What Business Are You Really In? Robin AI's Lessons for Legal Tech

In the movie The Founder, Ray Kroc's revelation that McDonald's wasn't in the restaurant business, but in the real estate business, altered the company's trajectory. McDonald's began selecting the locations of its stores and purchasing the land. Franchisees leased well-located property from the company, and McDonald's increased their margins by collecting rent.

Robin AI - A Legal Tech Parallel?

Robin AI made headlines recently when it was unable to secure a $50 million investment round. There has been considerable analysis of Robin AI's issues within the legal tech community. For example, Greg Lambert recently wrote about employee engagement, business execution, and the crowded market for products and services related to contracts.

There are now reports that Robin AI is close to securing an emergency buyer after laying off staff.

But perhaps the more fundamental question is: What business is Robin AI really in?

From Software to Services?

Robin AI markets itself as a software company. Their website states, "We don't just build software - we bring a team of legal professionals, engineers and educators, working with you hand-in-hand to deliver outcomes that make a difference."

In 2019, Robin AI may have been a software company, but their offerings today resemble a contract review service that an Alternative Legal Service Provider (ALSP) can deliver without proprietary technology.

Perhaps Robin AI is really a service provider, and its strategic issue is that it should be using technology instead of creating it.

Sweetgreen's decisive pivot

Last week, Sweetgreen, a healthy food restaurant chain, announced the divestiture of its proprietary technology for automating food preparation in select stores. The company recognized it was better to be a user of automation technology rather than the creator of the technology. By divesting, they are lowering their cost structure and freeing up capital for growth in their core restaurant business.

Robin AI, and much of the legal tech industry, could take a cue from Sweetgreen.

Here are four observations for the legal tech industry:

Technology User vs Technology Provider

Proprietary technology can create a competitive advantage for a business when it delivers a distinct edge. But there is a tipping point when off-the-shelf alternatives make it possible for other businesses to compete without having to build their own software.

It is very important for legal innovators to distinguish between using technology versus creating it. For law firms and law departments, it is the proverbial build vs buy decision. And for legal tech start-ups, it's even more important as you gain market traction.

LexisNexis offers a lesson here. It pioneered full-text search in 1973. They were light-years ahead of others. Fast forward to today, and they are no longer in the business of building traditional search engines. Are they a technology business? Yes. But I'd argue they use more technology than they create now.

It took LexisNexis about 40 years to transition away from its proprietary search technology. Today's legal tech companies must continually reassess the value of proprietary technology. Success may depend more on execution and pivots than on invention.

Hey Legal Tech, What Business Are You In?

There has never been so much investment in legal technology. As legal technology is monetized, it is essential to take a step back and reassess the business model. When does content-enabled software become an information business? When does software-enabled review become a managed legal service?

Planning and recognizing these nuances will be crucial to pivoting and directing resources where the market is leading you, versus where you started.

Cost structure

With the proliferation of large language model Generative AI solutions from Anthropic and OpenAI, Robin AI's technology may have been commoditized. How many other legal innovators may be facing this same situation?

If Robin AI's core competitors are indeed ALSPs, then sticking to technology creates extra expense and capital intensity that is no longer required. Just as Sweetgreen is divesting of its food automation technology, so should legal tech re-evaluate and pivot away from technology that no longer serves the core business purpose.

Valuations

Valuations are significantly different for SaaS software, information businesses, and ALSPs. This may pose challenges for legal tech startups that were valued as SaaS but are now being forced to pivot into a different category.

Smart innovators and investors will anticipate these shifts and do their best to stay ahead of this.

I have no knowledge of the inner workings of Robin AI. I admire the risk-taking of entrepreneurs who have taken the plunge, and my heart goes out to those whose jobs may be at risk. My hope is that Robin AI can right the ship.

The larger question for the market will be about the monetization of legal tech. How much can technology budgets grow inside law firms? Will law departments buy productized legal services? And how much of the value of legal tech will be monetized through ALSPs, tech-enabled law firms, or more efficient attorneys billing at higher rates?

The way legal tech is monetized and the velocity of monetization will significantly impact how current investments yield returns to investors. It will also influence future investment.

Like McDonald's in its early days, those who can reassess and pivot when the market changes have a greater chance of success.

Note: AI was used in the editing of this article.