An Insider Look at Onit’s acquisition strategy with CEO Eric Elfman
Caroline Hill, Editor-in-Chief for Legal IT Insider, talks with Onit founder and CEO Eric Elfman about BusyLamp – its fourth acquisition in less than twelve months. They talk about the strategy behind the acquisition and other recent acquisitions as a whole and the maturing of the legal tech market, particularly when it comes to legal spend. Read transcript
MEET OUR GUEST
Eric Elfman is passionate about building great software companies. A serial entrepreneur, he has founded four companies in the last 25 years, two of which have been software startups. Eric is a pioneer in the Legal Electronic Data Exchange Standard (LEDES) and an authority on the Uniform Task Based Management System (UTBMS).
Editor-in-Chief Legal IT Insider
Caroline Hill is a former lawyer in the city. She has been a senior reporter at Legal Week, news editor at Legal Business, and took over as editor of the Orange Rag in 2014/5.
Eric M. Elfman
Eric Elfman is the Co-founder and CEO of Onit, enterprise legal management software that analyzes legal spend, minimizes company risk, and drives process efficiency. Eric oversees the company’s overall strategic direction, planning, and execution.
Welcome to LegalTech Matters, a Litera podcast dedicated to creating conversations about trends, technology, and innovation for modern law firms and companies big and small.
Hi all – I’m Caroline Hill and editor-in-chief of Legal IT Insider. Welcome to the Litera podcast today where we are talking about enterprise legal management software provider Onit, and BusyLamp – its fourth acquisition in less than twelve months. I’m here to talk with Onit’s founder and CEO Eric Elfman about that acquisition and the strategy behind the recent acquisitions as a whole, as well as the maturing of the legal tech market, particularly when it comes to legal spend. Hi Eric.
Hi Caroline, thank you for having me.
Thanks so much for joining me. Eric founded Onit in 2010, and it’s grown to become a global leader of enterprise software, focussing on legal operations, contract management and platforms a.k.a. workflow and business process automation. So, Eric what does the acquisition of BusyLamp bring to Onit that you didn’t have already?
Yeah, good question. BusyLamp is a really cool, innovative disruptor in Europe. While Onit has a nascent business in Europe, the understanding of GDPR privacy and general value added tax schemes, essentially an understanding of the European marketplace is going to be invaluable to Onit. We’ve got almost a dozen customers here in Europe, but it’s a relatively young effort for us and so it’s going to give us a much better understanding of this marketplace, which is dramatically different in the US market.
Yeah, of course. But how will it fit in strategically with your existing offering? What does – what does that mean for customers?
Yeah. Well, look, if you’re keeping count, we now have three spend management or ILAM tools right. In the US, it’s really simple. Onit operates at the high end of the market, the Fortune 500 SimpleLegal, generally speaking, sells sub-Fortune 500. In Europe, it’s a little bit different. BusyLamp really sells to some of the biggest companies inside of Europe, but they typically have less of a complex legal department structure globally. That’s not to say they don’t have really big customers. And so, we hope to eventually expand Onit’s capabilities with the BusyLamp customers. That is the workflow platform, the AI platform, contract lifecycle management. We also hope to bring some of the stuff they do really well, like their Matter Space product and document management into our customers.
OK. But will it be? So, you will continue to maintain BusyLamp as a kind of discrete product?
Absolutely. This is our fifth acquisition overall in two and a half years. We’ve never bought a company to migrate their customers to Onit’s platform. We’re always buying younger, innovative companies that bring something to the table. And so absolutely the BusyLamp brand we will maintain and so will their product. There’s a bit for it in the marketplace around the world.
Cool and do you have to worry about? I guess, because you were talking about that very much a different customer base, you don’t have to worry too much about the because as you said, you know, I want to come on to the other offerings, but you now have three legal management platforms.
Do you how much do you have to? So, with BusyLamp fixing, I’m going to comment on a couple of the others, but BusyLamp, ELM billing but as you say they’ve got Matter Space. So, is it the case that it doesn’t matter, that they have got, it almost like this competitive offering, I suppose? But are you saying that it doesn’t really matter because they operate for different customers, different segments perhaps?
They do. You know, historically speaking, it would have been very rare that someone looking for ELM in Europe was comparing BusyLamp and Onit together. The different needs really didn’t have our customer segments overlapping, so we think that’s true. Now what will certainly happen over time, if left unchecked, as younger vendors all want to sell into the high end of the market, right? And they want to creep up into the richer deals. The problem is, the bigger deals come with more complexity, more implementation, longer sales cycles. So, part of what we did in the US with SimpleLegal and say, stay here, don’t get complex and you’re going to do just fine.
And they were happy doing that and they’re blowing it out. We’re going to the same of BusyLamp. In an ideal world, we don’t let them get dragged into complex enterprise software because then they’re going to have all of the problems that come with that.
And so, I think our going in will be if it’s a European headquartered business, BusyLamp will probably be the first place we recommend they look. And then if their needs are more complex, then we bring them to Onit to take a look at those capabilities.
Presumably they can. Perhaps, you know, in time, is there a sort of going to be a road map as it where they might migrate from one to the other?
Absolutely. That’s what we’re seeing in the states as companies get bigger and their needs get more complicated. And I don’t mean that as pejoratively as it sounds. It just happens when you’re part of a big company, then yeah, we hope to be there waiting with open arms when they’re ready to move into another system.
And tell me about service you’ve mentioned already, but new. So, it sounds like so. This is very clear at the outset when you announced the acquisition that the European element is extremely important in terms of your product boosting your presence. What does this give you in terms of the whole what? So, what kind of expansion? Does this give you what kind of your say, what sort of you know, how much is enabled you to spend already in Europe just by the acquisition?
Yeah, look, it’s funny if you just do it from a people count. We get to tenfold our employee count here from five to 50. But interestingly, that same tenfold works the other direction they get to tenfold their 50-person company to over 500 other family members now. And so, we give them some legitimacy and compliance in the IT world. We know how to do that very well. We hope to take over some of the heavy lifting of the things that get in the way of what I like to say a software company should really do, is build software, sell software, implement software, support software. Everything else kind of gets in the way. And so, a legal, compliance, finance, accounting, IT. We hope to eventually help the BusyLamp team not have to worry about those things and just focus on the product. And that’s what there other almost 500 cousins, I guess, around the world are going to help them do.
All a big family, right? So, does that mean that the same doesn’t apply to Bodhala, does it? Which again is legal spend analytics and benchmarking? Do you and Bodhala compete or complement each other?
Oh, pure complement. Because Bodhala is not an e-billing platform? They perform analytics on electronic invoices, but they always have to get those invoices from somewhere else, whether it’s a customer of Onit or our competitors or the law firms themselves. And so, if I look at Onit almost 20 products selling into the legal marketplace, they all really boil down to two broad segments: enterprise legal management and contract lifecycle management. Bodhala while not ELM vendor can augment with analytics and benchmarking, Onit, SimpleLegal and BusyLamp.
And so, think about them as sitting a layer above the electronic invoice, looking down on the data that we’re moving, providing more value to our customers, but not competitive at all because they don’t move electronic invoices, they just look at them and then say
So perhaps that question might be more appropriately, then directed at SimpleLegal. Where so that was May 2019 wasn’t it, I think? So that’s a little longer ago, just after K1 invested in you guys – K1 invested 200 million. And then I think in May you bought SimplyLegal. So, they do legal spend, legal matter management software. So again, is there a risk that you have – you have too many products doing the same thing or because of the arguments that you’ve already raised? Does that, is that not the case?
I don’t think it’s the case at all because again, there is a real bright dividing line between Onit and SimpleLegal. And you said they have spend management, matter management. I would say they just have spend management. And so, it is really when all you’re worried about or your challenges around the electronic invoice itself, not complex matter management.
SimpleLegal is a better choice in the US than Onit is. When you have matter management needs again, it typically is the high end of the Fortune 500. There is this bright line, SimpleLegal and Onit wouldn’t be in the same room pitching to the same customer segment.
And I think the same is true of BusyLamp and SimpleLegal and BusyLamp and Onit. That being said, is three of the same products too many? If there weren’t three different types of buyers, then maybe. But I simply, I simply think there are different buyer types for all three of the products and look the way the older vendors in the space of approach this, you know, everybody that sells at the Fortune 500 says, I want me some of the middle market, and so they downgrade their software. They come up with an essentials version or, you know, smaller, lighter version. It never works – right? And partly because the needs of the middle market are so different than the Fortune 500 requires a different piece of software. I would argue the same is true of Europe. And so, I don’t think this is redundancy at all.
One could say one day, how about just one eBilling platform supporting the different spend management, matter management? That may be something we think about one day.
Okay, would you describe? I mean, I talk a lot about platformization. Would you describe what you’re doing as platformization?
Not yet, although I would admit that’s the Holy grail. Right? The idea that at some point we can buy really cool technology and let them keep their user experience, their user interface, the same but re-platform the backend that is surely one of our grander visions.
Yeah, I mean, it seems like it would lend itself to that, right? If you had this, I have visions of and if they could progress from, particularly where you’re sort of talking about a growing company and the holy grail for all of the customers is that you single sign on having to go. Yeah. So fine. So, in terms of I know it was going to ask you how much thing. So, I mentioned K1 actually, I write a lot about private equity is amazing now how much money is coming into the legal tech space and how much they are actually driving this, which I think I’ve got some good relationships with some of the VCs and how much of the acquisition spree is driven by K1. If you’re able to say how much, how instrumental are they in the strategy?
Yes. So how much of this is because of them? I’d say very little. Right. I think the way it typically works out is companies like Onit do business with private equity like K1 because they want to execute to the strategy as opposed to private equity buying a company and saying, OK, we’re changing everything now we’re going to go buy companies.
And so, they haven’t really driven the segments that we buy in or the companies we do. We do our own strategy about what makes sense for Onit. That being said, once we set our sights on a strategy K1 executes to uncover deals and do all the initial conversations and help uncover the right deal.
And once we pick one, K1 will negotiate the deal and do the due diligence. But that’s where it stops. You know, the when is it when it comes to how do you integrate a business? How do you retain the employees?
All of that post the deal, all of that is on Onit. That’s not something K-1 – as we think about private equity. What do they do? They buy companies, right? This is their whole mission, and they either buy companies like Onit – that’s a platform or they buy companies for the companies they bought. And so, this is what they’re great at.
Yeah. And how as an observer, so my overall observation, where do you see the legal market when it comes to maturity, when it comes to legal spend and management, etc.?
Yeah. Well, it’s funny. I mean, there’s not a private equity firm on earth that doesn’t have a legal tech piece right now. You know, they want to invest in legal tech. But I’ve been doing this since 1995, when you couldn’t raise a penny to fund a legal tech business because the rule of thumb was you don’t fund businesses and sell to lawyers or doctors, right? Because those are partnerships. And so, the whole world has changed. It really is one of the hottest spaces. That being said, there are only a handful of platforms at scale in legal. And most of them have barely gotten over $100 million. There’s a couple of $200 million ones, but you think about that. That’s no Google, right? That’s no Microsoft. And so as interesting as legal is in the scheme of things, it’s still nascent, it’s still young and you can count the $100 million plus vendors on two hands, literally.
And so, I think there’s a ton of room to run. You do see folks like Disco, if you follow them, go public recently. Intact went public this year. So, you know, 20 years ago, you couldn’t imagine a legal tech company going public. Now I think it’s going to be possible for a lot of vendors and so exciting where it is. It’s still young. Even though I’ve been doing this for 26 years, the space is still relatively young and a lot of room to run.
I think one of the things that I talk about pretty much actually people are going to get very bored at this. But so, I talk about Microsoft and Teams in this space. I feel like that’s for me, one of the most interesting competitors of Microsoft with its billions.
You know, we talk about legal tech, but increasingly, I think that actually corporates, if we deal a lot with law firms. But I think the corporate market is far, far ahead when it comes to Teams and using it for collaboration and all that kind of things. Do you agree or do you see it as you know, how do you see that having an impact in your sector?
I don’t, but it’s a very interesting observation, and here’s why I think the same collaborative challenges that Slack, and Teams are executing to are exactly why Onit is winning in the marketplace.
And that is, you think of old enterprise software, a half a trillion dollars spent every year on enterprise software that knowledge workers don’t use. Unless you’re a financial or accounting person, you want to collaborate, you go to Outlook, you want to track your stuff, you go to a spreadsheet. And so, what we saw was a total lack of collaboration at the knowledge worker level, not messaging, because email is messaging, but collaboration that actually included the work product, the actual thing that was being produced by the organization.
And so, then we saw the emergence and apologies. I’m on a bit of a preaching here. Then we saw the rise of enterprise social software again, $10 billion-market now for things like Slack and Teams. But what? What is it, really?
It’s great for collaboration, but it also is disconnected from the work product, the actual contract repository or the actual matter data. There’s communication around it, and so it’s another disconnected place of knowledge around legal work. The gap Onit sought to fill is to not only be the collaboration, the workflow around legal work, not the system of engagement, is another way to say it. We are also the system of record. And so now in Onit, when you want to understand why you agreed to a limitation of liability five years ago that history is inside of Onit because the collaboration happened in Onit. If you’re storing the matter in one place or the contract and collaborating Teams on changes, how are you ever going to piece those two together five years later? So, I don’t see it taking over what Onit does.
Interesting…in terms of… so where do you see corporate… there’s the objective to be rather than to be reactive, it’s to be predictive, right? This is sort of the end goal. This is where you’re trying to encourage a lot of your client base to get to and perhaps rather than trying to analyse a story data, although there’s definitely a place for that to try to be working with real time data, I’d like to try to get them to be completely up to responsive in terms of that. Is that a reality for most of them? I’m just that. My, my, my, my feeling is very much not in the new year or at the very much at the coalface. How do you see? Do you see lots of progress? Has the pandemic accelerated that? Where do you think a lot of the corporates are at the moment?
Oh, zero. I mean, nowhere, right? I mean, this is the holy grail. Why do you collect electronic invoices from your law firms? Yes. To pay them better. Yes. To check outside counsel guidelines against them. But if that is where you stop, then you haven’t really yielded the full benefit of that data and so Onit has spent over $100 million in acquiring just two businesses that go straight at what you’re talking about, which is how do I take this data that I’ve collected or these invoices are flowing monthly and do something more proactive with it, i.e., predictive, i.e., actionable. And so, we are all about trying to make all of this data actionable the next time you do something, the next time you hire a law firm, the next time you create a matter or use your data to tell you what the next steps are, or actually to build the workflows, the dollar goes straight at this strategy. If you look at Onit and SimpleLegal and BusyLamp, we are really good at telling you what you have spent and whether it fits your guidelines. We’re not good at telling you, oh, and here’s the context of your peers and how other people are paying these law firms and what should you have pay. And so Bodhala is going to go to that. Our AI platform is going to go at reviewing invoices with technology to not just tell you whether you should pay this line item or not, but how do you structure a better relationship with the law firm going forward to have better outcome-based economics as opposed to the disincentive of the billable hour?
Yeah, and I guess you can help with benchmarking, can’t you. I mean, I’ve seen some corporate, some not many, but I’ve seen some corporates in some really cool stuff in terms of actually know as well, you know, firms being competitive that they are, you know, I’ve seen some of them doing some sort of like Gartner type quadrant show where they showed.
Where they are and they absolutely bottom left, bottom left, right, I mean, I guess that’s where, you know, I mean, that’s not rocket science, but the more you can be sharing that as well and making it a partnership with your law firm, right? Like the more you can be giving really intelligence-based feedback to the law firm as they grow. And then and then, you know, this is where you are doing things really badly and this is where I need something better. And actually, you know, in the top right. You know, I’m going to give you more work because you’re giving me less. I’m having to pay less to process your stuff, right? You’re not. I mean, all of that kind of that kind of relationship, the sort of the intelligence you could potentially provide helps to make things, the relationships a lot simpler and a lot more efficient, right?
I absolutely agree. Look, part of what we want to do is equip our corporate legal departments with data to structure better relationships with law firms. Look, I’ve been preaching about the disincentive of the billable hour for over 20 years. The first article I wrote in this space was called lawyers are vendors, too. Now lawyers aren’t bad people, but there is a disincentive to charging by the hour. Yet still, over 95% of billings are in the billable hour.
And so, I what we want to do is equip the legal departments when they go into timekeeper rate negotiations and not just talk about our rates going up 12% this year, but talk about is there a better way to structure these relationships? And part of it is the benchmarking. Here’s how often we’ve had to take action on your invoices just for lack of compliance with rules you already agreed to. And corporations have historically not had the data to bring to bear in those conversations.
And to me, that seems much more productive than some. Sometimes we are pleased. Go and take a look at how innovative I feel like you need to get the basics right? Almost. I mean, that is a valid question, albeit query what is innovation? But, you know, I think that they need to be looking really at the basics. And what is this cost going to be? Pretty much out of time. But maybe just in the last minute, if I can ask you, can look in your crystal ball, what do you think for corporates listening to this?
It will be. Is there like a next level spend revolution or evolution? What should they be thinking? You know, for the ones that are really looking down the line, what sort of dream do you think?
Yeah. Well, look, if I’m recounting the major phases, I think of legal tech, corporate legal tech, there’s matter management, spend management came later, right? tracking the electronic invoice came later on. Onit ushered in workflow management. I think we’re in the age of AI. I think, and this is one of our taglines about Onit’s efforts in AI. AI won’t replace lawyers, but lawyers who use AI will replace lawyers who don’t. Legal departments have got to be thinking about how to deploy AI. It’s a really tactical problems today, and we’re pretty plainspoken about what AI can and can’t do. It can take over a lot of the administrative that legal departments are embroiled in today and let every one of those employees focus more on the practise of law and risk management and mitigation than, you know, administrative tasks.
So that’s great. Eric, I’ve got to leave it there, but it’s lovely. So, thank you. Thank you so much for your time.
Thank you. Caroline.
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