"We Shrank to a Small-Business Model"

LegalMatch CEO Dmitry Shubov explains why his legal-services startup survived as better-funded rivals withered and died

When the dot-com bubble burst and Internet dreams were drooping like daisies in winter, LegalMatch CEO Dmitry Shubov saw his Web-based client-attorney matchmaking outfit blossom (see BW Online, 9/24/03, "Online Lawyers: Starting to Click"). Shubov spoke recently with BusinessWeek Online's Ted Popper about his business, the legal profession, and why it was an advantage not having a venture-capitalist aboard, Edited excerpts of their conversation follow:

Q: Who are your clients?


We serve consumers and small businesses -- any individual that has a legal matter in any area of law. On the business side, we serve businesses that are not in a position to put down a $100,000 retainer [with] a huge law firm.... Frankly, those major clients already have four or five law firms that they can choose to get their legal services.

Q: How do small businesses take to your service?


When a small firm uses our site, they can find a lawyer whose area of practice focuses on the services they most usually need taken care of. If the business owner is happy with the services the lawyer provides, there's no reason for him to sign back on with LegalMatch, so we end up loosing him as a client.

Q: Doesn't the trend among small businesses to maintain the same lawyer limit the amount of growth LegalMatch can expect.


No. The majority of our clients are individuals. The average person only turns to a lawyer in a crisis situation. You need a divorce, you go to a lawyer. You need a bankruptcy, you go to a lawyer. If you need to buy a house, you go to a lawyer. The lawyers that you're getting in each of those instances are different types of lawyers. You don't want one lawyer to be handling all of these various matters.

Q: Lawyers pay to subscribe to your service. What do they hope to gain by signing on to your roster?


This is the way of the future for a lawyer trying to find the right consumers for his or her particular practice. Lawyers are not taught in law school how to generate business, market their practice, or be successful business people. They're taught how to be successful lawyers. When they get out of law school, they have competing concerns. The one that they should be focusing on is becoming a successful specialist. What they end up focusing on are business issues, including marketing their practice. Legal Match allows them to outsource the marketing side of their practice and focus on becoming better specialists.

Q: There have been other outfits -- Sharktank.com, for example -- which tried to provide similar services, but went out of business. What did they do wrong?


I wouldn't point to one specific thing. Every company tends to do something wrong. Sharktank mispositioned itself to the attorneys through its name. On top of that, it had a very weak technology, which was dependent on raising additional venture capital to expand. It also never generated a viable revenue model. That's why it failed.

Q: LegalMatch started up in 1999, not too long before the Internet bubble burst. And yet you say you have seen over 60% growth per year since 2000. Why did you survive the downturn that put so many others out of business?


We weren't obliged to grow in a particular formula because we did not have any venture-capital (VC) investors. So when things turned very difficult at the end of 2000, we shrank the company down into a small-business model.

For the purposes of survival and growth we maintained a much lower burn rate. This is something you really can't do with a VC breathing down your neck, expecting you to go public within a year, or having a liquidation within two or three years at the latest.... Most VCs were in it to found firms that would become billion-dollar companies and [go public quickly]. If a company was not able to show this kind of growth, then the VC didn't want to be involved. And if a VC gave you $20 million, he wanted to control the company.

Without VC input, I was able to do...whatever it took. For example, I've been doing this for 4 years and for the first 2½ years, I didn't draw a salary. I threw all my money into this in order to make it work, as did a lot of the managing staff. I know lots of fellow entrepreneurs this happened to. A VC would see that a company was only generating $20,000 a month in revenue but burning through $200,000. So the VC would rather put the company into bankruptcy, instead of allowing it to bring down costs and end up with a successful small business.

Q: What are the biggest problems you have faced for lacking a VC backer. A: We don't have $30 million or $40 million to spend on general branding and advertising. So most people have not heard of our solution.... We have had hundreds of thousands of consumers use our service, but there are about 50 million consumers and small businesses that have never heard of us.

Edited by Roger Franklin

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