Atticus Webinar on Value Pricing in Law Firms

Last Thursday I had the pleasure of doing a Webinar for Atticus, with VeraSage Practicing Fellows Mark Chinn and Christopher Marston, along with Lonny Balbi, a family lawyer in Calgary, Canada.

The call was moderated by Steve Riley.

The program runs one hour and you can find the link here.

Vortex Blog Post

[Here’s the latest from our G. Robert Newhart Non-Value-Added Fellow, Gregory Kyte].

I’ve always been doughy. Different levels of doughiness, but always doughy.

My two best friends in college had full-ride swimming scholarships—not doughy. These guys swam six hours per day and could wash down a trip to Golden Corral with a bag of Double Stuf Oreos and loose two pounds from all the chewing.

I always thought it would be awesome to have the time (and willpower) to exercise so much that I didn’t have to worry about—or feel guilty about—eating things like the Coronary Bypass Burger served at The Vortex Bar & Grill in Atlanta.

I was there last week, performing at the Laughing Skull Comedy Festival, hosted by the Laughing Skull Lounge (I know—weird coincidence), which is located within The Vortex Bar & Grill. So when I got to the club 90 minutes before my show, having eaten little more than Southwest Airlines’ pretzels, I was ready to throw down.

Of course the Coronary Bypass Burger caught my eye (a big half-pound sirloin patty topped with a fried egg, three slices of American cheese, and four slices of bacon, with plenty of mayo), as did the Double Coronary Bypass Burger (double everything plus grilled cheese sandwiches used in place of normal hamburger buns), the Triple Coronary Bypass Burger (don’t ask), and the Carnivorgasm (seriously, don’t ask).

But what really caught my eye were their pricing disclosures. Obviously, The Vortex doesn’t bill by the hour like Bob’s Barbecue. The menu is (as all menus are) a type of fixed price agreement. If you want to eat the Carnivorgasm, it’s going to cost $16.25 which includes one side item and should be ready in approximately 20 minutes (as clearly explained on page one of the menu).

The thing that gave me a VeraSage boner, however, was a section of their menu titled “Special Orders & Extras.” It reads, “The Vortex is a true short-order kitchen. We will gladly prepare special orders whenever it is possible. If you order something that is not on our menu, and we do make it for you, we’ll charge you whatever damn price we want to, and you’ll thank us for it.” Hells, yes! A restaurant with a clearly stated change order policy!

To add even more punch, there’s another section titled “Read Our Menus” that says, “Everything you need to know about our food and beverage selection is printed somewhere within our menus. Please read them thoroughly. If you ask us stupid questions we will be forced to mock you, mercilessly.”

In addition, throughout the menu they make it clear that if you don’t like the way they do things, then get the hell out. For instance, “if you’re acting like an idiot, we’ll be sure to let you know, right before we toss your silly ass out,” and “The Vortex is not politically correct. If you are easily offended, there’s a good chance you’ll be offended here. Consider yourself warned.” The Vortex knows what it wants in a customer; they hope bad customers will weed themselves out, and if not, the Vortex will grab a bottle of Scotts Round Up® and do its own weeding.

Is it hard to implement value pricing? Is it hard to fire clients that aren’t a good fit? Yes. They’re probably some of the hardest things you’ll do at your firm. But a goddam bar did it beautifully. And I get it, menu pricing is different than value pricing. And charging “whatever damn price you want” for a change order is akin to “billing and ducking.”

But the biggest thing I’m taking away from the Vortex menu is how powerful upfront communication with your customers can be. Clearly define and communicate the scope of your work. Give them power by giving them choices. Make sure they know that they have the freedom to change their mind, and consequently you’ll have the freedom to change your price.

The second thing I’m taking away from the Vortex menu is that, when properly and thoughtfully executed, clearly defining how you do business (value pricing) and who you want to do business with will create the culture that you’ve always wanted. Communicate through as many channels as possible, “Here at Hayek Hayek & Nienbach we don’t bill by the hour. Mostly because hourly rates piss people off and make us want to blow our f***ing brains out. Rather, we’ll give you a custom fixed price agreement for every job we do, and you’ll thank us for it. But if you prefer that we bill you by the hour, then don’t let the door hit you in the ass.”

The customers that you want will be cheering. The ones you don’t want will have doors hitting them in the ass.

The last couple of takeaways: the Coronary Bypass Burger is the second best burger I’ve ever had in my whole damn life, and those two swimmers are now in their late thirties and doughy.

Book Review: The Wiki Man

Regular followers of VeraSage will already know we are huge fans of Rory Sutherland, Vice-Chairman, Ogilvy Group, in the UK, where he’s been working since 1988.

We’ve been showing his Zeitgeist talk all over the USA, Australia, and Canada. It is simply one of the most profound talks we’ve seen in at least a decade.

Rory was the president of IPA in the UK, where he made it his platform to spread behavioral economics into advertising agencies.

He is a devotee of Austrian economics; Ludwig von Mises is his hero.

Rory has published an eBook, The Wiki Man, I believe only available on Amazon Kindle.

image

It’s not really a book. It’s a long interview, then a collection of articles he’s written over the years. But what a short and sweet read it is.

It’s difficult to write a review of his book, since, like his Zeitgeist talk, he moves a mile a minute, tossing out an incredible range of erudite thoughts, topics, and funny lines.

The best I can do is to arrange some of his more cogent thoughts into categories.

On Economics

How did Rory get so deep into economics?

I got interested in economics just because I was ill for a few days and ended up reading a few books—one very good one by Steven Landsburg called Armchair Economist. It’s a really, really good read.

I also credit Landsburg for providing me with an incredible education in price theory, and this book is on my Top 100 Best Business Books of all time.

He goes on to discuss the concept of “Satisfice,” from the economist Herbert Simon.

“Satisfice” is the combination of suffice and satisfy.

I don’t think you can really understand brands without understanding satisficing.

[It’s] killer blow for market research—when you are put in a group of people and you’re researched, you behave like a maximiser because we want to be seen as one. Everybody says they obviously want to find the best television they can within their price bracket.

Most people, in most fields of consumption, NOT maximisers at all.

The vast bulk of the money in any market at any time is in the hands of satisficers. Self-image being a more stubborn force than self-interest.

Before the iPod most important thing with any sound system was of course sound quality. Then the iPod, and sound quality isn’t all that great.

[But it] satisfices, that’s the point.

On Behavioral Economics

It’s not mass hysteria that really frightens me, it’s mass rationality. Spend just as much time working on how you can reduce consumer transaction costs as you do trying to reduce manufacturing costs.

Maybe you only need the hard sell because your product isn’t easy to buy. All airport car parks should have a number of parking spaces, which are three times more expensive than any others.

We do not stand a chance of selling them—or of seeing them happen. And the reason for this is simple: these are all behaviour changing ideas, not attitude shifting ideas. And the job of an agency is now just to do the attitude stuff…

[It’s a] dangerous assumption that behavioral change is the product of attitudinal change: in reality it happens more often the other way.

On Advertising Agency Value

…agencies have so overplayed the “brand” justification for their activities that they have sometimes disqualified themselves from adding value to clients anywhere else.

[The] job of anyone in marketing is to turn human understanding into business advantage or social advantage, okay? That’s the only job.

I think there are really only two types of people in advertising agencies. Good people and crap people. It’s more important to have good people than to obsess about what they. Incidentally our business of charging by the hour makes it difficult to hire except by specialism, which is a problem.

As one creative (Chris Wilkins?) remarked to a planner: “You and I both drink from the same well of inspiration. The difference is that you get to piss in it first.”

Incidentally, one way to get your own bloody clients to do it is to get their competitors to do it; they’re bloody lazy most of these organisations, and they only actually do anything when their competitor does it.

How true is this last line!

On Brands

[The] best way to build a brand is to set out to build a brand. I really don’t believe this. I think if you set out to build a great business, you’ll stand a fair chance of building a great brand. I am not equally confident that someone aspiring to build a great brand will build a great business.

Great brands are often built obliquely, a by-product of something (ideals, vision, focus) and not a product of anything.

Andy Warhol’s beautiful insightful comment: “What I like about Coke is that the President of the United States can’t get a better Coke than the bum on the street.” Do you think the Prime Minister drinks the same wine as the local wino?

Great brands are like great pubs. One of the requirements is that they cross a demographic divide. Who is the typical Google user?

Ordinary people do not demand rigorous sequential logic from their friends; do they want it from their brands?

I suggest it is by far the more valuable economic role that brands play: not to be a promise of ultimate superiority but a cast iron assurance of pretty dependable non-shitness.

Jack Welch said, “Shareholder value is an outcome—it’s not a strategy.” Maybe greed isn’t bad for business. It’s certainly bad for brands.

On Advertising

We too often forget the power of advertising to alienate. Our first reaction is often to find a reason to reject it.

To decide that young people are the only audience which matters, we lose the largest and richest swathe of the population. Remove anything that enabled a recipient to go: “obviously not for me.”

On Wine

Wine does defy logic in one sense—in nearly everything else we buy we value consistency. If one in three bottles of whisky we bought, or one in three pints of beer we bought in the pub were total shit, we would never go to that pub again, and yet one in three glasses of wine we try are just rubbish, and yet we persist in trying to drink wine, and I genuinely don’t quite know why it is.

On Second Homes

[A] second home is not a necessary investment. [Who] really wants these encumbrances now they are no longer rising in value? Do you want to spend your precious fortnight’ holiday practising the Italian for “My septic tank appears to have exploded.”

On Efficiency vs. Effectiveness

Rory has the same disdain for the mindless pursuit of efficiency at the expense of effectiveness that we do.

The most dangerous technology is the spreadsheet. Metrics or values invariably override any conflicting human judgment.

“The Arithmocracy,” a powerful left-brained administrative caste which attaches importance only to things which can be expressed in numerical terms or on a chart. Holocaust and the Soviet famine were both the product of meticulous government officials in dutiful pursuit of numerical targets.

We have an economic system that is much better at delivering efficiency than it is at inspiring affection.

We have probably spent quite long enough trying to make this industry leaner and more efficient. We should try to make it jammier instead.

How, in their endless, dogged pursuit of a false efficiency, organisations can be rendered slightly useless. And stupid. (Remember that the word “dogged” is derived from the word “dog” meaning “energetic and stupid”).

[A] belief in false efficiency is very simple; it comes from the belief that improvement comes from the elimination of apparent waste. [The] problem with this approach. It fails to pay any tribute to luck.

If you look at all the really important breakthroughs made in any field, what you will find is that the unplanned, unintended or fortuitous connection plays just as great a role as the planned, the processed and the organised.

A Perfect Mess details how a messy desk and the accidental juxtaposition of two apparently unrelated papers led to a Nobel prize.

Are we trying too hard to mimic our clients obsession with efficiency (not effectiveness, which is something different) when we should be making the case for chance? Is payment by the hour making us too focused? Too dogged when we should be “catted”?

Henry Ford’s reaction to a consultant who questioned why he paid $50,000 a year to someone who spent most of his time with his feet on his desk. “Because a few years ago that man came up with something that saved me $2,000,000,” he replied. “And when he had that idea his feet were exactly where they are now.”

Be sure to watch Rory’s Zeitgeist talk, and read this book. As he says, it’s a great book for the loo.

Follow him on Twitter @rorysutherland, where his bio reads: “Fat bloke at Ogilvy, IPA; The Wiki Man.

Firm of the Future Down Under

Thanks to our senior fellow, John Chisholm, and many of our friends Down Under—Jessica Hadley, Matthew Tol and the entire Team at mta optima, Matthew Burgess, Michael Stewart, Michael Bradley, Toby Jenkins, Steve Major, Jenny Watson, and others I’m not leaving out intentionally—we’ll be holding three Firm of the Fuutre symposiums throughout Australia.

You can learn more about the program, sponsorship opportunities, cities and dates at the Firm of the Future Website.

Thanks to everyone for their hard in putting this tour on. It’s going to be great fun!

Ed and Ron Presenting at Professional Pricing Society

Thrilled to announce that Ed Kless and I will be presenting at the 23rd ANNUAL SPRING PRICING WORKSHOPS & CONFERENCE, at the InterContinental Chicago O’Hare Airport Hotel, in Chicago, IL.

The conference runs from May 8th—May 11th, 2012, and our all-day workshop will be held on May 9th.

We’re excited about this program since we will be discussing the Austrian economics approach to pricing, competitive analysis, and human action.

If you plan on attending the PPS conference, please stop by and say hello.

If you’ve never attended a PPS conference in the past, we highly recommend. It’s the best pricing education in the world.

Book Review: Baker’s Dozen Best Business Books 2011

Someone recently asked me which were the best business books I read last year. Since we here at VeraSage are inveterate readers, I’d love to know your best books from last year.

Tom Hood recently posted his, so I thought I’d share my Baker’s Dozen.

Some of these books I’ve already reviewed elsewhere, so will limit my remarks to books not previously discussed.

I’ve also noted my absolute Top Choices, so if you only read a few from this list, start with these.

Also, as always, you can access my shelf at shelfari.com for my complete library, my Top 100 Best Business Books of all time (see tag “bbb” underneath the shelf).

Business Books

Peter Drucker. Technology, Management and Society. Read full review here.

Jim Rains. Target Cost Management. Read full review here.

Top Choice: Thomas Alexander. Stanley Marcus: The Relentless Reign of a Merchant Prince.

He was called “America’s Merchant Prince,” and “the melancholy Plato of retailing.” I consider Stanley Marcus the grandfather of Total Quality Service.

Here’s a man who understood the value of each and every customer, long before CRM and Lifetime Value became management fads.

The founders of Neiman Marcus also certainly understood their “Why” (see Simon Sinek’s Start with Why).

Stanley wrote four books during his lifetime, but this is one of the only ones I’ve seen written about him by an insider, Thomas E. Alexander, who met Stanley in 1965 and served nearly 20 years as his executive vice president of marketing.

This was an incredibly demanding job, since Marcus was the consummate marketer, and many previous men failed in this role. Alexander obviously did something right that made Marcus keep him around that long.

Alexander gives you an insider’s view of the famous Neiman Marcus Fortnights, a Dallas institution until they were discontinued in 1986.

There are many fantastic pictures and other inside stories of how Marcus conducted business, treated customers, his team, and foreign government officials. Many of the pictures come from the Stanley Marcus Collection at South Methodist University, DeGolyer Library.

You’ll read about the first out-of-state store in Bal Harbour, Florida, opened in January 1971, and also the controversy of the San Francisco store opening at Union Square.

The columnist Herb Caen was an vocal critic of Neiman Marcus opening there, and the irony was that Stanely Marcus was farther to the left than Caen ever dreamed of being.

One very amusing anecdote about Marcus are the two things that exceeded his expectations, which were very high. One was Sophia Loren, and the other was the Bohemian Grove in San Francisco.

In the final chapter, “Saying Goodbye,” Alexander tells of Marcus, age 95, reflecting: “Without change, there is no challenge, and without challenge there is only the status quo but no progress.”

Wise words. Stanley Marcus was an amazing man, and his story is compelling on many levels. This book adds another dimension to a man who has left an indelible legacy on the culture. Well worth reading after you read Marcus’s own, Minding the Store, the best book ever written on customer service.

Robert Kanigel. The One Best Way. Read full review here.

Bob Lutz. Car Guys vs. Bean Counters. Read full review here.

Top Choice: Howard Hansen and Steven Geske. Healing Leadership. [Kindle Edition only].

I had the honor of writing the foreword to this book, but it doesn’t change the fact that this book had a profound influence of my thinking. Here is an excerpt from that foreword:

They say any writer should be able to sum up the purpose of their book on the back of a business card. I can do that for this book by using another author’s book:

The colossal misunderstanding of our time is the assumption that insight will work with people who are unmotivated to change. If you want your child, spouse, client, or boss to shape up, stay connected while changing yourself rather than trying to fix them.

As with most ideas and relationships, it is no coincidence that the above was written by Edwin H. Friedman, in his masterful book A Failure of Nerve: Leadership in the Age of the Quick Fix.

Healing Leadership takes a totally different approach, and one that is not very comfortable for those of us used to reading business books. How many books on leadership have you read where the central message is you can’t succeed at affecting change in the people you lead? That you need to get out of the business of needing others to change? The authors even admit they won’t get rich by dispensing this type of advice.

Rather than assaulting the reader with endless platitudes and checklists of “do this and don’t do that,” this book advocates a “way of being,” recognizing that leadership is an emotional process, not a mechanistic science that treats humans like machines.

You are about to explore some very profound, powerful, and simple concepts. But please don’t confuse simple with simplistic. Virtuoso bass player, accomplished pianist, bandleader, and composer Charles Mingus said: “Making the simple complicated is commonplace; making the complicated simple, awesomely simple, that’s creativity.”

Three creative concepts from Healing Leadership have permanently altered not only my worldview, but my behavior. The authors present the “Energy Management Model,” which teaches how we could have greater success in achieving our goals if we tried not so much to control time—an impossibility, as it is outside us—and instead tried to control energy—eminently possible, as it is within us.

You’ll learn the difference between episodic and chronic anxiety, along with the 10 telltale signs of someone who is chronically anxious, and what to do about it.

Finally, the concept of Emotional Triangles—what the authors call “the weather of human relationships.” This framework ties everything in the book together, while offering an enormously effective way to lower your anxiety. After reading about Emotional Triangles you’ll wish you had understood them in elementary school.

But don’t confuse simple with easy. These frameworks are very counterintuitive, and they will no doubt cause some confusion. Don’t despair. That’s a leading indicator that your understanding is deepening. You simply must wrestle with the concepts in this book if you want to achieve real change—transformations that will truly make a difference in your life.

One of my favorite definitions of the role of leaders comes from business consultant Peter Block: “The real task of leadership is to confront people with their freedom.” In Healing Leadership, Steven and Howard do exactly this. It’s not comfortable, it’s vexing, and it goes against everything you were taught in business school. The difference is: it works.

John Kay. Obliquity.

John Kay is an economist who has written many books I highly recommend. He does a good job blending economic theory with business strategy.

This book is all about obliquity, which he defines as “Goals are often best achieved without intending them.” Achieving complex objectives indirectly rather than directly. The real world isn’t like Sudoku, where you can arrive at your objective directly.

Citing many different examples of this concept, Kay does an excellent job of applying it to business. A couple of example of the obliquity route: cities. Jane Jacobs despised the urban planners who believe they can directly create a great city. Great cities flourish when they are unplanned, which leads to creativity.

Creating shareholder value (which Jack Welch called one of the dumbest ideas) is an example of a direct objective, but it’s obtained indirectly by creating great products (think Apple). No one works to maximize shareholder value.

We do so more in line with Simon Sinek’s Start With Why. Kay does a good job dispelling the notion that business is based on greed: “A corporate culture that extols greed cannot, in the end, protect itself against its own employees.”

He talks about how measurements can cloud judgment. Using [Benjamin] “Franklin’s Rule” (drawing up a list of Pro and Con to make rational decisions), Kay illustrates that real decisions aren’t made this way—though we think they should be.

Robert McNamara’s tragic management of the Vietnam war by the numbers illustrates the flaw in this thinking.

Kay also discusses the “teleological fallacy,” which infers causes from outcomes, and how it’s one of the oldest mistakes people make. Today we call it the Halo Effect.

Kay explains why business autobiographers can describe their success, but not explain it. Sort of like John Paul Getty’s advice: “Strike oil.”

Kay also explains why it’s more important to be right rather than consistent (unlike, say, in legal matters, where precedent is more important).

The book validates much of my own thinking in Measure What Matters to Customers, especially the Seven Moral Hazards of Measurements.

Numbers give a false sense of precision and it’s no way to build a great business. Think Six Sigma when Kay writes: “The process in which well-defined and prioritized objectives are broken down into specific states and actions whose progress can be monitored and measured is not the reality of how people find fulfillment in their lives, create great art, establish great societies or build good businesses.”

Top Choice: Tim J. Smith. Pricing Strategy.

I met Tim Smith at the Professional Pricing Society conference in Chicago in April 2011. He told me he read my book (Pricing on Purpose) while in Prague, which kept him from getting into trouble…LOL.

He does cite my book in his, as a justification for pricing discrimination. Although this book is more like a textbook, and is very quantitative, it’s still very readable and enjoyable.

He’s got plenty of thought-provoking exercises (there’s a companion workbook for this text). Smith understands that pricing is not just about the numbers; that it’s more art than science, but he does discuss both, and even has a chapter on behavioral economics.

Overall, this book needs to be in every serious pricer’s library.

William Taylor. Practically Radical.

I enjoyed William Taylor’s other book, Mavericks at Work.

This book is also good, with three major themes: 1) Transforming your company; 2) shaking up your industry; and 3) challenging yourself.

A lot of it is profiles of change agents from a wide swath of sectors, some of whom you’ll find fascinating. Most change fails because it focuses too much on what’s wrong while undervaluing what’s right.

The book advises not to benchmark your competitors for new ideas (stop looking in the same places) and gather as many “zero-gravity” thinkers as you can—folks who are not weighed down by the baggage of industry expertise.

Taylor also understands the importance of a company’s “Why” or purpose, and provides many thought-provoking examples and research supporting this concept.

He’s wrong about the housing crisis at the start of the book, but other than that, this is good journalism, along with some important lessons. If you enjoy reading about entrepreneurs and change agents, this is well written and very interesting.

Dan S. Kennedy and Jason Marrs. No B.S. Price Strategy. Read full review here.

Andreas Widmer. The Pope & The CEO.

This is a great book by a former Swiss Guard, who are charged with guarding the Vatican.

Adreas Wedmer spent two years (1986-88) in his early 20s guarding Pope John Paul II, and this book discusses the leadership lessons he learned, which helped him become a successful entrepreneur.

He met Ronald Reagan at the Vatican in June, 1987, two days before Reagan delivered his “Tear down this wall” speech in Berlin. There’s a great discussion of ethics in the book, with the point being made that utilitarianism is the framework behind pornography.

Also, how firms are not moral agents because they have no soul. Hence, a person-centric framework is what the Pope espoused. Other lessons from the Pope apply to business as well, since business and faith go together.

I found the inside look at the Swiss Guards fascinating. A very worthwhile read.

Joseph Maciariello and Karen Linkletter. Drucker’s Lost Art of Management.

This is an incredibly deep book, which contains a wonderful idea: Management is really a liberal art—not a science or a profession—and should be a humanities discipline.

This would lead to a more humane and moral society. The idea that business is a science has always seemed strange to me, since we are dealing with human beings, not machines. This is an idea Matthew Stewart discusses in his excellent book, The Management Myth.

A liberal art is defined more by what it’s not: vocational training. Its purpose is to educate citizens to be society’s leaders, by emphasizing judgments and values.

Drucker first mentioned this idea in 1988, but he didn’t clearly define it. The two authors of this book both knew Drucker personally, and they are scholars, one from business and the other a historian.

They have researched all of Drucker’s writings on this link between liberal arts and management, shedding light on how this could be accomplished.

Drucker defined himself as a social ecologist—someone who creates and maintains a society of functioning organizations that anticipate change, and manage both continuities and discontinuities.

The book is a deep look at which philosophers, political scientists, economists, and other thinkers influenced Drucker’s worldview. It discusses his concept of the knowledge economy and knowledge workers. It’s a bit long, but still a very worthwhile read.

I now believe society would be better off closing its business schools and folding them back into the humanities. On average, I rather be led by someone with a liberal arts degree than an MBA.

Inder Sidhu. Doing Both.

Why do we build such beautiful bridges, such as the Golden Gate? After all, the military build utilitarian bridges all the time, capable of handling extreme loads. It’s costly to achieve the aesthetic appeal of the Golden Gate, so why bother, especially since the Bay Bridge right across the way does the job just as well without the flocks of visitors or suicide jumpers.

The premise of Inder Sidhu in this book is you can do both most of the time. He’s a veteran of Cisco, the 1984 startup that is now the 14th most valuable brand in the world, according in Intrabrand, and part of the Dow Jones Industrial Average.

This book was recommended to me by a colleague who suggested it would shed light on the “efficiency vs. effectiveness” that we have been engaged in over at VeraSage for years. It didn’t really help settle that issue, but actually reinforced the view that effectiveness everywhere and always trumps efficiency. But it’s an interesting book nonetheless.

Doing both is not a balanced compromise between two objectives but rather a mutually reinforcing multiplier. Each chapter provides an example in broad categories, such as:

Sustaining and Disruptive Innovations. A company doesn’t have to choose between one or the other, but should strive for both.

Multiple business models. Cisco embraces new business models either by acquisition or internal development. This is not easy, but it’s often necessary in order to capture new markets and not be cannibalized. Software as a Service and Subscription based pricing, as with WebEx, are examples of how they have changed their business model.

From volume to value with partners. Cisco evaluates its 55,000 partners not based on volume, but on value contributed—new customers, solving difficult technical problems, entering new vertical markets, etc. Rather than just providing discounts that can be used by bigger partners against smaller ones, Cisco changed the criteria to evaluating value, a great idea.

Excellence and Relevance. “By zeroing in on what matters most to customers, Cisco became excellent by focusing on customer pain points. But it became relevant by moving from customer frustrations to their aspirations.”

Superstars and winning teams. You can have both in your company. I think this one is tougher to achieve than the author leads us to believe.

Westpoint and Woodstock. This deals with the governance model of authoritative vs. democratic leadership. Cisco has both types, and it is a very interesting model, including councils, boards and working groups for decentralized management, and the traditional functions, geography and countries for centralized management. This has potential for professional firms as well.

Overall, this is a short book and a good read. But I still remain convinced that efficiency and effectiveness cannot be “balanced” as they are different things, and this book supports that view.

Honorary Mentions

Two of my VeraSage colleagues wrote books that I read in 2011.

Tim Williams. Positioning for Professionals.

Even with all my bias, this is a fantastic book—a concentrated, yet cogent, look at how professional knowledge firms can position themselves based upon value creation.

Tim dispels many myths in this work, from size being the path to profit, and why going broad is not really as profitable as going narrow.

Tim also takes on “commodity” thinking, debunking this myth as well. As he writes, “Service is a commodity. Smart thinking is not.”

If you are a leader of a PKF, you will profit immensely from Tim’s intellectual capital on how to position and differentiate your firm. As Tim argues persuasively, this is the only way to capture more of the value you create and command premium pricing. A fantastic read.

Jay Shepherd. Firing at Will.

This is an excellent guide to everything an employer needs to know in protecting its legal rights, and avoiding costly litigation and other legal issues. Written beautifully, and very non-lawyerly, it’s easily accessible to everyone. You will get the benefit of Jay’s 17 years of practicing law on the management side. Indispensable. (Ignore the foreword).

Holland & Knight’s Lobby Division Trashes Timesheets

Nearly ten articles have been published on Holland & Knight’s Lobby Division saying bye-bye to the billable hour.

Actually, they are saying bye-bye to timesheets, as most of the revenue from H&K’s lobbying group was already on a fixed-price basis.

The first article was in Politico on December 13th. It quoted Rich Gold, head of H&K’s public policy and regulation group:

I think if you look out 10 years, this will be a very large trend…and we could either lead or follow.

Our favorite line from this article is from Ivan Adler, a headhunter with the McCormick Group:

This has the potential to be a real game breaker in law firm recruiting because it opens up a new vein of talented folks who have previously shunned law firms like a fruitcake at a Christmas buffet because of the billable hour.

Another telling fact from the article is:

Several former aides-turned-lobbyists said they opted for consulting firms and lobby shops over law firms for two reasons: Nonlawyers are treated like second-class citizens at firms, and they didn’t want to have to keep track of their time.

One of the issues that must be addressed when moving away from timesheets is how will the firm allocate revenue per person going forward if there are no timesheets.

Another article, dated December 14th, from The Washington Post explains how H&K will account for revenue:

Now, instead of billing hours to a matter, Holland & Knight will allocate upfront a portion of the monthly or yearly retainer to each individual working on the matter, based on estimates of how much they’ve charged in the past.

Ed Kless and I were privileged to be involved with H&K’s transition, working with Rich, Friedrich Blase, and several other partners from the PPRG group.

The group innovated the “Client Value Share” KPI. Since the price to the customer is already fixed, this KPI is a way to allocate, prospectively, that value amongst the team members who will work on the matter.

The beauty of this KPI is it forces the team to collaborate, upfront, on who will handle what, and decide what the value contribution will be from each person.

Someone may bring incredible value to the engagement but have relatively low billable hours. The CVS KPI will now account for that discrepancy.

And since the CVS is decided upfront, there will be less conflict regarding write-downs and allocations that are a normal part of the timesheet culture.

If someone on the team doesn’t pull her weight, the CVS can be adjusted, and reasonable people should be able to agree on that process.

This is a momentous change within the culture of H&K, and we applaud the vision, leadership, and courage of Rich, Friedrich, and the other partners, who understand what an enormous competitive advantage this will bring to the firm’s ability to attract top talent, while providing a better level of service to its customers.

It is one more data point that the naysayers, who believe it’s not possible for a law firm to eliminate timesheets, will have to contend with.

CCH’s CPA Practice Management Forum

I was happy to be interviewed by Tony Powell, my old editor from CCH.

He’s writing a three-part series on ethics, and interviewed me for the first installment on “The Origin of Ethics.”

The interview was published in the November 2011 issue of CPA Practice Management Forum.

You can read the entire article here.

Book Review: No B.S. Price Strategy

Any book that states on the first page, “price is a terrorist,” is bound to grab your attention. It makes sense: price instills fear into sellers, and much of that fear is unwarranted.

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The other factor that impressed me immediately about this book was how the authors, Dan Kennedy and Jason Marrs, disagree that pricing and profit are about greed. They then suggest you read Ayn Rand’s Atlas Shrugged, and Rabbi Daniel Lapin’s Thou Shall Prosper (a fantastic book).

Your prosperity is your price strategy. We’ll never get paid more than we think we are worth. I like their line:

Go to the ocean with a teaspoon or bucket; the ocean doesn’t care.

They make the point that the rich are paid in advance, whereas the poor are paid after they work.

Another great insight is how the majority of customers want to make purchasing decisions on factors other than price—like, “It’s good for my family,” which is true for Michelin tires and even toilet paper.

The importance of price integrity—similar to brand integrity—is a theme throughout the book.

There are a few case studies that are very interesting. One by a Canadian doctor who has opted out of Canada’s health care system in favor of a concierge-type model.

Over 5,000 doctors in the USA have already done the same, and more are expected to do so if Obamacare remains the law of the land.

The author’s are on the same soapbox as VeraSage: There’s no such thing as a commodity, and they offer several poignant and entertaining examples:

  • Allen Brothers steaks: it places top steakhouse logos on its catalog pages, creating the framing effect of comparing its prices to that of dining out.
  • Kennedy Barber Clubs, just for my dad and brother.
  • MotoArt sells furniture made from real airline parts, obviously to a specialized customer segment.
  • In 2009, Americans spent $45.5B on their pets, up 5.4% from 2008, and $3 million of that went to Doggles—sunglasses for your pets! We often say in our economics course that American’s pets eat better than a lot of the world’s poor.
  • But my favorite has to be Kopi Luwak—cat-poo coffee. And you thought Starbucks was expensive.

The authors also deal with aspects of behavioral economics, especially the anchoring and framing effects.

One interesting example is a chiropractor who has sold more treatments when patients were escorted from the waiting room to the examining room, rather than simply being called out.

Differences and Annoyances

Jason Marrs brags about the hourly rates his therapists make relative to the competition. Yet he understands that customers buy results, not time or costs. I wonder if he’s ever run across the labor theory of value?

There’s a comment made about how most recent trends are disadvantageous: our diet, chemical-laden foods, stress, etc. But then why are we living longer than ever before?

One chapter mentions “intrinsic value,” but other than life itself, there’s no such thing. Because the book offers no theory of value, this is a shortcoming. But like Adam Smith, the authors may get some of the theory wrong, but they get the practice right.

The authors also claim that .99¢ pricing works, but ignore evidence to the contrary. But they also believe in testing.

I also have misgivings about Dan Kennedy’s idea that your business is not about improving your customer’s lives. He makes an interesting argument; I just don’t find it persuasive (but I do totally agree that business is not about creating jobs, which is something you rarely see in a business book).

After all, if business isn’t about improving human beings, what’s the point?

The most annoying aspect of this book is the constant sales pitches for both author’s websites, services, etc. This really grates on my nerves, and it will turn a lot of people off.

Which is too bad, because this book is a worthwhile read.

And, if after reading it, you say: “But my business is different!”—the authors rightly point out that this is the rallying cry of the poor.

A better question to determine value?

One of my favorite Peter Drucker aphorisms is “Don’t solve problems, pursue opportunities.”

Solving problems only restores you to yesterday, whereas opportunities are about the future.

One question we recommend firms ask customers to help comprehend value is, “What keeps you up at night?”

I know many sales consultants hate this question, and it has become cliche. I’ve never really liked it either, but never really thought about why, since I still found it useful.

But in the spirit of Drucker, how about this question instead: “What gets you up in the morning?” What keeps you committed, engaged, excited?

Might this be a better question to help companies seek opportunities? Not to mention to get an understanding of their “Why” (Purpose)?

Would love your thoughts.