If that is not enough, we have a second event, VeraSage in Vegas, which will run from 7:30am to 5:30pm on Thursday, June 14. The morning will feature five VeraSage Fellows and Founders:
The Future is Here: The Firm of Today (Ron Baker, VeraSage Institute)
The afternoon will be dedicated to dynamic, interactive workshops that drill down into the content taught in the morning. You’ll interact with dozens of VeraSage Fellows and Friends who are trailblazers with experience in these core areas. You’ll take away scores of practical ideas you can implement today and into the future. The price for this event is $1,200. And, of course, the value is guaranteed.
The third event, not open to the public is a meeting of VeraSage Fellows and Friends. This is similar to the meeting that produced our terrific series of DETalks. Sorry, but unless you are a Fellow or trailblazer (by invitation only) you can’t come to the live event, but look for the posting of the DETalks after the event.
Over the past few years, I have been hearing more and more about Agile development project management. For the most part the conversations have not been very positive.
This is not because I think there is something inherently wrong with Agile, but because those that espouse it have always tried to convince me of two things:
Agile Development requires little to no planning
There is no way to do agile development in a fixed price environment
You can imagine that I begin to shake violently at either of those ideas.
In the past month I have had two conversations that have corrected some of these misgivings. Mostly because I have come to the conclusion (confirmed by my conversations) that the folks with which I have had these previous conversations about Agile were full of shit.
Rick had just taken a class and was kind enough to take me through the materials. I found that in many ways I am in alignment with many of the principles of Agile. For example, I really like the idea behind this:
Now, I would enhance the idea of customer collaboration to a more broad idea of comprehending customer value. Indeed, one weakness of all of the project management methodologies I have seen is the assumption of customer value. In all fairness, it is difficult to integrate value into any methodology because of it subjectivity, but that is for another post.
My conversations have led me to a few conclusions, all of which I am open to change based on more learning.
Agile is probably not for most knowledge worker projects. While I certainly see Agile working in many other places (some noted below) one-time knowledge projects (such as an implementation) is not one of them. The reason is that implementation projects tend to be more holistic in nature. For example, you cannot get the full value from one aspect of the engagement without having first set up another element of the project. Agile calls for prioritizations that make no sense in the context of these types of engagements.
Agile makes a ton of sense for any iterative type projects which are normally more creative in nature than say ERP implementation. For example, with ERP, ultimately debits must equal credits (i.e., conform to GAAP), whereas with CRM or web-site development there are no rules.
One area where Agile could make sense for implementation type projects would be in dealing with change requests and change orders. Often, these are mini-development projects and therefore Agile might be quite effective. I say might because on small engagements, some of the change requests might be so small as to only need an adjustment to the statement of work.
Another area where Agile excels is in communication. The daily standup meetings and one to two week scrums have some excellent communication touch points built in. I hope that when Agile is implemented that these processes are truly adhered to. There are definitely some things that Agile can teach us about better communications.
Ultimately, I think Agile is very much in line with the concept of results oriented project management that I presented in this space a few weeks back. This gives me some hope for being able to integrate some of the best idea from both methodologies into one more coherent approach.
My thanks again to Stephen and Rick who contributed to my thinking about this post.
In this episode recovering attorney and VeraSage Senior Fellow, John Chisholm speaks open his first meeting with Ron Baker and his relationship with the late Paul O’Byrne. John then regales us with some highlight from Ron’s trip down under in March 2012.
With me this time on the VeraSage Podcast is the erudite Jay Shepherd. Jay speaks about his pivot from being a practicing attorney to author, consultant and speaker. We also chat about his role in the upcoming VeraSage Event in Las Vegas in June. (For good measure, we both take some swipes of the New York Yankees and their fans as we mark the beginning of baseball season here in North America.)
Here is my response to both the post and the article itself.
If by capitalism he means the system we have in place today. I agree. However, the term for what we have today is not "capitalism" is the true sense. It is "cronyism" or what I call "handicapitalism."
Most truly understood we have a system where the elites in big government and big business have combined to control the resources of production. Including, BTW, the currency itself.
The most accurate term from an economic standpoint is fascism. (Note not NAZISM.) Fascism, from an economic perspective is control of the resources, but not means of production. This latter state is called communism.
Please note I am not a Republican or a Democrat and I am not calling Bush or Obama fascists. I am saying the the policies of the US government have become increasingly fascistic over the year no matter who has been in the White House.
Now that said, what Mr. Schwab is describing as the replacement of this so-called “capitalism” is really just the market responding to the idea of knowledge workers. He calls this idea “talentism,” but is really nothing more than a meritocracy based on knowledge.
Last Thursday I had the pleasure of doing a Webinar for Atticus, with VeraSage Practicing Fellows Mark Chinn and Christopher Marston, along with Lonny Balbi, a family lawyer in Calgary, Canada.
The call was moderated by Steve Riley.
The program runs one hour and you can find the link here.
On April 4th, Ron Baker and I did a webinar for Sage Partners entitled Subscription Pricing on the Journey to Becoming a Firm of the Future.
If you were unable to attend or would like to review what was shared, you can view a recording of the session. This webcast is part of the new Sage Transformation Journey Webcast Series. In these sessions, myself and other members of the Sage Partner Advantage team present relevant and timely information on how to develop the business practice of selling subscription pricing and improving the customer experience.
Thank you to those of you who attended the April 4 webcast session. If you were unable to attend or would like to review what was shared, you can view a recording of the session.
If you would like to learn more about becoming a Firm of the Future, please register for the full two-day Firm of the Future Symposium. The next symposium is being held April 24-25 in Southern California!
In addition to the Irvine dates we also have upcoming Symposia in Vancouver, May 23-24 and Boston July 17-18.
Sage partners can register for any of these events today at www.sage.com/partners. Once you login, select Academies & Workshops an then Mid-Market ERP.
If you are not a Sage partner and would like to attend, please contact me or .
[Here’s the latest from our G. Robert Newhart Non-Value-Added Fellow, Gregory Kyte].
I’ve always been doughy. Different levels of doughiness, but always doughy.
My two best friends in college had full-ride swimming scholarships—not doughy. These guys swam six hours per day and could wash down a trip to Golden Corral with a bag of Double Stuf Oreos and loose two pounds from all the chewing.
I always thought it would be awesome to have the time (and willpower) to exercise so much that I didn’t have to worry about—or feel guilty about—eating things like the Coronary Bypass Burger served at The Vortex Bar & Grill in Atlanta.
I was there last week, performing at the Laughing Skull Comedy Festival, hosted by the Laughing Skull Lounge (I know—weird coincidence), which is located within The Vortex Bar & Grill. So when I got to the club 90 minutes before my show, having eaten little more than Southwest Airlines’ pretzels, I was ready to throw down.
Of course the Coronary Bypass Burger caught my eye (a big half-pound sirloin patty topped with a fried egg, three slices of American cheese, and four slices of bacon, with plenty of mayo), as did the Double Coronary Bypass Burger (double everything plus grilled cheese sandwiches used in place of normal hamburger buns), the Triple Coronary Bypass Burger (don’t ask), and the Carnivorgasm (seriously, don’t ask).
But what really caught my eye were their pricing disclosures. Obviously, The Vortex doesn’t bill by the hour like Bob’s Barbecue. The menu is (as all menus are) a type of fixed price agreement. If you want to eat the Carnivorgasm, it’s going to cost $16.25 which includes one side item and should be ready in approximately 20 minutes (as clearly explained on page one of the menu).
The thing that gave me a VeraSage boner, however, was a section of their menu titled “Special Orders & Extras.” It reads, “The Vortex is a true short-order kitchen. We will gladly prepare special orders whenever it is possible. If you order something that is not on our menu, and we do make it for you, we’ll charge you whatever damn price we want to, and you’ll thank us for it.” Hells, yes! A restaurant with a clearly stated change order policy!
To add even more punch, there’s another section titled “Read Our Menus” that says, “Everything you need to know about our food and beverage selection is printed somewhere within our menus. Please read them thoroughly. If you ask us stupid questions we will be forced to mock you, mercilessly.”
In addition, throughout the menu they make it clear that if you don’t like the way they do things, then get the hell out. For instance, “if you’re acting like an idiot, we’ll be sure to let you know, right before we toss your silly ass out,” and “The Vortex is not politically correct. If you are easily offended, there’s a good chance you’ll be offended here. Consider yourself warned.” The Vortex knows what it wants in a customer; they hope bad customers will weed themselves out, and if not, the Vortex will grab a bottle of Scotts Round Up® and do its own weeding.
Is it hard to implement value pricing? Is it hard to fire clients that aren’t a good fit? Yes. They’re probably some of the hardest things you’ll do at your firm. But a goddam bar did it beautifully. And I get it, menu pricing is different than value pricing. And charging “whatever damn price you want” for a change order is akin to “billing and ducking.”
But the biggest thing I’m taking away from the Vortex menu is how powerful upfront communication with your customers can be. Clearly define and communicate the scope of your work. Give them power by giving them choices. Make sure they know that they have the freedom to change their mind, and consequently you’ll have the freedom to change your price.
The second thing I’m taking away from the Vortex menu is that, when properly and thoughtfully executed, clearly defining how you do business (value pricing) and who you want to do business with will create the culture that you’ve always wanted. Communicate through as many channels as possible, “Here at Hayek Hayek & Nienbach we don’t bill by the hour. Mostly because hourly rates piss people off and make us want to blow our f***ing brains out. Rather, we’ll give you a custom fixed price agreement for every job we do, and you’ll thank us for it. But if you prefer that we bill you by the hour, then don’t let the door hit you in the ass.”
The customers that you want will be cheering. The ones you don’t want will have doors hitting them in the ass.
The last couple of takeaways: the Coronary Bypass Burger is the second best burger I’ve ever had in my whole damn life, and those two swimmers are now in their late thirties and doughy.
At first, the comments were running about 50/50 supporters versus detractors, but as the week went on, more and more comments became vitriolic. One even called me Ron’s lapdog! (Amazing the ad hominum attacks that folks must stoop to when their logical argument is failing!)
Regular followers of VeraSage will already know we are huge fans of Rory Sutherland, Vice-Chairman, Ogilvy Group, in the UK, where he’s been working since 1988.
We’ve been showing his Zeitgeist talk all over the USA, Australia, and Canada. It is simply one of the most profound talks we’ve seen in at least a decade.
Rory was the president of IPA in the UK, where he made it his platform to spread behavioral economics into advertising agencies.
He is a devotee of Austrian economics; Ludwig von Mises is his hero.
Rory has published an eBook, The Wiki Man, I believe only available on Amazon Kindle.
It’s not really a book. It’s a long interview, then a collection of articles he’s written over the years. But what a short and sweet read it is.
It’s difficult to write a review of his book, since, like his Zeitgeist talk, he moves a mile a minute, tossing out an incredible range of erudite thoughts, topics, and funny lines.
The best I can do is to arrange some of his more cogent thoughts into categories.
On Economics
How did Rory get so deep into economics?
I got interested in economics just because I was ill for a few days and ended up reading a few books—one very good one by Steven Landsburg called Armchair Economist. It’s a really, really good read.
I also credit Landsburg for providing me with an incredible education in price theory, and this book is on my Top 100 Best Business Books of all time.
He goes on to discuss the concept of “Satisfice,” from the economist Herbert Simon.
“Satisfice" is the combination of suffice and satisfy.
I don’t think you can really understand brands without understanding satisficing.
[It’s] killer blow for market research—when you are put in a group of people and you’re researched, you behave like a maximiser because we want to be seen as one. Everybody says they obviously want to find the best television they can within their price bracket.
Most people, in most fields of consumption, NOT maximisers at all.
The vast bulk of the money in any market at any time is in the hands of satisficers. Self-image being a more stubborn force than self-interest.
Before the iPod most important thing with any sound system was of course sound quality. Then the iPod, and sound quality isn’t all that great.
[But it] satisfices, that’s the point.
On Behavioral Economics
It’s not mass hysteria that really frightens me, it’s mass rationality. Spend just as much time working on how you can reduce consumer transaction costs as you do trying to reduce manufacturing costs.
Maybe you only need the hard sell because your product isn’t easy to buy. All airport car parks should have a number of parking spaces, which are three times more expensive than any others.
We do not stand a chance of selling them—or of seeing them happen. And the reason for this is simple: these are all behaviour changing ideas, not attitude shifting ideas. And the job of an agency is now just to do the attitude stuff…
[It’s a] dangerous assumption that behavioral change is the product of attitudinal change: in reality it happens more often the other way.
On Advertising Agency Value
...agencies have so overplayed the “brand” justification for their activities that they have sometimes disqualified themselves from adding value to clients anywhere else.
[The] job of anyone in marketing is to turn human understanding into business advantage or social advantage, okay? That’s the only job.
I think there are really only two types of people in advertising agencies. Good people and crap people. It’s more important to have good people than to obsess about what they. Incidentally our business of charging by the hour makes it difficult to hire except by specialism, which is a problem.
As one creative (Chris Wilkins?) remarked to a planner: “You and I both drink from the same well of inspiration. The difference is that you get to piss in it first.”
Incidentally, one way to get your own bloody clients to do it is to get their competitors to do it; they’re bloody lazy most of these organisations, and they only actually do anything when their competitor does it.
How true is this last line!
On Brands
[The] best way to build a brand is to set out to build a brand. I really don’t believe this. I think if you set out to build a great business, you’ll stand a fair chance of building a great brand. I am not equally confident that someone aspiring to build a great brand will build a great business.
Great brands are often built obliquely, a by-product of something (ideals, vision, focus) and not a product of anything.
Andy Warhol’s beautiful insightful comment: “What I like about Coke is that the President of the United States can’t get a better Coke than the bum on the street.” Do you think the Prime Minister drinks the same wine as the local wino?
Great brands are like great pubs. One of the requirements is that they cross a demographic divide. Who is the typical Google user?
Ordinary people do not demand rigorous sequential logic from their friends; do they want it from their brands?
I suggest it is by far the more valuable economic role that brands play: not to be a promise of ultimate superiority but a cast iron assurance of pretty dependable non-shitness.
Jack Welch said, “Shareholder value is an outcome—it’s not a strategy.” Maybe greed isn’t bad for business. It’s certainly bad for brands.
On Advertising
We too often forget the power of advertising to alienate. Our first reaction is often to find a reason to reject it.
To decide that young people are the only audience which matters, we lose the largest and richest swathe of the population. Remove anything that enabled a recipient to go: “obviously not for me.”
On Wine
Wine does defy logic in one sense—in nearly everything else we buy we value consistency. If one in three bottles of whisky we bought, or one in three pints of beer we bought in the pub were total shit, we would never go to that pub again, and yet one in three glasses of wine we try are just rubbish, and yet we persist in trying to drink wine, and I genuinely don’t quite know why it is.
On Second Homes
[A] second home is not a necessary investment. [Who] really wants these encumbrances now they are no longer rising in value? Do you want to spend your precious fortnight’ holiday practising the Italian for “My septic tank appears to have exploded.”
On Efficiency vs. Effectiveness
Rory has the same disdain for the mindless pursuit of efficiency at the expense of effectiveness that we do.
The most dangerous technology is the spreadsheet. Metrics or values invariably override any conflicting human judgment.
“The Arithmocracy,” a powerful left-brained administrative caste which attaches importance only to things which can be expressed in numerical terms or on a chart. Holocaust and the Soviet famine were both the product of meticulous government officials in dutiful pursuit of numerical targets.
We have an economic system that is much better at delivering efficiency than it is at inspiring affection.
We have probably spent quite long enough trying to make this industry leaner and more efficient. We should try to make it jammier instead.
How, in their endless, dogged pursuit of a false efficiency, organisations can be rendered slightly useless. And stupid. (Remember that the word “dogged” is derived from the word “dog” meaning “energetic and stupid").
[A] belief in false efficiency is very simple; it comes from the belief that improvement comes from the elimination of apparent waste. [The] problem with this approach. It fails to pay any tribute to luck.
If you look at all the really important breakthroughs made in any field, what you will find is that the unplanned, unintended or fortuitous connection plays just as great a role as the planned, the processed and the organised.
A Perfect Mess details how a messy desk and the accidental juxtaposition of two apparently unrelated papers led to a Nobel prize.
Are we trying too hard to mimic our clients obsession with efficiency (not effectiveness, which is something different) when we should be making the case for chance? Is payment by the hour making us too focused? Too dogged when we should be “catted”?
Henry Ford’s reaction to a consultant who questioned why he paid $50,000 a year to someone who spent most of his time with his feet on his desk. “Because a few years ago that man came up with something that saved me $2,000,000,” he replied. “And when he had that idea his feet were exactly where they are now.”
Be sure to watch Rory’s Zeitgeist talk, and read this book. As he says, it’s a great book for the loo.
Follow him on Twitter @rorysutherland, where his bio reads: “Fat bloke at Ogilvy, IPA; The Wiki Man.
Emanuel Derman has written a terrific book for explaining the difference between models, theories, and intuition.
The author grew up in Cape Town, South Africa, when apartheid was at its peak in the 1950s and 1960s, came to the US in the mid-60s, worked as a theoretical physicist, then as a “quant” at Goldman Sachs.
I can quibble with some of his political and economic views, such as the claim that the extreme left and right are equivalent, which is nonsense. I’d rather live under a Italian fascist than a communist. And his contention that capitalism is not capable of self-regulation, Wall Street overshoots in its greed, etc. Not once does he mention government failure when discussing the financial meltdown of 2008.
These quibbles aside, his dissection of the differences between a model and theory is fascinating, one that I wish I had read a lot sooner. This will be a very abbreviated review, just to summarize the major differences between theories and models, which I believe will be incredibly useful in our work.
The author’s major purpose in the book is to explain the three ways of understanding the world: theories, models, and intuition.
Humans worry about what’s ahead, and models and theories are a way of foretelling the future, and controlling it. We need theories and models because of time (the world is not stationary, and we must plan for the future).
Theories attempt to discover the principles that drive the world; they need confirmation, but no justification for their existence. They must stand on their own two feet. A theory can become a fact; it is deep; whereas a model is shallower. A theory doesn’t simplify, it becomes indistinguishable from the object itself.
We advance by mounting new theories atop previous facts. If those theories prove correct, they become facts too.
This is why the author loves what Goethe wrote in Maxims and Reflections:
The ultimate goal would be: to grasp that everything in the realm of fact is already theory.
And:
There is nothing so terrible as activity without insight.
Models stand on someone else’s feet. They are metaphors. They simplify, and can only capture partial truths, not entireties (the model is not the object; think of a model airplane vs. a real one; a model is a toy!).
Models always describe one thing relative to something else (think of the VeraSage Adaptive Capacity Model of the Boeing 777 airplane as a firm).
While theories tell you what something is, models tell you merely what something is like. Models fail and theories are never perfect (always subject to falsification). Models save mental labor—they are a little language.
A model grounded in a theory can have more power than either alone.
Intuition is more comprehensive; it unifies the subject, and plays a major role in the discovery of nature’s truths. It also requires common sense and ethical principles.
Einstein called intuition “a sympathetic understanding of experience.”
The author spent 17 years extending the Black-Scholes model, the most celebrated model in economics:
Our knowledge about the behavior of stock markets is much sparser than our knowledge about how egg whites turn fluffy. Fluids and egg protein don’t care what people think about them. Markets and stock prices do. This makes models usable but simultaneously limits their usefulness.
He states that financial modeling is not the physics of markets, which is absolutely true. This is why Austrians wanted to study human behavior first (Ludwig von Mises called it Praxeology), then work up to macroeconomic principles.
What’s interesting is his contention that
Economists for the most part have never seen a genuine theory...for people have proved difficult to theorize about. Economists falsely believe that rigor can replace fact and intuition.
Economists are said to have “physics envy,” a joke I believe this author would agree with.
He calls the Efficient Market Hypothesis a model, not a hypothesis. Austrian economists don’t subscribe to the EMH, but rather, as Rory Sutherland says, the Cool Market Hypothesis—markets just do things that are cool.
I’m not sure what the author’s opinion would be on the subjective theory of value? Is that a theory, or intuition, or both? He does write:
Value is determined by people, and people change their minds.
The movements of stock prices are more like the movements of humans than of molecules. It is irresponsible to pretend otherwise. There are no genuine theories in finance. Financial models are always metaphors.
I also love this advice:
Whenever we make a model of something involving human beings, we are trying to force the ugly stepsister’s foot into Cinderella’s pretty glass slipper. It doesn’t fit without cutting off some essential parts. You must start with models but then overlay them with common sense and experience.
And:
To confuse a model with a theory is to believe that humans obey mathematical rules, and so to invite future disaster.
Here’s a list that distinguishes the characteristics of models with theories
Models
Are made
Require a modeler
Fail
Simplify
Shallow—a little language
Partial truths
Stands on other’s feet
Metaphor—what something is like
Save mental labor
Static
Theories
Are discovered
No theorizer needed
Need confirmation
Indistinguishable from object
Deep
Entireties
Stands on its own
What something is
Subject to falsification—never perfect
Cumulative—new theories atop facts
I’m trying to figure out if The Firm of the Future is a theory or a model? Probably a model, but maybe both?
As many regular readers will no doubt be aware (btw I mean regular in the sense that you read our stuff, for that you are extraordinary, not regular), Ron Baker has recently returned from a two-week tour of Australia.
At the I C Opportunities Conference in Chicago earlier this month, friends of the VeraSage Institute Bernie Lietz and Jason Blumer chatted a bit about how to differentiate their firms and the conversation led to a brief but fascinating exchange about Value Pricing.
While watching Rory Sutherland’s Zeitgeist presentation for the 20th time, I was struck (finally or again) by his story about Spotify and how they have not gotten much traction with their offer of unlimited downloads per month. He suggests that they change it to some absurdly high number like 180 songs a month.
Sutherland reasons that unlimited provides no context to the offering. As he put it, “Nobody knows what unlimited music is worth. It is a bit like asking, ‘Would you like to buy my unicorn?’”
The 180 song per month limit would give the price context in that it could be compared to iTunes at $0.99 per song. So for $9.99 a month you could enjoy $180 worth of music.
This got me to thinking.
Perhaps access level agreements should have a similar notion. Instead of saying unlimited access, perhaps it should be changed to 30 contacts (phone calls or emails) per month. Now, this would be more than anyone could possible need, and would therefore it would not be a barrier to any customer in terms of being worried about wasting a call on their particular issue. It would, however, allow them to compare it to other plans where there is a per call fee, thereby increase the perceived value of your offering.
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