Measure Your Discounts

I was recently reminded of a great practice for all professional firms to get into the habit of doing, namely measuring discounts. Most firms I work with do not, but I think this is serious mistake.

I would measure discounts on all aspects of your business. For those of you who sell products in addition to services and knowledge this means measuring the amount of discounts you are giving in each area.

Many of you know I am not a big fan of measuring anything financial other than the basics, but I truly think measuring discounts will provide you with insight on how to become a better, more confident pricer.

Ed’s Top Ten Business Myths

While going through some old notes I found this list I developed of the top ten myths in or about business. Without further ado, they are:

1. Business is a zero-sum game

2. Price is based on cost

3. Excessive profits must be because the company is doing something evil

4. Increasing market share leads to increased profitability

5. Any focus on efficiency

6. Leadership is about changing others

7. Strategy is about analyzing, planning and doing

8. Business is science, and requires data to back up decisions

9. The customer is always right

10. Differentiation can be achieved by saying you are customer focused

Do you agree or disagree with any or all of these? If so, please comment.

FORD – a model for consulting

A little over three years ago, a dialogue began in one of my consulting classes that I teach for Sage. The conversation focused around the levels (I am not convinced levels is the right word) of consulting. In the end, the group proposed the following four levels: Findings, Options, Recommendations, and Decision. Serendipitously, this yielded the acronym FORD. (I personally own a Honda Pilot.)

This model has served me quite well over the last few years, so I thought it worthy of a post wherein I will briefly define each level and provide some overall thoughts about the model.

  • Findings – these are the issues (problems, opportunities, and desired results) that the consultant uncovers through a question and answer process, referred to by most as discovery.
  • Options – these are the different possibilities that the consultant proposes for solving the uncovered problems, seeking the opportunities, or achieving the desired results. A great consultant always includes, “Do nothing,” as an option.
  • Recommendations – this is the option (or options) that the consultant believes would be the best course of action for the customer. Making recommendations would usually include a list of advantages and disadvantages (pros/cons, positives/negatives, strengths/weaknesses, whatever you want to call them) of each options and a rationale for why the option(s) was(were) selected.
  • Decision – one of the various options or a variation of the options is selected for implementation.

A few observations about the model:

  1. Each incremental level increases the level of risk on the consultant and requires an higher degree of knowledge. Since risk and knowledge required are factors in setting price, an engagement to just collect findings will be less expensive than an engagement to present options and an engagement to present options will be less expensive than an engagement to provide recommendation.
  2. If you are making the decisions you are not a consultant, but what Peter Block would call a surrogate manager. He defines this as “a person who acts on behalf of or in place of a manager.” Surrogate manager-hood is not bad in and of itself, but it is way more risky and deserving of a premium price.
  3. Being a consultant or a surrogate manager is a strategic decision. Some people may choose to never enter the fray as a surrogate manager and only remain in the role of consultant. This leads to what could be another blog post – the paradox of consulting – which is that consultants are paid to not make decisions.
  4. It is critical to have a conversation early on with every customer or prospective customer as to the level of consulting in which they would like to engage you. Failure to do so causes not only pricing problems, but myriad of other problems that are out the scope of this post.
  5. I believe that all professionals are consultants of some kind. Doctors are consultants on the anatomy and physiology of the human body; lawyers, on the law and legal system; accountants, on accounting practices, etc.

I welcome any comments and any suggestions on a better term than my proposed levels.

Consulting Rule #3

I often state a truism that I stole from someone I can’t remember – In consulting, as in medicine, prescription before diagnosis is malpractice. (If you are this person, I apologize, I owe you a beer.)

In a recent conversation while on a walk with my wife, Christine, we concluded that there is a corollary to this rule – You can’t prescribe if the patient/customer will not let you diagnose.

I hear about this problem more than a couple of times a week from Sage partners with whom I am speaking. It usually manifests itself like this, “Ed, I was trying to get an understanding of why the customer thought a request they had made was important, and they told me that they don’t reveal that information to outsider consultants. What can I do?”

My initial response is a half-kidding, “Run away!”

After explaining that I am kidding, sort of, I state, “Perhaps you should suggest to them that they reconsider and explain that while you understand their concern, it is not in their best interest to withhold this information. Consider this – if you go to a cardiac surgeon and just ask for a triple bypass operation, any ethical doctor will first insist on a few tests before performing the surgery. Certainly, they would want to take your blood pressure and heart rate. Would it make any sense to say, ‘Hmm, I don’t know, I don’t think I want to reveal that information to you.’? Clearly, it would not. I am in the same situation as the doctor, without a full understanding of the problem, it would be unethical for me to proceed. So, I ask you to reconsider and answer my questions. If not, I really don’t think I can help you.”

Is this hardball? Maybe, but your only alternative is to violate your ethics and prescribe before diagnosing.

Ron Baker Summarizes the Firm of the Future

The Journal of Accountancy recent posted excerpts of an interview they conducted with Ron Baker. In this seven minute clip, Ron does a great job at summarizing the concepts surrounding the firm of the future, also known as a professional knowledge firm.

This is my latest slide that illustrates this powerful idea. It differs from what Ron espouses in that I make a change in the mathematical operator used in the equation to signify that the transformations enhance each other.

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Enjoy!