Hawaiian Seminar-At-Sea

Seminars-At-Sea presents “Knowledge is Profit” CPE cruise, October 26 through November 2, 2013.

We will be onboard Norwegian Cruise Line’s “Pride of America.”

This will be fully tax deductible and provides 32 hours of CPE credits.

For more information, contact: 1-888-377-7962

For Good and Evil

This is the single best book ever written on the history of taxation.

Here’s my recent book review from the Minnesota Society of CPAs publication, Footnote.

Also, you can watch a one hour interivew with the author, Charles Adams, from 1993.

If you have any interest in taxation and how it alters history, you find Adams fascinating.

The Virtual Roundtable: Value Pricing for CPA Firms

I’m happy to announce a new program being launched by the CPA Leadership Institute: The Virtual Roundtable.

A series of six conferences call will be conducted on a given topic over several months.

My topic is The Eight Steps to Implementing Value Pricing.

The first session is a free introduction, which will take place on October 31.

Certified General Accountants: Outlook magazine interview

I was honored to be interviewed by Lynn Sully for the CGA’s publication, Outlook.

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We discussed the idea that “you are your customer list,” among other Firm of the Future topics.

You can find the interview here, beginning on page 38.

Richard Muscio Video and Book

Long-time friend of VeraSage, Richard Muscio, CPA in San Diego, has produced a YouTube video on the AICPA Horizons 2025 Report, which has attracted over 10,000 views so far.

Richard is a thoughtful leader within the CPA profession, one we’ve had many good conversations with over the years.

Back in December, Richard wrote a review of the Report on VeraSage, which started an exchange with the AICPA’s Mark Koziel, another long-time friend of VeraSage.

Also, Richard has contributed to a new book, Rise, now available on Amazon.

Congratulations on the video and book, Richard!

Book Review: How Will You Measure Your Life?

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Harvard professor Clayton Christensen is one of my favorite business thinkers, right up there with Peter Drucker, Henry Mintzberg, Gary Hamel, and a couple of others.

Unlike most business writers, Christensen understands the importance of theory. He writes:

MANY BUSINESS RESEARCHERS, consultants, and writers create and sell us static views—snapshots—of technologies, companies, and markets. [These] tell us little about how they got there. Nor do they tell us what is likely to happen in the future. My colleagues, my students, and I have eschewed the profession of photography. Instead we are making ‘movies’ of management.

This book applies the same concept of using theories to what’s important in your life. He begins by talking about knowing some of the leaders caught up in recent scandals, like Jeffrey Skilling from Enron, a Harvard graduate. The book sets out to help you answer three questions with respect to “How will you measure your life”:

  1. How can I be sure that I will be successful and happy in my career?
  2. How can I be sure my relationships with my spouse, my children, and my extended family and close friends become an enduring source of happiness?
  3. How can I be sure to live a life of integrity—and stay out of jail?

The last one about staying out of jail may seem unnecessary, but given the number of Harvard MBAs who have ran afoul of the law in recent times, perhaps not.

What’s interesting about this work is that it applies the same logic of using theories, which Christensen uses in his work with business leaders, to your personal life. It’s only theories that allow us to peer in the future, since conclusive data is only available about the past.

I Don’t Have an Opinion, the Theory Has an Opinion. When people ask me something, I now rarely answer directly. A good theory doesn’t change its mind: it doesn’t apply only to some companies or people, and not to others. It is a general statement of what causes what, and why. Good theory can help us categorize, explain, and, most important, predict.

You shouldn’t need Liz Taylor’s record on marriage to know what it takes for a good marriage. Theories help us explain what will happen before you experience it. He suggests you ask:

What are the most important assumptions that have to prove right for these projections to work—and how will we track them?

You’ll learn a lot of interesting things about business strategy, which surprised me at first given the subject of the book. Yet given his approach of using theories, it makes perfect sense.

One of the most intriguing discussions is the “full versus marginal thinking” that will help assure you live a life of integrity. He compares Netflix with Blockbuster.

Netflix didn’t have an existing profitable business model to compare to, it’s baseline was no profit. Blockbuster, on the other hand, based its decisions on marginal costs and revenues, which is dangerous because it

biases companies to leverage what they have put in place to succeed in the past, instead of guiding them to create the capabilities they’ll need in the future. If we knew the future would be exactly the same as the past, that approach would be fine. But if the future’s different and Blockbuster should have been thinking: If we didn’t have an existing business, how could we best build a new one? What would be the best way for us to serve our customers?

He then asks an interesting question:

Why is it that the big, established companies that have so much capital find these initiatives to be so costly? And why do the small entrants with much less capital find them to be straightforward?

The answer is when you’re new to the scene, the full cost is the marginal cost. This is the beauty of creative destruction, and it’s why economists don’t care if a business exists in the long run or not. Something will always come along that’s better.

So what’s this have to do with integrity?

The marginal cost of doing something ‘just this once’ always seems to be negligible, and hence it’s easier to hold to your principles 100 percent of the time than it is to hold to them 98 percent of the time. Decide what you stand for. And then stand for it all the time.

Good advice. Teaching ethics has convinced me of the wisdom of Oscar Wilde: “No man is rich enough to buy back his past.”

He ends on the importance of purpose, for which he recommends three parts:

  1. What do you want the enterprise to have become at the end of the path it is on?
  2. Commitment
  3. One or a few metrics that can measure progress

God, in contrast to us, does not need the tools of statisticians or accountants. [He has] no need to aggregate. His only measure of achievement is the individual.

Christensen, like Mitt Romney and Harry Reid, is a devout Mormon. He also discusses being diagnosed with follicular lymphoma, a cancer similar to that which had killed his father. It went into remission, then he suffered an ischemic stroke right after beginning this book. He’s learning to speak again, one word at a time. I wish him well, and pray he has a speedy recovery.

He’s certainly helped clarify my thinking, and this book, while not your typical self-help book, is quite useful (in fact, all of his books are). Rather than telling you what to do, he helps you construct a theory of cause and effect. It’s much more difficult than reading platitudes, but far more useful. Highly recommended.

Why the Consultants to the Professions are Whipping us into Irrelevance

The following is from one of our latest Practicing Fellows, Matthew Tol, from Australia.

Apparently, the 50 Shades trilogy is one of the fastest selling books (for those with matching chromosomes) ever. Quite a feat when you see that all “serious” reviewers describe it as appallingly written. It must have something to do with the escapism that the books engender—something a lot of writers apparently strive for.

In many respects, the consultants to the professions (and I”m mainly talking about accounting and legal professions here), fall into the same mould as that adopted by E. L. James in her books. They offer up a fantasy, some escapism and possibly a somewhat removed from reality view of what a “normal” firm should look like. Although, I do think that a large number of firms out there have a number of “Red Rooms of Pain”—they’re known as Partners’ Offices at review time!

Having endured a range of sessions with consultants to the accounting profession over the past 20 plus years, it appears that they have a view of the world which is based largely on some experience they had many years ago. They have leveraged off this to create a story which they sell to everyone in an attempt to enable them to believe that they are able to do what the Consultant had done. Similar to Anastasia Steele, in the book, the submissives are taken on a journey for which they are unprepared and are convinced to adopt certain behaviours even if they are outside their comfort zone.

Whilst there are some things that the consultants to the professions do well—mainly cause people to think, their approach is possibly not relevant in the current environment. They have updated their stories based on stories they have been told rather than learnings they have experienced.

Take the younger staff engaged in professional firms. They are very different to where I and my colleagues were when we started out! They have a greater focus on results, less need to be measured and a greater desire to “make a difference.” They don’t like being managed with a stick and they have been taught that they are good enough.

How do we then reconcile that with the command and control processes that are promoted by the consultants? How do they “fit” with their performance being measured by productivity rather than results? Do they feel like Ana who is satisfied after received 20 whacks on the bum because that is what makes her “owner” feel good?

For the consultants to the profession to be truly effective and act as the catalyst they should be, they need to assist the firms they work with to develop new and innovative strategies to manage and inspire their staff. Sorry, but a goal of 80% productivity just doesn’t do it!

A large part of this revolves around being aware of the “soft” skills needed in developing people. Most of us have been trained to be technically very competent and have further developed that with many years of practice. When you get good enough technically, you get to a senior or ownership position and you are often simply not aware of the methods that need to be adopted to mentor and develop younger staff.

“When your only tool is a hammer, the rest of the world looks like a nail” is an old adage. Lots of firms base their existence around timesheets. This is a measurement tool that is so subjective as to be fictional and which bears no connection to quality or creativity in problem solving by the people on the job.

Senior people in firms have been managed and developed using the blunt object that is the timesheet and are now passing this insanity on to the next generation. The trouble is the next generation is not buying it.

I received an email the other day from one of the consulting groups to the profession talking about concepts like “value billing” and the like. Great. But then they go on to discuss the need to measure the time spent on the job to see whether it is profitable.

Taking this the other way—you agree a price with the customer based on the results you’re going to deliver. You then spend time recording the time you spend so that you can get to the end of the job to spend more time determining whether it was profitable? At what hourly rate were you working? This is like driving your car in the rear vision mirror.

Don’t get me wrong, there are significant benefits from doing after-action reviews at the completion of a job. If it’s done based on time spent, you’re losing the value you can get from these. You need to look at the qualitative factors instead. This is what the younger people in professional firms want.

We also need to remember that the younger people entering our professions have spent a large part of their developmental years playing computer games. These games teach them strategy and process and help them to understand that there are ways around things for those “in the know.” How good would it be if we were to utilise these skills in problem solving for our customers (or, heaven help, our own firms!)?

I must admit that I have not read any of E. L. James’ books—and probably won’t. The information I have used in here has come as per a consultant—I have spoken to people who have read it. Hence, I am not an expert on that topic.

However, the message that is in those books about consensual agreement to being flogged bears a striking (couldn’t resist the pun) resemblance to the way the professions are going and the perpetuation of this silliness by the consultants to the professions.

At some point in the not too distant future, the 50 Shades trilogy will be consigned to the discount bins. I can only hope that the focus of the consultants on timesheets and forgetting about the new generation is also remaindered. For the sake of the future of our professions, we need to move from the Greyness that leads to Darkness and be Freed.

Book Review: Negotiating with Backbone

Reed Holden is my mentor, so I’m extremely biased. Still, this is a great book, especially for any firm pricer who has to deal with procurement, which Reed writes is the new normal.

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The final frontier of good pricing is the customer negotiation, and Reed explores this with verve, and an enormous amount of tacit knowledge accumulated from years as a salesman and pricing expert.

He points out “that 80 percent of procurement managers give the other 20 percent a bad name.” I have to say, this has not been my experience with the procurement folks I’ve met, but that’s probably because I only deal in the professional sector, not with general procurement.

What makes this book so useful is Reed documents all of the games procurement plays—from delays, waiting for the end-of-period discounts, to using vendors as “Rabbits” simply to drive down the price of the preferred vendor. There’s many effective tactics offered to deal with each of these scenarios.

And this advice needs to be shouted from the rooftop:

Discounting is a fool’s response. Those who live and die by discounting don’t live very long. Trad[ing] margins for revenues, they undermine the success of their business, which needs profits more than revenue to survive.”

The most important strategy, though, is to know your value, and to be an equal with procurement, not a supplicant. Only equals can negotiate. If you don’t know your value, procurement will drag you to the one topic they know well: price. You must change the conversation to value.

I also love this advice:

Spending the time on the proposal is actually easier than going to the customer with the tough questions.

Here are some of the questions Reed insists you answer before submitting a proposal:

  • What is the process for evaluating vendors and proposals?
  • What are the names and positions of everyone in the process?
  • Who is the ultimate decision maker?
  • What is their timeframe for evaluating vendors and finalizing the deal?
  • How many other vendors are approved to supply the product or service?
  • What are their names?
  • Do any of those other vendors have existing relationships with the decision maker?
  • Which vendor is the preferred vendor?
  • What are your criteria for selection of vendors?
  • Are you interested in vendors that might be able to provide more value to your firm?
  • When and how do we get an opportunity to understand how we can add more value?
  • Are you satisfied with your current vendor?
  • If you have no prior relationship with the customer, why are they asking you to bid?
  • Do budget dollars exist for the requested products and services?
  • How much is the budget?
  • What is the process to get approval to use budget dollars?

If you don’t know the answers [to three or more of these], pack up your bags and look for another opportunity.

The book documents eight different scenarios you can find yourself in. You’ll learn excellent strategies for dealing with price buyers, value buyers, and relationship buyers. The tough buyer is the poker player, who are value or relationship buyers in drag.

Counter intuitively, price buyers may be the easiest to deal with, since at least they are upfront about their expectations of the lowest price. Reed cites research that only 30%-35% of buyers were real price buyers, and that’s in commodity markets. For professional firms, it’s much less, probably single digits.

Reed’s ten tactics for winning the procurement game are exactly right:

  1. Qualify, qualify, qualify
  2. Understand your foundation of value
  3. Develop give-get options [lower price, strip out value]
  4. Map the buying center
  5. Where appropriate, build trust
  6. Use the policy ploy
  7. Delay, delay, delay
  8. Redefine risk
  9. Dealing with reverse auctions
  10. Do your homework

Being a William F. Buckley fan, I appreciated the story of when he was hired to speak at the University of Texas in the mid-1960s, when he was just starting his career as a lecturer. The Daily Texan university newspaper criticized the amount young Buckley was being paid, which was a record amount.

At his talk, Buckley read the most accusatory part of the article aloud, and said to a thundering applause:

I never said I was worth it. I only said I wouldn’t do it for less.

My only quibble with this book—Reed and I have discussed this before—is his use of the poker analogy. He writes:

The way is to consider the negotiation with the economic buyer as a game of poker.

Wagering, like a customer negotiation, is a zero-sum game. That is, every dime that ends up in one pocket is taken out of another.

Remember, you’re in a zero-sum game. The goal of procurement is to grab as much of the pot as possible.

Yet enterprise is not a zero-sum game, otherwise their could be no growth or value created. In the long run, both parties to a transaction benefit, no matter what price is finally agreed upon.

The zero-sum mentality has many deleterious effects, and I believe this analogy needs to be buried. Linguistics matter—a lot.

We must change the conversation to value, something both sides want to maximize. It’s the one area where interests are aligned—the opposite of a zero-sum game.

That quibble aside, this is a fantastic book, and a must-read. Even if you don’t deal with procurement, you will learn strategies from one of the world’s foremost pricing experts.

It’s also an optimistic book, as Reed believes that high value products and services are not dead. With all the talk of the “new normal,” this is a refreshing and empowering message.

IQPC 3rd Pricing & Revenue Optimization Summit

I am proud to be speaking at the 3rd Pricing & Revenue Optimization Summit on July 30th, being held in Chicago.

The workshop I am leading is titled “Behavioral Economics: A Look at the First and Second Law of Pricing” focusing on how the anchoring and framing effect influence pricing, and to help attendees gain an inside look at behavioral economics to create a pricing strategy that satisfies corporate goals as well as customers.

Visit here for more details and use the code “3PROS_Verasage” to receive a speaker referral discount.

Cost of Billing Time

Our thanks to Peter Lawson of Hedgehogfx in Australia for allowing us to share this tool he put together for determining the cost of driving “time” through a professional firm.

Ron Baker and I usually use a figure of about 7 to 10 percent of timeline revenue, but Peter challenged us on this and produced the tool which he feels more accurately represents the true costs – about 30 percent.

 

Above is an embedded version. Click link to download.