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The Eighty Percent Solution




by:
Gabor Garai
Foley & Lardner LLP - Boston Office

 
March 3, 2014

Previously published on February 25, 2014

Entrepreneurs understand risk. They are used to squeezing the most value out of every dollar by evaluating the cost and potential upside of every decision. However, many lawyers are uncomfortable with this approach. They have been trained to perform comprehensive research and provide a definitive answer based on that research: The one hundred percent solution. Many clients also expect - and are willing to pay for - this one hundred present solution.

This approach, however, does not work for entrepreneurs. The cost/benefit ratio does not align with their own approach. They are looking for a judgment call, based on the experience of their attorney, and are willing to assume some risk that in the particular circumstances their judgment call may ignore some relevant legal considerations which further research might uncover.

This is a tricky area for both client and lawyer. The attorney who is asked for a quick judgment call is worried that he has insufficient information to provide the quality of advice that his professional standards would require. He is also concerned that, given the lower level of uncertainty, his advice could be wrong and, if so, the client will blame him. Conversely, the client many have unrealistic expectations. She may expect a higher level of certainty from her attorney than is possible given the limitations of time and money imposed on the attorney.

This is the quandary of the eighty percent solution. Legal advice, like many other things in life, operate on a curve of diminishing returns: a judgment call may only be right 50% of the time and take 15 minutes of billable time. A judgment call based on a few hours of research and analysis might increase the probability of accuracy to 80% and cost a couple thousand dollars. The kind of certainty that general counsel of a Fortune 500 company might require could involve hundreds of hours of legal research, analysis and a written memorandum, and cost accordingly. The same diminishing return curve applies to contract review, where a cursory review might catch 60-70% of the problems, at a fraction of the time and cost of a thorough review which would catch nearly all of the issues.

It’s all about communication and proper balance between risk and cost. A sophisticated attorney and an entrepreneurial client can determine, in advance, the appropriate level of study and analysis to address the potential downside risk or upside opportunity that the client is facing. As long as both client and attorney are aware of these tradeoffs - and are willing to live with the consequences - an Eighty Percent Solution might just be perfect.



 

The views expressed in this document are solely the views of the author and not Martindale-Hubbell. This document is intended for informational purposes only and is not legal advice or a substitute for consultation with a licensed legal professional in a particular case or circumstance.
 

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