VeraSage

Sunday Funny

Ed Kless - 01/31/2010

To create your own visit AddLetters.com.

Ga-doing! Ga-doing! Ga-doing!

Ed Kless - 01/28/2010

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!

Pricing question number 9

Ed Kless - 01/20/2010

or Why my lovely wife does not want me to go shopping with her.

At a recent trip to the mall, the whole family wondered into an Ann Taylor Loft. Actually, Christine wandered in, I just obediently followed. While she was looking around, I noticed three signs above adjacent racks.

The first offered two tee-shirts for $30 or $19.50 each.

The second, right next to it offered two tee-shirts for $30, but no mention of individual price and the third rack had individual tee-shirts for $15 each.

Any thoughts as to why? I have an idea, but will hold off posting it for a few days.

You should have seen her face when I was taking these pictures. The salespeople at the store were a little perplexed as well.

Instead, I’ll let you be the judge

Ed Kless - 01/19/2010

Yesterday, I was forwarded a post from Dwayne Wright who could not be more wrong about project management and value pricing. Please read his post before continuing.

I posted wrote a comment, he rejected it saying, “Well, just rejected the first comment for a blog that wasn’t clearly SPAM. It came from a value billing advocate and was equally harsh, combative and lacking of substance.”

“Harsh, combative," HELL yes. “Lacking in substance,” I’ll let you be the judge.

My comment:

I am probably the original source of the comment about billing by the hour as being unethical. (It is clearly suboptimal and I believe immoral as well, but that is a whole other story.)

First, let me be clear, I do not accuse anyone personally of being unethical; it is the practice that is unethical because it promotes some very bad habits.

1. It puts the consultant and the customer is an adversarial role. It is in the consultant’s financial interest to maximize hours; in the customer’ interest to minimize hours.
2. You state, "It also says this (hourly billing) is often used when a precise statement of work cannot be quickly prescribed. Does that sound familiar to you and your consulting business?" Yes, it sure does and that is just plain wrong. Prescription before diagnosis is malpractice in any profession.
3. While the PMBOK (and PMI, in general) have some good things to say about project management, they are overly obsessed with costs. After all most of this stuff comes from government (think defense contractors and NASA). In business, customers do not care about your costs, nor should they. They care about the results. They pay for results not efforts. This again is a misalignment.
4. You are arguing that the risks should be borne by both the customer and the consultant. That is just wrong. You are the one with the knowledge not the customer. It is your job to spread diversify your risks across all your customers not put it back on each of them. Your customers hire you because of risk. If what you did was easy, you would not be hired in the first place. To put it back on them is ludicrous.

Lastly, it is not "vale billing" is it "value pricing" or better yet "pricing on purpose." A price is set ahead of time a bill comes after the fact. You bill now, we at the VeraSage Institute, encourage you to set a price beforehand.

Ed Kless

Senior Fellow, VeraSage Institute

www.verasage.com

By the way, Dwayne Wright, you are free to post any comments here they will not be rejected. You can thank me later for giving you are larger audience then you ever thought possible.

Trailblazer: Kim Foard, CPA & Company

Ron Baker - 01/18/2010

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!

New Pet Idea

Ed Kless - 01/05/2010

While listening to a recent podcast from the Cato institute on the value of globalization, I was introduced to something called the Stan Shih Smile Curve of Value.

The idea is that the lowest value item in the production chain is the manufacturing of the product. This is why, for example, that the while every iPod and iPhone are considered to be manufacturing imports we should not care. The real value of the product is in the development and end-use. It is estimated that of the $400 price of an iPhone a mere $5 goes to manufacturing in China, about $45 goes to Japan for parts, the other $350 to the US or, in this case, Apple. This is why every iPod and iPhone say, “Designed by Apple in California. Assembled in China.”

Anyway, this got me to thinking about what this curve would look like for software implementation firms. Here is what I came up with:

What this shows is that the value to the customer is actually delivered at the extremes of the relationship.

What are your thoughts? I am just beginning to play with this model, so it is very open to criticism. I am especially interested in hope accountants, lawyers, advertising agencies, et al would view this model.

For the 107th time – Price is NOT based on cost!

Ed Kless - 01/03/2010

Hat tip to my buddy Jason for sending this along to me.

This graph originally posted on ReflectionOf.me blog and reposted on The Consumerist and others, once again demonstrates that price is not based on cost. Interestingly enough, most of the comments are railing against Hewlett Packard. Give me a break! You basically get the printer for free and HP recovers the money by charging I higher price for the ink.

One a side note, this graph also shows why it will so hard to get the developing world to shift away from fossil fuels with crude oil being less expensive than bottled water.