For those of you that missed John Stossel’s fine show last week on Licensing Madness, I submit the following excerpt.
How do you think that the regulation of the professions in the market effect you, your businesses and even your customers?
Friend of VeraSage Brenda Richter passed this along this morning. I am not always the biggest fan of Tom Peters, in this case he speaks the truth.
Brenda chips in, “Isn’t the time sheet the ultimate standardized form?”
Yes, Brenda, it sure is!
VeraSage prides itself on dissenting ideas, which is why we have a “Skeptic/Dissenter” category under membership.
Greg Kyte is the self-proclaimed “Champion of the Dissenters.”
I’m proud to post his first contribution and let our readers decide for themselves the merits of his arguments. I’m sure this won’t be the last we hear from Greg.
Enjoy!
Ron Baker is Wrong
Ron Baker and his stooges at VeraSage have long tried to discredit the well established modus operandi of professional firms: Time Accounting. To do so, they use the following simplistic equation:
Revenue = People Power x Efficiency x Hourly Rate
Unfortunately for the VeraSage minions, they have been attacking a straw man. The manifestation of the formula as conjured by Mr. Baker does not accurately represent the robust nature of the hourly billing convention. Professional firms naturally augment the formula with the processes by which they calculate Hourly Rates for their personnel. Best practices for calculating the Hourly Rate element include the use of the following formula:
Hourly Rate = RABR x Experience Factor x Stupidity Factor x Biorhythm Factor x Opportunity Cost Adjustment.
Allow me to enlighten the brainwashed value pricing hoard on the components of the augmented hourly rate element.
Reputation Adjusted Base Rate (RABR). Every firm has a reputation within the context of the business community that it serves, and this reputation determines the base rate to be used as the starting point for calculating billing rates for personnel within the firm. Also, it is universally accepted that the reputation of a firm equals the quality of its service. Arthur Anderson was unquestionably the most reputable accounting firm in the world in 2000, and to this day nobody questions the quality of their work.
Experience Factor. To begin to hone the firm-wide RABR to the individual practitioner’s hourly rate, it is obvious to everyone but Ron Baker and his goons that experience is the most important factor. Without a doubt, a college graduate with a piercing analytical mind and a penchant for big picture value creation cannot deliver the same quality of service that a middle-age alcoholic in the middle of a years-long divorce and a crippling debt burden with 20 years of experience can.
Stupidity Factor. Stupid individuals should have a lower billable rate than smart people. A Stupidity Factor of 1.00 means that the individual has committed the average number of errors during the prior period. A Stupidity factor above 1.00 indicates more errors, more stupidity, and a lower billing rate. No, no wait. A lower stupidity factor means lower intelligence and more errors. No, that doesn’t seem right. A higher stupidity factor means stupider people with higher rates. Yeah, there we go.
Biorhythm Factor. I am a morning person. I work best in the morning, and I am virtually useless in the mid-afternoon. Therefore, since my efficiency and the quality of my work are higher in the morning, I bill clients 15 percent higher before lunch. I also charge a fifteen percent premium for the 20 minutes right after drinking a Diet Coke. To be fair, I also give my clients a 15 percent discount for the 20 minutes immediately following calls from my ex-wife or for any time that I happen to be hung over. For price sensitive clients, we have a partner with clinical depression and irritable bowel syndrome.
Opportunity Cost Adjustment. One of Ron Baker’s harebrained arguments against time accounting is that it does not reflect the realities of economic laws. Is there a more irrefutable economic concept than opportunity cost? Opportunity cost comes into play constantly during busy season when personnel are working odd hours. I charge an opportunity cost premium on Tuesday and Wednesday evenings because I hate missing Idol, and I give a discount on Sunday mornings just so I can have a good excuse for skipping church.
So, sorry, Ron, your simplistic revenue formula has been turned on its head. It looks like I’ve single-handedly brought VeraSage to its knees, and I sincerely hope that you can get out of the lease on the office space for your (virtual) headquarters.
I just love Craigslist. I am convinced that one can find almost anything for sale. Today (thanks to the ABA Journal {see free iPhone App even if you aren’t an attorney, it is frequently excellent reading}) I learned of a relatively young (well when you are my age, anything south of 40 is considered young) lawyer that has decided the FMV of his (assuming it is a he, based upon the Craigslist posting choice of language) is equal to the current value of his outstanding student loans. Quite the discount. If I had the nearly $60,000 (I would of course request a cash discount) to spare, I might actually consider it, although my terms and conditions would be stringent (e.g. I would require vast amounts of tutoring to help him transfer the knowledge and social capital to me) - but still this is quite the steal.
The telling spot about the advertisement Craigslist Lawyers Sells Degree is his description of why he wants out. If you are at all curious as to why brilliant minds opt out of a distinguished profession, read the full post. What is it about the law that has so tainted this young person to leave after spending in excess of $100,000 at a top tier law school to leave his chosen profession?
And this creative lawyer is merely a representative of those that are annually leaving the profession. At least the lawyers are asking some of the questions as to why? Legal leaders know that young people have no desire to be slaves to the almighty hourly bill. Additionally, the exchange for unnecessary legal work for merely a paycheck isn’t a standard of an honorable profession. Finally, law firm leaders frequently lack leadership (meaning they aren’t nice people to work for).
From my perspective, it is simply another wooden stake into the Vampire’s Heart (that being the hourly bill and its timesheet). I will offer some silver bullets as well and have already invited him to read this blog.
Whoever he is, I want to thank him for cheering up my evening.
On Friday, February 12, I conducted an 8-hour CPE course for the California CPA Education Foundation: Measure What Matters to Customers: Using Key Predictive Indicators.
There were approximately 25 people in the live audience, and for the first time (for me), it was Webcast to approximately 65 people.
This course explains:
The Foundation Team did a wonderful job handling the technology, and moderating the questions from the Webcast audience. Since we show video clips, it has always been a challenge to pull off a Webcast, but this went smoothly.
You can view the entire program here. (Be sure to fast forward through the lunch hour, as they keep the camera rolling).
I hope you find it valuable and thought provoking.
And as always, any and all feedback is more than welcome.
Yesterday, I received a solicitation regarding a “solution for transferring knowledge!” It included a link to the following video.
Problems with this:
Now, I did view their product page and the system itself seems like it would be helpful to collect and disseminate tactic knowledge throughout an organization. This is, in fact, something sorely needed in professional knowledge firms. However, I would suggest to them:
If any of you pursue looking at this further, please let us know what you think about it.
Regular readers might remember a post I did a few weeks ago entitled Instead, I’ll Let You Be the Judge, in which I published my deleted comments from a bog post by a FileMaker programmer.
This morning, I was thrilled to receive a mention in post entitled Passing the Torch of Value Pricing by a consultant in the FileMaker community named Jonathan Stark. To Jonathan, I wish to express my thanks for the mention. I had trouble posting a comment, so I thought I would just mention it here.
In addition, a shout out to Kirk Bowman, another FileMaker consultant who I met for lunch shortly before his presentation at a FileMaker un-conference. I hope to post his slides and the audio from his session in a future post.
Jonathan and Kirk, thanks for advancing the cause!
Being forced to read this would be the intellectual equivalent of water boarding.
The copy reads:
TIME IS a lawyer’s commodity - or rather - it is how most lawyers quantify their expertise.
How successful you are as a lawyer depends fundamentally on how you use your time. There is direct correlation between how much value you can extract from your time and your profitability. Most lawyers must record how they spend their time on a daily basis and regularly justify their use of time to clients, the court or their employers.
BTW - The blog post title is Morse code.
My wife, Christine, and I have recently become devotees of the AMC Original Series, Mad Men. For those of you not familiar the shows follows the personal and business life of a Madison Avenue creative who goes by the name of Don Draper in the early 1960s.
Small spoiler alert if you are planning to watch the show!
In Season 3, Don happens upon an elderly gentleman in the back unused bar of a country club named Connie. It turns out, he is Conrad Hilton. In this later scene, Hilton asks Don for his opinion on a new ad campaign. What follows is a terrific lesson on providing a free sample without giving away too much.
Enjoy!
I haven’t been blogging very much lately, so big thanks to Ed for keeping up!
I’ve been working on my new book since December.
My publisher (John Wiley & Sons, Inc.) and I are struggling with the title of the book, so I thought I’d solicit the “wisdom of the crowds,” because there is so much of it in this community.
Structure of the Book
The book deals with much more than just implementing Value Pricing. When professional firms eliminate billable hours and timesheets, it changes the DNA of the firm, not just its pricing, but everything: its marketing, it value proposition, how it communicates with clients and manages their expectations, what it measures for customers and team members, and so forth.
The book is actually proposing a new Business Model, from “We sell time” to “We sell intellectual capital.”
It will have a toolkit, along with a 7 step process for pricing an engagement. Moreover, an Appendix for each professional sector—advertising agencies, CPA, Law and IT firms— and will include customized checklists, sample forms, examples, issues, etc., from that particular profession.
So, it’s a Toolkit + Reference Book + an explanation of a revolutionary business model. It’s a one-stop read that is not dependent on reading any of my other books.
Some Titles So Far
The Timeless Practice: VeraSage Institute’s Revolutionary Business Model for Professional Firms
Transitioning to Timeless: VeraSage Institute’s Guide to Selling Intellectual Capital, Not Time
From Time to Timeless: VeraSage Institute’s Guide to Selling Intellectual Capital, Not Time
The Timeless Firm: VeraSage Institute’s Revolutionary Business Model for Professional Firms
Professional Firm 3.0: VeraSage Institute’s Revolutionary Business Model for Professional Firms
Timeless: The Professional’s Guide to Profitability, Effectiveness, Intellectual Capital, and Value Pricing. Thanks to Ed for the subtitle on this one!
Any suggestions folks? There’s a bottle of Dan Morris’ finest wine in it for the best suggestion.
Hear the sledges with the bells -
Silver bells!
What a world of merriment their melody foretells!
How they tinkle, tinkle, tinkle,
In the icy air of night!
While the stars that oversprinkle
All the heavens, seem to twinkle
With a crystalline delight;
Keeping time, time, time,
In a sort of Runic rhyme,
To the tintinnabulation that so musically wells
From the bells, bells, bells, bells,
Bells, bells, bells -
From the jingling and the tinkling of the bells.
- Edgar Allen Poe
There it was on page 64 of the January 23, 2010 issue of The Economist! Another death knell for the billable hour has sounded.
In a recent paper, ’The Death of Big Law,’ Larry Ribstein, a law professor at the University of Illinois, argued that after decades without changing, law firms are likely to have an outburst of experimentation with different business models: even the venerable and lucrative “billable hour” method of charging clients is in doubt.
It reads like an obituary doesn’t it. We hear at VeraSage anxiously await the wake!
On January 9, 2010, I received an email from Kim Foard, CPA from Billings, Montana that created an HSD for me—High Satisfaction Day—as we like to say here at VeraSage:
Your book, Professional’s Guide to Value Pricing, improved my client’s happiness and my success. While the financial rewards have been fun, the improved relationships are priceless!
Pricing on Purpose is next.
Kim Foard
Kim was kind enough to provide us with a case study for our Trailblazers section, reprinted below.
January 16, 2010
What We Want
As a door-to-door Cutco© knife salesman in my freshman year of college, I learned that people buy what they want; not what they need.
When asked for several knives to sharpen, one couple would present broken blades so dull soft butter was a challenge. While giving me hearty nods of approval that they were in need of knives and enjoying the presentation of tricks performed with the sharp knives from my sales kit, they would politely say, “No. No, thanks; we don’t want what you’re selling.”
The couple in the next house would struggle to find any dull knives in the sets of fine cutlery displayed in their kitchen. As they apologized for not being able to play along, I would make a little conversation, reluctantly begin the show, and then quickly navigate my way through the script. Without even asking for the order, my focus was on an exit strategy. They would reach over, touch my arm and exclaim, “Yes! We want to buy the biggest set!”
Only years later, when studying one of the greatest salesmen, Zig Ziglar, did I learn, “You can get everything you want in life, if you will just help enough other people get what they want.”
This is my story.
The days of my childhood were spent horseback in a sea of cowhides with a Dad who knew the way to confidence was by doing what others said was impossible. The evenings were spent in epic tales of adventure with a Mom who knew the portal to opportunity was by learning from the stories of others.
After high school, I turned down scholarships to pursue my dream of being a cowboy. Fifteen months later, I knew I didn’t have the same love of horses and cows as my dad! Yet, all of those years living the notion, “Where there’s a will, there’s a way” came in handy for a poor kid with a “new dream” of going to college. In the course of managing my fledgling business as a twenty-something entrepreneur, the counsel of an older client friend cut short my whining as he said, “Kim, your problem is not that you were born poor. Your problem is that you were born with ambition. Many are born poor and stay that way. You want something else.”
The “something else” was finally discovered twenty years later in a book written by Ronald J. Baker, Professional’s Guide to Value Pricing (with CD), Edition 3, published by Aspen Law & Business, 2001 [now out of print].
By starting with one client in a little Montana town of 2,500 population, appropriately named Roundup, the cowboy in me was enjoying the gathering of a small herd of loyal clients. They understood from the very beginning: I was in the business of selling dollars. I didn’t understand Value Pricing; I did understand the importance of finding 5 to 10 times my fee in benefit for them. In the early years, there was an Exit Conference with every single client to explain what had been done. That made quite an impression and they would say, “No one has ever cared enough to spend time with me, like this!” Spend time? Heck, no! I was investing time with them; I wanted a long-term relationship!
Then, one day, time had taken its toll on a ranch family and they were in the process of transitioning the next generation into the accounting function. I remember the excitement of working with the new twenty-something CFO, as we set up QuickBooks© and enjoyed a day’s worth of coaching and visiting.
In the course of adding families, processes, and infrastructure to the ranch operation, right in the middle of a seven year drought, there was a Net Operating Loss to be carried-back: Many thousands of dollars of benefit for a thousand dollar fee. To my surprise, I received a call from the new CFO, who had questions about the bill.
Remember, this was before Value Pricing, Fixed Price Agreements, Retainers and crystal clear Communication at the beginning of every project.
Sure enough, he was right. There was a line on his bill, and every other client’s bill, that read: Photocopies and Assembly—$75.00.
Made perfect sense to a bean-counter; we have overhead. After a few years in business, we have a history of expense; we can project that cost into the next year and we can reasonably estimate number of clients and projects for a given year. So, we do the math. $75.00 was a good number, all clients paid the same on any project and it, definitely, was a Fixed Cost to me. Not to the client. He wanted to negotiate that amount, downward.
In fact, he had counted the number of pages, and fasteners, applied the going Office Supply Store rate for those commodities and arrived at his number of $7.50. In his mind, he had been overcharged by a factor of 10. Ah, that “Perfect 10”; yet, this time it was viewed as being in my favor, not the client’s, and it was causing harm to our relationship!
He thought I was cheating him; I thought he was behaving stupidly. We were, both, on to “something”!
The value provided to the family for the last twenty years didn’t matter at that moment. In essence, he was a “new client” and deserved my respect. So, we began at the beginning.
Having read enough of Professionals Guide to Value Pricing to think differently and having found the CD in the back of the book with templates, I approached this “new beginning” with fervor. I had nothing to lose and everything to gain; a relationship hung in the balance!
There must be a better way to build relationships than: work hard; send bill. For twenty years, I had done what I had been trained to do by my accounting mentors. It worked, most of the time: 95% of the clients understood the value and were willing to be surprised by the bill. For a competitive perfectionist, that other 5% was the challenge, and at that moment I had one very irate customer on my hands, and my mind!
Change nothing; Nothing changes.
Insanity is doing the same thing over and over, expecting a different result.
Easy is hard; Hard is easy.
We get what we allow.It was time for a change.
The insanity was tiring.
A new path was needed.
I had created this mess.A single line on a bill was the proverbial straw that broke the camel’s back.
One more witticism became the mantra of the day, “Fake it until you make it!” At the time, all I had was a page of script titled, “Questions You Should Ask The Customer During The Fixed Price Agreement Meeting” and a burning desire to find a better way.
Today, those questions have been customized and internalized until they are at the center of every new beginning, and potential client relationship.
They look like this:
- What do you expect from me?
- What are your biggest worries?
- How do you see me helping with these challenges?
- What growth plans do you have?
- What role do you want your CPA to play in your business?
- How would you define quality service?
- Is a 100% Money Back Service Guarantee important to you?
- What would you consider as timely response to your accounting and tax questions?
- Why are you changing professionals?
- Are you concerned about any, one, issue that I should give special attention?
- Were you referred to me by someone?
- Are you Able To Pay for guaranteed exceptional value?
- Are you Willing To Pay a retainer in advance and the balance upon completion of services?
Forget about Perfect 10s; these are the Lucky 13!
As accountants, we will eventually need, and want, to answer this question:
- Are we Relationship Builders, or Paper Shufflers?
Paper, as a commodity, is cheaper by the case.
Relationships are priceless.
For those who want to debate whether the glass is half-full, or half-empty, handling commodities might be an excellent career choice. For those of us who wonder why so much attention is given to “half” of anything, “Creating and Capturing Value” is quite a noble profession!
Wholeness comes from tapping into the Universal Principle of abundance; our real potential is unlimited. Yet, this isn’t about us.
Communication is what the listener does. Are we listening to our clients? Do we really hear, and understand, what our customers want?
Oh, sure, they will grudgingly accept bills for the compliance work they “need” to have done. When they understand how much we care about them, demonstrated by how we actively listen to their dreams, they are open to new ideas. As they consider all of the many menu choices available to them, with a clear pricing structure designed to express the value of each one, and ultimately commit to partnering with us, the “want” is palpable!
Yes, that new CFO in charge of the family ranching heritage understood the Value in the Price (when I covered up the detail of the bill) and wanted me to understand that he wanted more of that simplicity. Why did it take me so long to get the horse in front of the carriage? Answer: Good judgment comes from experience; Experience comes from bad judgment!
Disciples of Value Pricing never hear “The check’s in the mail.” In fact, because “the checks are in the drawer”, we manage risk, schedule our days, attract quality clients, stumble into opportunities, enjoy open communication, reap financial rewards, and tie “Ribbons and Bows” around each and every project on our way to building relationships.
I have learned a deep respect for one of Goethe’s couplets:
Whatever you can do, or dream you can, begin it.
Boldness has genius, power, and magic in it.In our world of technological advances, “www” has become the gateway to infinite possibilities. If we will decide “What We Want” and, then, offer that with passion to others, the result is guaranteed to be a “Win Win Win”: for Customers; for Us; and, for the Whole Wide World!
Best regards,
Mr. Kim Foard, CPA
It’s rare to get cowboy poetry from a CPA, so thanks again Kim for making our day.
More importantly, congratulations to you for having an open mind, looking for a better way, and contributing to the dignity of our profession by doing the right thing for your customers.
Reading Kim’s story was another HSD!
I was honored to speak at the ITA Fall 2009 Collaborative in Rancho Mirage on the topic of monitoring an controlling project in software implementation engagements.
During the presentation I did a brief workshop on dealing with resistance. The video clip is part of the introduction to that topic. My thanks to Wendy Gorrie of Plus Computer Solutions for agreeing to serve as my videographer for the session, she captured way more that I had hoped. (I hope the blood returned to your arm, Wendy.)
I am deeply indebted to Peter Block who developed this idea extensively in his book Flawless Consulting.
If you are interested to view the entire segment, please send me an email at ed.kless *at* choosegreat.com.
Congratulations to Mark Bailey and the whole team at Mark Bailey & Co. for being named the Best Accounting Firms to Work For by Accounting Today for a second straight year. The article specifically identifies the trashing of the timesheet as the reason for their tremendous success.
"We threw out timesheets," explained Mark Bailey, the firm’s managing partner. "But the motivation to throw them out is that they didn’t really reflect the value of the service that was being given. What we came to realize very quickly was that a timesheet is a control tool."
The 16-person firm decided that controlling professionals didn’t drive productivity; instead, it hampered innovation and creativity.
The entire article is available on-line and will be printed in December 14, 2009 issue of Accounting Today.
I’m not a river or a giant bird
That soars to the sea,
And if I’m never tied to anything,
I’ll never be free
-From the Finale of the musical Pippin by Stephen Schwartz
Twenty years ago, I had the good fortune to perform in this play as the eponymous character with a community theatre troupe. The run was four performances over two weekends. So, if you throw in rehearsals, I must have sang these lyrics dozens, perhaps hundreds of times.
It was not until at least ten years later, when I first began reading the works of Peter Block, that I even began to understand them. What Schwartz has so elegantly defined for us is the idea of accountability.
Over the past few years I have read countless books, articles and blog posts that call for more accountability in the workplace. With the exception of Block, they all suppose that it is a management function to develop processes to “hold people accountable.” Think back on your past conversations about accountability and, no doubt, they will be transitive in nature. Herein lies the problem.
Accountability is not something can be imposed, but rather chosen. Peter Block begins to develop this idea as far back as Flawless Consulting and it comes to full maturity in Freedom and Accountability at Work. It is absurd to think we can even try to “get those people to be accountable.”
In Viktor Frankl’s Man’s Search for Meaning, the author writes of his experiences surviving a Nazi concentration camp and comes to the understanding that the only human freedom that cannot ever be taken away is the ability to choose how one feels about any given situation. Even if we are a victim of unspeakable crimes, we have the choice as to whether or not we feel like a victim. We are accountable for our own feelings, not anyone else.
Indeed, it is not only totalitarianism that is the enemy of freedom, but vagueness. In my view this is the problem with accountability in business. It is not that people do not want to be accountable, but rather that leaders are unclear about the expectations. Ron Baker tells a story of proposing this gedanken to a group to which he was speaking - What if timesheets became illegal? One participant blurted out, “Oh, my God, we would actually have to lead.”
The startling conclusion at which I have arrived through reflect on Block and Schwartz is this: Freedom and accountability are not just linked but are actually one and the same. If you want people to “be accountable” give them their freedom, but be clear about the expected results.
RSS Feed
Comments | 0 Trackbacks | Permalink | Economics Ethics In the Media Choose an Industry: Accounting Consulting Law Technology