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).
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.
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.
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 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).
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.”
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.
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.
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.
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.
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.
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.
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).
He recently read the AICPA’s ”CPA Horizons 2025” report, and was inspired to write this post.
Since we here at VeraSage love a great debate, we’d love to hear your opinions with respect to this report, and Richard’s comments on it.
From Richard:
I just finished reading the recent report titled “CPA Horizons 2025,” which was put forth by the American Institute of Certified Public Accountants to describe both the current state as well as the future of the CPA profession.
Please allow me a couple of minutes to stretch my 6’2” frame, because to be able to read this report, I had to cram myself into a very small box.
The CPA Horizons 2025 report concluded that “the services that CPAs provide have become so varied and diverse that the concept of core services is no longer representative of the profession.”
This conclusion was reached based on interviews with approximately 5,600 CPAs.
To test the veracity of this conclusion, I emailed 17 customers, and asked them: Excluding me, since I am special (well, at least according to my mother...), what services to you think of when you think about what CPAs do? I received 14 responses.
13 customers said, in effect, that CPAs prepare income tax returns and financial statements. One customer said CPAs help their business customers to sleep better at night.
I like this last answer, but this particular customer never follows instructions, so I will disregard it in context of my specific question. I am glad, however, that this customer sleeps better since we started working together.
So the next question: if the AICPA-interviewed CPAs say that core services (preparing tax returns and financial statements) is no longer representative of the profession, then why do customers of CPAs not seem to know that? Let’s look for answers by reviewing the conclusions in CPA Horizons2025.
The first conclusion: the world is now driven by technology, and CPAs need to change how they do business to accommodate this fact. Really, the AICPA needed to interview 5,600 CPAs to conclude that?
The second conclusion: the CPA profession must find solutions to offer investors and stakeholders up-to-date, real-time financial information, because of how fast the business world now moves due to technology.
Okay, I’ll give the AICPA credit for pointing out that having financial statements that are current as of yesterday is an improvement over having financial statements that are only current as of last month of last quarter.
However, in both cases, both of these results are the recitation of history. Whether you are looking at last month’s bank reconciliation or yesterday’s bank reconciliation, in both cases you are looking at the past.
How about CPAs helping their business customers to predict how much cash the business will have in the bank at the end of next week, next month, or at September 30, 2012?
All of the technology in the world does not matter if CPAs cannot start to help their customers by looking through the front windshield of their car while they are driving, as opposed to trying to drive the car by looking through the rear-view mirror.
Objects in the mirror are closer than they appear: could that object be the irrelevance of the CPA profession in the economy of the future?
If CPAs cannot help customers to peer intelligently into the future, then irrelevance of the CPA profession will certainly be the result.
An additional benefit should result, that is to say, fewer accidents will happen. And for those of you who have forgotten Enron and Qwest, I offer you the recent explosion called MF Global.
The third conclusion: CPAs must embrace mobile technologies and social media to modernize and enhance interaction and collaboration with clients (AICPA’s word, not mine) and colleagues.
I flat out disagree, because my customers want consistent and repetitive face-to-face interaction, which includes ideas for value creation. The technology is merely how we transmit certain information.
I will in fact argue that the most valuable resource a CPA can create is a vast and talented and multi-disciplinary network of complementary professional (and other) services providers, that can assist customers with virtually any need that the customer may have, CPA service-centric or not.
This is not accomplished through spending one’s days typing emails and playing with the latest and greatest technology, it is accomplished through constant contact and face-to-face interaction.
I will further assert that tremendous improvement in technology has caused “reverse delegation” in the CPA industry, that is to say, multitudes of CPAs are now performing data-input based tasks because of the ease of use of technology, and given how much compliance work exists in the profession, many CPAs I know are so “busy” (man I hate that word...) that they have no time or energy to actually think about the future, whether their own future or their customers’ futures.
The thought occurs at this point whether perhaps the AICPA should have interviewed 5,600 customers (or in the AICPA’s words clients) of CPA firms instead, because it doesn’t sound like very many of the 5,600 CPAs who were interviewed asked their customers what they want (not “need") from the CPA profession.
But perhaps that would have been difficult, I suspect some of the answers may have been hard to listen to, let alone to meaningfully respond to.
All of these conclusions beg the same question for any individual CPA: what business am I really in?
If for example 90 % of your revenue comes from preparing income tax returns and financial statements, then you are not a CPA you are a historian.
The larger question becomes: how do I differentiate myself from my CPA competition? What is exactly at stake if I am unable to differentiate?
The fact is, most CPAs could not even sell cheeseburgers to the Donner party. I looked at 8 CPA firm brochures (yes on paper, not on the computer) and they all basically say the same thing: “we provide full-service income tax and financial statement preparation services that are of very high quality.”
They also all have a lot of pictures of men 55 and older wearing dark suits. No differentiation there.
How can consumers of CPA services know what CPAs are actually capable of when most CPAs cannot differentiate among themselves or away from traditional services? You are what you do (not say) every day, and consumers respond accordingly.
Next time, may I suggest to the AICPA that you interview 5,600 customers of CPAs? I’ll bet your conclusions would be different.
As the to relevancy of my profession in the economy of the future, if this report is the best that the AICPA can do, then I think I will call my stockbroker to buy short against my profession’s stock.
We’ve been talking a lot about Simon Sinek’s TED talk on the importance of a company figuring out its “Why"—its purpose. The idea that customers buy not what you do, or how you do it, but why you do it.
One man who understood both was Charles Revson. At the age of 25, Revson tweaked his last name to make it sound less harsh and launched the Revlon cosmetics empire in 1933, introducing color-coordinated nail polish and lipstick during the Great Depression. Talk about lousy timing for launching a vanity business.
Many commentators hailed the bright colors as “trashy,” but Revson instinctively understood women needed color to feel pretty. And during the Great Depression women were wearing drab colors, recycling rather than buying new fashions, so there was a ready market for relatively inexpensive glamour.
Revson’s competitors acted as if the product was a commodity, but he knew better. Nail enamel was not just a concoction of chemicals, or a beauty aid, but a fashion accessory, and he believed women should use different shades to suit different outfits, moods, and occasions.
This, of course, greatly expanded the market, as women now purchased multiple nail colors, and matching lipstick expanded the market again. Indeed, he understood better than his competitors what his customers were really buying, how to differentiate it, and price it.
His famous saying, “In the factory, we make cosmetics; in the store, we sell hope,” reflects the wisdom of a man in touch with his customers’ expectations.
Revson refused to believe what he sold was a commodity, and reportedly spend forty-five minutes in front of a seminar of his international marketing executives having a dialogue with a glass of water, attempting to illustrate the meaning of product differentiation. As explained by his unauthorized biographer Andrew Tobias in Fire and Ice:
...the water glass caught his eye. He picked it up, held it out in front of him, and said, in his friendliest way, “Hello, glass. What makes you different? You’re not crystal. You’re a plain glass. You’re not empty, you’re not full...” and then he began telling the glass how it could be made special...by changing the design, changing the color of the water, giving it a stem, and so on.
Revson didn’t compete on price, since he understood Revlon was selling the chance of turning the right head or lend a touch of class. While other polish sold for a dime, Revlon’s sold for .50¢, and its lipstick for $1.00 compared to .49¢, all during the Great Depression.
The most famous—and effective—shade promotion was launched, Fire and Ice, in the fall of 1952. There’s a little bit of bad in every good woman, Revlon marketers felt, what Kay Daly (a Revlon executive who was probably the highest paid female executive in the country) called “a little immoral support.”
Along with a picture of model Dorian Leigh, the ad copy ran the headline “ARE YOU MADE FOR ‘FIRE AND ICE?’” You were, the ad stated, if you answered eight of the fifteen questions in the affirmative.
The ad caught the country by storm, with nine thousand window displays devoted to it, every newspaper and magazine wrote about it, and every radio announcer made reference to it.
Norman B. Norman, head of Revlon’s advertising agency, Norman, Craig & Kummel, said:
All Revlon marketing had to do with emotions: how women thought, how they lived, how they loved. That’s quite different from what most companies do, where they describe their products, the benefits of them. Revlon never did that, which was a brilliance of its own.
One of the things that frustrates me about the distinction between B2B and B2C is it doesn’t take into account that humans purchase everything. And emotions are an enormously important factor in all decisions.
So here"s my question. What would a Fire and Ice campaign look like for a Professional Knowledge Firm? What questions would you ask?
Maybe we should have a contest for the best questions, with the winner given a bottle of one of Dan’s best wines?
[N.B. Fire and Ice is in my top 100 all-time favorite business books. Just an excellent read of an incredibly shrewd and driven man who changed the country’s culture. Many would argue he was a misogynist. He might have been, but he sure understood what women were really buying. Visit my Shelfari.com bookshelf, and click on the tag “bbb” for the Top 100 best business books. You have to register for an account. Shelfari is owned by Amazon.]
Unemployment numbers notwithstanding, the US economy has picked up ever so slightly in the past few months based on the anecdotal “evidence” from people I talk to. With that there has come a bit of a resurgence of the concept of benchmarking. Notice no one benchmarks in a down economy.
The problem as I see it, is that benchmarking promotes what Jonas Ridderstroale and Kjell A. Nordstrom call Karaoke Capitalism-a propensity to imitate rather than innovate. Their message is essentially, “Look, no matter how drunk the audience (prospects and customers) gets, you are still not Elvis (Apple).” Benchmarking kills innovation and this is a death knell for most companies. Do you think Apple benchmarks?
In the past, I was a disciple of this kind of thinking and attended dozens of benchmarking sessions at business conferences until I noticed one of two universal reactions in both myself and the other participants.
If my company outperformed the average, I thought, “Well, I guess I am OK there. There is no reason to make any serious adjustments. After all, we are better than average.” The result-inaction on my part.
If my company underachieved when compared to the mean, I thought, “Hmmm, I think there might be something wrong about this data.” I would begin to ask questions, not about how I could improve, but rather about the data set. “How many companies including were under X number of people? How many companies also did software development? How many did not have a training center?” The result-inaction on my part.
Now that I have seen the light (thanks mostly to Ron Baker) I have been a constant bane to the existence of those that attend these session. I share my story and ask the participants as they exit the room, “What specifically are you going to change about your company now that you know this information?” The usual response is stuttering followed by an expression of either or both of my observations noted above. I want to be clear, I do not think action should be taken based on this data in the first place. Why? Because ultimately we (myself and those attending the sessions) were right about this data-it is not scientific! In many cases the data is not even a valid statistical sample set from the pool of companies that is attempting to be benchmarked. Comparing ourselves with a mean means nothing. On average every person on the planet has one developed set of mammary glands and one testicle. So what! Who cares?
Lastly, also almost all benchmarking data is based on numbers available from the financial system, which by definition are accounting for what happened in the past. None of these numbers is a indicator or predictor of future success.
Instead of filling out forms and attending benchmarking sessions, I suggest thinking about how to innovate and create value for your customers today and in the future!
In the not too distant future, many of us will have the option of switch from our standard analog energy meters to digital ones. Along with this will come the ability (depending on the level of deregulation in your area) to purchase energy in different ways.
For example, you will be able to control the energy usage of major appliances such as air conditioners, washers, dryers, etc. This will allow you to load balance your electrical usage. You will be able to set a budget for say your air conditioner. When the price of electricity goes up, the thermostat will automatically rise so you do not spend as much.
Even better, if and when battery technology improves, you will be able to purchase more energy in the evenings at a lower price and store it for use during the day when prices are higher. It is very cool stuff.
One possible additional benefit will be to allow you to purchase you electrical energy from different sources, or at least from different plans based on provider. This would mean that you could buy a “green plan” which will tell your provider to purchase more from green or alternative sources on the grid. Cool huh?
Now, what if I told you that these green plans will cost two to three times the traditional plan. Would you opt for the green plan? Why or why not?
On December 21, 2006, my mentor, George Gilder, wrote on his blog about the last time he saw Peter Drucker live. It is such a profound piece that goes to the heart of how accounting is becoming increasingly irrelevant to the spirit of enterprise, it is worth quoting in full:
The last time I saw Peter Drucker, he was keynoting a Forbes conference in Seattle for CEOs. In the auditorium at the International Trade Center next to the bay, they had wheeled out the great man to the middle of the stage in a great fluffy easy chair.
Close to 90 years old—at the end of the previous century gazing toward the next—he was the numinous name and Delphic presence at the conference. Everyone leaned forward to hear what he had to say.
Then a gasp shook the rows of CEOs. The conference management stood there stricken, unable to move: “For the Love of Malcolm’s motorcycle...What is this?” The CEOs sat popeyed.
The hoary sage’s balding pate flopped back in the chair as if he had fallen asleep...or worse.
Perhaps Forbes had erred in staking a major conference on an aging guru seemingly well over the hill and in parlous health.
Then his entire body fell forward. I was ready to run up to catch him if he should tumble toward the crowd. But he somehow caught himself. His eyes opened, and he looked out intently at the throng of CEOs. Everyone sighed with relief. He was awake. He had their attention.
Drucker growled: “I have just one thing to tell you today. Just one thing...”
Wow, I said to myself, it better be good.
“Noone,” he continued, “but noone in your company, knows less about your business than your See Eff Oh.”
Huh?
This was the era of the heroic Chief Financial Officer (CFO). Scott Sullivan of Worldcom, Andy Fastow of Enron, clever, inventive folk like that.
You remember them. Across the country, CFOs were in the saddle. CEOs would not move without consulting them.
What could Drucker have meant?
He was stating law number one of the Telecosm.
Knowledge is about the past. Entrepreneurship is about the future.
CFOs deal with past numbers. By the time they get them all parsed and pinned down, the numbers are often wrong. In effect, CFOs are trying to steer companies by peering into the rearview mirror. Past numbers do not have anything much to do with future numbers.
Moreover, CFOs tend to focus on internal problems. But most internal problems cannot be solved internally.
Determining business outcomes are decisions made by customers and investors and both are outside the company and not directly managed by the company. Their views can change in an instant, casting all the existing numbers into oblivion.
To reach customers and investors takes outside vision and leadership, not internal problem solving.
Tech companies should not try to solve problems. Solving problems sounds good, but it is a loser. You end up feeding your failures, starving your strengths and achieving costly mediocrity.
Don’t solve problems—that’s the CFO’s forte and pitfall. Pursue opportunities.
A Deteriorating Paradigm
Approximately 70% of the average company’s value cannot be explained by traditional GAAP financial statements.
Adding more arcane and picayune rules to GAAP, or converging existing GAAP with international accounting standards, will not solve this problem.
The accounting model is suffering from what philosophers call a deteriorating paradigm—it gets more and more complex to account for its lack of explanatory power.
In all fairness to accounting, it never was meant to predict value prospectively, only to record transactions retroactively. In effect, accounting can only measure the price of exchanges after they have taken place.
This is why accounting can only record the “goodwill” of a business until after is has been sold. Accounting has no way to place a value on that goodwill until a transaction takes place. That is why our late colleague Paul O’Byrne said goodwill is the name we give to our ignorance.
The best an accountant can do is to extrapolate the past into the future, and unless one’s theory is that the future is going to be the same as the past, this technique is fraught with hazards. This was Drucker’s point at the CEO conference in Seattle.
CEOs have to create the future, not relive the past, and the only way to do that is with a theory of the business, and to get outside of the four walls of their organizations and connect with external reality—where all value is created.
Steve Pipe, founder and head of research for AVN, an association of over 200 UK accountancy firms, has published a very inspiring book, The UK’s Best Accountancy Practices.
The book profiles 41 firms, all of them having implemented Value Pricing, some trashed timesheets, and one has started a ROWE.
It’s great to see these ideas diffuse in the UK, and this book will spread the word and provide the impetus leaders need to change the dying business model of “We sell time.”
My only (minor) quarrel with the book is it does not include our own Paul Kennedy—and his firm OBK—who I’m sure blazed the trail long before any of the firms profiled.
Congratulations to Steve Pipe and the AVN Network for advancing the posterity of the profession.
On August 9-10 in San Francisco, Ron Baker and I will once again be presenting our Firm of the Future Symposium sponsored by Sage North America.
This symposium will be dedicated to the possibility that a professional organization can be run more effectively when it becomes a knowledge firm rather than a service firm. Creating such an organization is hard work and not for everyone as it requires professionals to think differently than they have in the past about what it is that they do.
Objectives
From a focus on revenue to a focus on profit
From a focus on capacity to a focus on capital management
From a focus on efficiency to a focus on effectiveness
From a focus on cost-plus pricing to a focus on pricing on purpose
Sage (Ed’s employer) has agreed to open a limited number of spots for firms that are not partners of Sage. If you are interested in joining us, please send me an email and I can get you registered. The price is $2,500 per person and comes with a 100 percent money back guarantee!
One of the more interesting stories to emerge from our previous FotFS, was that of Peter Coburn of Commercial Logic. They are publishers of, you guessed it, time and billing software. Peter underwent a conversion of sorts and posted a terrific article on it.
At a recent conference one of the speakers presented the following syllogism:
What drives a company -> sales
What drives sales -> marketing
What drives marketing -> data
The implication is clear, ultimately data drives a company. Unfortunately, this thinking is all too prevalent in the business world (perhaps, just the world, leave business out of it).
It is also wrong. Actually, it is not just wrong, it is confusing cause with effect. Data is not the cause of company activity, it is the effect of it.
Instead, I would like to posit the following syllogism:
What drives a company -> profit
What drives profit -> creating value for customers
What drives value for customers -> innovation
What drives innovation -> knowledge
What drives knowledge -> relationships (conversations)
In my chain it is relationships that ultimately drive a company.
This past January at the VeraSage international conference in Napa, CA, Ron Baker made a statement that truly intrigued me. He mentioned if you want to discredit something (in this case the billable hour), you should ridicule it.
Great idea, I thought. Now, how can I use it in our business?
Then it came to me, why not collaborate with VeraSage Fellow, CPA and professional stand-up comedian, Greg Kyte?
The result is Bob’s Barbecue. Greg and I intend to make a series of videos focusing on all of the problems created by the billable hour in a business management software implementation.
Greg’s team did a fantastic job and created an incredibly professional and hilarious video that truly hits the mark.
Ready for a pulled pork sandwich? And you just might be lucky enough to be able to afford some hush puppies!
Last week while delivering a Sage Business Strategy Workshop, the group had a dialogue about Jim Collins’ Hedgehog Principle (aka BHAG). I shot a brief video about the conversation. (Sorry, about the sound sync problem. I am still working some of this technology out.)
I have a couple of questions for you:
What do you think of the idea of looking at the three bisections?
Are the names we have developed correct? If not, what might you propose.
Here is a better view of the diagram. (Au is the periodic table abbreviation for gold. MM is maintenance mode.)
I’ve been thinking about what would be an appropriate subject for an article from a newly minted Practicing Fellow. And then it hit me...an article about what a firm looks like that practices Value Pricing!
Let’s make the assumption that you and your firm have committed 100% to throwing out time sheets and eliminating billable time. What else changes in the firm besides everyone’s mindsets? I’d like to share some specifics of what changed for us.
One of the most interesting and refreshing benefits of freeing your mind from the captivity of time tracking is the greatly enhanced ability to quickly and effectively embrace all types of new ideas. It’s like a new world opens up. For example, a few weeks ago my wife and I had the opportunity to attend a Duckhorn sponsored wine dinner at Bistro By The Tracks here in Knoxville, TN. We were seated with a couple who both work for the University of Tennessee. She works in their HR department and he is an economics professor. Of course, the conversation eventually turned to pricing and economics. We had a fascinating evening. I mentioned this conversation to Ron Baker and he made the point that we were seated with strangers, drinking Napa wine and talking about Austrian economics, pricing and self-esteem. Without Value Pricing, we would not have been open to new ideas and would probably not have made two new friends that evening. Once you open your mind, the possibilities are endless.
Back to the specifics. These can be divided into three categories: work environment, the cloud and social media.
Work Environment:
I don’t think there is any way to truly implement value pricing in a Professional Knowledge Firm (PKF) without also implementing a Results-Only Work Environment (ROWE) in your firm. Ron Baker wrote a book review about Cali Ressler and Jody Thompson’s book which explains why ROWE is a core philosophy for a Firm Of The Future (FOF).
Making the move to being an FOF means that everyone in the firm is now focused on results. The act of changing to a ROWE becomes natural and inevitable.
The Cloud:
We have literally moved all of our firm’s infrastructure into the cloud. No more physical servers or phone systems. They’re all gone.
Some resources (e-mail, documents and project management) are in a true virtual cloud environment (we use Google Apps For Business) and others are in a hosted cloud (we use Amazon Web Services).
Our PBX phone system moved to Grasshopper and we use Skype for all of our incoming and outgoing phone calls.
Social Media:
A surprising number of our customers enjoy and look forward to receiving both personal and business information via social media. One of the most important parts of using social media to interact with your customers is to do that interacting wherever they prefer to do it. One customer may love Twitter and another one may feel more comfortable with LinkedIn.
We are active contributors across many of the social media platforms (Facebook, LinkedIn, Twitter and Foursquare). We use our blog as the hub for everything social. It links to all of our other social outlets.
For example, you will be able to control the energy usage of major appliances such as air conditioners, washers, dryers, etc. This will allow you to load balance your electrical usage. You will be able to set a budget for say your air conditioner. When the price of electricity goes up, the thermostat will automatically rise so you do not spend as much.
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