Keystone: a platform for continued growth

Platform businesses work by providing centralised administration and business support, while enabling interactions and exchanges between multiple users. Keystone offers conventional legal services across 50 industry sectors through a network of self-employed lawyers that work from their own offices. Its bespoke, proprietary software enables these lawyers to interact with its London-based central team. Keystone is also unusual because it doesn’t provide fixed remuneration. Rather, its lawyers receive a competitive 60-75 per cent of fees once the firm has been paid for the work done. The fee-split depends on whether lawyers are servicing their own client or someone else's. The model allows referrals between platform users where the client 'owner' retains a 15 per cent fee interest.

Referrals provide access to specialist skills needed for certain cases, as well as extra manpower. Clients coming direct to the central office can likewise be referred to lawyers on the platform. In theory, the value of the platform's service should increase as more lawyers join and interact with each other, giving the potential for a  so-called 'network effect'. This dynamic has proved a profound competitive advantage for many digital businesses, from Facebook to Rightmove. 

The limited costs of plugging new users into the network means strong cash generation and the ability to lift revenues at limited extra cost. During the year to January 2019, the top line climbed by 35.1 per cent to £42.7m, while underlying overheads rose just 17.5 per cent. Meanwhile, operating profits soared by more than 100 per cent to £4.6m. This escalation came despite a dip in the gross margin, from 27.1 per cent to 27.6 per cent, which stemmed from a reduction in the proportion of billing done on central-office-owned clients.

People are the fuel driving Keystone’s growth, as well as the potential network effect. It is garnering increasing popularity among prospective recruits. Last year, offers accepted by principals – the senior lawyers signing contracts with Keystone – rose by 6.8 per cent to 63, which increased principal lawyer numbers to 277. Total fee-earners were up just over a fifth to 321. The increased scale and profile of Keystone also seems to be attracting higher calibre lawyers. House broker Panmure Gordon notes that Keystone successfully recruited a Magic Circle lawyer and, in turn, this lawyer won a £2.22m piece of litigation work.