February 6, 2015 Show Notes: Crafting the Value Conversation with Dan Morris

Ed and I had the pleasure of interviewing Dan Morris, co-founder of VeraSage Institute, and one of the world’s leading experts on crafting the value conversation.

Dan did a video for the AICPA on the value conversation, which is well worth watching.

We’ve also included an excerpt from the value conversation chapter of Ron’s latest book, Implementing Value Pricing: A Radical Business Model for Professional Firms, as well as some additional books and resources mentioned during the show:

The Value Conversation

Language was invented to ask questions. Answers may be given by grunts and gestures, but questions must be spoken. Humanness came of age when man asked the first question. Social stagnation results not from a lack of answers but from the absence of the impulse to ask questions.

––Eric Hoffer, Reflections on the Human Condition, 2006

Any company that establishes prices based upon value will agree that the conversation with the customer is the most important part of the process. Skipping an in-depth conversation is similar to a contractor attempting to build a customer’s dream home without any architectural plans. The better your firm comprehends the customer’s value drivers, the more likely you will be able to create and communicate maximum value, convince the customer they must pay for that value, and capture that value with an effective pricing strategy custom tailored to the customer.

This is an opportunity for you and the customer to create a shared vision of the future, to analyze where the customer is at this point, and to develop the necessary action plan to move them to where they want to be.

This focus is crucial, because if you do not discus value with the customer, you will be forced into a discussion of costs, efforts, activities, and deliverables, usually by procurement, or some other professional buyer within the customer’s organization. Remember that the customer is trying to maximize the value they receive while attempting to minimize your price. It is far more strategic to engage in a discussion over what the customer is trying to maximize rather than what they are trying to minimize. If all you focus on is price, it can never be low enough. If the customer says your price is too high, what they are really saying is, “I don’t see the value in your offering.” It is not a question of money; rather, it is lack of belief.

Naive Listenting

When I am getting ready to reason with a man I spend one-third of my time thinking about myself and what I am going to say, and two-thirds thinking about him and what he is going to say.

––Abraham Lincoln

Questions require doubt, something salespeople who are experts in what they sell are not comfortable with. After all, we are paid to have the answers, not express doubt; and if you already know the answers there appears to be no need to gather any more information from the customer, chaining ourselves to the limits of our existing knowledge.

For this reason, during the conversation the customer should talk at least twice as much as the salesperson. This is incredibly difficult because it requires self-restraint. Naïve listening is difficult because you think much faster than people talk. While someone is talking, you are usually listening with one-half of your brain and formulating your answer with the other. Active listening is a skill that needs to be developed.

Talkers may dominate a conversation but the listener controls it. Taking notes conveys to the customer that what they are saying is important and that you care enough to record it. It also helps you remember exactly what they said. But most of all—and this is precisely why psychiatrists and psychologists take notes—is the person will provide much more detail. The more you know, the more value drivers you will be able to uncover, and the higher prices you will command.

You also want to deal with the economic buyer—the person who can hire and pay you. Many consultants believe you are wasting your time if you cannot get in front of this person, because most likely you will be dealing with gatekeepers who can only say “no,” never “yes.” This may take a few iterations, but the customer is sending a signal they are not serious if they deny you access to the economic buyer, and you may want to invest your resources in more profitable opportunities—such as servicing existing customers.

Avoid the ever-present temptation to provide solutions to the customer’s needs and wants. That is not the purpose of the conversation at this stage. You are on a value quest with the customer, not in a venue to begin providing solutions. Your role at this point is to ask questions and have the customer formulate—or at least articulate—a vision of the future. Before doctors prescribe, they must diagnose, which is the role you must assume at this stage in the conversation. Anything less is malpractice.

Starting the Conversation

This is one of the most effective statements to utilize somewhere near the beginning of the value conversation, regardless of whether you are meeting with a new or current customer:

Mr. Customer, we will only undertake this sale if we can agree, to our mutual satisfaction, that the value we are providing is greater than the price we are charging you. Is that acceptable?

This establishes the right tone near the beginning of the conversation that yours is a firm obsessed with value, along with the willingness to demonstrate the economic impact that your products and/or services can have for the customer—how it will improve the customer’s life or business. It also subtly suggests that you will not enter into relationships that do not add value for both parties—the exact tone you want to set, as both sides to a transaction must profit if it is to be sustainable.

Questions You Should Ask the Customer

If all patients were the same, medicine would be a science, not an art.

––Sir William Osler, one of the fathers of modern medicine

Something similar to Osler’s statement can be said of questioning—it is an art and skill, not a science. Each customer is unique, and so must be your approach to questions. Just as with naïve listening, one should not be afraid to take the Lt. Columbo approach and ask simple questions. As English mathematician and philosopher Alfred North Whitehead wrote, “The ‘silly question’ is the first intimation of some totally new development.”

Peter Drucker also taught an effective approach to assignments: approach the problem with your ignorance:

I never ask these questions or approach these assignments based on my knowledge and experience in these industries. It is exactly the opposite. I do not use my knowledge and experience at all. I bring my ignorance to the situation. Ignorance is the most important component for helping others to solve any problem in any industry.

There are questions you should ask every customer to assist you in determining just where on the value curve your customer is located. The more information you seek from customers, the better equipped you will be to assess their price sensitivity. Always ask open-ended questions to engage the customer in discussing goals, aspirations, fears, desires, and dreams of the future. This has a tremendous psychological impact, because most people’s favorite topic is themselves. Start with the following questions:

  • What do you expect from us?
  • What is your business model? How do you make profit?
  • What are your company’s critical success factors and Key Predictive Indicators (KPIs)
  • How will the services we provide add value to your customers?
  • Which of our company’s offerings is of the highest value to you?
  • Who is the next best alternative (competitor) to our company?
  • What characteristics do they have we do not, and vice versa.
  • What is your current pain?
  • How do you see us helping you address these challenges and opportunities?
  • What growth plans do you have?
  • If price were not an issue, what role would you want us to play in your business?
  • Do you expect capital needs? New financing?
  • Do you anticipate any mergers, purchases, divestitures, recapitalizations, or reorganizations in the near future?
  • We know you are investing in Total Quality Service, as are we. What are the service standards you would like for us to provide you?
  • How important is our service guarantee to you?
  • Why are you changing suppliers? What did you not like about your former supplier that you do not want us to repeat?*
  • How did you enjoy working with your former supplier?**
  • Do you envision any other changes in your needs?
  • If we were to attend certain of your internal management meetings as observers, would you be comfortable with that?
  • How do you suggest we best learn about your business so we can be more proactive in helping you maximize your business success?
  • May our associates tour your facilities?
  • What trade journals do you read? What seminars and trade shows do you regularly attend? Would it be possible for us to attend these with you?
  • What will the success of this engagement look like?
  • What is your budget for this type of service?

*Do not denigrate the predecessor supplier. First, this insults the customer and reminds the customer of a poor decision. Second, it diminishes respect and confidence in the industry as a whole.

**Even though the customer is changing suppliers, almost certainly the customer liked some characteristics of the predecessor. Find out what these were and exceed them.

Believing Your Worth

There is great nobility in getting paid what you are worth. Nothing is more satisfying than customers who believe—and act on the premise—that they get what they pay for. The best way to achieve this is to have a value conversation.

Book and Resources

Episode #30 Preview – Crafting the Value Conversation with Dan Morris


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February 06, 2015: Crafting the Value Conversation with Dan Morris

All prices are, ultimately, determined by the subjective value perceptions of the customer. This makes having a conversation with the customer to comprehend and communicate your company’s value essential. Skipping this conversation is similar to a contractor attempting to build a customer’s dream home without any architectural plans. The better your company comprehends the customer’s value drivers, the more likely you will be able to create maximum value, convince the customer they must pay for that value, and capture that value with an effective pricing strategy custom-tailored to the cust

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Daniel D. Morris started his accounting career in 1984 Ernst & Young in San Jose, California. Today, he is a founder of VeraSage Institute, a think tank dedicated to promulgating and teaching Value Pricing, Customer Economics, and Human Capital Development to professionals and businesses around the world. Additionally, Dan is one of the founding partners of the Silicon Valley based CPA firm Morris + D’Angelo.
As a frequent speaker at conferences, leadership development events, CPA seminars and conferences, and a consultant to professional service firms on implementing Total Quality Service and Value Pricing, his work takes him around the world. He has been an instructor with the C…..



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Dan Morris Discusses Corporate Inversions and Lowering Taxes on Financial Fridays

I had the honor of participating with Financial Fridays, the Financial Literacy integrated program lead by Leonard Wright,  Jason Thomas, and Scott Taylor and broadcast from KLAV 1230 AM Radio in Las Vegas.  See http://www.klav1230am.com/financial-fridays.html for more information.  Financial Fridays provides an excellent venue for CPAs and other financial professionals to have discussions about money, saving taxes, economics, and related topics.

During my session, we discussed corporate inversions, the value of lower corporate income taxes, and why a rising middle class for India and China may be good for American manufacturing and labor.

Below is a clip of my interview.

 

 

What PKFs Can Learn from Country Music

Modern country music blends the best of traditional American values of hopes and dreams with classical rock rhythms and melodies.  It is difficult for even the most ardent anti-cowboy listener to avoid toe-tap while listening to some of the classics and modern hits alike.  Country stars crossover to rock and pop a even some country singers are involving aspects of rap (with a better vocabulary and message, of course).

Yet, even if you aren’t a fan of modern country music, there are lessons to be learned.   Studying (and implementing) their success benefits all aspects of our firms and professions.

First, the historical legends are never far from center stage.  Those trailblazers that helped established a fledgling musical style are honored and revered.  The history is rebuilt into the future.  The young stars and hopefuls know their history, know how their music was developed, and proudly expand their offerings to a new generation without abandoning what came before.  Innovation and collaboration are two hallmarks that separate country music and most professionals.

Country, more so than rock and pop,  certainly appears to collaborate frequently.  They produce duos and join forces for songs and tributes that expand their individual capacities.  I rarely witness true collaboration in CPA, Law, or other Knowledge firms.  PKF’s are fearful of collaboration believing there is no benefit and only risks of losing an edge over the (perceived) competition.  In fact, this stubbornness by leaders of these professions creates excessive waste in human capital, fixed capital, and redundancy.  What we all need to do is constuct more duos and collaborative services where we align to serve new  and mature markets, alike.

Country music stars of today coach the stars of tomorrow, as they were coached by former stars. Even though they have separate bands, labels, and musical styles, the leaders of today invest in relationships by assisting the newcomers.  And when the newbie wins a prestigious award that the stars of today were nominated for, these leaders hoot and holler, clap and cheer, and genuinely support the winner without whining about their current popularity or success.

PKFs rarely, if ever, help develop the talent of their future competition.  PKFs see the world as a zero sum game instead of one of abundance.  They don’t value sharing their love of their work and guard their ideas like they wholly own them.  PFKs struggle to even share within their organizations and frequently treat each of their own in ways akin to how a Piranha treats a fledgling fish.

Envision how PKFs could change the world by working together rather than apart?  How firms could coordinate talent across party lines to serve the public good?  How firms could end duplication and specialize where they are strong and collaborate where they are weak?  How leaders could spot the young talent and help nurture even if it is a long-term strategy?

You can’t fake true admiration and awe.  I was privileged to attend Entertainer of the Year, George Straits’ final large venue concert.  He is clearly loved and beloved by fans and fellow performers alike.  He shared his stage with nine (9) other superstars of today and yesterday.  Each of whom he had collaborated with, toured with, coached, and supported.  The tears of joy shared by, between, and among these stars was genuine and moving. Even when one of the stars slipped on a lyric, there was laughter and happiness.  The value of being a family; and not just a competitor.

Leaders of PKFs should learn from the success of country music.  Learn to share with others the love of your profession.  Find talent wherever it is and coach, teach, and admire their future growth.  Find other firms and professionals to collaborate with and share your joint talents for the benefit of all.

Silo thinking is rotgut of the professions.  It is time to expand our horizons and partner up for a stronger and more collaborative future.

Partnerships: Lessons from the Army

A little over a year ago, I read a fantastic book by Thomas Ricks title The Generals:  American Military Command from World War II to Today.  It is a fantastic book on leadership, vision, character, failings, and resurrection.  For over a decade, I have been part of a chorus of colleagues wailing against the Partnership Model for CPA and other professional knowledge firms (PKFs).

 

As an outside observer of local, regional, national, and global firms, I have first hand witnessed the daily dysfunction that the Partnership Model creates and the carnage it leaves behind.   Partnerships as they are formed are more about protecting their firm’s bounty rather than increasing it.  Partnerships are more frequently about inequality among a band of supposed equals as it about collectively working together for the benefit of the firm.  Partners within partnerships are more frequently rewarded for individual actions rather than firm driven results.  Partners in partnerships more frequently sacrifice others before they sacrifice themselves.  Partnerships destroy more value frequently than they create even when their measured numbers increase, the toxins of the partnership permeate thorough the firm and its human capital.

Compare Partnerships with the Army.  Both have an overall mission/vision.  Both have groups of individuals, each with a personal vested interest in the success of the organization.  Both have to learn how to nurture a process for finding, recruiting, and retaining talent.  Both have specialists.  Both have career paths.  Both have roles that focus inwardly on producing results while others have roles of interfacing outside the organization.  The list of similarities could continue.  Ultimately a Partnership shares a lot with the Army.  Except in one major distinction.  Leadership.

The Army treats ultimate leadership differently.  Yes, the Army promotes within their groups and specialties. The Army rewards for time served and skills learned, just like Partnerships.  Except for the last major promotion, the processes are similar.  It is the last step that separates the Army from the Partnership and it is this last step that truly matters.  The Army transforms a soldier during the promotion to General.  Generals leave the insignia of their specialty behind.  They become Generalists.  Generals aren’t merely superior rank, they are to be the superior leaders of the entire organization and not just their current assignment to a Company, Brigade, Division, or Outpost.  As Ricks writes (p. 35 of 1407 on my iPad (how does one site a page when we can change the font?):

As brigadier generals, the newly promoted officers are instructed in a special course – they no longer represent a part of the Army, but now are the stewards of the entire service.  As members of the Army’s select few, they are expected to control and coordinate different branches, such as artillery, cavalry, and engineers – that is, to become generalists.

Compare the above to Partnerships.  Partnerships promote within their current groups.  They do not promote leaders for the benefit of the firm. They promote within their departments, or offices, and silos.  This is a mistake.  It leads to the continuation of the status quo. It leads the the hoarding that stops cross selling.  It leads to the world of Me instead of We.  It leads to choosing to benefit internally rather than externally.  We promote and reward the specialists at the time and leadership position that requires a generalists.

Substitute Rick’s terms of artillery, cavalry, and engineers for tax, audit, and consulting.  Partners in firms should be leaders of and for the benefit of the firm and not just their department.  They should be able to lead across the platforms and not merely within their chosen field.  Managing Partners should have demonstrated true multidisciplinary leadership by having lead in all departments and divisions with only one goal:  enhancing and protecting the firm.  This is why MPs should never have customer responsibilities.  the firm is the customer.  Partners should have leadership responsibilities first, including vision, nurturing, coaching.  Let the senior managers (think Colonels , Lt. Colonels, and Majors) provide the services, direct customer leadership, and technical review.  That is their speciality.  Partners should be their visionary leader with their hearts and minds on the organization and its components and not about the working papers that are collecting dust on their floor or credenza.

The Partnership Model is broken.  It regularly destroys value and interferes with the firm’s future.  When reality finally sits in and the firm  tires of listening to the mundane voices of the common consultancies, look to the Army for wisdom.  Promote leaders with vision and make the generalists and have them direct across the organization.  In this way, the firm flourishes, egos diminish, and the customer is truly served.

 

 

 

 

Dan Morris KGO Radio Interview on Summer Tax Tips

I was interviewed by KGO’s Michael Finney on summer tax tips on behalf of CalCPA.

Michael Finney Interview of Dan Morris KGO Radio 06-22-2013