New Technology Trailblazer: B&B Consulting Services

imageLast week I received an email from Ben Meredith of B&B Consulting Services in Ashland, VA. In the email Ben wrote of his transformation to a PKF, "The biggest change for me was the realization that I don’t have to have the clock running all day – once that stress was gone I could begin to work on creating value for my business and my customers."

Well said! I asked him to write a few paragraphs and share his story. Like all of the others, it is excellent. Enjoy!

Let me begin by confessing that I have actually had the experience of using a time clock at work.  Mechanical. Huge. Ugly. Green. It was many (many) years ago at one of my first jobs in IT although they didn’t call it IT back then. I believe The Machine Room was as close as they came to naming that strange room in the back of the building with all the blinking lights.

That green metal box hung on the wall just inside the main office and sounded like it had been hit with a hammer each time a time card was inserted. When I took the job I was told to "just punch in and punch out" – how was I to know that it had selections like day of week and lunch time.

Consequently my time cards were fairly unreadable by the end of the week. Many hours were spent deciphering the over-strikes until I finally convinced my boss that I had just never seen one of those horrible things before. Thus began my love/hate relationship with time billing.

Looking back I guess that everyone then knew how a time clock worked – just as we now expect everyone to be computer literate. I just wasn’t time clock literate. Luckily my next employer had time sheets for me to fill out each week. Or copy from the preceding week as most did.

My partner and I finally struck out on our own forming a company that filled the needs of local companies needing good programmer analyst skill sets to initiate or complete mainframe programming projects. And from there to mid-range and mini-computers… Novell and Microsoft networks and finally cloud computing.

And most of time we were billing by the hour. After all, that was what customers expected and it was certainly the road most traveled. Rarely were you not considered for a project because you billed by the hour. In fact there seemed to be so many horror stories of incomplete projects and failed businesses that anything but hourly billing was considered risky.

I can recall more than a few Monday mornings in my office; working on sales forecasts or resource planning and suddenly thinking "Wait! I’m not billing! I have to have the clock running!"

I had developed the mindset that if the clock was not running and I was not billing then bad things were on the horizon. At best I could visualize fixed costs running like fine sand through the hourglass.

And I can still remember the day I was in a customer’s office and talking with the bookkeeper about a report she needed when the CFO walked by and simply said to her: "Stop talking to him – we’re paying him by the hour!"

All in all though, I think I was more stressed by hourly billing than my customers. Too many hours were left un-billed at the end of the month because of lack of attention, multi-tasking or just that feeling that I had to stay within a perceived budget figure someone had mentioned when the job first started.

There had to be a better way to deliver professional services to customers. My search for answers began with an introduction to the works of Alan Weiss. A few books and videos later I was convinced that hourly billing was dead – I just didn’t know yet how to bury the beast in my own company. That didn’t keep me from trying but my progress was slow.

Mentors were almost non-existent and I could find no one to brainstorm with who did not use time as a metric for estimating project and billing customers. Many people acknowledged that value or fixed pricing was the right approach but I knew of no one who was actually practicing this in their business.

About a year later at a Sage Insights Conference I found myself in one of Ed Kless’ sessions on Value-Based Pricing. Finally someone in my industry was not only saying that value-based pricing is the way of the future but also showing how you can implement it in your business.

It took a few more of your seminars and a lot more work before things started to come together. I did spend a lot of time reading Ron Baker’s material at VeraSage and listening to his recorded seminars (along with many others). In the end I realized all the ingredients were there. It was more an exercise on how to create the recipe that worked for my organization.

Value based pricing is now bolted down for good in the company. I locked the door on hourly billing for good December 31st. Everything since has been and will only be fixed/value based engagements.

I have a couple of long time customers that are still being billed hourly but there is a process is in place to address these as well as casual consulting engagements.

Looking backward I wonder how I could have overlooked the obvious in my proposals and billing practices over the years… could it be that 20/20 hindsight I keep hearing about? My customers really like fixed prices; they can budget for each project and get to approve or disapprove any additional services or expenses before they occur.

I get to spend more time working on both my business and my customer’s business. When I am on-site we are working together and building stronger relationships and nobody is looking at the clock. And I don’t have to be concerned about always billing hours… only about the projects being on time and building value for my business and my customer’s business.

And that makes all the difference!

Ben Meredith
B & B Consulting Services
Ashland, VA

Jay Shepherd’s Epiphany

Regular readers of VeraSage know that we are all enormous fans of Jay Shepherd, founder of Shepherd Law Group, blogger at The Client Revolution and Gruntled Employees, VeraSage Trailblazer, and (I’m honored to say) author of the Foreword to my forthcoming book, Implementing Value Pricing: A Radical Business Model for Professional Firms.

At the beginning of the month, Jay sent me a thought-provoking email that he has graciously given me permission to share.

Needless to say, when the subject line reads “a mental breakthrough” from a thinker such as Jay, you have my undivided attention.

Hey, Ron,

I was just reviewing Chapter 16 of your manuscript. (Love it.) This weekend, I had a mental breakthrough that really originated in part from something you’ve been saying for quite some time. Let me explain:

First, in early May, I was blown away by Simon Sinek’s TED talk on starting with why. (I think I forwarded the video to you.) I found the Start With Why concept a game-changer. I immediately downloaded the book [Start With Why].

Coincidentally, I was at the same time reading Switch by the Heath Brothers. (So I was delighted when I saw your Verasage meeting reading list.) For the past three months, I’ve been struggling to figure out what my and my firm’s “why” was.

At long last, I think I finally found it.

My “why” is “to fix the practice of law.” My firm’s “why” is “to innovate (in fixing the practice of law).” Everything we do, everything we’re about is grounded in relentlessly innovating. Looking back, that’s the message of both my blogs—The Client Revolution and Gruntled Employees.

Fixed prices is just a “how,” under Sinek’s framework. I’ve been making the same mistake that TiVo made—selling the “how” instead of the “why.”

Fixed prices is an important “how” for us, but it’s not the only one, and it’s not the thing that’s going to make companies bang down the door to sign up with us.

But if we instead focus on the “why,” it not only helps us stay on message in our marketing, but it also identifies whom we want to market to. Innovators. To paraphrase Sinek: “If you’re the kind of company that’s all about innovation, boy, have we got a law firm for you.”

And bringing it back to Chapter 16: I once wrote a post or article or something (could have been an SPU [Solo Practice University] gig) in which I mentioned that law firms didn’t really start using hourly billing until the 1950s or ’60s. My point had been to challenge the notion that hourly billing has “always been the norm.”

In a comment, you pointed out the research that you discuss in Chapter 16 of IVP: that law-firm hourly billing was started in 1919. Since that didn’t really mesh with my point, I’ve kind of ignored that fact. But now, suddenly, I get it.

“If you’re the kind of company who’s all about innovation, why are you using a law firm whose billing model was invented in 1919?”

I think this was the point that I was missing: that hourly billing is antiquated. I’m going to start incorporating this notion in my writing and marketing right away.

As always, much thanks for your great work. Hope your summer’s going well.

Best regards,

Jay

We are defined by what we believe, not what we know

Jay’s breakthrough is absolutely correct. Value Pricing is merely part of a larger change in business models, which is driven by a firm’s strategy and positioning, which ultimately is driven by a firm’s “why” (or purpose, if you prefer).

Innovation is crucial, which is the point of my Great Moderates in History? post.

At the end of World War II, English writer and prominent socialist H.G. Wells wrote:

Human history becomes more and more a race between education and catastrophe.

Wells was a socialist who believed knowledge alone would create a more peaceful world.

But surely before they became the aggressors in World War II, the German people were among the best educated in the world—with their universities to become the model for America’s—and the Japanese among the most literate.

For as valuable as knowledge and education are, it is imperative to bear in mind that man is guided far more by his beliefs than his knowledge.

How else does one begin to explain why people fly airplanes into buildings full of innocent people?

In a business context, this is Simon Sinek’s point when he says “people don’t buy what you do, they buy why you do it.”

Rabbi Daniel Lapin makes this point quite cogently in his book, Thou Shall Prosper, helping his readers understand how the world really works:

You are best understood and appraised by others on the basis of the things you believe rather than on the basis of the things you know.

For example, during the twentieth century, Jews again learned the importance of this principle. They learned that what the Germans of the Third Reich believed was far more important a guide to their actions than the things they knew. After all, Germany was a society whose universities had produced the world’s most accomplished scientists, like Max Planck, and great philosophers, like George Hegel.

Germany was a society that had produced writers like Heinrich Heine and musicians like Ludwig van Beethoven. Nonetheless, it was their beliefs about a superrace and the genetic inferiority of Jews—beliefs that had little to do with facts&mdashthat won they day and changed the course of history.

Most of the really important adventures on which you embark depend on belief and faith. For instance, when you marry, you seldom do so on the basis of incontrovertible facts: You don’t walk down the aisle knowing for certain that you are going to live happily ever after in a state of permanently wedded bliss. And you don’t enter the state of matrimony knowing everything there is to know about your spouse. You marry on the basis of belief and faith.

…For an entrepreneur, starting a business far more closely resembles marriage…Faith is key (Lapin, page 183).

Indeed, all enterprise is an act of faith, a faith in the future, faith in the ability to humble yourself before others and solve their problems, create real value, investing in an unknown future where predetermined returns are uncertain—supplying before you can demand.

Hence, all organizations are built and operated on a worldview—what Peter Drucker called “The Theory of the Business.”

We are ruled by are theories and worldviews far more than we are willing to admit.

Accumulated knowledge certainly guides this theory, but ultimately any business is a leap into the unknown future.

This is what George Gilder means when he says “Knowledge is about the past; entrepreneurship is about the future.”

Ed Kless and I have been having discussion recently about our “why,” and it’s not an easy question. Take a look at what Ed believes, from his blog:

I believe that small business is where the vast majority of the wealth of the world is created. I help small professional businesses recognize that they do this through developing and sharing their knowledge. It is a great model. Do you want to know more?

I founded VeraSage, along with Dan Morris and Justin Barnett, to bury the billable hour and timesheets in professional firms, which is not a bad “what,” but it doesn’t answer why?

Well, because I believe that the time accounting regime is a servant that has transmogrified into a tyrannical master that lessens wealth-creation and service to others, humiliating and denigrating the dignity of knowledge workers everywhere.

The VeraSage Declaration of Independence is my verbose “why.”

Your Why should start with “I believe…”

We’d love to hear your “Why,” and have the opportunity, like with Jay, to post your mental breakthrough.

CS3 Technology: Building the Knowledge Worker Organization

Today, we welcome a new Trailblazer to VeraSage: Gary Crouch and his team at CS3 Technology in Tulsa, OK. He wrote this post in the wake of the Firm of the Future session at Insights 2010.

Gary’s thoughts are flashes of brilliance and will take some effort to embrace and even more effort to fully understand and implement. His most profound insight is, “My function then as the leader of a team of knowledge workers is to attract intellectual capital to my team.”

Thanks, Gary for allowing us to post this.

Leader: someone who guides or directs others

Team: a number of people organized to function cooperatively as a group

Sometime back I read a book or article describing how the knowledge worker can and should maximize their own potential by playing the part of the hired gun (unfortunately I cannot locate the article to give credit where credit is due). For the knowledge worker, the author explained, it is in their best interest to manage their career path by hiring out to the highest bidder at every opportunistic step. This could be accomplished by promotions within the current organization or moving through various organizations that have an increasingly higher need for his/her services. Either way, the number one priority is to promote their skills and experience to the marketplace.

As I have personally benefited from implementing many ideas shared by Ed Kless in my business, I attend as many of his speaking sessions as possible. At Insights 2010, I heard Ed describe our employees as knowledge workers, our most important assets, who walk out of our doors each evening. As I had heard this before, my tendency was to get depressed thinking about just how fragile the culmination of my life’s work, our business, really has become. Then, a thought occurred to me and everything came into focus.

Earlier in the day, we reviewed the building blocks for a successful knowledge worker firm as the following formula:

Profits = Capital Management * Effectiveness * Pricing on Purpose

My thoughts focused on the capital management element of the equation. Capital is made up of various resources that the knowledge firm must manage on a continual basis. These resources include the following:

Financial Capital = Operating capital and cash flow

Intellectual Capital = The ability to maintain and grow knowledge within an organization such that it can be applied to solve customer problems

Structural Capital = The environmental components that allow an organization to function effectively such as processes, systems, methodologies, physical plant, communications facilities

Social Capital = The brand of the organization that includes relationships with vendors, customers, external influencers, product and service awareness, and so forth

It dawned on me; in many cases the ability of the knowledge worker to monetize their intellectual capital is limited. Most knowledge workers need to work within an organization for various forms of capital that they either do not possess, or do not have the ability to properly manage. For instance, they may not possess the cash flow for marketing themselves or for investing in new equipment; they may not be able to build systems to manage projects, bill their services, perform Q&A functions while chasing the next job; they may be great technical resources, but not know how to approach social networking effectively so they have a new project waiting for them when their current project is completed. These limitations of the hired gun are answered by participating in a team environment. When the knowledge worker’s specific expertise is combined with varying forms of expertise brought by other knowledge workers and multiple capital resources, only then does the application of intellectual capital bring value to the buyer.

My function then as the leader of a team of knowledge workers is to attract intellectual capital to my team. I can do this by providing the benefits of various forms of capital that the intellectual capital owner does not possess or does not have the ability to manage. If my team is effective to the point of profitability, then I am able to demonstrate the ability to monetize the knowledge worker’s intellectual capital.

Of course, money is not everything. If I also can help the knowledge worker grow in experience, knowledge and capital management abilities, then I have provided value beyond money. As long as the knowledge worker remains with the team, I also have built additional intellectual capital accessible to my team.

To be sure, the process will always be fluid. As the team gains additional experience and knowledge individually, we must recognize the additional value requiring either additional compensation or opportunities to grow. However, the combined growth inherent in the team provides even more reason for the team to remain intact.

Should a member of the organization find a more beneficial team for their situation, then the process begins again and is costly. However, the relationship has been mutually beneficial. Both the team and the organization have been profitable. In addition, intellectual capital is one form of capital that can be shared. When a knowledge worker shares his knowledge with a customer or a coworker, they do not diminish their own knowledge. In fact, through an exchange of ideas, the knowledge worker’s intellectual capital will grow as well. Concurrently, if our organization’s capital management process includes cross training the team members, the team can retain the exiting knowledge worker’s intellectual capital even as the knowledge worker leaves the team.

Through the process, the organization has gained in reputation, customers, reference sources, finances, experience and any number of other resources. The departing knowledge worker may also add to our social capital as an external influencer or even by bringing the new employer organization to our team as a customer.

Business is the process of providing solutions for others. As we continue to build our organizations, we must recognize the impact of the knowledge worker on our business models. As we provide a valuable package of organizational attributes that the knowledge worker can monetize their intellectual capital, we can help them grow. At the same time, we can increase our retained resources of financial, structural and social capital.

All in all, it is not a zero-sum game; everybody can win.

Trailblazer: Kim Foard, CPA & Company

On January 9, 2010, I received an email from Kim Foard, CPA from Billings, Montana that created an HSD for me—High Satisfaction Day—as we like to say here at VeraSage:

Your book, Professional’s Guide to Value Pricing, improved my client’s happiness and my success. While the financial rewards have been fun, the improved relationships are priceless!

Pricing on Purpose is next.

Kim Foard

Kim was kind enough to provide us with a case study for our Trailblazers section, reprinted below.

January 16, 2010

What We Want

As a door-to-door Cutco© knife salesman in my freshman year of college, I learned that people buy what they want; not what they need.

When asked for several knives to sharpen, one couple would present broken blades so dull soft butter was a challenge. While giving me hearty nods of approval that they were in need of knives and enjoying the presentation of tricks performed with the sharp knives from my sales kit, they would politely say, “No. No, thanks; we don’t want what you’re selling.”

The couple in the next house would struggle to find any dull knives in the sets of fine cutlery displayed in their kitchen. As they apologized for not being able to play along, I would make a little conversation, reluctantly begin the show, and then quickly navigate my way through the script. Without even asking for the order, my focus was on an exit strategy. They would reach over, touch my arm and exclaim, “Yes! We want to buy the biggest set!”

Only years later, when studying one of the greatest salesmen, Zig Ziglar, did I learn, “You can get everything you want in life, if you will just help enough other people get what they want.”

This is my story.

The days of my childhood were spent horseback in a sea of cowhides with a Dad who knew the way to confidence was by doing what others said was impossible. The evenings were spent in epic tales of adventure with a Mom who knew the portal to opportunity was by learning from the stories of others.

After high school, I turned down scholarships to pursue my dream of being a cowboy. Fifteen months later, I knew I didn’t have the same love of horses and cows as my dad! Yet, all of those years living the notion, “Where there’s a will, there’s a way” came in handy for a poor kid with a “new dream” of going to college. In the course of managing my fledgling business as a twenty-something entrepreneur, the counsel of an older client friend cut short my whining as he said, “Kim, your problem is not that you were born poor. Your problem is that you were born with ambition. Many are born poor and stay that way. You want something else.”

The “something else” was finally discovered twenty years later in a book written by Ronald J. Baker, Professional’s Guide to Value Pricing (with CD), Edition 3, published by Aspen Law & Business, 2001 [now out of print].

By starting with one client in a little Montana town of 2,500 population, appropriately named Roundup, the cowboy in me was enjoying the gathering of a small herd of loyal clients. They understood from the very beginning: I was in the business of selling dollars. I didn’t understand Value Pricing; I did understand the importance of finding 5 to 10 times my fee in benefit for them. In the early years, there was an Exit Conference with every single client to explain what had been done. That made quite an impression and they would say, “No one has ever cared enough to spend time with me, like this!” Spend time? Heck, no! I was investing time with them; I wanted a long-term relationship!

Then, one day, time had taken its toll on a ranch family and they were in the process of transitioning the next generation into the accounting function. I remember the excitement of working with the new twenty-something CFO, as we set up QuickBooks© and enjoyed a day’s worth of coaching and visiting.

In the course of adding families, processes, and infrastructure to the ranch operation, right in the middle of a seven year drought, there was a Net Operating Loss to be carried-back: Many thousands of dollars of benefit for a thousand dollar fee. To my surprise, I received a call from the new CFO, who had questions about the bill.

Remember, this was before Value Pricing, Fixed Price Agreements, Retainers and crystal clear Communication at the beginning of every project.

Sure enough, he was right. There was a line on his bill, and every other client’s bill, that read: Photocopies and Assembly—$75.00.

Made perfect sense to a bean-counter; we have overhead. After a few years in business, we have a history of expense; we can project that cost into the next year and we can reasonably estimate number of clients and projects for a given year. So, we do the math. $75.00 was a good number, all clients paid the same on any project and it, definitely, was a Fixed Cost to me. Not to the client. He wanted to negotiate that amount, downward.

In fact, he had counted the number of pages, and fasteners, applied the going Office Supply Store rate for those commodities and arrived at his number of $7.50. In his mind, he had been overcharged by a factor of 10. Ah, that “Perfect 10”; yet, this time it was viewed as being in my favor, not the client’s, and it was causing harm to our relationship!

He thought I was cheating him; I thought he was behaving stupidly. We were, both, on to “something”!

The value provided to the family for the last twenty years didn’t matter at that moment. In essence, he was a “new client” and deserved my respect. So, we began at the beginning.

Having read enough of Professionals Guide to Value Pricing to think differently and having found the CD in the back of the book with templates, I approached this “new beginning” with fervor. I had nothing to lose and everything to gain; a relationship hung in the balance!

There must be a better way to build relationships than: work hard; send bill. For twenty years, I had done what I had been trained to do by my accounting mentors. It worked, most of the time: 95% of the clients understood the value and were willing to be surprised by the bill. For a competitive perfectionist, that other 5% was the challenge, and at that moment I had one very irate customer on my hands, and my mind!

Change nothing; Nothing changes.
Insanity is doing the same thing over and over, expecting a different result.
Easy is hard; Hard is easy.
We get what we allow.

It was time for a change.
The insanity was tiring.
A new path was needed.
I had created this mess.

A single line on a bill was the proverbial straw that broke the camel’s back.

One more witticism became the mantra of the day, “Fake it until you make it!” At the time, all I had was a page of script titled, “Questions You Should Ask The Customer During The Fixed Price Agreement Meeting” and a burning desire to find a better way.

Today, those questions have been customized and internalized until they are at the center of every new beginning, and potential client relationship.

They look like this:

  • What do you expect from me?
  • What are your biggest worries?
  • How do you see me helping with these challenges?
  • What growth plans do you have?
  • What role do you want your CPA to play in your business?
  • How would you define quality service?
  • Is a 100% Money Back Service Guarantee important to you?
  • What would you consider as timely response to your accounting and tax questions?
  • Why are you changing professionals?
  • Are you concerned about any, one, issue that I should give special attention?
  • Were you referred to me by someone?
  • Are you Able To Pay for guaranteed exceptional value?
  • Are you Willing To Pay a retainer in advance and the balance upon completion of services?

Forget about Perfect 10s; these are the Lucky 13!

As accountants, we will eventually need, and want, to answer this question:

  • Are we Relationship Builders, or Paper Shufflers?

Paper, as a commodity, is cheaper by the case.

Relationships are priceless.

For those who want to debate whether the glass is half-full, or half-empty, handling commodities might be an excellent career choice. For those of us who wonder why so much attention is given to “half” of anything, “Creating and Capturing Value” is quite a noble profession!

Wholeness comes from tapping into the Universal Principle of abundance; our real potential is unlimited. Yet, this isn’t about us.

Communication is what the listener does. Are we listening to our clients? Do we really hear, and understand, what our customers want?

Oh, sure, they will grudgingly accept bills for the compliance work they “need” to have done. When they understand how much we care about them, demonstrated by how we actively listen to their dreams, they are open to new ideas. As they consider all of the many menu choices available to them, with a clear pricing structure designed to express the value of each one, and ultimately commit to partnering with us, the “want” is palpable!

Yes, that new CFO in charge of the family ranching heritage understood the Value in the Price (when I covered up the detail of the bill) and wanted me to understand that he wanted more of that simplicity. Why did it take me so long to get the horse in front of the carriage? Answer: Good judgment comes from experience; Experience comes from bad judgment!

Disciples of Value Pricing never hear “The check’s in the mail.” In fact, because “the checks are in the drawer”, we manage risk, schedule our days, attract quality clients, stumble into opportunities, enjoy open communication, reap financial rewards, and tie “Ribbons and Bows” around each and every project on our way to building relationships.

I have learned a deep respect for one of Goethe’s couplets:

Whatever you can do, or dream you can, begin it.
Boldness has genius, power, and magic in it.

In our world of technological advances, “www” has become the gateway to infinite possibilities. If we will decide “What We Want” and, then, offer that with passion to others, the result is guaranteed to be a “Win Win Win”: for Customers; for Us; and, for the Whole Wide World!

Best regards,

Mr. Kim Foard, CPA

It’s rare to get cowboy poetry from a CPA, so thanks again Kim for making our day.

More importantly, congratulations to you for having an open mind, looking for a better way, and contributing to the dignity of our profession by doing the right thing for your customers.

Reading Kim’s story was another HSD!

Chris Marston: Legal Rebel

Congratulations to Chris Marston and the entire Team at Exemplar for being appointed a Legal Rebel.

You can read Chris’ Legal Rebel profile here.

I don’t know most of the other Legal Rebels, but I would bet that Chris Marston is the only practicing lawyer among them who doesn’t do timesheets. I don’t know how you can be a Legal Rebel if you still complete a timesheet—the buggy whip of the intellectual capital economy.

Also, check out Exemplar’s new Website and our Australian colleague John Chisholm’s blog post on meeting Chris on his recent tour of the USA.

Congratulations Chris and Exemplar—you are truly a Firm of the Future!

Do you want fries with that?

By Karen Smart

There are many things that people do instinctively. One is to look for patterns. Our eyes are constantly searching for patterns. Think of those posters we use to see in the shopping malls in the late 80’s. If you stared at it long enough, an image would emerge. Remember those? Well, I was staring at those ‘motivational’ posters waiting to get excited about their message and beautiful images until Ed Kless womped me over the head. By the way, if you’re tired of the motivational posters, there are also fun non-motivational posters. http://www.demotivators.com/. Another thing we do instinctively is choose. Options are in front of us everyday. We even give our children options. Do you want the red fire truck or the Sit-n-SpinT? You can’t have both. Do you want fries with that? Himalayan Pink Salt or regular table salt? What size? I think the entire value model probably goes back to Adam & Eve. They had a choice too. But, I don’t have time to do all of that research because I’m so busy having fun at work these days trying to figure out what options I want to offer my customers on proposals. And yes, they ‘see’ a pattern in my options and I can generally alter the text to have a specific pattern that is more pleasing to the eye. Read on.

I’d like to start off by presenting the first proposal I fashioned after coming back from an intense two day training course that our company hired Ed Kless to do especially for our group (WAC Consulting Group, L.L.C.). It was sort of like a mini consulting and leadership academy wedged in between two beautiful Florida sunrises and Ocean sunsets.

I had previously submitted to our client, an hourly based contract, which you will also see later. When I first submitted the hourly proposal, the client didn’t purchase the upgrade due to some economic struggles and staff changes. A few months later (after Ed’s training) the client wanted me to send over the proposal again because they lost the first one. Bless their little heart! What a great opportunity to try this new ‘Value Pricing’ model. I was skeptical at first, and my business partner actually thought the idea was ludicrous and wanted no part of ‘ripping off our clients’ as he deemed it. I looked him in the eye and said, “The customer now expects me to upgrade their system, install the new modules, train people and work with their bank all within a two week time frame”. That meant I had to shift around my schedule and call other clients to move their scheduled updates, just to make this customer’s deadline when we could have worked this in nicely three months ago. So, I endeavored into the ‘uncomfortable zone’ by myself and with people scowling over my shoulder, mumbling something about hours and time tracking and losing customers.

I think it’s important that you see an example of what options look like. Please keep in mind, this was my first time walking and it was hard to be creative. After looking at my first proposal, I am then going to show you how I previously went about doing this task. Seeing is believing.

Okay, as promised, below is my first value priced proposal to upgrade a customer who was on a very old system. This customer also wanted to add the ability to do direct deposits.

New Proposal for Client

What will be needed to configure EFT:

  1. Client to authorize their banking representative to talk directly with Karen Smart
  2. Karen Smart to obtain ACH file formatting specifications/sample from bank.
  3. Configure EFT to generate ACH file in accounting/payroll software.
  4. Generate sample ACH file
  5. Transmit sample file to Bank for testing and make changes as necessary to form and or database structure.

(This section imparts a skill level that will be required to do the EFT work. Most clients would not want to do this and that’s the reason I put it in the beginning, before the pricing options.)

Option 1

  • Project to be completed by January 31, 2009
  • Obtain product activations for new version of software from Sage
  • Download software and all available service packs to client server
  • EFT software installation and installation of accounting software
  • Accounting software conversion, install all current service packs
  • Configuring EFT (above steps) will be up to client
  • $3,800

Option 2

  • Project to be completed by January 16, 2009
  • All of Option 1 above plus
  • Adjust check stock forms and invoice forms after upgrade
  • Half-day of training on new product features
  • Configuration of EFT as stated above by Karen Smart
  • $4,900

Option 3

  • Completed by January 8, 2009
  • Includes Option 1 & 2 above
  • Create direct deposit form
  • Full Day of training (8 hours)
  • Casual product use calls for one month
  • $5,900

Option 4

  • Completed by December 31, 2009
  • All of Option 1, 2, & 3 above
  • Pre-conversion testing performed at Smart e-Solutions Inc, off business hours
  • Transfer converted and service packed system to client server, reducing impact of system downtime.
  • Database repair on data if needed
  • $7,000
  • Previous Proposal for Client

    What you are about to see next is how we previously worked up our proposals.

    Description

    Done by

    Consulting Hours

    Programming Hours

    Project Management and documentation

    Karen Smart

    1.50

     

    Analysis (Pre-conversion)

    Karen Smart

    4.00

     

    Check writing to be ported over to new version

    Programming

     

    1

    Invoice form to be ported over to new version

    Programming

     

    0.5

    Training on new features & Direct Deposit (EFT)

    Karen Smart

    4.00

     

    Performing MS SQL backup of all databases

    Karen Smart

    2.50

     

    Installation & Conversion of accounting data to new version (For all company databases at Client site)

    Karen Smart & Programming

    4.00

    1.25

    Workstation Setups

    Karen Smart

    .75

     

    Configuration of EFT

    Karen Smart

    1

     

    Total

     

    17.75

    2.75

Note: This is not a fixed cost quotation. We work on a “Time and Material” basis. If the above quote goes under the amount actually worked, we only bill for the time worked. Same holds true for any time above the estimated hours.

Rates

Charges for Programming hours: $150.00 per hour

Charges for Karen Smart hours: $150.00 per hour

Notice that if you calculate the total estimated hours it only adds up to $3,075. My value pricing proposal started out at $3,800.

You want to know what option they chose? I’ll get there, but let’s talk about your business for a minute. If you’re like me, you’ve been in business for a few years, you are experienced in your field of work and you probably consider yourself to be among the best at whatever it is that you do. I had forgotten all of that. I was looking at things from an hourly standpoint and not from an experience level. Tasks that took me 30 minutes to complete ten years ago, now only take 10 minutes. That is experience and knowledge and folks, it shouldn’t be defined by an hourly rate. If it is, I can guarantee your clients loathe getting bills from you. I also woke up to the fact that when people call me for help, it’s because they seriously can’t do the task themselves and my experience becomes invaluable to the customer, whether it takes 10 minutes or 10 hours.

As a result of my look back and more bonks on the head by our sales person, Dennis Bock, we are in the process of on-boarding all clients to software license agreements, (SLA) which is a whole story in and of itself. We have consultants and programmers in our group that have been applying their experience and knowledge to our customers for over 20 years. I started asking employees and contractors, what do you want out of life, what do you want to do in this position, what are your goals at work? Many came back with things like, “I want to earn over the yearly Social Security maximum taxable wage just once in my life”, “Pay off my mortgage”, “Go on a vacation without taking out a loan” and the list went on. I started off by looking at what bacon I was bringing home in a year. I took into consideration my college degree and the many years of being in this field and what knowledge I have as a result of those years of work. My yearly wage has never been where I want it to be. So, let’s do the math. 40 hours x $150 = $6,000.00 x 52 weeks = $312,000.00. Now start calculating how many ACTUAL billable hours you have over a year, and it’s no where near $312,000.00 per year. In fact, when you start putting a pencil to it, maybe you’re lucky you’re still in business. A good economy masks a poor business. If you’re struggling in today’s economy, maybe it’s time for that change?

You know how much people despise looking at bills from lawyers, so you can imagine that your customers probably feel the same way about getting hourly bills from you. In fact, I know the customers abhor this because one of our clients, that is on plan (SLA), actually told me one day, during a technical support call, “I hated getting bills from you, even though the support was great. I didn’t want to call you unless it was a real emergency”. Reason: Hours = Pain. For the customer and for you. The conversation with my customer led me, of course, to review our SLA billings. I guess it’s just easier to pay a yearly amount because I’m doing just fine on margin. As a result, communications with my client have actually increased. I’m building reports for them and talking to them about other products. They feel they can call me anytime, without the pain of an hourly billing rate. In fact, there’s a lot less stress in the office as a result of having our clients on plan.

For recurring revenue streams that are consistent, and that will allow you to concentrate on your business, start looking at implementing and enforcing SLA’s. You’ll soon be working on your business instead of in it. We have four different levels on our SLA’s and one of those levels is “NO PLAN”. No plan means a higher incident fee when they call in for any help. Sage has been doing maintenance and support contracts for years, and it’s amazing that for most of us, the light bulbs didn’t turn on to recurring revenues long ago. Sage depends upon those recurring revenues for over half their business. I did say half. And to be exact, 52%. Still don’t believe me? http://www.investors.sage.com/reports_presentations/results_presentations/

Click on the 2008 tab Full Year 2008 Results.pdf and go to page 19.

I’m sure that there will be other methods developed in the future to woo us, but this plan is truly working for my company and we’ve never felt more secure in such a tough business environment. So when you’re doing your next proposal, I encourage you to try the value pricing method. I’ve managed to work with two other companies on opposite ends of the nation and they were amazed at what options their customers chose on the proposals I created. They have now seen the light and how this really works! Implementing the SLA’s, (WITH OPTIONS!!!) has also allowed me to relax and not worry about when the phone is going to ring, so that I can bill someone and make them feel horrible about using my services!

So, the client I did the quote for? They weren’t as “HOT” to get the job done before December 31 as they thought they were, and I really didn’t want to call my other clients and reschedule them. They chose the option I wanted them to: Option 3. That was $2,825 above what I originally quoted using the hourly rate syndrome! You know how people frame one dollar bills and proudly display them as their first money earned? I have my first value pricing option proposal taped next to my desk for all to see we did it!

I have yet to prove my theory on pattern searching within my proposals, but I’m starting to keep track of the choices and outcomes. If you want to seek out some interesting sites on pattern searching of the eyes. I might suggest the fol
lowing websites.

Karen Smart

clip_image001[7]

President

Smart e-Solutions Inc

www.smarte-solutions.com

www.waccg.com

785-832-0007 (Office)

866-400-0922 ext 2666

913-269-2666 (Mobile)

Congratulations to Exemplar Law Partners

VeraSage fellow Chris Marston was recently profiled as a Trailblazer law firm in the April, 2009 issue of the ABA’s Law Practice magazine, along with three other firms.

You can read the full article here.

Congratulations to Chris and his entire team for breaking the ossified law practice model and venturing boldly into the 21st century!

Pricing PR by the outcome, not the hour

Dan Morris received many nice emails from people who saw him quoted in the Wall Street Journal article. One was from Kirsten Mortensen, who wrote the following:

Hi, Dan,

Came across your name in yesterday’s Wall Street Journal article. Congratulations on that!

I have also just joined your institute.

My firm, Creative Communications Services, has offered project-priced PR services to our clients for over 30 years.

I can’t tell you how many times, in that time, we’ve watched with astonishment as corporations have thrown big bucks at PR programs that are all puff and no results.

Please let me know if there is anything we can do to contribute to your site.

Regards,

Kirsten

I immediately wrote to Kirsten and asked if she’d contribute a case study for our Trailblazers section, which she generously did. It’s just excellent, and speaks for itself on the sanity of basing your prices on results, not hours:

It’s All in the Package:
Pricing PR by the outcome, not the hour

Kirsten Mortensen, CCS/PR

Other public relations agencies have probably viewed us, over the years, as naïve.

We’ve never cared. We’ve just smiled and gone about our business—because, in the 35 years that CCS/PR has been serving our Fortune 500 clients, we’ve proven our value many times over, earning our clients’ loyalty and repeat business, as well as a steady stream of word-of-mouth referrals.

Our secret is what we called “package pricing.”

We didn’t design this model to anticipate the Big New Thing in services pricing—nor to respond to clients’ budget concerns. It was by accident, really. Our firm was founded by Bob Fisher, a young newspaper reporter who transitioned to writing “success stories”—
case histories—for Eastman Kodak Company and other high-tech corporations. It was a modest little freelance business in the beginning, but notice the model: Bob brought a journalist’s aesthetic and principals to public relations, and he was paid when he produced something tangible—high-quality articles profiling how customers benefited from using his clients’ products.

It wasn’t the way traditional PR firms operated, but it worked for Bob—and it engendered a feeling of mutual trust with his clients.

As Bob’s workload grew, CCS transitioned into an employee-owned company staffed by journalists and media relations professionals who secured placements for our case studies. The portfolio grew; today we offer everything from news release development and distribution, marketing, PR consulting, to customer reference management, video production, and, more recently, website content development.

But even as we expanded, CCS continued to offer package pricing under the original model. For example, we arranged for the placement of articles before we started writing them, so clients only paid for print-publication pieces that actually reached their intended audience

Yes, this model means we assume some risk. We essentially work on spec. But because we assume the risk, we work smart, and there’s a built-in integrity to our services delivery.

We focus our efforts on results—because we’re paid for results, not for “effort.”

We find ways to work efficiently—because when we work efficiently, the operational savings go straight to our bottom line, allowing us to bid more competitively for work while still remaining profitable.

We are inherently comfortable with metrics. It’s easy for us to document the results of our services on our clients’ behalf, because our work is focused on achieving results.

And we don’t overpromise to our clients or overhype what they can accomplish—because we know we won’t get paid for promises we can’t keep.

Not every client we’ve worked for has wanted our pricing structured in this way. We’re sometimes asked to bid on contracts based on a per-hour bodies-for-hire model. And when this happens, we accommodate those requests.

But no matter what, we continue to offer our package pricing option to both new and existing clients. It remains a fundamental aspect of our firm’s corporate identity. And it feeds our corporate culture of integrity, high-quality work, and a strong emphasis on results.

Thanks, Bob!

Thanks so much Kirsten for sharing your story with our community.

Trailblazer Update: Brains on Fire, Two Months Without Timesheets

Our Trailblazer friends at Brains On Fire have provided another update on their progress of transitioning to a firm of the future.

This one is life without timesheets for two months. You can read Brandy Amidon’s blog post here.

I especially liked her “Triumphs,” section, which I challenge any firm that uses timesheets to think real hard about:

Triumphs

  1. We are able to predict the currents month’s net income before the month begins. We can look at our projects estimated percentage complete for the month and say this is where we will land. Instead of waiting till the end of the month, after we’ve grossed everything up and then start writing things off. We were worried about losing control of profitability when we switched off time sheets. Now we have more control and power to see into the future (now I can throw away our eight ball).
  2. We’ve became closer as a team. AE’s aren’t afraid to ask more people to join in on a project if need be. No more fear of going “over” on a job. We are coming together as a team to provide the greatest benefit and exceeding our client’s expectations. I doubt it gets any better than that!

When we argue that firms need to ditch timesheets to truly appreciate all of the salutary effects that emerge (some of which we never anticipated), we are met with nothing but arguments. But how would you measure this, that, how would you know this or that, etc., etc.

But the dirty little secret is timesheets don’t provide any of this information now! It’s as if people who object to the idea are comparing life without timesheets to some Utopia of perfect measurement and balance.

But you have to compare not having timesheets to what you are doing now, not some Utopia that will never exist here on earth. This disadvantages of timesheets simply outweigh any advantages, and we’ve proven it over and over again.

There are essentially four defenses of timesheets:

  1. We need them to price.
  2. We need them for cost accounting.
  3. We need them to measure team productivity.
  4. We need them for resource and project management.

We’ve demolished every one of these arguments.

First, we need to better understand value to price correctly, not the time it takes to perform work.

Second, there are other ways to perform cost accounting than timesheets. This is what amazes me, especially with respect to CPAs. Do you really think timesheets are the ONLY METHOD of performing cost accounting? If you locked yourself in a dark room for an hour, could you come up with any other way? There are no other ways, really?

Third, timesheets don’t measure team productivity. They measure inputs, but productivity requires an output as well. Timesheets are silent as to output, both quantity and quality. Hence, Key Predictive Indicators are far superior at tracking team effectiveness.

Lastly, there is no doubt that in planning into the future, a firm may want to think about man hours, or man days, etc. But this is only in looking forward, it does no good looking backwards at this data. By then, the damage has already been done. Nor does it shed any light on how to do it better next time.

This is why we advocate performing After Action Reviews.

In any even, I bet if Brandy were to answer the four defenses of timesheets she could come up with arguments of her own why they don’t perform as conventionally believed.

But to truly understand it, you have to a take a leap of faith and trash them. It’s the only way to liberate your mind and body from the tyranny of time.

All accountants charge for their time. NOT!

If this were not so funny it would be pathetic. Actually, as Willie Wonka says, “Strike that, reverse it.”

Recently, we at VeraSage became aware of an accounting firm’s Web page that had a series of questions and answers regarding fees. Among the litany is this gem:

How do accountants charge?
All Accountants charge by time. The longer it takes to prepare your Return the dearer it’s going to be. Some businesses sell hamburgers. Real Estate Agents get paid commissions, and ACCOUNTANTS SELL TIME. The more presentably you submit your accounts, the quicker we get it done, and the more cost effective it is. We only have 8.0 hours per day to sell and we would not be in business if we gave our product away.

Not only is it wrong (all accountants do not charge by time, see our ever growing list of accounting Trailblazers), it seems this page has been cut, pasted, and ever so slightly altered by many firms in Australia and New Zealand. A Google search found seven instances of the same eff-ing page!

Which of you wants to take credit for originally writing this drivel? Perhaps it was a consultant to the professions that continues to circulate this crap. I beg each of you to spend an hour on this Web site and learn something new.

Ron, do you still think Australia and New Zealand are ahead of the US and UK?