At the forefront of legal innovation in Japan: An interview with Nozomu Tsunoda
Former attorney of the prominent Mori, Hamada & Matsumoto firm, earner of the highest score of the Japanese bar exam and a graduate from the prestigious Kyoto University, Nozomu founded and is the CEO of LegalForce, Japan’s fastest-growing legaltech startup.
LegalForce combines the power of AI with the knowledge of legal professionals to develop the award-winning LegalForce, a contract review software; and Marshall, a contract management system. LegalForce also contributes to the academic field through joint research with Kyoto University.
In this candid interview, Nozumu shares important lessons about his journey as a pioneer of legal innovation.
You had a successful career as a lawyer in one of the most important firms in Japan. What motivated you to leave your position and start LegalForce?
My goal was to find ways to use technology to support legal services.
In my time at Mori Hamada & Matsumoto, I realized that reviewing and drafting contracts was an extremely important task, with no leeway for errors. Yet, this task is performed manually, resulting in delays and high anxiety among legal professionals that fear to overlook risks. Our goal at LegalForce is to relieve the heavy burden and anxiety of contract review by using technology to help improve the efficiency and quality of legal work.
When you started LegalForce, legaltech was virtually nonexistent in Japan. What obstacles did you face to successfully establish and run LegalForce?
It was a challenge. We knew we wanted to use technology to alleviate contract work, however, no other Japanese company offered contract review technology, so we had to proceed without the possibility to benchmark.
We first came up with the idea of a web editor for contracts. After 10 months of hard work, we released our editor with 3 different features that emulated some features of Slack and Microsoft Word, believing it would add value to lawyers. Unfortunately, we were wrong. In trying to increase our product capability, we ended up with a tool that seemed like a poor version of features already on the market. What a disappointment that was! Especially for our team of engineers that worked tirelessly for the release. It was one of the darkest times of LegalForce, however, this experience taught us an invaluable lesson: focus on solving a single problem at a time.
With this new knowledge, we abandoned the entire codebase and focused on building an automated contract review system from scratch. The idea came from my own experience reviewing lengthy contracts manually. In the early days of LegalForce, we were naturally not making any money – in fact, we lost 30 million JPY (about 300 000 USD) during the first year. To support my family, I worked part-time as a contract specialist in a corporation. Members used to pile up documents on my desk to the point that the volume of the documents resembled that of an Encyclopedia Britannica. Needless to say, reviewing such a high volume of documents was a repetitive and time-consuming task. At that point, I had an epiphany. Given the repetitive nature of manual contract review, LegalForce could build technology to streamline this task, saving time and stress for legal professionals.
To our great fortune, an experienced developer specialized in natural language processing joined our team. He was able to quickly build the first workable prototype of a document review system. Within 3 months, we created the β version of our current product. We received useful feedback from our customers and we were able to improve and develop our product at high speed.
We also had a great marketing boost from an article published by a popular newspaper about our joint research with Kyoto University called: “LegalForce, automatic detection of contract errors with AI”. This gave considerable visibility to LegalForce as a pioneer of legaltech in Japan and created great interest in our product.
Being the first tech company offering contract review in Japan came with its great deal of challenges, however, it also played to our advantage, as we were able to position ourselves as the leading contract tech company in Japan.
Your company’s growth is exponential. You went from a couple of dozen employees in 2019 to over 130 employees in 2020. How is LegalForce managing this impressive growth?
Most startups face serious setbacks in their quest for expansion. I think this comes from mindlessness and lack of focus.
The short answer to this question is that we have never lost our focus, which is fully on our customers: “What do they want? “What exactly do they need to do?”, “How can we satisfy their needs?”. This is different from just caring about “What do they say?”. Customers sometimes don’t know what they really need. In this sense, I think product development in a legaltech start-up is quite similar to an attorney’s work. We need to keep an independent perspective to offer innovative solutions while being 100% on our customer side.
Our customer-focused approach has also allowed us to build a solid sales team. Although the focus within the walls of LegalForce is caring much more about excellence in performance rather than formalities like wearing formal attire, it is a different story when it comes to our sales reps. We’ve realized that the conservative nature of lawyers makes them reluctant to use a product if it is being offered by a techie in jeans and a t-shirt. This may sound superficial, but having well-presented, well-spoken sales reps has a significant impact on how legal professionals perceive our product. These are things we’ve learned by paying attention to our customers.
As for the growth of our employees, I think we were able to attract talented people and grow the product development and sales organization in a well-balanced way thanks to our customer-centred focus.
As a legaltech pioneer, you were in the front row of legaltech development in Japan. How has the market changed since you started LegalForce?
As of January 2021, more than 700 customers use our products. The terms “Legalech” and “LegalForce” are now familiar among lawyers and other legal professionals in Japan. Over the years, the customer’s understanding of the capabilities of AI and legaltech has improved.
LegalForce started its operations in the midst of a legaltech hype in 2017. Every high ranked lawyer in Tokyo talked about deep learning and the threat of lawyers being replaced by machines. Then this boom soon crashed as major law firms invested in several AI startups only to be disappointed by the development of useless products.
Our focus and hard work allowed us to impress our customers, one by one, with a product that made sense and reached their needs. Sounds simple, but it took us almost 3 years of non-stop work to get such results.
What does the future hold for LegalForce?
Our mission is to “Manage all contract risks anytime, anywhere.” Our current products only partially fulfil this mission. It is in our plans to keep developing new products. Our investment in AI solutions gives LegalForce products a unique value proposition compared to other players. We plan to continue in this direction, by investing in cutting edge language processing technology. Eventually, we plan to expand our operations overseas.
Practice Development Lead