VeraSage

Reed Holden Begins a Podcast Series on Pricing with Confidence

Ed Kless - 08/14/2008

Frequent readers of this blog will know that Reed Holden is one of Ron’s mentors in the area of pricing. Recently he released the first in a series of podcasts in support of his new book Pricing with Confidence. While it is not yet available on iTunes, I have been told that this is planned for next week.

The first installment is excellent! It should be required listing for all leaders of PKFs. I personally was thrilled because Dr. Holden did not once mention his poker player analogy, of which I have been critical in the past.

Here is more from the announcement:

In his first podcast, you’ll hear pricing guru Dr. Reed Holden discuss how companies that price with confidence have the power to improve profits and revenues, especially during these tough times. Through real-life current business stories, Dr. Holden explains why pricing is the key to meeting business objectives and what executives and managers need to think about to gain more pricing confidence.

This podcast is the first in a series of pricing podcasts based on the hot new pricing book Pricing with Confidence: 10 Way to Stop Leaving Money on the Table. Over the next several weeks, Holden Advisors will be releasing 1-2 short podcasts a week in which Reed Holden discusses ideas that will help you increase your revenues and profits.

Happy listening! Please post your thoughts as comments.

Hate your job? Try Grindhopping

Ron Baker - 08/06/2008

You have to love a book with the subtitle: “build a rewarding career without paying your dues.”

Sound impossible? It’s not. In fact, it’s done all the time, increasingly by those in their 20s and mid-30s, as Laura Vanderkam explains in her book, Grindhopping.

This book (and this review) is written for young people, but after reading the book I’m convinced many middle-age folks could benefit from its inspiration.

I ran across Laura Vanderkam from an article she wrote in Reason magazine, so I knew she was a competent writer with a libertarian edge. Her book is subversive, bold, entrepreneurial, cocky; traits sure to annoy some.

Here’s how she defines Grindhopping:  1. Hopping out of the corporate grind and into the work you want. 2. Building a rewarding career without paying your dues.

She—and the young people she profiles throughout the book—loathe what she calls the face-time culture. She mentions Best Buy’s Results-Only Work Environment (ROWE), reviewed herein, which labels the phenomena “presenteeism.”

Whatever you label it, the problem is it has nothing to do with results or value generated by today’s knowledge workers. The metrics used to evaluate, promote and pay people just don’t matter (billable hours anyone?). As Laura explains in her first chapter:

When the boss says you have to come to work so he can “manage” you, you show up—even if all that commuting just guarantees that you’ll be in one place where you can e-mail and call people in other places.

Laura calls the new economy the Craig’s List Economy, describing how you can do projects listed on Craig’s List for a given amount of money. I prefer Peter Drucker’s term, knowledge economy. The name doesn’t matter as much the fact that the digital revolution has leveled the playing field for knowledge workers, and I would add women interested in having a business and a family—Laura calls them mompreneurs.

Grindhoppers live by a different set of career rules, according to Laura:

1. Always be your own boss.
2. Know where you’re going.
3. Recalculate risk.
4. Think projects, not jobs.
5. Seek to be judged on results (and deliver them).
6. Everything is negotiable.
7. Cultivate a network and a nimble mind.
   

Grindhoppers invert Maslow’s hierarchy of needs, putting self-actualization first—before certainty and security. How do you discover what you want really want to do? Here are three questions the book suggests you need to ask yourself:

1. Who needs or wants what I love to do and do well?
2. Why do they need it?
3. What’s a low-cost way I could start offering it to them and get paid quickly?
   

The book profiles many interesting Grindhoppers who have launched very innovative businesses based on doing things people have a real passion for.

I know it’s cliche to say do what you love and the money will follow. In fact, I’m not sure it’s true. It could be just as true to say do what makes money and the love will follow.

But there is no doubt that if you have a deep abiding passion for something, you will throw yourself into it, constantly strive to learn everything about it, how to improve it, become better at it, all the while it won’t feel like your working.

But what about the risk? You have student, car, home loans, credit card debt, new living expenses. And what about health insurance? This latter question is certainly overblown (see ehealthinsurance.com). Do you really want to stay in a job you hate because they pay $3432 for your health insurance?

Here’s how Laura suggests you put risk in context. Ask yourself these questions:

• What is the worst that can happen if I don’t take the hard way?
• What is the worst that can happen if I do?
• Is the worst that can happen if I stretch myself really all that bad?
• What is the upside of taking this risk?
• What can I do to hedge against the downside?
  

One of the answers to the last question is to have six months of living expenses in the bank. That should be plenty of time to see if you can make a go of it on your own.

Laura’s advice is very realistic on what it takes to be your own boss. The fact is, you are your boss, meaning that it takes enormous self-discipline, more akin to scaling a cliff rather than climbing a sturdy ladder.

I particularly liked her rule #5, Seek to be judged on results. Many people don’t want to be judged on results, which is why they thrive in an environment where politics and presenteeism account for more than results and value created.

But results is an excellent leveler for an up-start, since you’re not going to be able to compete based on years of experience, size, global reach, or fancy headquarters.

None of that matters if you can blow people away with excellent results that offer a great value.

It’s obvious this lifestyle is not for everyone, perhaps only 1 in 100. But if you are, or have, been thinking about leaving your grind and getting into something you love doing, this book is an excellent primer.

If you are middle-aged and thinking of a change, I think you’d also find the book inspiring.

For instance, it tells of Brian Kurth, who launched an Oregon-based company in 2004 called Vocation Vacations, which enables you (for a price) to spend a few days test-driving your dream job, from actor to winemaker. Most of Kurth’s customers are baby boomers.

When do you know it’s ok to quit your job and pursue your passion? Laura thinks this is the wrong question, since you will never be secure enough, sort of like having children.

If you’ve been paralyzed by that question, there’s probably more inspiration in a pink slip than a promotion, but two better questions might be:

• What type of life do you want?
• What price are you willing to pay to achieve it?
  

I’ll admit that Laura’s advice is risky. But profit comes from risk. If you hate your job, you’re going to have to take a risk to change your life. The world doesn’t owe you a living.

And what’s the worst that could happen? You fail and have to go back to the grind.

But if you follow Laura’s advice and emulate the traits of the people she profiles, you’ll increase your chances of success dramatically.

Then you’ll move from Grasshopper to Grindhopper.

For more information visit Laura Vanderkam’s Web site.

The One Piece of Advice You Need to Get the Price You Deserve

Ron Baker - 08/04/2008

RainToday has published the report, The One Piece of Advice You Need to Get the Fees You Deserve.

You will have to provide your email address to download the free copy.

I was happy to contribute to this report, even though I wish they’d use the words:  price, not fees; professional knowledge firms, not professional service firms; intellectual capital not services. I was also discouraged to see hourly rates given such prominence, but I know the defense is “that’s the benchmark everyone uses.”

Well, that’s why VeraSage exists.

All that said, there’s some excellent advice within the report. I especially liked the articles by Alan Weiss, John Doehring, Tom Snyder, Gerry Riskin, and Andrew Sobel.

This special, 39-page report includes 12 new articles written by professional services pricing experts who answered the question:  What’s the one piece of advice you need to get the price you deserve? None of the authors saw the other’s articles.

The expert authors and advice includes:

1. Convince the Buyer that Value-Based Fees are Best, Alan Weiss, Author, Million Dollar Consulting

2. Price with Confidence! Follow These 10 Steps to Stop Leaving Money on the Table, by Mark Burton, Co-Founder and Vice President of Holden Advisors and Co-Author, Pricing With Confidence: 10 Ways to Stop Leaving Money on the Table

3. A Magic Bullet? No, a Process, by Bruce W. Marcus, Marketing and Strategic Planning Consultant and Editor, The Marcus Letter on Professional Services Marketing

4. The Best Kept Secret of the Selling World, by Jeff Thull, President and CEO, Prime Resource Group and Author, Mastering the Complex Sale, The Prime Solution

5. If You Don’t Discuss Value, Expect to Discuss Hours, by Ronald J. Baker, Founder, VeraSage Institute and Author, The Firm of the Future: A Guide for Accountants, Lawyers, and Other Professional Services

6. Take Courage: Demand Full Price (And seven steps to get you there), by John Doehring, Senior Vice President, ZweigWhite

7. Creating Value During the Sales Process, by Tom Snyder, Former CEO, Huthwaite

8. Build the Relationship One Day at a Time, by Ron Worth, CEO, Society for Marketing Professional Services and Author, “A/E/C Marketing Fundamentals”

9. Think of Services in Terms of Value—Not Rates, by Gerry Riskin, Co-Founder, Edge International

10. Discounting Doesn’t Work, by Jeanne Urich, Managing Director, Service Performance Insight

11. Over-Serve Your Best Clients, by Neil Fauerbach, Partner and Director of Business Development and Marketing, Smith & Gesteland, LLP and President, Association for Accounting Marketing

12. Maximize the Value of Work to Your Clients and Your Firm, by Andrew Sobel, Founder, Andrew Sobel Advisors and Author, Making it Rain
    

Ask VerasSage: All About T & A

Ron Baker - 07/29/2008

Excuse the salacious title, it’s not what you think. This past week I received two more emails with questions about timesheets, so All About T[imesheets] & A[nswers] seemed like a catchy title we could remember and refer back to often.

We have a lot of excellent resources on this issue throughout this Web site, so I thought it might be helpful to summarize our best ones in a single post, as well as answering the two emails.

There’s no shortcut through this topic, which is precisely why most firms haven’t ditched their timesheets yet. It requires that you take the time to read, think, innovate, and creatively apply the replacements for timesheets.

There’s nothing easy about any of this folks. We are very up-front about the commitment and courage it takes to make this change. If it were easy, more firms would have done it by now. But can you name anything worthwhile that is easy?

Let’s start with the two emails I received, because the first one asks a question that we have not dealt with as of yet. It comes from Carol, a CFO in an advertising agency:

Hello Ron,

You and I have met a couple different times over the last few years at 4A’s seminars. I’ve always been intrigued and inspired by what you have to say and try to implement a value mindset in our estimating and billing practices.

The one area that has always been a hard pill to swallow has been the ‘no timesheet’ issue. Not only does this practice allow for us to gage how long it takes to get something done, it allows us to predict staffing needs, inefficiencies, and most important for the purpose of my reaching out to you now, it allows us to record a WIP accrual every month of time incurred, not yet billed = revenue earned. The majority of our projects are just that, projects, rather than monthly ‘retainers’ with a fixed fee.

This may be a very naïve question, but if you could shed some light on it, it may be a life-changing event at this agency. The question is: If we don’t have reports that tell us how many hours have been worked on any given job so we know what to accrue for, (because we’ve abandoned timesheet entry) how would we determine the revenue accrual each month? Any alternative we seem to come up with only creates much more work for the finance team and seems to produce very guesstimated numbers at best.

So there is my quandary. Or at least one of them, I should say. Is there any knowledge you could share with me that might point me in the right direction and further my cause down the road to total Value compensation?

I so look forward to hearing from you and thank you for your time.

All the best,
Carol

Most of these questions, especially regarding forecasting “staffing” needs and “inefficiencies” are answered in the resources below.

The question we haven’t dealt with is how to book revenue without timesheets. As you know, timesheets are used for WIP [Work In Progress] reports, which is how most firms accrue their revenue.

Of course, do we really think that just because a firm “spends time” working on a project that it has earned revenue? Is the timesheet really the best measure of that process?

A better method is the percentage of completion accounting method. If a project can be broken down into milestones, you can then estimate what percentage of the job is completed at the end of any one accounting period. Rather than being based on time, you are basing it on the actual work that needs to be performed.

I’d love to hear how some of our Trailblazers are handling this, especially firms like Mark Bailey’s that do audits that may overlap between two years.

In any event, we at VeraSage are far more concerned with establishing an external price—commensurate with value. How you account for that internally, I believe, can be established utilizing good accounting principles on a consistent basis.

The second email is from Toby, a CFO for an engineering firm:

Ron,

I have been reading your pamphlets and find them to provide an excellent solution for changing the way Professional Service firms operate.

I have some questions:

I am the CFO at an Engineering Service firm. In our case many of the “jobs” are unique to each client. Do you have any examples of how this type of firm can apply the value pricing concept? Would we still use Fixed Price Agreements?

Also, I noticed that a “calculated price” based on “billable” rate assumptions was used by several of the examples you cite. It seems there can still be a value in keeping a billable rate handy. Am I missing something? Would it be reasonable to use the “billable” rate per person in arriving at the FPA amount?

Finally, wouldn’t we still need to report time (at actual paid rates) in order to measure the profitability of each client? (We would not be using a billable rate.) This would allow us to have information for use in renewal of the FPA, or give information as we price FPAs for new clients.

Any guidance would be helpful.

Thanks in advance.

Toby

Here’s my reply, which has been expanded upon for purposes of this post:

Dear Toby,

Value Pricing is ideal for unique jobs, since value is subjective. A pricer’s dream is to charge a price commensurate with each customer’s perception and actual value received—like at an auction.

It’s known as first-degree price discrimination, which is very difficult for most businesses to implement, but Professional Knowledge Firms can get closer to it since they meet with customer individually, especially since so many projects are customized and unique for each customer.

Advertising agencies are very similar to engineering firms, since their jobs are also very unique to each customer, and we have had ad agencies that have adopted Value Pricing (VP) and ditched timesheets. Our recent Trailblazer ad agency Fletcher Martin is one example.

See our Trailblazers section of the Web site for case studies from firms across the Professional Knowledge Firm (PKF) sector who have made the transition.

We don’t advocate a “calculated price” based on a billable rate, since that is cost-plus pricing. Of course, many people will compare a value price to a “billable” rate, just to prove that VP is higher. Once you do this a few times, you realize time tracking is superfluous.

There is no value in keeping a billable rate handy, since it’s an arbitrary rate. This is not to say you don’t do cost accounting. But the important point is to do the cost accounting BEFORE you do the project, not during or after. Toyota does this quite successfully, it’s know price-led costing.

It’s also important to remember that a “billable rate” is not cost accounting, since it includes a profit margin. No cost accounting theory that I know of allocates desired profit, just costs. To be true cost accounting, you must remove the built-in profit from the hourly rate.

As to measuring profitability of each client, there are other ways to do this without timesheets. After Action Reviews, and project management (which you engineers are excellent at, far better than the average CPA or attorney), are two such methods.

What Replaces Timesheets?

Here is a list of what replaces timesheets, based upon the empirical evidence from firms that have made the transition:

• Price-led costing
• Project management
• Key Predictive (not performance) Indicators
• After Action Reviews
• Before Action Reviews
• Fixed Price Agreements, Change Orders
• Chief Value Officer and/or a Pricing Cartel
  

The following is a partial list of resources dealing with each of the above.

Price-Led Costing

Cost-plus Pricing: The Democracy of the Dead.

How Much Are You Leaving on the Table Because of Mediocre Pricing?

Sellers Change Pricing Strategies, Not Buyers.

Hourly Billing is the Opium of the Profession.

My ACCA book, Burying the Billable Hour, in pdf.

My The Firm of the Future and Pricing on Purpose books.

Project Management

Our resident expert on Project Management is Ed Kless, who has written, and inspired, many brilliant posts on this topic. My favorites are:

The Triangle of Truth.

Elements of a Scope Document.

Elements of a Change Request.

A Critique of Project Management: A Means to Efficiency.

The difference between goals and objectives.

Defining the Word “Project.”

Ask VeraSage: Timesheets and resource planning.

How should professionals scope complex jobs, inspired by Ed and Chris Marston of Exemplar Law Partners. 

Key Predictive (not performance) Indicators

No Timesheets vs. Utopia.

He Who Says “A” Must Say “B.”

No Timesheets?  Is it Possible?

Ask VeraSage: How do you measure client profitability and employee productivity?

Ask VeraSage: Why get rid of timesheets?

Why we don’t need consultants.

Timesheets are Training Wheels.

A Firm with No Timesheet: O’Byrne and Kennedy LLP. A case study by VeraSage Senior Fellow Paul O’Byrne (one of the few things from him on this blog, be sure to read it!).

An Essay on Timesheets, by Paul Kennedy. This is one of the best explorations of this topic ever written. A must read.

The Yank Strikes Back.

My ACCA book, Trashing the Timesheet, in pdf.

My The Firm of the Future and Measure What Matters to Customers: Using Key Predictive Indicators, books.

After Action Reviews and Before Action Reviews

After Action Review—The Army Way. This post includes an excerpt from a US Army manual on how they conduct AARs. Highly recommended.

My books, The Firm of the Future; Pricing on Purpose; Measure What Matters to Customers; and Mind Over Matter all deal with After Action Reviews and Before Action Reviews are dealt with in Mind Over Matter.

Fixed Price Agreements and Change Orders

Why Your Firm Needs to Offer Fixed Prices.

Sample FPA and Change Order documents and other resources here.

Ask VeraSage: Fixed Price Agreements and Engagement Letters.

A Blinding Flash of the Obvious, which contains an example of a price menu from an Australian Trailblazer accounting firm.

If You Don’t Discuss Value, Expect to Discuss Hours.

Utilizing Change Orders in Your Firm.

My books cited above, including Burying the Billable Hour contain sample Fixed Price Agreements and Change Orders.

Also, my Professional’s Guide to Value Pricing, Sixth Edition (out of print), can be partially accessed from Google Books.

Chief Value Officer/Pricing Cartel

Your Firm Should Establish a Pricing Cartel.

Who’s in Charge of Value in Your Firm?

Ask VeraSage: Creating a Pricing Cartel.

Ask VeraSage: How does a firm implement Value Pricing?

Ed Kless’ Cosmo Quiz to determine if your firm is truly Value Pricing.

My book, Pricing on Purpose, also explores pricing cartels and the successful characteristics of a CVO.

If this is so rational, why haven’t more firms done it?

This is a great question, one which we at VeraSage have spent a lot of time trying to answer and understand. Here are some thoughts on why more firms haven’t trashed timesheets.

The Diffusion of a New Idea.

Old Dogs Don’t Create New Tricks.

The Answer to How Is Yes

We believe if you understand “why” to do something, the “how” becomes much easier—merely the plumbing. Since there’s no way to implement a bad idea, the “why” is critical.

Read Peter Block’s The Answer to How Is Yes for why this is so.

I know, this is overwhelming. But think of it this way: All you have to do is read it and implement it. We’ve done most of the hard thinking for you.

I will leave you with this analogy. Trashing the timesheet is a true revolution, perhaps not as dramatic as the signing of the Declaration of Independence, but a difficult objective to achieve across all PKF sectors nonetheless.

In his book, Peter Block describes the six questions that are always asked when people are confronted with significant change:

1. How do you do it?
2. How long will it take?
3. How much does it cost?
4. How do you get those [other] people to change? [we get this all the time: I’m all for this, but my partner(s) won’t go for it].
5. How do we measure it?
6. How have other people done it successfully?
   

How would Thomas Jefferson have answered these six questions?

1. I don’t know.
2. I don’t know.
3. Possibly your life.
4. I don’t know.
5. I don’t think you can measure Life, Liberty, and the Pursuit of Happiness.
6. No country has ever done it successfully the way we are proposing. Sign here.
   

Block suggests two better starting questions:

1. What [type of future] do we want to create together?
2. What is the price [we are] willing to pay to achieve it?
   

It is simply impossible to know how to do something until you attempt it. It is the leap, not the look, that generates the indispensable understanding and the necessary knowledge to generate wealth.

I hope you find this list useful, refer to it often, share it with others and most importantly, implement the ideas as hundreds of other firms are doing.

Along the way, keep us posted on your progress.

I hope to see you in our Trailblazer section.

After Action Review - The Army Way

Ed Kless - 07/28/2008

One of the great things about facilitating learning sessions is that often times the teacher gets to become the student.

Such was the case a month ago when while talking about After Action Reviews, I had the pleasure of having a former officer of the US Army school me and the rest of the class on the way it is done. He made a few important points:

• There are two type of AARs, formal and informal. The latter are conducted on just about everything including the changing of the toilet paper in the latrine. The former are reserved for the conclusion of a longer engagement or training session.
• At AARs all personnel remove their hats. This signifies that in the AAR there is no rank. Insubordination is not possible.
• While there is no rank, junior ranks are encouraged to speak first. Often times they are the ones who see the problems and therefore possible solutions more clearly.
• Two types of tasks can result from an AAR. The first type is an immediate fix to a current problem; the second is a possible fix to insure the problem does not reoccur.

Finally, as a treat to all you hard core VeraSagers out there, he provided me with TC25-20, the US Army’s field manual for conducting AARs.

TC25-20AARs.pdf

Enjoy!