Ed Kless - 11/25/2008
Yesterday, the United States government agreed in principle to provide almost $8 trillion on behalf of American taxpayers. The complete story is available on Bloomberg and various other sources. The amount is more than one-half of the value of everything produced in United States last year alone.
The question of who is going to pay is settled. The citizens of the US are. This agreement is tantamount to repealing the Thirteenth Amendment to the United States Constitution which reads in part, “Neither slavery, nor involuntary servitude, except as a punishment for a crime...shall exist within the United States.”
If you think this is extreme consider this question, can I opt out of contributing without being put in prison? The answer of course is, no!
As a reminder the $8 trillion mentioned above does not include the unfunded liability for Medicare, Medicaid and Social Security. Our lives and our fortunes have been pledged to the government. We, in the United States, are all slaves.
Michelle Golden - 11/16/2008
VeraSage Sr Fellow, Paul O’Byrne, of CA firm O’Byrne & Kennedy, passed away today, Nov 16, at his London home surrounded by family. His passing was not unexpected, but is no less saddening.
Paul was diagnosed with a rare form of cancer in mid-2007, which he fought admirably and gracefully. His last year was considered by him as “bonus” time and he spent it doing the things he loved. You can read Paul’s journey, here, and laugh and live with him as we have.
Many years ago, Paul and his business partner, Paul Kennedy, made the Firm of the Future a reality. Pricing in advance and focusing on creation of value for their clients, they also culled the client-base to make sure the could serve the remaining clients fully and well. Quality over quantity. Quite the opposite of most firms’ mantras.
Quality over quantity applies to Paul’s years living, too, he was merely 51. And the legacy he’s left us with is much greater than he ever could know.
After a visit with Paul (POB) and his family just 10 days ago, Ron Baker and I had the honor of dining with Paul Kennedy (PK). PK shared with us that early in their business venture, POB had told him that he wanted to personally change the world. Several years later, POB told PK that he realized he would never be able to accomplish that, and that he would be satisfied with changing things on a smaller scale (I am paraphrasing).
It may be ironic, then, but I see POB has having significantly changed the world. Not just our small group “Team VeraSage” but Paul did the amazing: he both practiced what he preached, very successfully and innovatively, but he literally traveled the globe, to the farthest reaches, helping professionals learn how to first improve what they do for clients, and then improve their own lots in doing it. To read the comments on his blog, from all over the world, one realizes he did, in fact, accomplish his goal.
If you have been touched by Paul and if he changed the world for you and/or your business, please consider sharing your story here. We’d like to hear about it and, together, we can celebrate the many ways in which Paul did, indeed, Change the World.
As Paul wrote in his last blog post: “Life IS beautiful, and life is for living, so never stop carpe-ing!”
Goodbye, friend.
Ed Kless - 11/10/2008
Mark Cuban, creator of broadcast.com and owner of the Dallas Mavericks, may be blocked from buying the Chicago Cubs, but certainly is still speaking his mind when it comes to the importance of entrepreneurism. In his recent post he writes about what he sees at President-elect Obama’s first mistake, i.e., not have an entrepreneur on his team of economic advisors.
Here is a sample:
If we are going to solve our current economic problems, our President needs to get first hand information on the impact his proposed policies will have on real Joe the Plumbers. People who are 1 person companies living job to job, hoping they get paid on time. We need to know what the impact of his policies will be on the individually owned Chrysler Dealership in Iowa. The bodego in Manhattan. The mobile phone software startup out of Carnegie Mellon. The event planner in Dallas. The barbershop in LA. The restaurant in Boston.
Entrepreneurs that start and run small businesses will be the propellant in this economy. PE Obama needs to have the counsel of those who will take the real risk inherent in creating companies and jobs. Those who put their money and lives on the line with their business
Emphasis his and Amen, Brother Mark!
Ron Baker - 11/01/2008
Matthew Tol, from the Trailblazer firm of Matthew Tol + Associates in Australia, recently sent us an update on his progress since dumping timesheet on July 1, 2007.
Sixteen months after what Matthew calls this “leap of faith,” the story of this firm corroborates all the others we have heard from who have taken the initiative to transform themselves into Firms of the Future.
As I read this, I was thinking of the many consultants from Down Under who still insist you must keep a timesheet to lead a successful accounting practice—Rob Nixon, David Connell, Andrew Ged, David Smith, among others. They don’t seem to understand that not all swans are white. Some are indeed black, including ones in their own backyards.
How these so-called experts can continue to deny the existence of these Black Swans is a topic that fascinates us to no end. It is very similar to the medical profession not giving up on bloodletting even though antiseptic surgery, along with germ theory and penicilin provided more effective ways to heal patients.
It reminded me of what G.K. Chesterton wrote (paraphrased):
If it were true that the man who is trained is the man to be trusted—if the man who saw something every day saw more and more of its significance—the argument for expertise would be unanswerable. But the man who sees and studies and practices something every day does not understand more and more of its significance, but less and less.
In any event, here is Matthew’s inspiring journey to emerging, like a chrysalis, into a Firm of the Future.
I must admit, it was a leap of faith to dump timesheet from the 1st of July 2007. My staff were against it (whilst understanding the reasons for it), my clients (in the main) were a little bit sceptical and, to be honest, whilst I was confident it would all work out in the end, I wasn’t exactly sure how long that would take.
I’m now 16 months down the track and I’m pretty sure the time is up!
Taking the step from timesheet which I’d been bought up to believe were the whole raison d’être of our lives as professionals was somewhat daunting. I’d read the books, trawled the internet and spent many hours speaking with colleagues about the whole process. It was still relatively new in the accounting profession in Australia and most of the people I spoke to expounded at length on a whole heap of reasons why it would never work. All of them quantitative.
One of the first steps was to get the team’s head around it. They too had been inculcated with the belief that everything they did had to have time attached to it. They’d been trained that way, they’d been reviewed that way and they had also trained others in this system. It was, to a large extent, ingrained.
Many hours of discussion, mo of new processes by which we could run the business and the methodologies we would adopt with clients ensued. It was actually quite illuminating as it caused us to look, dispassionately, at what and why we were doing things for the people we were doing them for.
In many ways, it helped to clarify our culture and business mantra—we like dealing with people we like.
We then had to sort out our client engagement process and go through the exercise of discussing this with the clients. This served to help us to uncover and get more confident in the value we provided to them by the processes and procedures we used (our Intellectual Capital if you will). Prior to this, we had not really thought about this as it all revolved around the hour and applicable rate.
As part of the engagement process, we moved the clients on to monthly billing which was, again, a difficult process in some ways as they were used to “you work now, bill then and we pay later.” Speaking to our customers now, they are very happy with the process—they have certainty, clarity and comfort that they’re not going to get “a blister” of an account from us—everything is priced and signed off up front.
We then proceeded to get on with doing the work. If I may hark back to the timesheet model—assuming we have 10 staff and they all spend 15 minutes per day in doing timesheet—by dumping them, I freed up and additional 150 minutes per day (12.5 hours per week) which could then be spent servicing customers, training or on business development. All of this came at no additional cost. The month end process of reconciling timesheet, doing bills, reviewing write-offs and sending out the bills was all stopped. This would free up a minimum of an additional 25 hours per month. So, I’m already about 75 hours ahead per month.
Couple this with the fact that we don’t then have any debtors (all invoices are raised on the day the direct debit comes in) the additional time taken to collect the outstanding accounts has been removed. This would have totaled about 20 hours per month plus the costs of mail, phone calls, faxes etc. I’m now about 95 hours per month ahead with reduced costs.
Now, with the extra 95 hours per month I have, we are able to work more on the client and “follow the rabbit down the hole” on issues where we can add value to the customer. The admin team are working on further development of our internal systems and processes which then improves our efficiencies and traps our IC. My team are and have been encouraged to think about what they do rather than just get it out the door so we can bill it. They’re coming along really well and developing at a far more rapid pace than that which they were able to before.
One other thing we’ve done is signed up with Principa. We’ve found their products to be extremely useful in providing high value, challenging proposals to our customers which help them in attending to the raft of issues they need to grapple with as they move their businesses forward.
All sounds terrific doesn’t it?
There have been a couple of pitfalls. We didn’t get our pricing right the first time around. This is what I refer to as the “learning premium.” We have developed our skills in identifying value AS IT RELATES TO THE CUSTOMER rather than as we perceive it. This is a big issue because, as accountants, we’re trained to focus on the quantitative issues of the customer—profit, balance sheet, cash flow and tax. They’re all definable, measurable, provable and totally meaningless (in a value way) to the customer. The customer wants your help in understanding their business, working with them to build and drive their business, to think for and with them and to help them develop their own set of skills. You can’t really do that by looking at historical figures—you don’t drive your car spending all your time looking in the rear-vision mirror!
There have been a couple of customers who just “don’t get it.” Or, should I say, ex-customers. If you’re going to do this, be prepared to lose a few on the way. If I can be so blunt, they will more than likely be the customers who you didn’t really enjoy/want anyway.
There was also a bit of a short term “blip” in the cash flow. Instead of having a succession of big payments coming in, there were very regular smaller amounts coming through. Sure the debtors as at 30 June paid up (eventually—one of them just last week!) but it took quite a while. And I put up with this payment crap for years!
As part of our ongoing development of our business, we also spend a fair bit of time on the following:
- Team “love-ins” twice a year where it’s a full de-brief of what we’re doing well and not
- Up-skilling our team and up-scaling our IT hardware and software to enable us to be more efficient
- Workflow management processes (all our compliance work will be done within five months of year-end) and
- More “down time” in the office where people are encouraged to just talk
So then, how are we positioned now? Well, life has become a whole lot more enjoyable. I have employed a General Manager who now negotiates all our terms and pricing with existing and new customers. He is from a banking background and has terrific training for this type of role. The rest of the team (technical and admin) have been freed up to do what they do best—work, think and engage with each other, the customers and the rest of the people we deal with in this business (banks, lawyers, financiers etc). They don’t need to be concerned about how much time it takes—it’s all about the results. Results are what counts to our customers and that is a large part of how they assess the value of what we do.
The team is also more focused on thinking for the customer rather than worrying about the time it takes to do things. Again, a far better result is created.
In a discussion with my GM and one of my senior guys this morning we crystallized what it was all about. It’s all about qualitative assessment of what we do rather than quantitative measurement. If we concentrate on the qualitative things:
- Our internal relationships
- Our customer relationships
- Creation of value for the customers we are working with
- Open, honest and considered responses to customer queries
- Proactive, challenging proposals for the customers (as a result of our earlier thinking)
- Our relationships with other people who touch our business, and
- Fostering and refining a great environment for everyone to flourish in
then the results will look after themselves.
All sounds very “new age” doesn’t it? Maybe it is. But it works. Very well.
Now, for the quantitative types out there, here are the results:
- Growth of >30% (increasing)
- Profits up a little bit (but a lot more this year)
- Staff turnover of zero (actually negative as we’ve put more on)
- Cashflow improved out of sight
- Me working about 3.5 days per week (could do less, but I enjoy it)
- Average client fee has increased to about $18,300
- Debtors of zero
- No write-offs
- Very collegiate and supportive culture in the place, and
- Lots of customer referrals (hence the growth)
So, from a quantitative point of view, I cannot tell you what my profit on any one customer is. I don’t care. If we like dealing with them and we believe we are being fairly remunerated for the work we do, that’s fine. I’ll bet most accounting businesses out there would be able to tell me who their non-profitable customers are without looking at a time costing model—they’d just know.
From a qualitative point of view, I’m pretty sure we’ve got a fair way down the road. We’ll never reach the end of it—I don’t suffer that delusion—but the whole place is a far better place to be now than when I was keeping track of my life in six minute increments. I recommend it.
It’s worth pointing out that this isn’t merely a “pricing strategy change.” This is a business model change.
A business model is the way in which a firm monetizes the value it creates for its customers. What makes the Firm of the Future just such a change is that it is no longer selling time, but rather Intellectual Capital.
In a service industry, like an airline, if a seat goes unsold, that revenue is gone forever—it’s what economist’s call a “rival asset,” since it can be used by only one person at a time.
But a PKF that knows it sells Intellectual Capital also knows that IC is a “non-rival asset—meaning it doesn’t disappear just because it’s not being utilized. Therefore, the service analogy of “unsold seats” = “unsold time” doesn’t make sense in an IC framework. Just because my book sits unread on your shelf does not mean that someone can’t benefit from it during that time.
This is an enormous difference in how to think about what you really sell, much more liberating than thinking about the confines of time.
Matthew brings up another excellent point—his concept of a “learning premium.” We are often asked what are the risks of adopting this model, and there are no doubt some short-term costs.
But those must be compared to the mistakes you are making now, not some utopian idea where everything is 100%. You have to consider that learning premium as an investment in a better future. It is, after all, a short-term cost, not perpetual.
There are many other lessons I hope you take away from Matthew’s experience. Reading our Trailblazers is always exciting, since no two firms take the same path to becoming a Firm of the Future. They are as unique as each butterfly. Or each Black Swan.
If I could Matthew, I would hoist a glass of Black Swan wine with you, to congratulate you and your team on your tremendous progress.
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