Onit CEO Eric Elfman has built two sizable companies in legal tech from Houston, Texas. Great journey!
Sramana Mitra: Let’s start at the beginning of your journey. Where are you from? Where were you born and raised? What kind of background did you have?
Eric Elfman: I was born and raised in Houston, Texas. I had a different educational journey compared to a lot of entrepreneurs. I dropped out of high school when I was in 10th grade and joined the Navy. The Navy turned me around and straightened me out. There, I figured out that I wanted to be an entrepreneur.
Sramana Mitra: What was it about the Navy that turned you into an entrepreneur?
Eric Elfman: I was always an entrepreneur. When I dropped out, I was selling skateboard parts out of my car and was looking at getting a storefront. I was always doing something entrepreneurial. Basically, what the Navy did was straighten me out.
It helped me understand that the path from a high school dropout to running a successful business required education. My experience in the Navy showed me the need to get my GED and go to college. I eventually got my MBA here at Rice University.
Sramana Mitra: What year are we talking about?
Eric Elfman: I got my MBA in 1995. I got out of the Navy in 1989 after 10 years of service. I spent my time from 1989 to 1995 getting a college degree. In 1993, I started my master’s program at Rice University.
Sramana Mitra: In the mid 90s, you came out of an MBA program and at the same time, the internet bubble was starting to develop.
Eric Elfman: Yes, it was on fire. I studied entrepreneurship at Rice University and it has become the top entrepreneurial MBA program in the country. I knew I wanted to start a business, but I had no idea what that required.
I decided that no matter what industry you go in, if your eyes are open and you are looking for an opportunity to improve something, there are company-building ideas in every industry.
I went to work in litigation consulting where we were consulting the big Fortune 500 companies on big lawsuits. We were handling the financial side of it with the damage analysis and forensic accounting. It was in that job that I had an epiphany for my first company and it has driven the next 25 years of my career.
Sramana Mitra: What was that epiphany?
Eric Elfman: I was sitting in the conference room of a Fortune 10 company. It was a big Oil & Gas company here in Houston. I was listening to one of the senior lawyers talk about all the work they did with outside law firms. I asked how much the company spent on outside law firms.
They started to help me understand why there are so many rich lawyers. The man shrugged his shoulders and said it was somewhere between $400 to $500 million a year. He said that figure was low because they were decentralized in different geographies and businesses can hire their own lawyers.
I said that if $500 million is a shoulder shrug then there is a need for some business in the practice of law. That idea drove the first company and we are still selling to the legal departments 25 years later.
Sramana Mitra: What did you choose to do that first time? What year was that?
Eric Elfman: It was in 1998, three years after I got my MBA, that I founded my first company. I ran it for 10 years and eventually sold it for a little over $300 million, giving all the investors ten times their investment.
The idea was simple and it wasn’t rocket science. It brought in every department and fitted it into the legal department in a way that made sense for them. The first thing that the company Datacert did was electronic invoicing.
The average lawyer in 1998, whether they are working for Exon, Shell, or Apple, managed a couple of law firms and received invoices from them. These law firms were asking these lawyers to review invoices, sign them, and pass them for payment.
Lawyers would get two to three feet stacks of invoices every month from the law firms that they were doing business with. They couldn’t do a proper review of these invoices, because they had a day job and they didn’t have time to look through every single invoice.
At the same time, you had this inefficient paper-based world. In every Fortune 500 legal department’s file cabinet was a document called Outside Counsel Guidelines. It told the law firm what they could bill them for and how they could bill them. These were all these rules to manage cost, but there was no way to enforce them.