Why LegalTech needs less AI magic (and a little more change management)

LegalTech is at the forefront of a technological revolution, with AI as its driving force. However, the path to innovation is complex, demanding not just new tools but also a paradigm shift in how legal departments operate. 

SignalFire’s AI Lab recently convened practicing attorneys representing organizations like ZenDesk, Grammarly, Groq, Y Combinator, Latham & Watkins, and Paul Weiss, as well as founders building at the intersection of the legal function and AI. We discussed the problems and the promise of LegalTech—a few of the key takeaways are below:

• Legal departments need AI solutions tailored to their unique challenges, not generic one-size-fits-all tools.
• AI’s effectiveness in this space hinges entirely on data privacy and security.
• Successful AI integration into the legal function requires a focus on change management, not just the tech itself.
• AI can play a crucial role in capturing institutional knowledge and ensuring continuity in legal teams.
• LegalTech founders need to take a prescriptive approach to sales and implementation.

1. AI for legal ops: Customization over standardization

AI’s potential to transform legal operations is undeniable. As Shana Simmons, CLO at cloud-based customer service platform Zendesk, put it, “Sales teams have long had Salesforce—it’s past time that legal teams benefit from a similar product.” Yet, the comparison highlights a fundamental difference: legal departments cannot adopt a one-size-fits-all solution. Unlike enterprise sales, where tools like Salesforce can be broadly applied, legal operations often require AI solutions tailored to specific contexts and challenges.

Claire Hart, General Counsel at AI inference startup Groq, underscored this point: “There’s so much opportunity to use AI to have more efficient legal teams. There’s too much  spend happening for too little value.” Her critique points to a broader issue—legal departments are often saddled with generic tools that fail to address their unique needs. The future of LegalTech lies in creating AI applications that are not just powerful but also finely tuned to the realities of legal work.

Bryan Lee, founder and CEO of AI-powered legal intake and review startup Ruli, shared:

“With one recent customer, we found their internal legal team was fielding about 600 tickets a year. When we dug into it, 25% of those tickets were recurring. … With Ruli, we take care of low-risk intake and triage like that by automating simple policy lookups.”

This kind of precise, problem-specific application of AI is where legal departments can start to see real value, moving away from broad, unfocused tools that promise much but deliver little.

‎2. The privacy paradox: AI’s double-edged sword

In the legal world, data is both a vital asset and a potential liability. AI’s effectiveness hinges on access to vast amounts of high-quality data, but with that much data come significant privacy concerns. Jennifer Miller, General Counsel at Grammarly, the trusted AI assistant, distilled the issue perfectly: “[As a LegalTech founder], you have to put yourself in the shoes of your customer in terms of the requirements they’re going to have to defend from privacy, security, and data management points of view.”

This “privacy paradox” presents a big hurdle for LegalTech adoption. Legal departments are naturally risk-averse, and any AI solution must not only perform well but also reassure its users that their data is secure. At Ruli, Lee and co-founder Xi Sun ensure the company’s legal intake models are optimized exclusively on each customer’s own private environment, exemplifying how LegalTech can thread the needle between innovation and safety.

3. Change management: The silent barrier to AI adoption

AI in legal operations isn’t just a technological challenge—it’s a human one. Simmons highlighted a critical oversight in the industry:

“Teams building in LegalTech often make the mistake of thinking tools alone will solve problems. … My advice to founders is to take the extra time with your customers to help them build the muscle for change management.”

Legal departments are traditionally conservative, and the introduction of AI disrupts not just workflows but also organizational culture. The assumption that a new tool will automatically integrate into a team’s daily routine is a fallacy. As Simmons noted, the real challenge lies in guiding teams through the changes that AI necessitates—changes in process, mindset, and even team structure.

Hart put it succinctly: “If you don’t have good processes and process-thinking people, you can’t expect a tool to save the day.” The message is clear. AI is only as good as the environment into which it is introduced. LegalTech founders must think beyond the technology itself and consider how it will be implemented, maintained, and embraced by those who use it. Without this, even the most sophisticated AI tool will fall flat.

‎4. Preserving institutional knowledge: AI’s unexpected role

While much of the focus in LegalTech is on efficiency and cost-saving, Hart brought attention to a more subtle yet equally important role AI can play: preserving institutional knowledge. “A big opportunity for LegalTech is to help legal teams maintain institutional knowledge—so they don’t run into the problem where a lawyer who’s been there for 20 years leaves, and everything they’ve built but never written down goes with them,” she noted.

The loss of institutional knowledge when experienced employees leave can be crippling to any organization, and that’s especially true in legal departments, where the nuances of past decisions and strategies are often undocumented. AI, with its ability to analyze and store vast amounts of information, offers a solution to this problem, creating a continuity of knowledge that transcends individual careers.

For LegalTech founders, this represents an untapped opportunity. By developing AI tools that not only support daily operations but also act as a repository of institutional memory, they can address a critical pain point for legal teams. This approach not only enhances the value of their products but also deepens their integration into the fabric of the organizations they serve.

5. Being prescriptive: The key to successful LegalTech solutions

One of the most striking pieces of advice came from Simmons, who urged LegalTech founders to be prescriptive in their approach: “When salespeople are prescriptive, you will see less churn and less contraction.” This is not just a sales tactic but a strategic imperative in a field where the stakes are high and the margin for error is low.

Legal departments need more than just a product: they need guidance on how to integrate it into their workflows. As Miller pointed out, addressing privacy, security, and data management concerns proactively can streamline the adoption process and build trust. LegalTech founders and their sales teams who can do this will not only win customers but also build lasting partnerships.

‎Leading the LegalTech revolution ahead

The LegalTech landscape is evolving at a breakneck pace, driven by the twin forces of AI and the pressing needs of modern legal departments. Yet, as our event highlighted, the path to success is not simply about adopting the latest technology. It’s about navigating the complex interplay of innovation, privacy, change management, and strategic foresight.

For LegalTech founders, the message is clear: those who can combine cutting-edge technology with a deep understanding of their customers’ needs and challenges will lead this revolution. We invested in Ruli because we believe there is a growing demand for solutions that not only streamline processes but also address the deeper, more structural issues within legal departments.

At SignalFire, we’re actively investing in novel applications of AI for legal, connecting visionary founders with the support they need to drive meaningful change. We’re proud to partner with innovative companies building in all corners of the legal space, from Ruli for in-house counsel to EvenUp for personal injury lawyers and Tome for venture and startup contracts. Stay tuned for more insights as we continue to spotlight the technologies and leaders who are redefining what’s possible in LegalTech.