VeraSage

Faculty Announcement: Solo Practice University

Ron Baker - 04/21/2009

Slides from Value Pricing Boot Camp

Ed Kless - 02/24/2009

Below are the slides that Ron Baker and I have used when delivering the Value Pricing Boot Camp. This program has been offered from time to time for business partners of Sage. If you are interested in attending a future event, please email me at ed.kless *at* choosegreat.com.

Enjoy!

Upcoming Business Expert Webinars

Ron Baker - 07/22/2008

I will be conducting three Webinars for Business Expert Webinars (BEW) in the coming months.

BEW was founded by Lee B. Salz to bring together a community of business experts comprised of best-selling authors, award-winning speakers, and business gurus, designed to share their secrets of success.

I was honored when Lee invited me to participate. The Webinars are designed for a generic business audience, not just professional firms; the type of program professionals could recommend their business customers attend.

My three programs will be:

Pricing on Purpose:  Creating and Capturing Value. Friday, August 8, 2008, 3-4pm Eastern Time.

When Debits Don’t Equal Credits. Wednesday, September 24, 2008, 12-1 pm Eastern Time.

The Experience Economy: Succeeding in Today’s Dynamic Economy. Wednesday, October 8, 2008, 4:30-5:30 pm Eastern Time.

I hope you can join us, and check out the other programs BEW conducts.

Service Level Agreements and Capacity Planning

Ed Kless - 04/30/2008

In presenting Service Level Agreements to Sage partners over the last few years, I always believed that I was doing a more than adequate job explaining the concepts required to make them successful (three levels and a hook). However, it was not until recently that I think I have stumbled across the words that drive the concept home.

Most Sage partners do not have a specific on-going service agreement with their customers. Rather, they have a list of customers who call in when they need them. A partner could have 250 or even 1,000 of these types of relationships. Here is the problem (and finally the right words) — You cannot plan capacity when your customers are on a pay-as-you-go basis.

As I think about this, my bet is this affects lawyers more than it does accountants. Accountants have the advantage of a government sponsored impending annual event. (Translation, a tax return.) In software technology, we have no such event. Upgrades are 18 to 24 months apart and are optional in most cases anyway.

Back to my main point — You cannot plan capacity when your customers are on a pay-as-you-go basis — this phrase really has seemed to spark interest in creating service level agreements more than anything else I have said, so I thought it was worth passing along.

Sorry for the ramble, but my point was to let you know that sometimes it takes years find the words that really work.

The Airplane Metaphor

Ron Baker - 02/24/2008

I’ve been having an e-mail discussion with Bob Harper, of More Software in the UK, during this past week over an article he wrote about the airplane analogy we use here at VeraSage. 

Officially, it’s known as the Adaptive Capacity Model, which I used originally in The Firm of the Future to illustrate Baker’s Law:  Bad customers drive out good customers.

A copy of the airplane diagram is one of the most frequent requests we get (see diagram below).  It’s an enormously powerful analogy.  We actually recommend that firms slide it across the desk to each customer, at least once a year, and ask “Where would you like to sit in our airplane.”

The model has implications for strategy, customer selection, de-selection, allocating capacity to different customers, offering, communicating and capturing various levels of value depending on where the customer wants to sit, and even more.  It’s a powerful metaphor.

We’ve even had discussions about the model’s implications for project management (each project is a different plane, according to Ed Kless), team member leadership (each team member is an airplane, ala Dan Morris).  You can see the endless ways you can expand this analogy.

But I’m a firm believer in Occam’s Razor--don’t unnecessarily complicate the theory.  The reason the airline diagram is powerful is because almost everyone has flown.  They know they have a choice of how much to pay and where to sit.  They understand different customers get different levels of service and pay radically different prices, even for the same flight.  But it’s not the same flight!

As a 1K flier on United, I recently flew to Spain on business.  For me, that flight was vital, for if I didn’t arrive on time, the loss of goodwill would be incalculable.  But for the leisure traveler, they’re not as time sensitive.  Huge difference in value, even though it doesn’t cost United any more to fly me than him.

Also, people understand they may get bumped—actually, bribed with a free flight—from a flight to accommodate a 1K flier, or even sometimes a 1K flier gets bumped to accommodate an even more valuable flier, say a One Million Mile flier.

There are many implications, but I want people to read into the model what is important to them.  For one firm leader, they may have too many people in the back of the plane, so it may inspire them to shed customers and free up some capacity.  For others, the message may be they have to do a better job differentiating customers based on various levels of value.

Here is what I wrote to Bob after a few emails that I thought were getting too complex:

Bob,

You can see how easy it is to take this metaphor of a plane to extreme levels.  Some of our VS Fellows think that each team member in the firm represents a different plane, with it’s own capacity, competency level.  We can take this analogy too far.

Bottom line is this:  Any firm can only handle so many customers, given its existing size.  What we refer to as the firm’s Theoretical Capacity. 

• How many customers do they want in each class?  This is the firm’s Optimal Capacity, which is probably 60-70% of its Theoretical Capacity.
• How much capacity should they reserve for their best customers and team member down time? 
• When should they stop adding capacity for back-of-the plane customers? 
• What is the value proposition for each section of the plane?
  

And here’s the biggest question of all:  Where does the customer want to sit? 

The firm DOES NOT decide this, the customer does.  How?  Ask them.  We have firms who slide the picture of the plane over to the customer and ask, “Where would you like to sit in our plane.” This forces the firm to communicate the value proposition for each section of the plane, just like the airlines have (quite effectively I might add).

Keep it simple with this.  I know from experience how we can add many layers of complexity that don’t mean a whole lot.  People will draw their own conclusions from the metaphor, that’s the beauty of thinking for one’s self.
Ron

I’d love to know what the Airplane diagram meant to you when you first saw it, and how it has changed how your firm views it value proposition, pricing, customer selection, etc.

As Aristotle said:  “But the greatest thing by far is to be a master of metaphor.  It is one thing that cannot be learnt from others; and it is also a sign of genius, since a good metaphor implies an intuitive perception of the similarity between dissimilars.”

A Doctor with the Right Idea

Ed Kless - 11/18/2007

It is not often that we at VeraSage comment on medical practitioners. This is not because we do not view them as knowledge workers, rather, it is because the system of third party payers — insurance companies (ugh) and governmental programs (double ugh) — is no where near a free market and therefore such examples are many times hopelessly flawed.

That being said, I recently came across a blog post from TechDirt which demonstrates that at least one physician out there is willing to be innovative. Here is a little of the text:

Dr. Jay Parkinson, a Brooklyn doctor, brought the house call back — but it’s been updated for the times. Parkinson has started a new medical practice that centers around instant messenger, email and house calls. During regular business hours, he is available to his patients for online medical consultations. Dr. Parkinson then pays the patient a house call only if it is really necessary (you get two included house calls in the fee), but most issues can be addressed virtually.

Kudos to Dr. Jay Parkinson! As a native Brooklynite myself, he makes me proud.

PKF in Texas makes a (small) step towards becoming a PKF*

Ron Baker - 08/25/2007

* Don’t confuse PKF in Texas with PKF the way Ed Kless has defined it—that is, Professional Knowledge Firm.  Here’s why.

We see so much dysfunction in so many firms, it’s always great to see one do something right.  In the Aug 20-Sept 9, 2007 issue of Accounting Today, there’s a Special Report insert titled Tax Season 2007:  Gauging Results.  On page 18 is an article by Anjana Jackson, a manager in the Tax Department of Pannell Kerr Forster of Texas, P.C. (hereinafter PKF) titled “Reclaiming Tax Season.” It’s encouraging, an discouraging at the same time.

She states one of the firm’s core values is “People are the Key to our Future.” So far so good.  But this is what particularly caught my eye:

In 2007, we wanted to strengthen our commitment to provide our employees meaningful challenges in their career growth (a core value) and to progress toward a more consultative mindset.  We felt our largest barrier to achieving the success we desired was our client base.  In order to groom consultants and provide challenges for our employees, we examined the types of projects our clients asked us to perform, the time commitments, and the level of learning and career satisfaction associated with a client.

The result was an aggressive decision to “disengage” a number of clients that scored low in these areas.  This was a huge leap of faith.  The reduction of our existing client base represented almost 25 percent of our 2006 charge hours.  The impact of upgrading our client base was a reduced busy season workload of seven percent, while improving employee morale and increasing our net fees by 10 percent.

Hallelujah!  I wonder what took them so long to perform this analysis?  We have been preaching for over a decade that when it comes to customers, less is more.  Not only have I coined Baker’s Law—Bad customers drive out good customers—we at VeraSage also use the Adaptive Capacity Model, utilizing the metaphor of a Boeing 777 airplane for your firm.  This forces firms to strategically think about their capacity allocations among different value segments of customers, while always reserving capacity for its most valued customers (see article).

We see far too many firms that will actually add capacity for back-of-plane customers—that is, D and F customers (F, of course, standing for “friends and family").  No airline would think of doing this.  Once they sell a certain number of Priceline.com (i.e., cheap) seats, that’s it, they no longer will stuff the back of the plane.  This is why we call it the “adaptive capacity model” because firms can change—dynamically and strategically, in response to market demand—where they move the bulkheads in their airplanes.  Our colleague Paul O’Byrne loves making the point that if CPAs ran airlines, the second story on the Boeing 747 would be on the back of the plane.

So why do nearly all firms have too many customers?  We hear two major justifications, both of which are specious upon serious reflection.  First, we need this low level work to provide on-the-job training to our youngest team members.  Second, we make money on this work, it contributes to our overhead.

The first reason is absurd.  Today’s knowledge workers go through at least five years of college, are incredibly intelligent and motivated to learn.  Why give them uninspiring work?  Would CPAs make surgeons pierce ears?  The second reason is just as absurd.  Sure, we make money on this low-level work because we are knowledge firms, we make money on practically everything we do (unless we are horrendous pricers).  Surgeons could also open a kiosk in the mall and provide body piercing, and most likely they’d make money too.  It’s just not the best use of their talent and intellectual capital.

If a firm truly wants to develop its younger team members into a consultative mindset, rather than compliance drones, that should start from day one, not after they’ve performed some hazing ritual of doing crap works because the partners paid their dues and they’re going to make sure the youngsters pay theirs. 

And this is where I find the PKF article discouraging.  She still speaks of charge hours.  How can we create entrepreneurial CPAs if they are still being taught they sell time and have to account for every six minutes of their day?  There is such a disconnect here.  Team members need to be taught that what they are really selling is intellectual capital, so they will be incentivized to develop and contribute IC to the firm.  This focus on hours is holding these firms back from developing the kind of team member mentality they all say they want.  Why can’t they see this?  Is the elephant in the room invisible?

She also writes the old standby:  “We truly believe that our most valuable asset is the people who work for us...” People as assets (or resources), how demeaning and dehumanizing.  The beginning of wisdom is using the correct language.  When are firms going to start referring to their knowledge workers as human capital investors, or better yet, volunteers?

We live in a knowledge economy, but one would never know it studying the practices, procedures, language and leadership of nearly all firms.  They treat their people more like factory workers, providing them uninspiring work along with mediocre leadership.  Is it any wonder we have a talent crisis in the professions?  Today’s younger generations know they are knowledge workers, even if the firms that employ them do not.

PKF provides lunches and dinners and 20 minute chair massages during busy seasons.  All very well and good.  But until it realizes its people are knowledge workers I’m afraid all these efforts, while necessary, are hardly sufficient.  Until it escapes the shackles of The Old Practice Equation (leveraging hours and hourly rates) and embraces The New Practice Equation as defined on the top of this Web site, its destined to remain a Firm of the Past.

I applaud PKF’s efforts on customer deselection and recognition that it needs to provide challenging work to its knowledge workers.  I only wish it would follow that very reasoning to its logical conclusion and embrace The Firm of the Future.  Until then, we’ll have to look elsewhere for leadership and real, meaningful change in the profession.

First Technology Trailblazer Added

Ed Kless - 01/03/2007

It is my pleasure to present the first VeraSage Trailblazer from the technology arena - Koenig Software Systems, LLC of Houston, TX.

Ken Koenig and Linda Kay attended Sage Software’s Project Management and Value Pricing Boot Camps in 2006 and we inspired to create consulting agreements based on the Adaptive Capacity Model we teach at VeraSage. Despite being warned that they should start by developing the normal model first, they opted to develop their high-end Black Card offering first. We are sure glad they didn’t listen to us.

For their whole story, visit the post on the Trailblazer tab.

Another Australian Trailblazer:  matthew tol + associates

Ron Baker - 01/02/2007

Matthew Tol from Australia began E-mailing me in November, 2006, after coming across the VeraSage Web site.  We had a fantastic exchange on the importance of customer selection, grading, pricing and the total ineffectiveness of timesheets.  Matthew had written a couple of articles before and during our exchanges, and while we may not agree on everything, I’m happy to report that his firm will be trashing timesheets June 30, 2007.

You can read our entire exchange, including Matthew’s articles, in our Trailblazers section (it’s a long post!).

Congratulations again Matthew on becoming a Pioneer in our profession.

Value Pricing Technology: A dialogue

Ed Kless - 11/24/2006

Recently, Doug Deane, a long-time and outstanding Sage Software partner and I had an excellent dialogue via email on the subject of value pricing. Doug was kind enough to agree to allow me to create the following document of the exchange in the hopes it will assist anyone struggling with value pricing in the software implementation industry.

Instead of just publishing the emails, I arranged it to read like a Socratic dialogue.

Doug expresses many of the perceived challenges of moving to value pricing in the technology industry.

Enjoy!

Download the file

Baker’s Law: Bad Customers Drive Out Good Customers

Ron Baker - 04/04/2006

We hold these truths to be self-evident, that all men are created equal,…
—Thomas Jefferson, The Declaration of Independence, July 4, 1776

Whenever anyone quoted those immortal words from the Declaration of Independence—all men are created equal—Federalist Fisher Ames, an ardent opponent of Thomas Jefferson and a superb congressional orator, would retort: “And differ greatly in the sequel.”

While Fisher’s admonishment might not be the best way to administer a country’s laws—where all should be treated equally—it is profound when it comes to understanding no two customers are equal. A German Proverb teaches, “He who seeks equality should go to a cemetery.”