The billable hour business model at law firms only survives by overcharging junior associates' hourly rates to compensate for underpricing the much higher value of senior partners' time, and AI is starting to break that model.
Max argues the traditional billable-hour law firm model is really a cross-subsidy scheme — overcharging associates and undercharging partners — and that AI tools are starting to break this structure by automating associate-level work. ✦ AI generated
Max · All-In Podcast · 2026-07-14 · original ↗
starts at this moment · 35:54
it it starts to um break this model where you charge out associates for very high hourly rates and you have a billable hour model. And actually, if you look in law firms, the way that that business model works is you overcharge for the associates and you actually undercharge for the partners.
verbatim transcript · starts at 35:54
35:54business model works is you overcharge for the associates and you actually undercharge for the partners. I don't know if they're under charge. I mean, I got a bill recently and it was 1,800 an hour, right? But >> for a senior person, I think the associates were 800. >> Well, you know, at Kirkland, it can go up to 4,000 an hour. But the but the thing is when a when a Kirkland if so,
36:14let's say, you know, 30 minutes of a Kirkland partner's time when it really matters can be worth a lot more than that. >> Like a lot more than that. If it's bet the company litigation or you avoid a pitfall that would have costed the company tens of millions of dollars, >> well worth it. Yeah. >> Right. Exactly. And but the only way they know how to price that is to
36:34overcharge for the associates. >> But as you're saying, the enterprises are looking at this and they're going, "Huh, we're spending a lot of dollars on legal services. Let's take this in-house." And >> Oh, really? >> Absolutely. I mean, we're doing this partly at Lora. We acquired four businesses so far this year. We did the diligence inhouse the with our own tool and the fastest transaction we did was
36:5712 days from LOI to closing >> because your motivation as the founder is to get the deal done, >> right? >> The motivation of the lawyer is to not have you sue them if they up the deal, >> right? >> And to make as much money as possible, >> which means to drag it out, >> which means their incentive is to even if they don't say it explicitly, it is
37:19to drag it out. your incentive is to close it as quick as possible. Yeah. >> Yeah. And so, you know, I think a lot of law firms are also experimenting with different pricing models where you do a fixed fee for a transaction or for a fund raise. Um, in litigation, you can take a part of the success fee when you win the deal. >> Yeah. >> Uh or win the case. And so, I think it's
37:39just very interesting how, you know, one of the biggest industries in the world now is being completely transformed and reshapen as a consequence of the tech. And are those law firms feeling like they're being disrupted or this is a huge opportunity and and and did that switch at a certain point in time or has it switched for them? >> Um there's a lot of anxiety and a lot of