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my thoughts on LegalZoom Inc going Public LGZ

First off, let me say congrats to all the LGZ employees and managers for such an accomplishment.  I hope all the employees and middle management got a little bit of this action on the LegalZoom IPO.

It’s pretty amazing for our industry to see the financials of such a massive company in such great detail as their required SEC filing:

There’s a bunch of things running through my head, but I’ll summarize a few points that stand out:


1.  I guess spending millions on marketing eventually works?  I mean 41 MILLION a year budget for marketing!!!  That sounds like insanity.  Especially since they first became profitable in 2011.  So for 12 years they blew money out the door on advertising without technically being profitable.  You can only imagine the gut wrenching heated discussions among management and the board as to that plan.  It takes some serious guts to spend that many millions of dollars each year after a decade of not being profitable.

That shows a lot of things about the resolve of the management.  Obviously the end goal was worth it to them to spend that kind of money.  If I were running the company, well… I wouldn’t have investors, but it would be a no-brainer to shave off half the marketing budget to stay profitable.  But when you have investors and endless money I guess it doesn’t really matter.  Running a company funded with venture capital must be like running our government.  I mean normal businesses don’t lose 4 million in a year and keep their doors open.

Furthermore, the Chief Strategy Officer making 700,000 a year!  Along with a 41 million budget!  This guys got the freaking job that everyone in this industry would love.  To be able to play with a 41 million advertising budget would be nuts.  There’s a reason they have 230,000 fans on facebook.  My guess is that they have 5 full time people just for social media advertising.

2.  10 years later, they become profitable.  I honestly think this is kind of a result of micro-billing acceptance created from itunes and apple.  Amazing that after 10 years of not making money, switching to a 15.00 a month legal advice option creates a 12 million swing in profit?  They’re billing 3 million a month for this service.  Almost makes you think that the ONLY reason they even do all the stuff they advertise like wills, documents, incorporations, etc… is to get them in the door and sell them a $15 a month legal plan.

3.  When LegalZoom got big, it created a TON of mom and pop online incorporators.  I remember seeing magazines talking about how easy it was to work from home and be an online incorporator.  Now that the world has seen how profitable the $15 a month legal plan is…  You have to assume that they will be flooded with new competition.  You are basically being like an insurance company… I’m assuming they pay local attorneys and just hope that collecing their monthly fees creates more income than their local attorney bills.  This would be a very easy business model to duplicate.  I bet there will be 10 new players in this field by the end of the year.

It will be very interesting what they now do with all this extra money they are going to get from going public with an IPO offering under LGZ.  If nothing else, it will be fun to see their numbers each year :)



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