Certified General Accountants: Outlook magazine interview

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


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.

What If Series: What If Airlines Graded Passengers?

Frequent readers of my posts, whether it be here at VeraSage, on Twitter (follow me @morriscpa), on FaceBook, or my any of my other ranting grounds, are aware that Customer Selection and De-Selection are both common themes and are core competencies necessary for any business to succeed long term. If you aren’t a frequent reader, then welcome to a glimpse of my inner thoughts and convictions.

Any frequent flyer with an IQ greater then the mean temperature of San Francisco recognizes that operating an airline is an ever increasing futility against reason. Ignoring the external forces (weather, commodity prices, regulatory hurdles, management – labor ineffectiveness, etc.) – one significant challenge is simply its customer base. Frankly, airlines are poor at customer selection. And if you can’t select them, how would they ever be able to de-select them?

Toxic customers ruin any business. Toxic customers are the complainers, whiners, cheapskates, abusers (physical, mental, and financial), and emotional drags on a firm’s emotional satisfaction, happiness, and well being. In my firm (www.cpadudes.com) we frequently terminate customers who do not meet our criteria for success. There is no obligation for an enterprise to serve all who desire service (of course {this is my Don Rickles moment} – I am not suggesting service discrimination on anything that remotely would be consider unethical, immoral, or down right illegal – that would be foolish, wrong, and stupid).

Back to airlines, customer selection, de-selection, and the overall experience economy.

Airlines employ many strategies to attract, retain, and reward customers. The most prominent of course is their frequent flyer program. Airline customers (me included) will select routings that are reminiscent of a Cirque’ de Soleil acrobatic routine as they twist their way to their destination – all because of additional miles, perks, better seats, free baggage allotments, and a whole host of reasons). Yet, these incentives are both Ying and Yang and encourage both positive and negative behaviors.

The positive behaviors are easy for an airline to measure – frequency of travel, class of purchased service, share of theoretical wallet, etc. are all readily available for any spreadsheet addicted financial analytics department. Yet what about the costs associated with those negative customers? Where are those measurements and indicators? Airlines are missing a golden opportunity to enhance their overall customer flying experience by seeking ways to identify toxic customers and either incentivise better behaviors or, better yet, boot them off their planes and thereby freeing up capacity to service better customers that are willing and able to pay for an enhanced experience.

I have some ideas on how airlines could in fact do this.

First there should be some physical attributes to deal with. And here, like in all important measures, judgements matter more than strict measurements – airlines should trust the instincts, skills, and capabilities of their overall team and allow them input into this process.

Airlines could add or subtract points/mileage/etc on a host of criteria that they believe are important.

Let start with overall impression of attitude. Is the customer friendly, outgoing, smiling, pleasant, polite, observant, attentive to both team members and fellow passengers? I have witnessed more than my fair share of jerks, jackasses, snobs, snots, crybabies, complainers, whiners, dirt bags, and piss ants to fill the Fed-Ex fleet standing up. These people ruin a perfectly bumpy E-Ticket ride and drag everyone else around them down in their menticidal spiral. So, lets say that one of these flyers, full of toxicity, happen to be flying – then one or more of the crew members could easily document that the passenger in seat 13F failed to fly nice and therefore should lose some (if not all) of their frequent flyer points. Their file could be flagged as painful and the airline could adjust their pricing, seat selection, and/or other criteria to extract more from this customer on their next flight with a series of warnings, reminders, etc. of expected behaviors, attitudes, etc. to allow them an opportunity to improve their behaviors before the airline permanently releases them to ruin a competitor.

Next, airlines could evaluate their (elective) physical attributes. Here I am thinking about matters like, cleanliness, odors, smells, etc.. I don’t know about you, but I think that a recent shower before flying is simply polite and other customers have no desire to smell DNA evaporating into the communal air system (this goes for overnight connecting flights as well – deodorant is eligible as a carry-on (or at least a quick wash down would also work), add to bad BO – is the abuser of colognes, tobacco, and flavorful foods that produce alterations to more than one of our senses. In essence, smell like a marathon runner without a shower, denied boarding.

Also – what about abuse to the airplane? Here we could consider items like do they craft their initials into the seat in front of them? Do they leave their trash behind when offered the opportunity to toss into a garbage bag? Do they abuse the overhead with too big of a bag? Do they ignore other customers that need some help? Do they clean up after themselves when using the facilities?

And then there is how adaptable is the person? Meaning, how mature are they when dealing with crying babies (this is different then being a crybaby), request for slight seat adjustments to handle families, loved ones, etc.? How about listening to and following directions? We are suppose to be adult. We may realize that cell phones have nothing to do with airplane navigation systems but the procedures are clear – nobody gets to leave until that last phone call is closed. And when caught trying to cheat – I have witnessed complete arrogance by mostly men, in suits, that probably attended an Ivy League (or equivalent) school complete with ego that goes with that honor. They fold their phones down on their lap as the flight attendants perform their duties – as if they are the smartest people on board. Personally, if I ran the airline, I would haul them off, not refund their money, outsource them to my competitor, flag their file, and serve wine and beer to all that want it as a celebration. But, then again, I have been accused of being slightly irrational in my thinking (a compliment IMHO).

If airlines can provide negative incentives, they certainly can provide positive ones. Airlines can reward excellent behaviors with additional credits, mileage, perks. They can reward behaviors they like and shun the ones they don’t. Names could be shared amongst the airlines – like credit scores – thereby customizing the risk/reward of admitting a certain passenger onto their plane.

Actions have consequences and adults should be prepared to suffer the costs of poor behavior and receive the benefits of good behaviors. Airlines don’t have to service all. Passenger’s have choices on who to fly, why shouldn’t airlines have the same type of choices.

Freedom is an exercise in civility. In order to progress forward we need to learn to coordinate our activities, behave well in public, and produce more then we take (government could learn something here too – why does birth provide a grant to lifetime presentation in a country?).

I look forward to the day when airlines start grading their customers (beyond the simple mileage process) and in their process move my fellow air travelers forward (along with our civilization) in their never ending journey of humanity.

What if?

What If Series: What If People Could Select Residency

This is (hopefully at least) the first of a series of posts (possibly better termed as rants, observations, pokes) simply titled: What If?

What If was a favorite question by our late Senior Fellow, Paul O’Bryne. In fact, during my last meeting with Paul just outside of Heathrow, Paul was challenging me about my decision to be licensed in Oregon along with my California license? Paul simply asked, “what if I didn’t do that?” – Paul was on to something and I continue to reflect upon his What If? ever sense. Dear reader, feel free to use POB’s What If? frequently – I will guarantee the answers will be worthwhile.

Back to my topic.

So, What If? What if we could select our residency? Corporations make these elections all the time. They make them because some states are simply better at administering corporate matters then others (hint Delaware). So why can’t people? I mean, what if I think an Armed Society is a Polite Society (aka Arizona) yet the liberal loons of Multnomah County (Portland) fear guns and only want criminals to have them – why can’t I elect to apply the laws of Arizona to me, pay the related Arizona costs and requirements (vote for/with Arizona) suffer any negative aspects of Arizona and say become tired of Arizona and change it to Iowa?

In case you are confused, let me explain.

I live in Oregon – yet what if I like the tax laws, voting rights, constitution, and other governance/citizen related aspects of say North Dakota. Yet, I live in Oregon.

What if I was able to file an election with say the North Dakota Office of Residency – and publicly state that I want to be governed by their laws and regulations rather then the laws of where I choose to sleep? In essence, what does where I sleep really have to do with my residency (ok, I know Congress, Census, Infrastructure, Vested Interests, etc. all may have an opinion {but maybe no answers} to this question, but lets consider)?

There is precedence for this as referenced above in corporate law and regulations. Why should corporations have rights and privileges not provided citizens?

Why not? It is the 21st century. Are we forced to live in a 19th century world view? Back then – it made sense to apply residency to physical location – but today – why not allow it to be an intellectual election rather than a physical requirement.

Since we believe incentives matter, maybe such citizenship power would help the various state legislatures understand that governing is more then rubber stamping the proverbial special interests? This could allow states to market their relative skill set(s) and competitive advantages.

Providing people a choice is never a bad thing. In fact, it is a good thing. Effectively lets deregulate physical residency from intellectual residency.

So, What if?

On Why Specialization Often Fails

VeraSage Senior Fellow and author of the new and essential Social Media Strategies for Professionals and Their Firms, Michelle Golden, was recently interviewed by CPATrendlines on why it is that specialization in professional firms often fails.

Her solution is simple, but not easy for many firms to do.

So if the choice is specialize and increase price or don’t specialize, what are firms more likely to do?

The Experience Economy and Advanced Value Creating Ideas

What is next for organizations that already provide unsurpassed customer service?

What do companies such as Disney, Ritz-Carlton, FedEx, Zappos, Nordstrom, among others, see as they peer into the future and strive to offer a value proposition to their customers that prevents them from falling into the so-called “commodity trap,” while still allowing them to maintain their leadership role as price makers, not takers?

One compelling hypothesis comes from Joseph B. Pine II and James H. Gilmore, in their book The Experience Economy, wherein they put forth a futuristic value curve for businesses, with the following echelon of customer value:

  • If you charge for stuff, then you are in the commodity business.
  • If you charge for tangible things, then you are in the goods business.
  • If you charge for the activities you execute, then you are in the service business.
  • If you charge for the time customers spend with you, then you are in the experience business.
  • If you charge for the demonstrated outcome the customer achieves, then and only then are you in the transformation business (page 194).

PKFs are at top of the curve

We believe PKFs are already poised at the top of value curve, since they do offer their customers transformations, even though they may not think of themselves as doing so. To prove this, let us see how Pine and Gilmore define a transformation:

While commodities are fungible, goods tangible, services intangible, and experiences memorable, transformations are effectual.

All other economic offerings have no lasting consequence beyond their consumption. Even the memories of an experience fade over time. But buyers of transformations seek to be guided toward some specific aim or purpose, and transformations must elicit that intended effect.

That’s why we call such buyers aspirants—they aspire to be some one or some thing different. With transformations, the customer is the product!

The individual buyer of the transformation essentially says, “Change me.” (pages: 171-172, 177, 192).

Think of the difference between a fitness center, one that charges for membership, versus personal trainers. The latter earn more because they take personal responsibility for the outcome of their customer’s fitness regimen.

Professionals, such as accountants, financial planners, attorneys, and advertising agencies already enable many transformations for their customers.

For example, they can help their customers become millionaires, retire at a specific age, finance a child’s education, grow and enhance the value of a business and brand, and carry out a customer’s last wishes through estate and gift planning.

These are inherently personal transformations, guiding the individual into their preferred vision of the future—guiding them from where they are to where they want to be.

There is no similarity between this offering and a commodity or even a bundle of intangible services. You are literally touching your customer’s soul, forging a unique relationship with them virtually impervious to outside competition and commanding prices commensurate with the value of the results you are creating.

Our VeraSage colleague Brendon Harrex has taken this transformation strategy to heart, even adopting the language with his customers at the Harrex Group in New Zealand.

He recently wrote me an email detailing how the Harrex Group was deploying this strategy, along with other advanced value creating strategies—Daryl Golemb’s idea of “emotional capacity,” offering pricing options, conducting an “After Action Review” with customers, and utilizing the “Perpetual Fixed Price Agreement.”

It’s an excellent demonstration of how a firm can take Value Pricing to the next level by having the customer become the product, thereby creating—and capturing—a much larger proportion of value than merely offering services, or even experiences.

These concepts, obviously, are for firms that are well-along the path of Value Pricing. But for those who are, I think you will find Brendon’s observations below absolutely profound.

Hi Ron,

The purpose of this email is to provide you with some feedback on some of the more positive pricing conversations that have occurred since our telephone conversations with you.

  1. We have continued our use of pricing options. In general, every customer is provided with three service level options. Sometimes the service levels are differentiated by the amount of work required, and sometimes they are differentiated by the level of service, e.g., turnaround times, accessibility, etc.
  2. The Value Council is attempting to put a much greater emphasis on [Daryl Goldemb’s] “emotional investment” required to deliver to the customer’s expectations and we are using this language more in our pricing conversations.
  3. In several pricing conversations, I have talked to customers about the difficulty of pricing a product when the customer themselves is the product. Interestingly, customers identify very well with the sales hierarchy [proposed by Pine and Gilmore, see above].

    Most customers definitely understand that they are seeking a transformation in themselves and I think the sales hierarchy helps them to understand where the value of this transformation sits in the scheme of things.

    This conversation has also led on to interesting discussions on how we assess the success of the transformation. This is valuable as it greatly assists us in determining the customer’s “value points” which, of course, provide our priorities.

  4. We continue to battle with how to make our proposals less “transactional or service orientated” and more “relational or transformation orientated.”

    As you are aware, customers make irrational purchasing decisions but look for rational measures to support these irrational decisions. We are continuing to work on this, however the best we have come up with is to try and shorten our proposals and present them in a sales meeting where much greater detail can be provided.

  5. We have fully embraced the concept of a value retainer. This has been very well accepted by our high value customers. Two examples are as follows:
  1. Last financial year we completed a large business restructure for Customer A and undertook their compliance accounting requirements. Their fee for the last 12 months was approximately $90,000.

    They requested a meeting with us to discuss some concerns they had regarding our performance and pricing. Their key concerns were as follows:

    • They did not clearly understand the value we had delivered.
    • Because of the large nature of the project, they were not sure where it started and finished. This left them uncertain as to what fees they could expect to pay in the next 12 months.
    • They did not clearly understand the difference between our accounting services and that of our competition.

    I effectively ran an “after action review” with them. This enabled us to answer all their queries and clearly articulate the value we had provided.

    In particular, I focused on the difference between strategically focused compliance services and retrospective score keeping.

    In the example of Customer A, we agreed that their compliance services could be processed elsewhere for approximately $12,000. I advised that while we had not broken it down, our compliance services were priced at $18,000 (we were then only talking about $6,000). Once I explained the additional value we delivered for the extra $6,000, the customer got it.

    We left the meeting having agreed a 3-year contract for $30,000 per year (inflation adjusted) payable in monthly installments (in advance!).

  2. Customer B started working with us in a strategic capacity approximately 12 months ago and at this stage, I became directly involved with their business. (Prior to this, they had used Harrex Group for compliance services only for an annual fee of $14,000).

Twelve months ago we agreed a fee of $30,000 and this involved us preparing a Business Life Plan for which we assigned an internal value of $8,000.

When we reviewed pricing with the customer this year, they increased the price from $30,000 to $36,000 (even though there is no Business Life Plan this year) and have committed to this for 3 years.

In addition to this, they want our assistance in clearly defining their vision, values, and purpose and creating a mechanism to align staff remuneration with the achievement of the business goals and vision. This additional project work will likely be between $10,000-$20,000 over and above the base line pricing agreed.

The concept of the perpetual service agreement has been very valuable to us—thank you!

I think agreeing 3 year contracts has enabled us to achieve greater margins, create more certainty for our customers, and has enabled us to more clearly define the boundaries of our work.

One of the great struggles in a value pricing environment is to ensure that our expectations are clearly aligned with those of our customers as without this, scope creep occurs more easily. We are finding that expectations are easier to align when you do not have to go back and renegotiate from the ground up every year, i.e., effectively our pricing discussions start on the third storey of the building, rather than at the ground level.

On reflection, I think that renegotiating a service agreement from a zero base every year is like demolishing the building we built last year and starting all over again. It seems to be a lot easier when we are able to build on the foundation that has already been established.

Because of this success, we can see 3-year contracts becoming a lot more common in our business and some of the scenarios we are currently in the process of applying this thinking to are as follows:

  • Situations where there may be a large volume of work in one of the 3 years where this can be spread over a 3 year relationship, making the decision a lot easier and more palatable for the customer. (Obviously, if Year 1 is the spike year, you want to have a trusted relationship and/or an early exit payment agreed if the customer terminates the contract early).
  • New relationships where the customer wants to walk with us a while and are happy to agree a base level of services before allowing us access to “the upper levels.”

We are also asking ourselves how we can be more transparent with regards to our services that are highly competitive, i.e., our compliance services priced at $18,000, when market prices these at $12,000. I have found it is a lot easier to have a discussion over the difference than it is over the whole amount.

Once again Ron, thanks for your assistance and we look forward to the continuing conversation with you.


Thanks for sharing your experiences here, Brendon. You have taken Value Pricing to an entirely new level.

No one can accuse the Harrex Group of offering a “commodity”!

Cross-Selling: What is Your Firm’s Lifetime Value to its Clients?

I’ll be hosting a Webinar for CPA Leadership Institute on Wednesday, August 25 from 1 pm to 2:40 pm (Eastern Time).

The topic is: Cross-Selling: What is Your Firm’s Lifetime Value to its Clients?

You can learn more at the CPA Leadership Institute’s Web site here, and even get a detailed outline of the Webinar, in pdf, here.

This topic takes me back to the late 1980s, when I began to seriously study Total Quality Service, as it was then called by Karl Albrecht in his book, The Only Thing That Matters.

This book had an enormous influence on my thinking (it’s one of my Top Ten Best Business Books), because it was TQS that led me to the study of Value Pricing.

It was an epiphany when I realized that billing by the hour not only generates lousy customer service, it’s also a lousy customer experience. No one likes to be surprised by price.

Studying TQS leads you into customer loyalty economics, and one of the metrics is always “What’s the lifetime value of a customer to your firm?”

The logic being that you need to sometimes ignore the math of the moment and make an investment in the relationship. This is also where the billable hour fails miserably, as pointed out brilliantly by VeraSage senior fellow Paul Kennedy in his essay on why timesheets are damaging to customer relationships and lifetime value.

But I believe there is a more important metric: What is the value of your firm to your customer?

This forces us to think about constant innovation, and offering services that can help customers through the various stages of their lives and business—from womb to tomb, so to speak.

I hope you’ll be able to join us for the Webinar, but if not read the Kennedy essay and any book by Karl Albrecht.

What can I expect as a first-class customer?

Our Australian VeraSage colleague John Chisholm wrote a thought-provoking piece about customer service (though he used the word client and I’m too lazy to change it).

It’s a great reminder that a firm’s service proposition should be designed around its best customers, not all of its customers.

Here is John’s take on it:

Most firms have client maintenance, client service, and client development programs for their major and most important clients. Most firms understand that the 80/20 Rule applies to them (80% of the revenue comes from 20% of the clients) although I am not sure how many firms understand the more critical 180/20 Rule (180% of the profit comes from 20% of the clients).

But what does it mean to be a major or first class client of a law firm? Or are all clients of your firm first class clients?

I suspect not as the reality is all clients are not created equal and some clients are much more valuable to you than others so to treat them all as equals is not good for your business.

If you agree that all clients are not borne equal and that all clients value different things differently a good place to start might be to actually ask your first class clients what is important to them and how they would like to be treated and served.

What could I expect to receive from my law firm if I was really a first class client (apart from larger invoices) that second or third class clients might not receive (does my law firm tell its other clients they are in fact second or third class clients?).

Assuming a law firm ever thought I was a first class client (unlikely) and asked me those questions, I might respond along the lines that I would expect:

  1. Everyone in the firm from the Receptionist downwards would know just how important I am;
  2. Whoever I am dealing with knows my business and that I am not wasting time ( or worse money) over and over again explaining things yet again to another lawyer I am expected to deal with.
  3. I would expect my law firm to transfer its tacit knowledge freely around the firm.
  4. I would have access to be best and brightest the firm has to offer.
  5. I would have preferential treatment such that other clients might be “bumped” for me as I am given priority.
  6. To be kept up to date with what is happening in the legal and business world that could affect me and my business.
  7. Some commercial introductions perhaps and invitations to key events.
  8. The firm might ask my opinion and input on things that affect the firm.
  9. No surprises—in service, timelines or price.
  10. To pay first class prices for first class service and advice.
  11. Real coffee.

It goes without saying that any client—whether first class or third class—is entitled to assume a minimum level of service and technically correct legal advice, but if you have clients paying first class prices and your law firm can’t service their expectations and what they value, I am pretty sure these days they can find another firm that can.

Ask VeraSage: A Majority of Our Customers Don’t Want Value Pricing?


Long time ago you answered my Carthage question and with my current company we tried a few times to sell fixed price packages.

Some clients bite it although many ask us to switch to the hourly rate. What I observe is that it’s easier (read, they’re used to) for the clients to get quotes and compare hourly rates than match and analyze various criteria from different service providers. Sometimes it gets even worse: the client wants an hourly rate but at the same time to cap the SOW [Scope of Work] with the total allowed maximum sum.

That leads to the very same ethical issue when project managers effectively get the red line and mentally the mission to bill the client as close from the bottom to the limit as possible. I tried to put all the cards on the table: propose the hourly-based project plan, come up with the estimation and then bid with the fixed price which is lower? Surprisingly even in such cases some clients ask for the hourly rate motivating that they can easier pass it through the budgeting group and legal.

I’m ready to accept the hypothesis that we run into the clients which don’t understand the value-selling benefits, maybe we don’t articulate enough, maybe they don’t trust the approach for some reason but certainly in our case such clients are majority in our pipeline.

What do you advise to undertake?

[Name Withheld]

Hi [Name Withheld],

I think the last part of your fourth paragraph answers your question.

It’s obvious the firm isn’t doing an effective job articulating its value proposition—by that I mean, comprehending, communicating, and convincing the customer they must pay for value.

Don’t despair, this is common, though not to the level your letter seems to suggest. It’s usually a minority of customers, not a majority as you say.

You need to stop talking about hours completely, and just tell your customers you don’t price that way. It’s unethical.

No client can tell you how to price—that is your decision. Also, your firm doesn’t do timesheets or track time. You have better things to have your knowledge workers do—such as add value and provide outstanding customer service to customers. Then what will the customers say who want to see hours? Force you to do timesheets? Then they aren’t the right customer.

If you’re not willing to do the above, Pricing on Purpose will never become a core competency in your firm. There’s simply too much empirical evidence from all the firms out there that customers love this approach. The push back we get is from firms, not customers. I know this for an absolute fact, since I’ve spent the last four years speaking to customers across all professional firms and they all say the same thing: they want certainty in price, period. It’s how they buy everything else.

Do you have people pricing and selling who aren’t good at it? Then upgrade their skills or remove them from pricing.

Blaming it on the idea that your customers don’t prefer fixed pricing is a cop out and simply doesn’t comport to human behavior and the laws of economics.

The only other thing I can think of is your customers do not trust you; and that’s not a pricing problem. That’s much deeper. I hope this is wrong?

Either you want to do this or you don’t. Your customers are not an excuse.

I hope that helps.

Of course, we welcome the thoughts from other firms that have made the transition from hourly billing to Value Pricing.

Stop with the “Trusted Advisor!”

I have been bombarded this week with people saying they are “trusted advisors.” So much so that I must react.

While being a trusted advisor is certainly a worthy goal of any professional, please realize that it rarely happens. David Maister in his book entitled The Trusted Advisor says relatively few relationship are truly of the trusted advisor variety. He defines them as a relationship, “in which, virtually all issues, personal and professional, are open to discussion and exploration. The trusted advisor is the person the client turns to when the issue first arises, often times of great urgency: a crisis, a change, a triumph, or a defeat.”

With this definition in mind, I find it the height of hubris to say to a prospective customer, “I want to be your trusted advisor,” or, “We like to think of ourselves as trusted advisors.”

My response, “Keep thinking and keep walking!”

Thinking About My Dentist

What if you would refuse to accept any new customers unless they were referred to you but another customer? Would your leads dry up? If so, your new business problem is not marketing related, it is your service. FIX IT!

The lesson here is that if you are not getting active referrals from customers, your service ain’t great. The only thing more customers is going to do is put you out of business faster.

Imagine if your new customers, like my dentists, come from 100 percent referral sources. Do you think you could charge a premium? Do you at least think that discounting would go away?

It is time to take some stock and ask – Are we really as good as we think we are? If not, it is time to fix your service.