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.

Well, it’s finally available: Positioning for Professionals: How Professional Knowledge Firms Can Differentiate Their Way to Success (from Wiley Professional Advisory Services).

Tim has done more than anyone to convince me of the importance of purpose, sometimes now being referred to as “why,” based on Simon Sinek’s book, Start With Why.

Tim has graciously allowed us to post an excerpt from his book: “How to Expand By Narrowing.”

I hope you enjoy this excerpt, and more importantly, Tim’s book. Every time I read his work, speak with him, or hear him speak, he never fails to enhance his reputation as a true thought leader for professional knowledge firms.

Congratulations Tim!

How to Expand By Narrowing

The urge to copy is exceptionally strong in the human species. The underlying explanation is the “copying” mechanism that has allowed humans to survive and evolve for the past few millions years. In fact, some behaviorists believe that copying is our species’ primary learning and adaptive strategy.

So building a successful brand means going against your instincts. Common sense would tell you to closely examine what competitors in the category are doing, make sure you are offering the same or better features, and adopt the “best practices” in the industry. But while others are studying and following best practices, the innovators and category leaders are developing the “next practices.” They are resisting the natural urge to copy. And instead of just working to improve their brand, they are working to differentiate it.

The best and all the rest

This explains the alarming disparity between the world’s top brands and all the rest. Because most brands are more likely to copy than to innovate, the measurement referred to as “brand equity” has been in decline on average since 2004. But a handful of leading brands actually are growing in brand equity. In fact, what the consultancy Core Brand calls “brand equity value” is concentrated among the top 100 brands, which account for over 90 percent of all brand equity value. This isn’t because the top 100 brands outspend their competitors, but because they out-differentiate them.

The reason top brands in a category outpace their rivals is not the power of share of market (as regularly taught in business schools), but rather their share of mind. This is the power of the brand. While companies may occupy a position on the stock exchange, brands occupy a position in the mind of the customer. This is how the term “positioning” was coined. Positioning is the foundation of branding, because it identifies what the brand stands for.

Positioning is not common sense

Especially in tough economic times, “common sense” would suggest that a business can improve its revenue streams by expanding products and services, broadening capabilities, and appealing to more customers. It seems like common sense, but it’s exactly the wrong response. The best growth strategy—in good economies or bad—is to decide what not to do. The best way to expand is by narrowing.

Imagine two architectural firms: one that’s extremely focused with a clear value proposition, and one with an unfocused business strategy that attempts to do everything for everybody. Which of these two firms would have:

1. The strongest earning power?
2. The largest geographical market area?
3. The fewest competitors?
4. The greatest degree of respect from clients?
5. The most sophisticated clients?
   

The answer in every case is the focused firm.

Your customers buy your brand, not your company

Professional firms like advertising agencies, law firms, and accounting firms usually see themselves as counselors and advisors that work for brands rather than being brands themselves. Firms staffed with knowledge workers usually resist the concept of marketing (the ultimate irony: advertising agencies that don’t advertise). But the truth is every company is a brand whether it wants to be or not. You can be a brand either by design or by default.

In professional services—as in packaged goods—customers buy brands, not products. A brand is the customer’s idea of the product. While a product or company exists in reality, a brand exists only in someone’s head. But it’s this perception of your firm that drives all customer behavior. 

Not just better, but different

It’s not the best companies that prevail in the marketplace, but rather the best brands.  The goal of business strategy is not just to be better, but different. The most profitable business strategy is not to aim at the center of the market, but rather at the edges.

It’s no coincidence that a handful of top firms win the most business, attract the best talent, and earn the highest margins. They’re the ones that have staked out a differentiating positioning strategy that capitalizes on their strengths. They have learned the counterintuitive truth that the best way to expand your business is to narrow your focus.

Tim Williams is founder of Ignition Consulting Group and is a senior fellow of VeraSage Institute. This post is an excerpt from his new book, Positioning for Professionals: How Professional Service Firms Can Differentiate Their Way to Success.