Future-Proofing Your Firm in the Age of AI, with Jack Newton

Episode Notes

Transcript

Zack Glaser:

Hi, I’m Zack.

Stephanie Everett:

And I’m Stephanie. And this is episode 587 of the Lawyers Podcast, part of the Legal Talk Network. Today I’m talking with Jack Newton, CEO of Clio about a small firm’s response to all the things that are happening in the world today with ai.

Zack Glaser:

So Stephanie, thinking about small firms and the different responses that they have. A lot of times we think about small firms and we think solos or firms that are early in their journey. We think about small firms and firms that don’t do a lot or something like that. There’s a lot of, not that don’t do a lot. There’s a lot of,

Stephanie Everett:

They’re working on scaling, they’re working on their ops, they’re trying to hire, they’re early. I think you nailed it when you said early in their growth stage in terms of their business, right? They’re in that,

Zack Glaser:

Right.

Stephanie Everett:

What do we do next? And we have a lot to tackle kind of stage,

Zack Glaser:

But not all small firms are in that stage.

Stephanie Everett:

No.

Zack Glaser:

You just did a retreat for some of our more advanced firms that we have in our Lawyers Lab program. You went to Tulum, Mexico.

Stephanie Everett:

I know know, everyone feels sad for me that I had to go to Mexico for work. I had to spend a few days, I’m sorry, it’s

Zack Glaser:

Like raining and cold here, and you’re in Tulum, Mexico sending photos from the beach.

Stephanie Everett:

I know it was torture, but I read a good meme that said, you need to make small decisions in a meeting, big decisions at a bar, and huge decisions on the beach. And I was like, okay. And so this was a retreat where you make big decisions. And I had a group of law firm owners who, like you said, do they have it all figured out? No, but they’re in a different stage of their development. They do have teams in place, they do have systems in place, but now they’re thinking about what’s next? What’s that next level of leadership that I need to bring as now they’re being challenged to lead the leaders, right? That’s a new level

Of opportunity that our clients face as they begin, as their firms grow, as they mature. Maybe they want to differentiate themselves in the market. They’re looking at different revenue streams, they’re thinking about profitability different, and they’re really thinking about their role different. So it’s interesting. I’ve been kind of contemplating this for the last couple of days because some of the issues they’re struggling with feel very similar and that they feel I’m the bottleneck. And when you’re early in your growth stage, you do feel like I’m the bottleneck, but you’re at the bottleneck and you need to hire a team. Now at this stage, you’re still the bottleneck, but it’s showing up differently as you continue to offload work and delegate to a team that’s doing the work and freeing you up for some of the bigger picture strategy thinking that is required.

Zack Glaser:

You always be the bottleneck if you think about it. And I hadn’t really had it in my brain where these stage four firms, these stage three, stage four, that are thinking about legacy, that are thinking about things like that. Yeah. The firm owners still should be the bottleneck because they’re getting everybody else in place and they’re the ones on the vanguard on the cutting edge of what the firm is doing. And so yeah, they’re probably the ones that are trying to get things figured out. And sometimes that’s slower and sometimes that winds up feeling like a bottleneck.

Stephanie Everett:

Yeah, I don’t know. I’m going to keep processing on it, but it definitely, I don’t know. But I definitely think the message here is that no matter what stage your firm is in, there’s still opportunities for growth. Not necessarily growth in terms of people, but maybe in terms of your own personal development or how you’re thinking about your business. I think that work never stops. Sometimes people think, oh, I’m going to have this business and I’m going to build it, and then one day it’s just going to run, and then my job here is done. And I think that probably is false. Sorry to tell people that No, there’s just different, it changes. It evolves, but it still requires, and you have to change and evolve with it. And that’s what we were doing at this retreat is really thinking about what does that change in evolvement look like for us as leaders?

Zack Glaser:

I like it. Well, on that note, what does that change in evolvement look like to us as law firm or lawyers in this new crazy ass age of artificial intelligence helping us with our firms? And that’s what you’re talking about with Jack Newton here shortly.

Jack Newton:

Hi, I’m Jack Newton, the founder and CEO of Clio.

Stephanie Everett:

Hey, Jack, I’m excited to talk to you today. We’re here, we’re actually live at ClioCon. Yeah, 8 25. Isn’t this fun? Always so much fun. So much energy in the room. Your team brings it. They do an amazing job.

Jack Newton:

They kick things off and then the attendees keep it going. It’s always one of my most enjoyable two days of the year. I just love it.

Stephanie Everett:

Absolutely. And it’s super exciting because your keynote this morning kicked off all this amazing stuff that you guys are doing. I mean, there was a lot packed into,

Jack Newton:

There’s a lot in there, keynote.

Stephanie Everett:

There’s

Jack Newton:

A lot in there,

Stephanie Everett:

But I want to dig into a few of them. So one of the big announcements that maybe have people a little bit nervous in the room is that cleo’s going, investing more heavily in upmarket and announced Clio for enterprise for Clio,

Jack Newton:

Clio for enterprise,

Stephanie Everett:

Clio for enterprise. Yes. And so what I thought I would do with you is we deal with a lot of small firms, and I’m going to sit in their shoes and think about what they might be afraid of. And obviously the first thing they’re probably afraid of is, Jack, glad for you, but what does this mean for us? Are we in jeopardy? How do you focus on that larger market and still innovate for the small firms?

Jack Newton:

Well, I understand that concern, and I really deliberately wanted to try to get ahead of that in the keynote in emphasizing that this is not an OR proposition. This is an and proposition. We are making a dedicated net new investment in the enterprise. This is a dedicated team. This is an incremental team, and Clio is now of a scale where we can make these kinds of investments and not make them at the expense of our solo and small to medium-sized firm foundation that we’ve built this company on. And just to give you a sense of Cleo’s scale today, we are well over 300 million of annual recurring revenue. We’ll end this year at over 2000 employees. So we’ve become a very scaled company. And if I was a solo or small firm customer of Clio, I would actually be excited about this evolution because it’s just about more opportunity and more ability to invest from Clio in our core technologies that benefit firms of all sizes. One great example of that is the investment we’re making in ai. And again, we took a big swing this year with the acquisition of VL for a billion dollars. I Know, not an insignificant sum. And we’re bringing that technology. And I think that was another something you saw being very well received in the keynote is the technology behind Vincent is being woven into the fabric of Clio. And this was a technology that just six months ago was only accessible to the largest law firms in the world with deep pockets. And now we’ve woven that into Clio work in a very accessible way, in a way that actually gives small to medium sized firms capabilities that are even more powerful than their large firm counterparts might have.

And so this idea that we’re able to invest and make very deep investments in technology with a view that those technology investments will accrue to the benefit of all of our customers, regardless of whether they’re a solo or a lawyer practicing at a thousand person firm is really our foundational thesis. And that if we do a good job of executing on this vision and capture everything from the small to medium sized segment all the way up to the enterprise, we’ll be better positioned than any other company in the world to make truly deep and transformative investments in technology. I’ll tell you the simple math that should also let our small to medium sized customers sleep easy at night, and that is 80% of all lawyers practice in firms of 10 lawyers or less. Half of all lawyers practice is solos. And the founding thesis of Clio was even if all we ever did is service that segment, that would be a significant super majority of the market, and we have no plans of turning our back or turning away from that segment of the market. If anything, we’re doubling down in that segment and see enterprise, as I said, it’s a net new incremental opportunity that will ultimately allow us to better serve that solo small firm segment.

Stephanie Everett:

Well, I love it. We’ve talked about this before too. I always say my small firms, they’re the little speedboats of the world. And so they can embrace this technology if it’s accessible to ’em. I think they are well leveraged to really make big jumps in the market right now.

Jack Newton:

Absolutely.

Stephanie Everett:

I mean, the big firms are the barges that

Jack Newton:

Are, I couldn’t agree more. And we saw that in the cloud adoption cycle. And frankly, that’s one of the reasons we focus so intently on solos and small firms is they were in such abject pain in the on-prem world that they jumped to the cloud and they immediately embraced it because they immediately saw the benefits of the cloud. And I’m seeing the same pattern with ai. These solo small firm lawyers that I love the analogy, they are the speedboats of the legal industry, and they can see a technology that can help them and have it implemented and adopted the next day.

Stephanie Everett:

I know I have the benefit. So I had a immediate mid-size firm call me and they’re like, we want to help your help with ai. And I was like, awesome. And they’re like, can you be on our AI committee? And I kind of laughed. I was like, let me get back to my small firms where we build it onsite with them in an afternoon and it’s up and

Jack Newton:

Exactly. You don’t need the partners to sign off on it. You don’t have a committee. And I think solos and small firms should realize this agility is their superpower and getting things done at large firms. Yeah, they’re big scary monoliths on one hand, but they are many of them. This isn’t universal, but many of them are slower moving. There’s a lot of committees, there’s a lot of approvals, there’s a lot of sign-offs. And again, the pace at which technology is advancing, these solo small firms are uniquely well positioned to take advantage of that pace of change and leave their slower moving counterparts. And by the way, there’s slow moving counterparts in the solo small firm space as well

Stephanie Everett:

For sure.

Jack Newton:

But if you just figure out how to be on the front half of that technology diffusion curve, you’re going to be in a massively improved competitive position.

Stephanie Everett:

Yeah, no, I agree. So you did even show us so many things this morning that Clio work can now do, but there’s a lot to unpack there, and I still feel like there’s probably sitting back as excited as I was, I was like, okay, some of this tech is still, people need to learn how to use it and they need to get comfortable with it. So I guess I wanted to ask, if you’re getting started with it today, where would you tell people to start? What’s the low hanging fruit? They’re like, okay, I’m ready to do it. I’m a speedboat, but it’s also overwhelming.

Jack Newton:

Yeah, it is overwhelming. There’s a lot to unpack, but I think what’s so great about having these technologies integrated deeply into Clio is we actually want AI and what we’re building with Clio work to feel like a current that is pulling you through your workflows rather than something you’re needing to seek out and figure out how to use. So to give you an example of what that looks like, if you buy Clio today and you buy Clio work, it’s this intelligent, intelligent legal work platform with Clio work at the heart of that platform helping you understand your own matters and the legal issues in those matters better. So all you need to do is work in Clio as you normally would. You upload your documents, you describe your client, and Clio work will transparently in the background, start parsing your documents, start understanding your case, starting looking at the dockets that relate to that case and surface insights to you and offer you help.

And it will offer you to advance the case in specific ways. And again, act as this silent force kind of pulling you through your workflows. And I think that’s AI at its best. If you look at even the interactions you have with chat GBT, maybe asking it a simple question to start with, it often has a follow on suggestion almost, would you like help building a spreadsheet to track the invitations to your birthday party? And we see Clio work as having the same kind of opportunity where thanks to the context we have in your practice, we’re seeing the incoming emails, we’re seeing the dockets get updated, we’re seeing updates from calendar rules in terms of key deadlines that are coming up. We’re seeing every document that is flowing into that matter. We have this incredibly rich context to help you decide what the next action you should take. And in some case, we can even help start taking that action on your behalf. And so I think when it’s executed well, AI is not something, I think the way so many people feel right now is I’ve got five different AI point solutions. How do I actually put them in my workflow? We believe AI should be woven into your day-to-day workflows where leveraging it and taking advantage of it actually feels effortless. So to answer your question in kind of a long-winded way,

The answer is just start using Clio as you normally would, but with Clio work turned on, and you will start to see all the places you can leverage AI in your practice automatically surface to you. Okay. The other thing is you can, I always say experiment with ai, play around with it. You’re Going to be able to go into Clio work and ask the dumb question of Vincent that you might’ve been afraid to ask your associate or your colleague.

Stephanie Everett:

I think that’s a hard one for lawyers because I mean, I think someone on your team said this to me yesterday. Lawyers inherently are trained not to fail.

Jack Newton:

Yes.

Stephanie Everett:

Perfection is so much a part of our profession of what we’re expected. So the idea that we would go and create a place where we play and experiment is very hard for us.

Jack Newton:

It’s very counterculture. I think you’re hitting on a super important point, but I think what is beautiful about AI is if you do have that maybe lack of vulnerability, you can be vulnerable with your ai. You can say, I don’t understand this legal issue, I don’t understand this argument. Help me understand it. And I think what is so beautiful about AI is whether you’re using it to help your kid learn math or using it to navigate a sophisticated legal issue, you can be vulnerable with the AI in a way that you might never be comfortable with another human being.

Stephanie Everett:

I hear that and I hear people saying to me, but how can we trust this thing? Because they’ve seen the news reports, they’ve seen the hallucinations. And I mean, I think it’s not the tool’s fault, it’s the lawyers. I mean, right.

Jack Newton:

Well, I,

Stephanie Everett:

But I think

Jack Newton:

You guys have a D nuance, nuance issue.

Stephanie Everett:

You guys have a different answer to that, so I want you to be able to address that too. Yeah,

Jack Newton:

That’s a great question. And I think a really important observation, and to my earlier comment, I think what is beautiful about AI is it has no judgment, and it’s not going to make you feel like a bad person for asking a dumb question.

It’s endlessly patient. It will spend hours explaining a concept to you and help you go deeper and deeper and deeper in a way that very few humans could. So I think that’s something we should leverage and take advantage of. Now, the risks you’re talking about with AI are absolutely correct. We see hallucinations, and one of the underlying points in my keynote today was these general purpose models. The generic models that are trained on the open web are going to be prone to hallucination because they do not have the real legal data to ground their answers in. And one of the most significant assets we acquired with VEX is not necessarily what people might think is the most obvious asset, which is Vincent their AI platform, but it’s the data,

Stephanie Everett:

Exactly,

Jack Newton:

This incredibly rich data resource of a billion legal documents, primary law, secondary sources that your legal answers will be grounded in. And when Vincent, when Clio work gives you an answer to your question, it will be able to cite where that answer is coming from and you’ll be able to verify that. And that’s fundamental. And where lawyers have gone wrong is in blindly trusting what chat GPT or another generic off the shelf foundational model might give them, which right,

Stephanie Everett:

And not understanding what it’s trained on. I’ve been telling lawyers now for the last year, would you go to Reddit to draft your purchase and sale agreement? And they look at me like, of course not. And I’m like, then know that some of the tools you might be using that they’re

Jack Newton:

Right.

Stephanie Everett:

It’s essentially that.

Jack Newton:

But I think to be fair to lawyers that have fallen prey to this hallucination problem, and you see, I showed a slide with dozens of examples of this happening. This is not just Steven Schwartz in Manhattan. This is a pervasive problem. I think what we need to give those lawyers some credit for is we have been trained to trust computers

Ever since Google, or maybe even earlier, but Google has been around for 25 years now. When you search for something on Google, if you search when is Thanksgiving in the US in 2025, you trust the answer that’s coming back. It’s going to be correct. When you look up an article on Wikipedia, even though it’s a crowdsourced encyclopedia and everything else, you look up something on Wikipedia 99.9% of the time. That’s correct. We’ve been trained for the last 25 years. When you ask a computer a question, when you ask Google question, when you ask Wikipedia a question, it’s usually right. And so I think our mental model of computers has actually been really disrupted by large language models because this whole idea that they can hallucinate and worse, they don’t even know they’re hallucinating. And worse, you don’t know what data they are

Potentially using to confabulate, hallucinate, whatever the case might be, is super dangerous. So I think there’s a lot more education that needs to happen around AI and how it works, and just understand that fundamentally these hallucinations are an inherent part of large language models. And there’s a recent research paper out of OpenAI that argues these may just be an intractable aspect of LLMs that we’ll never be able to engineer around, but you can do a lot to reduce, dramatically reduce hallucinations by grounding it in the right data. And then again, I think this idea that a human is always in the loop, like you’re going to need to check those citations. And that’s where the law grounding the answer is so important. You need to be able to look at the data that is underlying the answers the AI is giving you.

Stephanie Everett:

Yeah. So shifting gears a little bit. Last year at this time, you at CLE Con, you and I talked about the billable hour being dead and how people need, and it’s dying people, it really is. This year. I thought I’d ask you if you were advising, because starting a small firm today, you got a partner. Let’s just pretend you could start a firm and so you’re going to start your own two or three person firm. What would you do to make sure that your firm is still relevant and viable in 5, 10, 15 years as all these technology changes are coming at us?

Jack Newton:

Well, in the technology world, we talk about this dichotomy almost between traditional software companies and AI native software companies, and with AI native companies basically being this new generation of AI companies that have been born in the last one or two years. And if I was founding a law firm, and by the way, in the software world, these AI native companies are regarded as moving super quickly because they are leveraging AI in everything they’re doing, whether it’s marketing or sales or financial forecasting, reporting, it’s just woven into how they’re doing things. And I think this idea of being AI native is how a modern law firm should think about building their operations. I would think about how do I found this law firm from the ground up, assuming that ai, everything that can be powered by AI will be powered by AI all the way.

I would audit the entire client journey all the way from client intake, all the way to bill payment and referrals at the end of the engagement. How can that be powered by ai? How can I leverage AI every step in that process and be as much as possible in AI native law firm? And I think with that view, you will be relentless in thinking aggressively about how you can weave AI into every aspect of your practice. And I think it’s got to be from the foundations up, and that’s how the AI powered law firm of the future is rapidly going to become, I believe, table stakes. If you’re not operating in that way,

Stephanie Everett:

You

Jack Newton:

Will not be competitive in this market.

Stephanie Everett:

No, I think I see that. I think about that. We’ve been thinking about that a lot even on our team for our business, but also how do we help lawyers get there because they might need a little help. I think that’s where we come in. Hey,

Jack Newton:

I do think they need a lot of help. I think all of us need a lot of help. I mean, this has been the most compressed period of technological change the world has ever seen. Not just lawyers, but the world writ large. We’re all going through a huge amount of change, a huge amount of transformation, and we need some guiding lights, some yard posts to understand where is this all going? What are the best practices? And importantly, I think what people need is integrated tools. This MIT study that came out earlier this year and caused a huge collapse in the stock market for a week, talked about 95% of AI projects failing. And when you read the report and actually unpack what it said, the 95% of projects that failed were many of these AI projects or pilots that were not embedded in the day-to-day workflows that people actually used. So people would build this kind of cool AI tool or pilot, and then it just kind of withers on the vine because nobody knows how to adopt it into their day-to-day practices. So I think the idea, and again, this is foundational how we’re approaching AI at Clio, is how do we embed this deeply in the day-to-day workflows that people are using every day and make leveraging AI as organic feeling as possible.

Stephanie Everett:

Awesome. Well, Jack, I think our time is up, but as always, it’s always so great to talk to you.

Jack Newton:

Likewise. Thanks for having me.

Stephanie Everett:

I’m so excited, and I think you’ve given everybody a lot to think about and some homework. Let’s be,

Jack Newton:

There’s a lot to process in what we went through today. But thanks for taking the time to talking about it today and look forward to chatting again.

Stephanie Everett:

Thank you.

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