An Emerging Canadian Trailblazer
Ron Baker - 08/26/2010
Last Saturday evening I received this email from Ken Morrison of Provision Accounting Group in Richmond, British Columbia.
This is definitely an HSD.
Ron,
I am an “older” chartered accountant in Richmond British Columbia (forty years in the business). I have two younger associates (29 and 34) who are preparing to take over. A staff of six for a total of nine. We have been very successful over the last four years marketing (the old guy young guy combo is deadly).
But Nathan (29) found your site and challenged us on the value pricing concept, scrap timesheets etc., we have now instituted the fixed price agreement for all new clients and are going to transit existing clients over the next months. Much of what you advocate we were doing, culling poor clients etc but the fixed price agreement and value pricing is revolutionizing our business.
I personally am for the first time in forty plus years am free from needing to rationalize my pricing to an hourly rate and can price value. It is changing my life.
The one other change I have made is that since we are giving the client a fixed price and a cash back guarantee we are asking for quarterly payments on all accounts. For example, if the fixed price is $5,000 and the year end is December 31, we ask for $1,250 on June 30, $1,250 on September 30, $1,250 on December 31, and the final payment on March 31, which is our latest deadline for completion of the work.
You can imagine how this is reducing our work in progress and account receivable balances.
The old guy is ready to scrap timesheets now, the young guys are holding back.
Thanks for your leading the change.
Ken Morrison
Thanks Ken.
Congratulations and keep us posted on your progress. I can’t wait to publish your Trailblazer case study after you’ve eliminated timesheets.
Jay Shepherd’s Epiphany
Ron Baker - 08/21/2010
Regular readers of VeraSage know that we are all enormous fans of Jay Shepherd, founder of Shepherd Law Group, blogger at The Client Revolution and Gruntled Employees, VeraSage Trailblazer, and (I’m honored to say) author of the Foreword to my forthcoming book, Implementing Value Pricing: A Radical Business Model for Professional Firms.
At the beginning of the month, Jay sent me a thought-provoking email that he has graciously given me permission to share.
Needless to say, when the subject line reads “a mental breakthrough” from a thinker such as Jay, you have my undivided attention.
Hey, Ron,
I was just reviewing Chapter 16 of your manuscript. (Love it.) This weekend, I had a mental breakthrough that really originated in part from something you’ve been saying for quite some time. Let me explain:
First, in early May, I was blown away by Simon Sinek’s TED talk on starting with why. (I think I forwarded the video to you.) I found the Start With Why concept a game-changer. I immediately downloaded the book [Start With Why].
Coincidentally, I was at the same time reading Switch by the Heath Brothers. (So I was delighted when I saw your Verasage meeting reading list.) For the past three months, I’ve been struggling to figure out what my and my firm’s “why” was.
At long last, I think I finally found it.
My “why” is “to fix the practice of law.” My firm’s “why” is “to innovate (in fixing the practice of law).” Everything we do, everything we’re about is grounded in relentlessly innovating. Looking back, that’s the message of both my blogs—The Client Revolution and Gruntled Employees.
Fixed prices is just a “how,” under Sinek’s framework. I’ve been making the same mistake that TiVo made—selling the “how” instead of the “why.”
Fixed prices is an important “how” for us, but it’s not the only one, and it’s not the thing that’s going to make companies bang down the door to sign up with us.
But if we instead focus on the “why,” it not only helps us stay on message in our marketing, but it also identifies whom we want to market to. Innovators. To paraphrase Sinek: “If you’re the kind of company that’s all about innovation, boy, have we got a law firm for you.”
And bringing it back to Chapter 16: I once wrote a post or article or something (could have been an SPU [Solo Practice University] gig) in which I mentioned that law firms didn’t really start using hourly billing until the 1950s or ‘60s. My point had been to challenge the notion that hourly billing has “always been the norm.”
In a comment, you pointed out the research that you discuss in Chapter 16 of IVP: that law-firm hourly billing was started in 1919. Since that didn’t really mesh with my point, I’ve kind of ignored that fact. But now, suddenly, I get it.
“If you’re the kind of company who’s all about innovation, why are you using a law firm whose billing model was invented in 1919?”
I think this was the point that I was missing: that hourly billing is antiquated. I’m going to start incorporating this notion in my writing and marketing right away.
As always, much thanks for your great work. Hope your summer’s going well.
Best regards,
Jay
We are defined by what we believe, not what we know
Jay’s breakthrough is absolutely correct. Value Pricing is merely part of a larger change in business models, which is driven by a firm’s strategy and positioning, which ultimately is driven by a firm’s “why” (or purpose, if you prefer).
Innovation is crucial, which is the point of my Great Moderates in History? post.
At the end of World War II, English writer and prominent socialist H.G. Wells wrote:
Human history becomes more and more a race between education and catastrophe.
Wells was a socialist who believed knowledge alone would create a more peaceful world.
But surely before they became the aggressors in World War II, the German people were among the best educated in the world—with their universities to become the model for America’s—and the Japanese among the most literate.
For as valuable as knowledge and education are, it is imperative to bear in mind that man is guided far more by his beliefs than his knowledge.
How else does one begin to explain why people fly airplanes into buildings full of innocent people?
In a business context, this is Simon Sinek’s point when he says “people don’t buy what you do, they buy why you do it.”
Rabbi Daniel Lapin makes this point quite cogently in his book, Thou Shall Prosper, helping his readers understand how the world really works:
You are best understood and appraised by others on the basis of the things you believe rather than on the basis of the things you know.
For example, during the twentieth century, Jews again learned the importance of this principle. They learned that what the Germans of the Third Reich believed was far more important a guide to their actions than the things they knew. After all, Germany was a society whose universities had produced the world’s most accomplished scientists, like Max Planck, and great philosophers, like George Hegel.
Germany was a society that had produced writers like Heinrich Heine and musicians like Ludwig van Beethoven. Nonetheless, it was their beliefs about a superrace and the genetic inferiority of Jews—beliefs that had little to do with facts&mdashthat won they day and changed the course of history.
Most of the really important adventures on which you embark depend on belief and faith. For instance, when you marry, you seldom do so on the basis of incontrovertible facts: You don’t walk down the aisle knowing for certain that you are going to live happily ever after in a state of permanently wedded bliss. And you don’t enter the state of matrimony knowing everything there is to know about your spouse. You marry on the basis of belief and faith.
...For an entrepreneur, starting a business far more closely resembles marriage...Faith is key (Lapin, page 183).
Indeed, all enterprise is an act of faith, a faith in the future, faith in the ability to humble yourself before others and solve their problems, create real value, investing in an unknown future where predetermined returns are uncertain—supplying before you can demand.
Hence, all organizations are built and operated on a worldview—what Peter Drucker called “The Theory of the Business.”
We are ruled by are theories and worldviews far more than we are willing to admit.
Accumulated knowledge certainly guides this theory, but ultimately any business is a leap into the unknown future.
This is what George Gilder means when he says “Knowledge is about the past; entrepreneurship is about the future.”
Ed Kless and I have been having discussion recently about our “why,” and it’s not an easy question. Take a look at what Ed believes, from his blog:
I believe that small business is where the vast majority of the wealth of the world is created. I help small professional businesses recognize that they do this through developing and sharing their knowledge. It is a great model. Do you want to know more?
I founded VeraSage, along with Dan Morris and Justin Barnett, to bury the billable hour and timesheets in professional firms, which is not a bad “what,” but it doesn’t answer why?
Well, because I believe that the time accounting regime is a servant that has transmogrified into a tyrannical master that lessens wealth-creation and service to others, humiliating and denigrating the dignity of knowledge workers everywhere.
The VeraSage Declaration of Independence is my verbose “why.”
Your Why should start with “I believe...”
We’d love to hear your “Why,” and have the opportunity, like with Jay, to post your mental breakthrough.
Cross-Selling: What is Your Firm’s Lifetime Value to its Clients?
Ron Baker - 08/21/2010
I’ll be hosting a Webinar for CPA Leadership Institute on Wednesday, August 25 from 1 pm to 2:40 pm (Eastern Time).
The topic is: Cross-Selling: What is Your Firm’s Lifetime Value to its Clients?
You can learn more at the CPA Leadership Institute’s Web site here, and even get a detailed outline of the Webinar, in pdf, here.
This topic takes me back to the late 1980s, when I began to seriously study Total Quality Service, as it was then called by Karl Albrecht in his book, The Only Thing That Matters.
This book had an enormous influence on my thinking (it’s one of my Top Ten Best Business Books), because it was TQS that led me to the study of Value Pricing.
It was an epiphany when I realized that billing by the hour not only generates lousy customer service, it’s also a lousy customer experience. No one likes to be surprised by price.
Studying TQS leads you into customer loyalty economics, and one of the metrics is always “What’s the lifetime value of a customer to your firm?”
The logic being that you need to sometimes ignore the math of the moment and make an investment in the relationship. This is also where the billable hour fails miserably, as pointed out brilliantly by VeraSage senior fellow Paul Kennedy in his essay on why timesheets are damaging to customer relationships and lifetime value.
But I believe there is a more important metric: What is the value of your firm to your customer?
This forces us to think about constant innovation, and offering services that can help customers through the various stages of their lives and business—from womb to tomb, so to speak.
I hope you’ll be able to join us for the Webinar, but if not read the Kennedy essay and any book by Karl Albrecht.
The Australian Legal Affairs Section Devoted to the Billable Hour
Ron Baker - 08/20/2010
Our Australian colleague John Chisholm wrote about The Australian Legal Affairs Section of August 20th being primarily devoted to the problems and hopeful demise of the billable hour.
All the articles are worth reading, but the one that caught my eye was devoted to Lavan Legal, the Perth firm that is on track to eliminate timesheets in approximately two years.
This is a 200+ lawyer firm. So much for the argument that only smaller firms can achieve this transition.
John also reports that next week’s Legal Affairs Section (it runs every Friday) will also have more articles dedicated to this topic.
Obviously we are nearing a tipping point Down Under.
Good on Ya Aussies!
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