the legal system, 77 percent of

legal issues are not

resolved by lawyers. That latent

legal market is something that

can be unlocked through client-

centered thinking. This book,

The Client-Centered Law Firm

that I wrote, is really a

handbook and a playbook for how

to think innovatively about

designing your legal services.

How to think like an

entrepreneur. How to build

empathy for your clients. How

to rethink legal service

delivery in a way that is better

for consumers, helps consumers

see better legal outcomes, is

better for lawyers, in that it

helps make lawyers more

successful and more profitable.

Better for access to justice, in

that if we actually execute on

this vision of the client-

centered law firm, we're going

to help bridge that access to

justice gap, and we're going to

help deliver legal services to

that vast latent legal market

that is currently underserved.

Let's shift to your personal

psychology, because you've said

that the legal industry is the

last major industries that

resisted digital transformation.

That must mean you get a lot of

no's, and a lot of people who

say you're crazy. How do you

deal with them?

For one, I describe myself as a

pathological optimist, so even

if I hear no all day long, I'm

still going to be optimistic

that there's a yes right around

the corner. I think that

resilience is really important,

and that embedded optimism is

important in navigating all the

knows you're going to hear. It's

been said and commented on many

times that many of the best

startup ideas sound crazy to

start, and some investors talk

about using a yardstick now, how

crazy does the idea sound? If

it doesn't sound crazy enough,

they're almost not interested in

it, because it's not

transformative enough. Certainly

back in 2008, when I was walking

around these legal conferences,

talking about the idea of

storing your data in the cloud,

it was a polarizing concept. I

had deep conviction about back

in 2008 and still have today is

the idea that the average solo

or small firm lawyer is further

ahead storing their data in the

cloud than they are trying to

manage their own on-premise

system and trying to keep that

system secure and up to date.

That was a controversial opinion

in 2008. I actually think it's

probably almost generally

accepted wisdom today. I caught

a lot of flack for that

perspective of that opinion back

in 2008, 2009, 2010. I had

lawyers calling me and Ryan and

Clio outright irresponsible for

even allowing lawyers to store

their data in the cloud. How

dare we kind of conversations?

To navigate all of that to your

question around mindset I think,

number one, you do need to have

optimism, you do need to have

deep conviction that you're

right. You also need to be able

to persuade us not just hearing

the know and then walking away.

We listened to the reasons that

people supported the no with and

then thought how do we tackle

these? How do we block by block,

unpack this resistance and get

to yes? I'll give you a really

concrete example of that. The

number one thing we heard over

the course of 2008 and 2009 was

this concern about, is it

ethical for lawyers to store

their data in the cloud? Is

this even allowed from a

compliance perspective from the

State Bar, for example, that

they're licensed to and we

realized quickly that we can

either get dragged along by this

discussion, or we can try to

lead it? We said, if we can

lead it, we're going to be able

to lead the discussion to where

we want it to go, which is this

conclusion that storing your

data in the cloud is more secure

than storing it on premise.

What we started doing was

educating the industry. We

started writing white papers. We

started giving talks at every

conference we could get a

speaking slot at. We started

lobbying directly with the State

Bar associations to get ethics

opinions that were positive and

affirmative about the fact that

storing your data in the cloud

was ethically acceptable. We

started to see a huge amount of

success there and became, over

time, thought leaders on this

topic, where we're invited to

speak at the biggest conferences

in legal about the security and

ethics of cloud computing for

lawyers, and around why this was

acceptable. In hindsight, now

we're referred to as the people

and the company that helped

drive this transformation in

legal, and the adoption of cloud

technology in legal. I think

listening to the no, and having

conviction that that person is

wrong, is really important, but

then the onus is on you to

almost persuade them that

they're wrong, and that might be

a very long game to get there,

but that's the long game we

played, and like I said, 13

years later, in the legal

industry it's finally generally

accepted wisdom that the cloud

is acceptable for lawyers to use.

We're even shifting into a new

world where it's almost viewed

as a competitive disadvantage if

you're not leveraging the cloud

in some way as a law firm.

I definitely think you

pinpointed one of the key things

that we observe, which is,

change is constant and people

need to adapt, and if they don't

they're going to have a

challenge in the digital ride.

That became very prevalent in

COVID, with examples like

restaurants, or other

establishments. If you didn't

have delivery or digital

footprint, then you'd struggle

and you'd be forced to

immediately digital transform.

With Clio, did you have a

similar impact in COVID? how did

COVID impact your business and

the legal community in general?

Great question. Like many other

industries we saw a pretty

profound and a pretty rapid

shift in how lawyers needed to

run their practice as soon as

COVID hit. What we've seen with

COVID is 10 years of digital

transformation in legal, or more,

I would argue, compressed into

10 or 12 months. It's really

been that scale of change. Our

product roadmap, for example, is

the product roadmap we would've

been thinking about in the year

2030 really. Now it's a product

roadmap we're thinking about for

the year 2020. These kinds of

changes -- especially in an

industry like legal that is

fairly slow to evolve -- they

wouldn't have played out over

the natural course of events. We

really needed this crucible that

ended up being COVID-19, to

catalyze a lot of this change.

I think it's a net-positive

change in a lot of ways, despite

the obvious, huge human toll,

and economic hardship it's

caused for many. For the legal

industry, it is going to emerge,

I believe, better positioned to

thrive, and better position to

actually deliver legal services

to more people thanks to the

transformational change that

COVID has helped drive. A big

part of that is around

technology adoption, and being

able to lower the barriers to

accessing legal services, and

from the lawyer's side, being

able to lower the cost of

delivering legal services. To

give you a really concrete

example of what that looks like,

one of the largest structural

overhead costs any law

firm has -- beyond it's human

cost of labor and staffing the

law firm -- is the physical

space. The often expensive AAA

downtown office space that law

firms invest in to, most of the

time, impress clients. What

we've seen with COVID is that, a

lot of clients, a lot of law

firms, have realized, we

actually don't need that

expensive office space anymore.

We can deliver legal services

just as well. In fact, by a lot

of measures, better, over the

Internet. With our clients

sitting at home in their home

office, with our lawyers sitting

at home in their home office,

and everyone's got the

convenience of instant access to

that legal advice and legal

resource, without all the

friction of a meeting in that

bricks-and-mortar office.

That's a pretty exciting time to

be innovating in legal, because

it's a brave new world that's

going to, I believe, help open

up that latent legal market over

time.

You talked about the last 10

years accelerating, let's fast-

forward 10 years to 2030, what

conviction do you have today --

similar to the conviction that

you had for cloud -- that's

going to be equally as

transformative 10 years for your

customers?

The conviction I have for the

year 2030 is that the vast

majority of legal services will

be delivered in that cloud-based

way. That's a technology shift

that Clio's hoping to enable.

The second piece that is more

aspirational, that I would love

to help drive into legal

industry as well, is a shift to

a more client-centered way of

delivering legal services.

That's both a technology problem

and a mindset problem. We

need the mindset of the legal

industry to shift to this client-

centered way of thinking. The

way I think about it is that I

want the book, and other

educational materials to help

drive that mindset shift, but I

also want Clio the technology

platform to automatically

encourage lawyers that are

using it to operate in a client-

centered way. I want it to

almost be, call it the default

way of operating a law firm. If

you adopt Clio, is to be a

client-centered law firm. We

make it easy and frictionless,

and the software's almost

opinionated in how you do things.

Opinionated in the sense that,

the way you think, you should be

a client-centered, and we're

going to make it really easy and

frictionless for it to be client-

centered. By the way, the

benefits of that as a law firm

are that you're going to be more

profitable. You're going to have

happier clients. You're going to

have better outcomes for your

clients. You're going to see

faster growth because they're

feeding into this flywheel of

growth for your law firm, by

leaving positive reviews, by

referring friends and family to

you. We want to make that almost

an automatic side-effect of

using Clio, is being client-

centered as well. So the year

2030, I hope will be a year that

I can look at and say "We've

made a huge amount of progress

in making the legal industry

both cloud-based, and client-

centered."

What exciting times ahead,

really believe in that mindset

change, and we look at leaders

that are transforming the

economy, we call them digital

heroes. I think you exemplify

those characteristics. Congrats

to you and your recent success,

and all the opportunity you have

in the future. Thanks for

joining Jack.

Thanks for having me.

On the next episode of Decoding

Digital.

I think it's really easy to

compare your chapter 1 to

someone else's chapter 25. I

think there's a comparison game

we all play. It's just human

psychology, it's human

programming, right? It becomes

overwhelming when you compare

yourself to someone else, so

it's just easier to do you

versus you, one percent better

every single day.

CEO of ClickFlow, and host of

the "Leveling Up" podcast, Eric

Siu.

Thanks for listening to Decoding

Digital. Make sure you never

miss an episode by subscribing

to this show in your favorite

podcast player. To learn more,

visit decodingdigital.com. Until