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Capitol LLC Digital Document Solutions Lawyers are known for burying their adversaries in a blizzard of paper: motions, pleadings, depositions, interrogatories. As more and more courts require electronic filings and accurate digital record-keeping, the storm threatens to become a whiteout. However, for every change there are those who find a way to adapt and those who become extinct. Lucas Mageno, a boyish-looking 35, is in the middle of transforming his business from a paper copying service to an all-electronic imaging company. He’s determined to be one of the survivors. Mageno started Capitol LLC Digital Document Solutions nearly 10 years ago at 555 Capitol Mall in what was then a cramped room filled with copying machines. Now he has 340 employees, a national data center in Phoenix, a check-coding center in Houston and branches in New York, Washington, D.C., Los Angeles and San Francisco. While his firm did $21 million in revenue last year, it was a year of reinventing the company’s business model. Now, Mageno has his company positioned to take on lucrative, high-capacity “electronic data discovery” jobs for law firms, and he predicts revenue to grow to $25 million this year. New federal laws requiring law firms to electronically record their legal documents, including emails, are fueling a voracious demand for such services. This steadily increasing demand has mushroomed a specialized service industry from an initial $37 million some 10 years ago into the stratosphere of a predicted $3.1 billion in 2008. New Rules, New Industry George Socha, an electronic data-discovery (EDD) consultant based in St. Paul, Minn., says the shift from a paper-based legal system to an electronic one is the impetus behind the new requirements that law firms have EDD systems. “The problem lawyers have is that on paper you can look and see what’s on it,” says Socha. “If the information is on a hard drive, you can look at the hard drive all you want, but until you access the files on the drive you don’t know what you’ve got.” Hence, most law firms turn to outside providers rather than take on the data-storage piece themselves. Socha’s research shows electronic data-discovery started in 1987, and by 2000 there were an estimated 20 or so providers. But these days, he’s counted about 550 companies that “purport to offer some form of EDD.” Mageno figures his company is among only about 20 that do high-quality work. Socha ranks Capitol among the top 11 through 20 electronic discovery vendors in the national market. Among the top ranked on seven service-based criteria are Fios Inc., Kroll Ontrack Inc., LexisNexis Applied Discovery and Renew Data Corp. The industry is newly lucrative and is attracting a lot of eager players seeing green. The market this year is worth $1.7 billion, says Socha’s research. In 2007, it will move up to $2.4 billion and to $3.1 billion by next year. But electronic discovery entails a complexity of tasks that has caused more than a few dabblers to back out. Not only is it challenging to do well, it is expensive to get established, and there are legal risks. And as a new industry, there is still a dearth of job-management talent available, adds Socha, and so service to clients often suffers. “The things they need to do are pretty complicated and can easily go awry,” he says. “Providers need people who are good at keeping a lot of balls in the air. There just aren’t enough experienced people to go around.” But Mageno has patiently laid the groundwork to help Capitol snare a healthy chunk of the burgeoning market. He predicts a 2007 revenue increase to $25 million, doubling to $50 million in four years. Discovering Discovery A few years ago, Mageno thought the way to expand his business was to open large storefront branches in various big markets around the country. But the coming overall industry change in demand from paper- to electronic copying made him rethink his strategy. Socha saw that electronic-discovery jobs were becoming an ever-increasing amount of his total revenue. Nine years ago it was only about 10 percent. Now it is 35 percent, and by the end of 2007, he figures it will be up to 75 percent. Mageno notes that the electronic data-recovery jobs also tend to be big and lucrative. “These aren’t $2,000 and $3,000 jobs, they’re $115,000 and $200,000.” And they produce higher profit margins than the continually thinning margins for paper copying. Meanwhile, he sees the company continuing to increase revenue from hosting data on servers. That service produces nearly 8 percent of his company revenue. So Mageno vastly increased his capacity to do such work on a large scale. He set up a national data center in Phoenix to turn around jobs too big for his branches. But he still had to pay one-time software-licensing fees to do electronic copying jobs with various client platforms. That took away money from the bottom line, so he came up with a solution. Two years ago he bought open-platform software code from Fastrack, a competitor that had gone bankrupt. He hired software developers who morphed the code into a proprietary solution called iDiscover, which works with any number of client platforms. EDD software developer Paul Thompson of Phoenix, Az., says vendors similar to Capitol are taking the same migratory path to specialized software. But from what he’s seen, he’s not convinced they know how to plug it in for maximum efficiencies. Familiar with Capitol’s technology, he says, “Mageno has been able to do that.” In development since its purchase, Mageno rolls out his new software this month and launches a new logo (Capitol LLC) and a nationwide marketing campaign. He is targeting big and small law firms all over the country that have an increasingly urgent need to comply with federal law requiring electronic imaging and storage of documents and emails. Mageno’s new model for branch offices is to go small: provide the needed customer service but save on overhead costs. Each office has only two people, a salesman and a technician; each branch can plug in big jobs via high-speed data lines to the Phoenix-based data center or the check-coding center in Houston. Calling All Lawyers Mageno sees the biggest untapped market as the small to mid-sized law firms across the country and believes his company can educate them on electronically delivering documents to the courts. Up to now, he believes, they don’t know how. Nearing 10 years as Capitol’s head, Mageno says the company’s longevity has been due to patience and persistence in the long-term demands of the market, rather than the short-term, make-a–quick-buck mentality common to publicly traded companies. He notes that all his biggest competitors have been bought out by public companies. Still, he’s confident that as an independent, he can serve customers more nimbly, and, in turn, make more consistent gains than publicly traded Goliaths. Then he might find himself in the midst of a different kind of blizzard: A green and gold one.
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