Trailblazers Section -
Getting Started
Today, we welcome a new Trailblazer to VeraSage: Gary Crouch and his team at CS3 Technology in Tulsa, OK. He wrote this post in the wake of the Firm of the Future session at Insights 2010.
Gary’s thoughts are flashes of brilliance and will take some effort to embrace and even more effort to fully understand and implement. His most profound insight is, “My function then as the leader of a team of knowledge workers is to attract intellectual capital to my team.”
Thanks, Gary for allowing us to post this.
Leader: someone who guides or directs others
Team: a number of people organized to function cooperatively as a group
Sometime back I read a book or article describing how the knowledge worker can and should maximize their own potential by playing the part of the hired gun (unfortunately I cannot locate the article to give credit where credit is due). For the knowledge worker, the author explained, it is in their best interest to manage their career path by hiring out to the highest bidder at every opportunistic step. This could be accomplished by promotions within the current organization or moving through various organizations that have an increasingly higher need for his/her services. Either way, the number one priority is to promote their skills and experience to the marketplace.
As I have personally benefited from implementing many ideas shared by Ed Kless in my business, I attend as many of his speaking sessions as possible. At Insights 2010, I heard Ed describe our employees as knowledge workers, our most important assets, who walk out of our doors each evening. As I had heard this before, my tendency was to get depressed thinking about just how fragile the culmination of my life’s work, our business, really has become. Then, a thought occurred to me and everything came into focus.
Earlier in the day, we reviewed the building blocks for a successful knowledge worker firm as the following formula:
Profits = Capital Management * Effectiveness * Pricing on Purpose
My thoughts focused on the capital management element of the equation. Capital is made up of various resources that the knowledge firm must manage on a continual basis. These resources include the following:
Financial Capital = Operating capital and cash flow
Intellectual Capital = The ability to maintain and grow knowledge within an organization such that it can be applied to solve customer problems
Structural Capital = The environmental components that allow an organization to function effectively such as processes, systems, methodologies, physical plant, communications facilities
Social Capital = The brand of the organization that includes relationships with vendors, customers, external influencers, product and service awareness, and so forth
It dawned on me; in many cases the ability of the knowledge worker to monetize their intellectual capital is limited. Most knowledge workers need to work within an organization for various forms of capital that they either do not possess, or do not have the ability to properly manage. For instance, they may not possess the cash flow for marketing themselves or for investing in new equipment; they may not be able to build systems to manage projects, bill their services, perform Q&A functions while chasing the next job; they may be great technical resources, but not know how to approach social networking effectively so they have a new project waiting for them when their current project is completed. These limitations of the hired gun are answered by participating in a team environment. When the knowledge worker’s specific expertise is combined with varying forms of expertise brought by other knowledge workers and multiple capital resources, only then does the application of intellectual capital bring value to the buyer.
My function then as the leader of a team of knowledge workers is to attract intellectual capital to my team. I can do this by providing the benefits of various forms of capital that the intellectual capital owner does not possess or does not have the ability to manage. If my team is effective to the point of profitability, then I am able to demonstrate the ability to monetize the knowledge worker’s intellectual capital.
Of course, money is not everything. If I also can help the knowledge worker grow in experience, knowledge and capital management abilities, then I have provided value beyond money. As long as the knowledge worker remains with the team, I also have built additional intellectual capital accessible to my team.
To be sure, the process will always be fluid. As the team gains additional experience and knowledge individually, we must recognize the additional value requiring either additional compensation or opportunities to grow. However, the combined growth inherent in the team provides even more reason for the team to remain intact.
Should a member of the organization find a more beneficial team for their situation, then the process begins again and is costly. However, the relationship has been mutually beneficial. Both the team and the organization have been profitable. In addition, intellectual capital is one form of capital that can be shared. When a knowledge worker shares his knowledge with a customer or a coworker, they do not diminish their own knowledge. In fact, through an exchange of ideas, the knowledge worker’s intellectual capital will grow as well. Concurrently, if our organization’s capital management process includes cross training the team members, the team can retain the exiting knowledge worker’s intellectual capital even as the knowledge worker leaves the team.
Through the process, the organization has gained in reputation, customers, reference sources, finances, experience and any number of other resources. The departing knowledge worker may also add to our social capital as an external influencer or even by bringing the new employer organization to our team as a customer.
Business is the process of providing solutions for others. As we continue to build our organizations, we must recognize the impact of the knowledge worker on our business models. As we provide a valuable package of organizational attributes that the knowledge worker can monetize their intellectual capital, we can help them grow. At the same time, we can increase our retained resources of financial, structural and social capital.
All in all, it is not a zero-sum game; everybody can win.
I had a great conversation this week with Michael Stewart of Integrity Wealth Pty Ltd, outside of Brisbane, Australia.
I’ve known Michael since his days with Results Accountants’ System under Paul Dunn and Ric Payne. Then he was with Principa, and now is with Integrity as General Manager.
As of October 1, 2007, the firm eliminated timesheets. More empirical evidence that this is the wave of the future if firms are serious about operating effectively in an intellectual capital economy.
During our conversation, I asked Michael to provide me with a case study on his firm’s transition to becoming a Firm of the Future.
Here is his first installment, as he wants to add to the story in the future to inspire others:
Hello Ron.
Thank you again for speaking with me during the week. As is always the case when interacting with you, or your material, I left feeling further inspired; and also somewhat humbled—there is still much for us to learn and implement as students of pricing and value.
As agreed I’m sending this email now and if there is sufficient interest from the VeraSage community I’ll follow up with a more detailed case study. While getting rid of timesheets was just one step in an overall strategy to change our firm, it has proven to be a critical one. Not being an accountant myself I’ve never had to record my life in 6 or 10 minute units (and if I had I probably wouldn’t have lasted very long). So in some respects I don’t think I can really convey some of the differences it’s made to individuals within the firm. But I do know what it’s done for our mindset, how we promote the firm, and how both clients and team members react to a no timesheet model—and it’s all positive. Perhaps in a future email I’ll get one of the team to write their thoughts. As an example, Denise Gibbons (Partner) said to me recently “I used to make myself sick preparing bills for clients”. We don’t have to worry about that anymore, which in itself has to be a major win.
As a summary:
Practice Profile:
- 2 partners + 11.5 FTE (includes our financial planning division)
- 2006 revenue $645,000
- 2007 revenue $735,000
- 2008 revenue $1,180,000 (growth approx 50/50 acquisition/natural growth)
- Approx 400 clients in Accounting division
We are located in Clayfield, Brisbane, QLD, about 10 minutes from the heart of the city. Over the past 18 months we have been working to redesign the business on many levels in order to create a place that will attract team members. The partners, Denise & Mark, were very keen to implement many things but like most firms were struggling to balance client work with internal goals. I joined full time in October 2006 with my focus being on establishing the strategy and infrastructure that would attract team members and allow us to grow. For a firm of this size to hire someone who does little or no client work was a significant decision, both financially and in terms of mindset—the partners were agreeing to hand over the day to day running of the overall business so they could focus on client work and development of the team.
We made the decision to abolish timesheets as of 1 October 2007. We had been talking about it for at least 9 months prior to that and had committed in writing to the team we would do it. There were many discussions on whether we should keep timesheets at the same time to make sure, well, to make sure the sky didn’t fall in I guess; or whether we should still record total time on the job to identify scope creep. Finally common sense prevailed, we chose to back ourselves, we took the leap, and haven’t looked back.
How it works:
- All clients now receive an engagement letter with a fixed fee and a date for when their work will be completed. Typically the fee is based on last year + 10%. We review each job and the scope of the work before determining the price. Mark, the partner of the accounting division does the initial review. We then sit together and as Chief Value Office I challenge anything that has not seen a minimum 10% increase. (This is in addition to a 10% increase last year for most clients). Mark is right on the page with value pricing so he identifies any special work or areas in which we could add significant value. Though for most work it’s very similar year in year out.
- We must receive the signed letter back from the client before work begins. Naturally there are some long-standing clients where we respect the relationship and we haven’t bothered trying to force an agreement upon them. So long as they agree to the price we’re happy.
- We now ask for payment of invoice immediately upon completion of work, instead of 14 day payment terms. New clients often have to pay $1,000 upfront for us to review their work, then we quote on the scope and price of the work that needs to be completed. Again, the client must agree to all terms in writing before the work begins. We haven’t worried about moving to bill existing clients upfront. Instead we have focused on workflow—if we can get the job out the door quickly then we can invoice sooner. Then of course you need a system to chase debtors (receivables for our international colleagues).
- We initially set a minimum fee of $1,000 for new clients. We have since moved that to $2,000 and will soon be increasing to $3,000.
- We currently have just one KPI that has replaced timesheets—a monthly invoicing target. The entire accounting team are responsible for ensuring we make this target. I have set the budgets for the firm, Mark then looks at all upcoming work and selects the jobs to be completed each month. Then we just get on with it. If we make target, we know those jobs have been completed. Nice and simple.
- Monthly targets are based on a combination of what we have invoiced for the same period in previous years; what the firm would have achieved on a hours x rate x productivity model; plus any price increases, allowances for special work or value priced engagements etc. In a firm of our size it’s pretty obvious if people are working hard or not. If productivity or workflow is lower than we believe it should be, it’s usually more to do with planning, getting the right people doing the right work, and resourcing, than it is a lack of effort by the team. In other words we believe people come to work with the intention of working hard; we just needed to get the planning and infrastructure correct so their efforts turned into outputs.
To ensure I was happy with the monthly targets I conducted a financial analysis using Principa’s FirmPlan—I think it’s the best tool I’ve come across in relation to looking at the financial performance of a firms that record time. Within it I compared our numbers to some benchmarks, ran some what if analysis on impact of price increases etc. From there we picked an annual revenue figure, divided it by 12, made some adjustments to each month based on seasonal fluctuations, and targets were set. We have 15 years of history on what price our clients will pay for most of our work and how much work we can do in a given period—so even if that is based on a timesheet model it is a well established precedent and provides an easy starting point for getting rid of timesheets and quoting a fixed price before the work begins.
- It’s important I point out how helpful our team, in particular our admin team, have been in adopting this change. For the professionals it has made life easier. Though for Barbara (admin, reception) it has created work. Who gets engagement letters; who doesn’t; changes to the system every other week as we learn new things; extra work in preparing engagement letters; updating the workflow system etc. We continually communicate why we are doing these things and we are very grateful that all of this has been handled with a minimum of fuss and we are a better firm as a result.
Ron, there will be many other things to discuss and share: strategy, vision, client selection, pricing, marketing, recruitment, post job reviews, successes, failures, things we have no idea how to approach, examples of value pricing successes, and comments about “accounting utopia” (more on that story in another email). This email is to get the process started. On behalf of Integrity I’d like to say a massive thank you to everyone who has shared their ideas with us and myself over the years. We hope our contribution is helpful to others who are heading down this path.
Ron, please feel free to publish my contact details in case anyone would like to contact me.
Michael
Michael Stewart
General Manager
Integrity Wealth Pty Ltd
Integrity Chartered Accountants & Business Advisors
http://www.integrityaccountants.com.au
http://www.integrityfp.com.au
Tel: +61 (7) 3262-3533
Thank you, Michael, and we look forward to more details on your firm’s transition.
Congratulations to the entire team at Integrity for blazing the trail for your colleagues—and all of those reluctant consultants—to follow.
This is truly Firm of the Future 2.0.
A few years ago I received a telephone call from a guy who wanted to talk to me about my book.
I remember the call well, as I was sitting in a New York hotel when we finally connected. He began by telling me how much he enjoyed my book, Professional’s Guide to Value Pricing, along with a lot of flattery I’m too embarrassed to repeat.
He also told me about a pricing success story he had had, which obviously convinced him to become a Value Pricing convert. Since then, we’ve exchanged occasional emails, he has written a fantastic book, How to Build and Manage a Family Law Practice, and a White Paper, “Dumping the Billable Hour: One Lawyer’s Experience.” He’s also written other recognized books.
Well, I finally got to meet Mark Chinn at the Atticus Value Pricing Workshop in Orlando, Florida. He told the entire group that he’s made over $500,000 more utilizing Value Pricing than he would have made billing by the hour, in the last couple of years. He knows this because he still maintains timesheets.
I said it was time to take the training wheels off, as Mark’s firm, Chinn and Associates, PLLC, has obviously made pricing a core competency, along with the practice of family law.
He said he was going to go back and trash timesheets.
Mark is an incredibly nice man, and I’m honored to have had the chance to meet him. Though I’m sure I’d never want him in the courtroom against me, he is a true gentleman. Poke around his Web site and you can see for yourself his accomplishments, philosophy and purpose. He even has a description of Value Pricing. All very impressive.
Family lawyers are litigators. And to all those attorneys out there who think litigators can’t offer fixed prices, Mark is empirical evidence they can. There are now other family law practices out there doing the same thing. So much for “it can’t be done.” Usually, people who say that are being bypassed by people who are doing it.
I’ve always had tremendous respect for attorneys. I do believe it’s a noble profession. The lawyers I’ve had the privilege of working with are smart, well-read, excellent debaters, have respect for abstract ideas, and cogent thinkers. I always learn much more from them than I impart to them.
Congratulations, Mark! Your Team’s progress has been amazing this past couple of years. I am honored and humbled to have played a role, no matter how small.
Who knows, after a while living without timesheets, we may see your picture on the Fellow page of this Web site.
I hope so.
One of our favorite Key Predictive Indicators at VeraSage is the HSD—High Satisfaction Day.
Nothing gives us more HSDs than receiving an email like the one I did yesterday. Even though my computer’s hard drive crashed in the morning, which is a lousy way to start the day, getting this email from Brett Kreykes makes it all worthwhile.
Ron,
Keep up the great work at VeraSage! You have been inspirational to me and my small I.T. Consulting company! Indulge me, if you will, in my “story.”
Five years ago I journeyed out on my own as an independent I.T. consultant. I was billing by the hour and things were going pretty well for me. After 2 years I was very busy with small to medium sized companies and residential work. I soon discovered that I was unable to grow my income due to the limited number of hours in a week. How terribly depressing! I wondered for days if I was going to be ‘stuck’ at a fixed income. I didn’t know how to address outside of raising my rates, but I didn’t think my customers would put up with that for long.
After seeking out advice from those wiser than myself, a friend of mine introduced me to VeraSage and I dove head first into the 3 ACCA Booklets available on your website. I immediately knew FPAs were the solution. I continually had situations in my work that bothered me. When one customer had a new problem, it might take me 3 hours to fix it. A second customer then had the exact same problem, which I could solve in 10 minutes. This was really unfair to the first customer and to me! Now, realizing that selling knowledge/skills (and not time) would remedy situations such as this!
I introduced my first FPA to one of my larger customers, which they warmly received. My fees increased 50% without having to do any more work! As my hourly based contracts expired, I introduced FPAs to my remaining customers. I occasionally received some resistance, but nothing unbearable. Once my customers understood how an FPA would benefit them, they soon saw the value of a FPA.
Now, the beautiful part of it. I’ve been firing customers, specifically all of my residential customers and business customers who were not good customers. I now have more free time, less stress, and I can better take care of my FPA customers and provide a higher level of customer service. Now, if any business wants to ‘hire’ me, I sit down with them and determine their needs. If the engagement is not worth at least $10,000 a year, I pass. This way I ensure of having customers who are as committed to me as I am to them.
I have never enjoyed work so much as I do now. I earn a fantastic wage and I don’t have to work myself silly. I even get paid sick days, holidays, and vacations now! (try that with hourly billing) My family life has even improved as I now have more time for my wife and children.
Ron, you and VeraSage have made a huge difference in my life, and I want to say “Thank you!” As comical as it is, my friend who first introduced me to VeraSage has yet to get his CPA firm utilizing FPAs. I brag about my success to him all the time and continually remind him of all the money he’s leaving on the table. It drives him nuts.
Best wishes for the future!
Brett Kreykes
Kreykes Consulting, Inc.
Thanks Brett. Nothing is more humbling, nor more inspiring than hearing stories such as yours.
Value Pricing works, and to all those cynics who say it can’t just read all of our Trailblazer stories. This is empirical evidence from the real world.
It also illustrates that Value Pricing is not just about pricing. It’s a business model. It changes everything about a firm, from shifting your thinking that you sell time to thinking you sell intellectual capital. It impacts how you treat customers, how you select them, communicate with them, and more.
When we say “all this we do only for the price of seeing you, our colleagues, succeed,” we truly mean it. This type of confirmation of our work is priceless because it furthers the posterity of the professions.
Congratulations Brett, and continued success in the future!
As a follow-up, I asked Brett if he trashed his timesheets. Here’s his response:
Ron,
I did in fact dump my “timesheets”...what a sheer joy that was in and of itself. I didn’t have sophisticated software, I tracked my time using Microsoft Outlook’s calendar. At the end of every month I would then manually transfer it into QuickBooks so I could do my billing. It was an awful process that was tedious and prone to human errors. I’m glad that ‘chapter’ is done!
Thanks again!
That’s worth another HSD!
Aries Technology Group sent in this case study on Pricing with Purpose. It is published for those of you who are always saying “Ok, I like the idea, but how do you do it in the real world.”
One of our long standing customers was leaving us. Purchased by a competitor, their ERP system we had supported for years was being retired and the current solution of the purchasing company was being implemented. We had a great relationship and told them, out of courtesy more than anything else, if we could be of any assistance to call us.
And in fact, they did, much to our surprise.
They wanted to convert current and historical data from the retiring solution to the new solution. They had struggled to find and extract the data in a format that could be imported into the current system. They asked to utilize our knowledge and expertise to create six files in a format that could be imported into their current system.
We had never had a customer ask us for help in this manner before. How to price this project: the creation of six reports out of the retiring ERP solution? Especially if the customer would cease to be a customer once the project is completed. Plus, we had other projects in the works with customers that we hoped to maintain building successful relationships.
We talked it over inside our office. We needed to make sure that if we took our attention away from on-going customers and focused it on a customer who was leaving that we were compensated properly. We offered the price of $32,000 to create the reports, to begin the project in 10 business days and to complete the project in less than one week. This value, we explained to our customer, reflected our understanding of not only their value but to ourselves as well. It had to be worth our while to put existing projects on hold to accomplish the project for an exiting customer.
Their response was very enlightening: “How much to schedule it sooner?”
Clearly the customer completely understood the value in the proposal. We offered a new price, $64,000, to begin the project in three business days and complete the project in less than one week. The customer now had three choices: no engagement, a middle price and longer start time or a higher price and shorter start time. They told us to expect a response the next day.
Their decision criteria were balancing the money with the scheduled completion time. They chose our first proposal (the middle option for those keeping score), and we completed the project to their complete satisfaction.
In May of 2006, I was privileged to conduct a Value Pricing Boot Camp with Ed Kless and Rob Johnson of Sage, at its annual Insights conference in Nashville, TN.
One never knows the impact you have on any participant, unless they go back to their firms and change their behavior. All we can do in a seminar is work on changing attitudes and theories, but the real test is will that lead to changing behavior.
This makes the following email Ed, Rob and I received from John Shaver today even more sweet. Another HSD—High Satisfaction Day—for VeraSage and Sage.
Ed,
I would say that you, Ron and Rob have made a definitive difference in our business. We reached the point in doing business by the traditional means (discounting, billing time, etc.) that we were really looking for a fresh and rewarding approach. The value pricing boot camp at the Nashville Insights was instrumental in opening our eyes to a very new way of doing business (I know Ron says these ideas are not new in reference to Peter Drucker but new to us!).
You guys provided us with the tools to inject new life into the business. Even a burned out old veteran like myself is now excited again about moving our business forward.
What’s most exciting to see is the way all of our team members have totally embraced the value pricing approach and how much they love not keeping up with timesheets. When we first brought them on board they told us we were crazy for not sticking with the traditional rules of consulting. Now they can’t imagine working any other way!
Thanks!
John F Shaver
Aries Technology Group LLC
phone: (865) 342-4300 x23 or (800) 990-6646
e-mail:
web: http://www.ariestech.com
Congratulations to John and the entire Team at Aries Technology Group for being one of the early adapters in their profession, inevitably blazing the trail for the rest to follow.
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.
Here is their story as told by Linda Kay, VP of Business Development for Koenig
Consulting Maintenance Agreements - The Beginning of the Got Your Back Program
It all started as an aside in a project management workshop. For a short 30 minutes of a three-day workshop, the idea of selling consulting maintenance agreements was discussed. Not just any consulting maintenance agreement but a value priced maintenance agreement. Since we were just dangling our toes into the value pricing pond, we listened closely and filed the idea in our “think about later” folder.
In a brilliant flash of insight one day, we realized that one of our current clients was an ideal prospect for an upper level maintenance program. (We were advised to create three levels in our initial offering.) We know that they like knowing the total price, in fact we did a fixed price deal with them for a huge software customization and installation. We also know that they are in a rural area without a large, sophisticated labor force to draw from. And we know that they were nervous when we turned over the “keys” to their system and clearly needed additional consulting time.
Combining our “knowns” with the consulting maintenance program idea, we created the Got Your Back Program. We included everything we thought our client would need and want in the program. Some of the items include unlimited technical support, advance training, new employee training, and creating email reminders for actions such as monthly closes, changing the tape back up, and periodic system maintenance.
Since we were reserving our capacity and knowledge for this specific client, we requested payment on the first day of the quarter for the following three months. The total price for the annual agreement exceeded $60,000 and made believers out of us.
We began our adventure in the GYB program about this time last year. This week our client has renewed the maintenance agreement and is considering going from the middle level to our highest level. We’ve now bundling the GYB Program in our engagement letters as a total package.
How We Finally Saw the Light of Value Billing and the Larger Light of Life Without Timesheets
Perhaps my conversion to value pricing and the trashing of timesheets was easier than most because I never had much of a love affair with the “billable” hour. I tried never to define myself by how many hours I put in at the office, and I always tried (usually with success) to have a family life even during busy season. I defined success more by the time spent with family rather than time spent at the office.
Don’t get me wrong; I did plenty of work, but I tried to do it more efficiently and in less time so I would have more family time. As many of you can imagine, this did not always go over well with employers who lived and died by the billable hour (I had one employer tell me that while they liked my work and while I was efficient I just did not produce enough billable hours for them to continue my employment).
Consequently with only four and one–half years of experience, I founded (along with another person) my first firm. At that time I sort of started practicing fixed pricing. Of course it was not formal and of course the clients had no idea what I was doing. I just knew that the price of a tax return never went down no matter how efficient I got at preparing it! Of course I still kept timesheets because—well because I was an accountant and you couldn’t be an accountant if you didn’t account for your time.
by Paul O’Byrne
We were frightened of trashing our timesheets. As a general practice working for owner-managed businesses, everyone in our practice of ten professionals had grown up with them; it was what people in practice did. Over the years we had developed very good patter explaining how time-cost billing worked, why it was best and—we were very good at this—why fixed prices were bad.
Paul O’Byrne, O’Byrne and Kennedy LLP
In 1998 we were much like any other small firm of accountants. A ten-person firm in Hertfordshire, eight accountants dealing with the usual mix of work. Accounts and audit of small owner-managed businesses with tax computations and returns and lots and lots of personal tax returns. We had nearly 500 clients with an average fee of about £1,000.
