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Dot-Coms and the Practice of Law

This week, not one but three law blogs offer a retrospective of the dot-com era and the lessons that law firms can learn from the dot-coms. First up is Bruce MacEwen with his post, $500,000 Is The New $5 Million, where MacEwen highlights recent lessons from the dot-com bubble that he gleaned from two recent articles in the Wall Street Journal and the New York Times. From the WSJ, MacEwen learned that perhaps the period of the Web bubble had too few of the right kinds of start-ups. And what were the right kinds?

The most successful startups—survivors today—were niche spots like wrestlinggear.com, which sells equipment to high-school and college wrestlers.  But by definition it's never going to "get big," and certainly not "fast."

It turns out there were lots of nooks and crannies for entrepreneurial action," says Prof. Kirsch. "But those nooks and crannies might have been $5 million or $10 million businesses -- well worth doing, though not necessarily for VCs."  ("Prof. Kirsch" is David Kirsch, professor of management at the University of Maryland's business school and one of the authors of the study.)

And from the For Start Ups, Web Success on the Cheap, MacEwen discovered that the costs of getting a new tech company off the ground today are substantially less on several orders of magnitude than back in the dot-com heyday. And while you'd think smaller is better, the problem now for VCs is that many of these companies are too small to warrant substantial investment or returns. MacEwen's lesson for law firms from all of this:

So when you're considering "innovation" at your firm, let a thousand flowers bloom.  But have the discipline of the steel-nerved trader (the only ones who survive):  Be merciless about cutting your losses, but be profligate about letting your winners run. Successful innovation, in other words, is for agnostics. Admit that you don't know in advance what will work.  (If you did, would you be practicing law?)  In the long run, only the market (your partners, your clients) will tell you whether an innovation is a hit or a dud; so the more experiments you can seed, the better your odds of some significant victories.   And then, sure, you can say, "I knew it all along...."

Over at the Legal Profession Blog, Jeff Lipshaw offers this post, which also discusses the WSJ story. Lipshaw begins by noting that the study underlying the WSJ article showed that dot-coms really had an 80 percent success rate, a fact that was obscured by massive failures of boondoggles like etoys.com or pets.com. But the 80 percent of companies that survived were smaller, targeted specialty sites like wrestlinggear.com, which sells equipment to high-school and college wrestlers. For Professor Kirsch, who authored the study, the success of these niche sites was enabled by the Internet, which ironically, despite its broad reach, has allowed many companies to succeed on a narrow scale. To Lipshaw, there's an opportunity here for law schools and curriculum changes:

So what are the curricular opportunities?  This is an area ripe for interdisciplinary programmatic innovation, with the basics of business organization, financial services, and commercial law currently offered, as well as advanced seminars in say, economics and ethics for business lawyers, or creative problem-solving for business lawyers.  And the capstone ought to be hands-on experience in the smallMorschth business clinics (whether based in university technology transfer or low-tech entrepreneurship, or urban or minority entrepreneurship) that are springing up at law schools across the country (as to which Tom Morsch (right) at Northwestern has been one of the guiding lights).  And that seems to me to be the perfect way to address, from a social policy and economic development standpoint, some of the dead zone issues, at least for some of the really good but VC-unfundable business plans.

There is untold untapped opportunity in teaching small ball business law. There were plenty of bright, motivated, entrepreneurial law students at IU-Indianapolis - I know because some of them were my students - who saw this kind of small ball as an alternative to the big firms.  The downside for young lawyers starting off in small ball law is the loss of training those firms provide, but providing that training (within or without the traditional three year law school term) is the curricular opportunity for all of us.  And maybe even some good scholarship about the dead zone.

And finally, over at MyShingle, I've picked up on these stories as well and noted that the 80 percent success rate for tech start-ups ought to inspire law firm start-ups as well.

Posted by Carolyn Elefant on November 9, 2006 at 06:08 PM | Permalink | Comments (1)

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