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Ryan McClead

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Ryan is Principal and CEO at Sente Advisors, a legal technology consultancy helping law firms with innovation strategy, project planning and implementation, prototyping, and technology evaluation.  He has been an evangelist, advocate, consultant, and creative thinker in Legal Technology for nearly 2 decades. In 2015, he was named a FastCase 50 recipient, and in 2018, he was elected a Fellow in the College of Law Practice Management. In past lives, Ryan was a Legal Tech Strategist, a BigLaw Innovation Architect, a Knowledge Manager, a Systems Analyst, a Help Desk answerer, a Presentation Technologist, a High Fashion Merchandiser, and a Theater Composer.

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This is part 3 in a 3 part series.  Part 1 questions Goldman’s Sachs data showing that 44% of of legal tasks could be replaced by Generative AI.  In Part 2, we find some better data and estimate an upper limit of 23.5% of revenue that could be reduced by Generative AI. All of our assertions and assumptions will be discussed in further detail in a free LVN Webinar on August 15th.
The Big Idea:  We apply reductions in hours due to Generative AI to a few matters to determine Generative AI’s potential effect on profitability.
Key Points:
  • We establish a baseline sample matter and compare changes to that sample matter when Generative AI is applied
  • We explore how leverage is affected by Generative AI and how those changes may affect profitability in unexpected ways

Determining Generative AI’s effect on law firm profitability requires a bit more than a “back of the napkin” calculation with rough percentages based on keywords in time entries, as we did when roughly calculating the effect on revenue.

As Toby pointed out at the end of the last post, Generative AI is unlikely to hit all timekeepers equally.

We begin with this assertion.

Generative AI will disproportionately impact non-partner hours.

We are comfortable making this assertion for two reasons:

  1. Generative AI, in its current state, is most likely to replace or shorten the time to complete lower complexity and lesser specialized tasks that should be performed at the associate or paralegal level.
  2. Any time legal work hours are reduced, Partners tend to protect their own hours.

With that in mind, Toby began a profitability analysis, beginning with a baseline sample matter that does not factor in any use of Generative AI. We will use this baseline to compare against our AI adjusted matters.

Baseline M&A Sample Matter Data

Our baseline sample matter is loosely modeled on an M&A transaction and includes 5 timekeepers:

  • an Equity Partner
  • a 17th year service partner
  • 10th, 7th and 3rd year associates
TK Hours Rate Realization Revenue Expense Profit
EP 80 $1,000 88% $70,400 $15,200 $55,200
SP17 100 $895 88% $78,760 $48,500 $30,260
10yr 125 $735 88% $80,850 $48,750 $32,100
7yr 90 $660 88% $52,272 $32,400 $19,872
3yr 55 $595 88% $28,798 $18,150 $10,648

Estimated Annual Profit Per Equity Partner (PPEP) – $1,851 X 1400 hrs = $2,591,400

Leverage – 60% Non-Partner Hours

There are, of course, a number of assumptions in this baseline data that could greatly change from firm to firm, including the billable rates, the realization rate, and the expense for each timekeeper. However, we will keep this baseline data consistent across all of our examples in order to make a fair comparison. With different rates, realization, and expenses you will get different results. We strongly encourage every firm to perform a similar calculation for themselves.

Baseline Matter Analysis

The total hours billed are 450. The total revenue is $311k and the total profit in dollars is $163k.

Our model then translates the profit on this one matter into an estimated PPEP number for the firm. This is so we can determine profit margin impact separate from profit dollars.

In this baseline model, the PPEP number is ~$2.6m; meaning that if all work at this firm were staffed and billed like this one matter, the firm average PPEP would be about $2.6m.

Leverage

There’s an old adage in economic circles: “Workers Work. Owners Benefit.”
Continue Reading AI-Pocalypse: The Shocking Impact on Law Firm Profitability

by 3 Geeks (Ryan McClead, Greg Lambert, and Toby Brown)

This is part 2 in a 3 part series. The first part is here. Part 3 is here.

The Big Idea: We found a much better dataset, though still small, from which to extrapolate actual effects of Generative AI on the legal industry.

Key takeaways:

  • We got anonymized and summarized data for 10 corporate legal departments from LexisNexis CounselLink
  • The data showed that almost 40% of time entries, representing 47% of billings, could potentially use Generative AI.
  • We estimate that a realistic initial upper limit for Generative AI would be to reduce that work by half, or 20% of time entries and 23.5% of revenue

In the previous post, Ryan got tired of hearing the Goldman Sachs “44% of Legal is going away” stat being quoted uncritically and decided to actually look into the underlying data used in their report. Ryan’s exploration of the data is an interesting story in and of itself, but the bottom line is that the data is fuzzy at best, the sample size is laughable, and the breathlessly unquestioning reporting on Goldman’s study has been remarkably sloppy.

After writing up his findings, Ryan shared that post with Greg and Toby, and the question quickly arose, “can we find some actual, useful data to better understand the effect that Generative AI might actually have on law firms?” Gregreached out to Kris Satkunas from LexisNexis CounselLink, a recent interviewee on the Geek in Review, to see if CounselLink could share some anonymized benchmark data for us to analyze.

LexisNexis CounselLink Data

As a reminder the Goldman data was using survey questions about how important certain “work tasks” were for their jobs. Those tasks included things like “Getting Information”, “Identifying Objects, Actions, and Events”, and “Scheduling Work and Activities”. These are quite vague and wide open to interpretation.

In an attempt to find more useful data for our purposes, we asked Kris for the percentages of all time entries that included the keywords “Draft” or “Review” in the description. Our assumption is that those two terms will capture a large percentage of actual time entries in which lawyers are likely to use Generative AI. We fully recognize that this simple heuristic will not produce a clean data set from which to extrapolate definitive results, but as a first pass at some real data, we believe this gives us a nice estimate of tasks that could potentially be ripe for automation with Generative AI.
Continue Reading Generative AI Could Reduce Law Firm Revenue by 23.5%

This is the first in a 3-part blog post, it first appeared on The Sente Playbook.  The other 2 posts are co-authored by Toby Brown and Greg Lambert and will follow later this week. Apologies for the length of this post, but I was channeling my inner Casey Flaherty.
The Big Idea:  The data that Goldman used is insufficient to make the claims about Generative AI’s effect on legal that their report did.
Key Take-Aways:
  • Reporting about this report is sloppy
  • Reporting within this report is sloppy
  • The underlying data doesn’t tell us much meaningful
  • 3 Geeks attempts to find meaningful data
On March 26th, 2023 Goldman Sachs sent shockwaves through the legal industry by publishing a report claiming that 44% of “something” in the Legal Industry was going to be replaced by Generative AI.  I didn’t question that stat at the time, because it sounded about right to me.  I suspect that was true for most people who know the legal industry.  As I’ve heard this stat repeated by multiple AI purveyors actively scaring lawyers into buying their products or services, I eventually started to question its validity.
I started by looking into the press coverage of that 44% number and was immediately confused.  (All emphasis below added by me.)

Law.com  – March 29, 2023
Generative AI Could Automate Almost Half of All Legal Tasks, Goldman Sachs Estimates
“Goldman Sachs estimated that generative AI could automate 44% of legal tasks in the U.S. “

Observer – March 30, 2023
Two-Thirds of Jobs Are at Risk: Goldman Sachs A.I. Study
“The investment bank’s economists estimate that 46% of administrative positions, 44% of legal positions, and 37% of engineering jobs could be replaced by artificial intelligence.

NY Times – April 10, 2023
A.I. Is Coming for Lawyers, Again
“Another research report, by economists at Goldman Sachs, estimated that 44 percent of legal work could be automated.”

Okay, so which is it?  Generative AI is going to replace 44% of legal tasks, positions, or work?
Because those are 3 very different things; each of which would have extremely different impacts on the industry if they came to pass.  Lest you think I cherry-picked three outlying articles, go ahead and Google “AI Replace 44% Legal Goldman Sachs” and see what you get.  Those 3 articles are in my top 5 results.
My top result as of this writing is a news article from IBL News, writing last Tuesday that Goldman says,  “AI could automate 46% of tasks in administrative jobs, 44% of legal jobs, and 37% of architecture and engineering professions.”
We should probably just go back to what the Goldman Sachs report actually said and then we can chalk this up to lazy tech journalism.  Well, not so fast.  Because while the Goldman researchers clearly say “current work tasks” (see below) even that begins to fall apart once you dig into the underlying data.

What Goldman Sachs actually said in the report

Continue Reading 44% of Investment Bankers Think They Can Make Lots of Money Off of Attorney Insecurity (AI)

Jimmy Baikovicius from Montevideo, Uruguay [CC BY-SA (https://creativecommons.org/licenses/by-sa/2.0)]

Last Friday evening I attended Winter Jazz Fest, an annual New York City tradition that sees hundreds of performers playing a dozen or more venues over a few nights each January. I made it to 5 concerts at 5 separate venues in the Village before finally hailing a cab and heading back to Brooklyn at 1AM on Saturday morning. All of the acts I saw were memorable. Some of them were amazing performers. Some played incredible music. I would likely go out of my way to see one or two of them perform again, and dare I say it, I may even (gasp) BUY an album or two. However, by far, the most remarkable act I saw that night was The Legal Innovation Project.

Of course, that was not actually their name, but T-LIP, as I have come to call them, played a brand of technical speed jazz reminiscent of a frenetic Spyro Gyra on Quaaludes. It’s not my favorite style of music and I don’t know that I would have enjoyed simply listening to their session, but watching the interaction between the musicians on stage was Epic Theater beyond anything Brecht ever achieved and would have justified the cost of the festival ticket on its own.

The drummer and the bassist were mostly heads-down, steadily plowing forward, seemingly unconcerned with (or possibly unaware of) anyone else on the stage. The pianist intermittently slapped at keys, his eyes darting back and forth over sheet music laid flat across the open Steinway. Two soloists, unfortunately out front and facing the audience, stared intently at music stands in front of them. They would occasionally half-turn and give each other furtive glances of confusion. Every once in a while, one would raise an instrument and blow a few tentative notes that appeared to have no relation to the chords or beat being laid down by the rhythm section.
Continue Reading The Hep Sounds of The Legal Innovation Project

Today’s Guest Post is from Shashi Kara, my partner in Sente Advisors. – RPM

This article about companies not getting the value from innovation that they were expecting, got me thinking. How do we know if an innovation is valuable?  I would argue that the value in innovation isn’t in a specific innovative product or process, but the knowledge gained over time as the flow of innovation leads to new learning and further iterations.

Apple G4 Cube

In July of 2000, one month after I started working at Apple as a doe eyed graduate, they introduced the Power Mac G4 Cube.  It drew lots of enthusiasts and fans because it stuffed so much into such a small package.  The only other “Power Mac” in Apple’s line up at the time was an enormous 30 lb tower.  Many point to the G4 Cube as being the beginning of the Apple’s modern golden age whereby design and hardware were so seamlessly linked that Apple was able to bring about products no other company could build.
Continue Reading Innovating for the Power… and the Sex

RyanMinkoff [CC]

About a year ago something happened to me professionally that really set me off.  I fired up my laptop and spewed all of the venom in my heart into a ranty draft blog post.  Before posting it, I sent it to a few people for review.  They all agreed I’d been wronged.  Several encouraged me to publish immediately, a few suggested I should give it some more thought.

I was going through some personal difficulties at the time and I feared that some of my vehemence may have been misplaced anger, so I shelved the piece.  I left it in the drafts bucket on the blog and there it sat until last week.

Last week, through an unlikely comedy of errors, my rant was published here under the wrong byline.  If you receive 3 Geeks via feed, you may have received the unvarnished post.  It was picked up by a couple of aggregator newsletters too, but by the time you clicked the link to read the article in full *poof*, no post.  We had already realized our mistake and replaced my rant with the correct content.

Even though I wasn’t listed as the author of the rant, I received several inquiries from friends who had read the post before we fixed it. They recognized my style and were confused as to what happened and why had it been taken down.  Some were disappointed because they thought my post would start an interesting conversation about the free exchange of ideas in legal.  Some were dumbfounded because I was referencing ‘my marketing team’ when they know my new company (created several months after writing the rant) is too small to have a marketing team.  And a few were astonished that I would let fly a blue streak of expletives…no, a few were astonished that I would PUBLISH a blue streak of expletives. Had I gone forward with publishing at the time, I would have substantially edited the post.

I re-read my rant on the morning it was accidentally published, and even though I’m in a much better place personally than I was last year at this time, it turns out I’m still just as upset as I was when I originally wrote it.  So, with minimal editing (mostly for language), and in the hopes of starting a conversation about the free exchange of ideas, how to address plagiarism in a small community, and the abuse of pay-to-play events in legal, here is my Phantom Post.Continue Reading The Phantom Post

I’ve gotten a bit of grief from friends and colleagues for starting a series of blog posts on lessons I learned from my time as a musician and composer that I now use every day in my capacity as a legal technologist, then building to the announcement that I’m starting my own consulting company, and then immediately dropping off the face of the earth again.  I will come back to that series shortly, I promise, but as you can imagine I’ve been all consumed with the new company for the last few months.

As I write this, I am sitting on a train from New York to Boston to attend the College of Law Practice Management Futures Conference, where I and Geek #1 will be inducted as fellows.  Toby and Casey are already fellows, so we’re quickly approaching Phase 2 of 3 Geeks World Domination, (ed. – First rule of 3GWD: We don’t talk about 3GWD, Ryan!) but my 4-hour train journey gives me a bit of time to reflect, regroup, and rewrite.

The interesting thing about starting a company in the midst of a series of posts about lessons from a past life, is that it makes me think a lot about how I’ll use the lessons I’m learning today in my future endeavors. Here are a few lessons I’ve learned in recent weeks that I’m planning to keep in mind as I go forward.

1) Approach new opportunities as if you know nothing.
Continue Reading Lessons for a Future Life

If you’ve been reading this blog for more than a few years, you may have wondered what happened to Ryan. Until about a month ago, I had only written 2 or 3 posts in the last 2 and a half years.  If you check my work history on LinkedIn, you’ll see that my dearth of writing coincides with my departure from a large law firm and entry into the vendor space.

In a large firm I was busy, but I could focus on the things in front of me knowing that all the other business pieces were taken care of. In my free time, I could write on 3 Geeks regularly. In a startup/small tech company, everyone wears a lot of hats. I traveled a lot, I did marketing, business development, product testing, and I built solutions for clients. If I wrote, it was usually web content for the company, or thought pieces for publication. Writing for the blog was complicated, because I always felt compelled to write about my company’s products or solutions and I never wanted to take advantage of 3 Geeks to advertise. What changed in the last month, you ask?  Well, I quit my job.
Continue Reading Introducing Sente

The final assignment for one of my college theory courses was to write at least 32 bars of music for 4 voices, containing 3 key and 2 time signature changes, that demonstrated 6 of 10 special techniques that we’d been taught, all while adhering to the standard rules of 4-part harmony.  And rather than simply writing it out and turning it in, we had to perform it in front of the class.

We were given the final assignment halfway through the course to ensure that we had plenty of time to complete it.  The last week of class was entirely devoted to performing our assignments. Some people played their pieces on piano.  Some dragged string or brass quartets into class. My best friend did his as a barbershop quartet.

The performances were good – most of the class were talented musicians – but the compositions were mostly ‘exercise-like’.  I hate academic exercises. I did then and I do now. I need work to have purpose and meaning beyond simply ‘that’s the assignment’. So while most students stood up and said something like, “this is my final assignment, it was really hard, I’m not a composer, please be nice to me”, I took a very different approach. I went to the front of the class and said something like this…

Our reluctant hero, a young peasant Boy, is approaching the end of his quest. He and his travel companion, an aging Wizard who has mentored the boy throughout their journey, stand on a bluff overlooking a lush green valley.  At the opposite end of the valley is the gleaming city where the Boy’s quest will finally come to an end. The Boy, eager to complete his quest, struggles to contain his excitement, but the Wizard motions for the Boy to come sit by his side.  The Wizard sings…

Continue Reading Lessons from a Former Life #4

Capture d’écran de Musescore 1.2 utilisé sous KDE

When I first moved to NY, I wrote all my music out by hand.  I’d buy staff paper with the lines pre-drawn, and I’d fill in clefs, time signatures, key signatures, measures, notes, etc.  This worked great, except that it was extremely time consuming, labor intensive, and my music notation was almost as bad as my handwriting, so even I had trouble reading it.  Thankfully, at about the same time, affordable music notation programs were coming on the market and surprise surprise, I was an early adopter.  These programs connected a PC or Mac to a keyboard using the Musical Instrument Digital Interface (MIDI) and frankly, there were more than a few bugs in the system.

It was not uncommon for me to spend all day, playing music into the computer, reformatting, spacing it just right, and meticulously editing lyrics, only to have the program crash right before I took a break for dinner.  Just like working in word processors of the time, I learned to save my work often, but unlike word processors, saving work was not necessarily an indication that I could actually retrieve my work later. The midi files would often become corrupted at which point, none of my work was salvageable.

The first few tens of times this happened, I was completely dejected. All of my time and effort was wasted.  My brilliant compositions were lost forever, sacrificed to the fickle and wicked gods of MIDI.  I cursed the software, the computer, the keyboard, and myself for being such a lazy composer.  Mozart never had notation software, and he seemed to do okay.  Every time this happened I would sulk for a while, have stiff drink or two, and start all over again the next day.

Over time I began to notice a pattern emerging.  The work that took me all day to do the day before, only took half a day to complete the second time around, and in the process of recreating my earlier work, I invariably streamlined, simplified, and generally created something markedly better than I had done the day before.  This was universal.  I never once ended up with a worse piece of music having lost my original to MIDI corruption. Over time I came to relish in these opportunities.  I would rock up to dinner with friends, beaming with satisfaction and when they asked why I was so happy, I’d say “I lost all the music I wrote today to corrupt MIDI files.”  Needless to say, they thought I was nuts, but in my experience lost to corruption meant that I was going to create something even better the next day.Continue Reading Lessons from a Former Life #3