Chatting to Stephen Scanlan reminds Legal Geek of a philosophical scenario a wise woman once said on Radio 4: “If you were to ask a messenger on horseback from the 1500s what they would wish for to make their life better,” said the wise woman (sounding similar to Henry Ford), “they would probably wish for a faster horse, or a horse that doesn’t tire or require feeding. The ability to wish for a car, would have been unlikely to occur to them.”
Whilst the dreamers and fantasists of the 1500s may well have had a more vivid imagination than they are given credit for in this scenario, our wise woman makes an interesting point. Most people focus on improving the existing service, rather than delivering a totally new one.
Scanlan – who founded proofreading software XRef in 2009 and built it into a £7 million business with co-founder Travis Leon – is now trying to deliver something totally new to the Legal Tech market, and his chosen niche is in timekeeping.
“This new software is focused on enhancing time recording in a qualitative way,” he explains.
“I don’t want to say revolutionary but it is a different approach, it’s not just about making the current approach more efficient.”
Scanlan has an apology for us, he can’t say too much more about the specifics of the technology as he is under an NDA with a magic circle law firm “who wants to trial our product later in the year.”
Yet he does add that “the average hourly rate for a top lawyer is £500. If I can increase the number of hours any one lawyer gets to bill by 4-5 hours a week then this could potentially make the law firm a lot more money. In an audit done with one of the big law firms on how much time was lost or not recorded, it was hundreds of millions in lost potential revenue.”
If Scanlan’s time-recording software can help law firms plug such gaps then he will have an even bigger hit on his hands than XRef – which itself makes for a fascinating case study into the Legal Tech start-up world.
XRef’s origins lie in a 1am epiphany Scanlan had as a junior associate at Simmons & Simmons when he realised that there must be a better way to proofread legal documents than through a human processor.
“I was so frustrated. I googled free software for finding terms but I couldn’t find anything.
“Although there were programmes out there that did similar things A) they were really bad and B) they didn’t plug in to Microsoft Word. You needed separate programs and it was a nightmare. I knew for our product we would need to make it simple.”
Despite XRef’s ultimate success and sale, it is interesting to hear that Scanlan, 37, would do things differently if given the chance.
“I would say [to start-ups] don’t do things how I did it. I went slowly and I regret not going hard and fast. But we didn’t know that law firms would be queueing up down the line to buy proofreading software. I knew I was interested in improving this part of law practice but I didn’t know who else would be.
“Looking back, we would have raised money two years earlier than we did. If we had done that, we would have gone to market two years before our rivals.
Scanlan’s slower road involved working full-time as a lawyer – initially for Simmons & Simmos and then for Akin Gump – whilst giving XRef his time in the evenings, weekends and holidays. Meanwhile, his co-founder Travis Leon, an ex-Linklaters lawyer, worked on XRef full-time as soon as they raised seed funding.
Scanlan’s thoughts on this approach are fascinating.
“On the one hand, there is an opportunity cost when you don’t put in 100% – because every day you give 60% that is 40% lost.
“But on the other hand, if you go for it full-time as a start-up, you have to have emotional resilience. Yes, a top tier law firm environment is tough – it’s an environment where you need to bring your ‘A’ game to work every day. But you don’t have that existential risk every day.
“When we started building XRef, I was a junior associate at Simmons & Simmons and I was providing the primary income for the company. My business partners and I were watching our relatively small savings go into a start-up with no sales!
“So there were definitely some scary times.”
One such moment was when they found out they had direct rivals in their space.
“It wasn’t easy finding out we had a major rival who had much better resources than us.
“But in time we realised that having a competitor was useful because we were making a market for the product together.
“For a law firm having two guys come in saying ‘this product will help you’ is one thing but if there is another company with even bigger resources saying the same thing to them as well, that helps create the market.”
That market allowed the pair to sell XRef for what Scanlan describes as a “life changing amount of money” and for him to go into entrepreneurship full-time. Leon meanwhile went on to work for the company that acquired XRef, as a senior executive, running over 300 staff.
So does Scanlan miss the law, having done 8 years working for law firms in all?
“I truly liked being a lawyer. I really liked my day job but nothing gave me the buzz that a start-up gave me. Seeing someone write a cheque for your technology is amazing.”