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!

Creating a Service Level Agreements

Creating an SLA (Service Level Agreement) is by far the most frequent topic of conversation I have with partners of Sage. I recently came across an mp3 file I recorded while in Sydney, Australia delivering the service level agreement section from Customer Boot Camp, so I have decided to post it.

Please note it is not the best quality recording, but I think you will be able to understand most of it.

If you have any further thoughts or question, please feel free to post them as comments.

UPDATE: As of June 2010, I refer to these as Access Level Agreements not Service Level. I admit I was wrong. Sorry!

What Do You Know – I Am Mainstream

Yesterday, on the front page of the Wall Street Journal opposition to the billable hour went mainstream – Billable Hour’ Under Attack. The article begins, “With the recession crimping legal budgets, some big companies are fighting back against law firms’ longstanding practice of billing them by the hour.”

In addition, the Journal also posted this accompanying video, in which the client (Pfizer) lays down the law (of economics that is) to her firms. While there is much here to agree with, she misses an important point. No billing by the hour can be financially beneficial to the firm as well. The question that I have for these firms is will you now eliminate the time sheet? Your customer has just told you that you have no reason to keep them. If anyone out there works for one of these firms, please let me know what the buzz is.

No one wants surgery (or ERP/CRM) even for free if they don’t need it

Hat tip to John Shaver of Aries Technology for sending me this cartoon from this past Sunday’s Lio.

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I have used this analogy for years – implementing a new ERP, CRM or HR system at an organization is akin to a human being undergoing triple bypass surgery. No one is going to do it because it is on sale this month or even free. Price is not the issue.

Recently, this has become a much more personal example for me as my Dad has had this procedure (the bypass, not an ERP implementation). I can say with certainty, if his highly skilled surgeon had offered to operate on me in a father/son two-for-one monthly special, I would have vigorously declined his offer. Price was not the issue.

The next time you are working with a prospect who in interested in ERP/CRM/HR. Remember this. Price will not be the issue.

Highlights from Issues List Management Session

On May 12, 2009, I presented a session at Sage’s annual partner conference, Insights. The session was entitled Issue List Management (or how to replace your time sheets with something that actually matters to your customers).

First up are the slides from the session.

Next, here are the video highlights and the document for downloading.

 

And finally, the big finale! This is only for those of you who are radicals (like me) – a song which I believe demonstrates the immorality of tracking your time.

What a WEEK in Pricing!

It has been an interesting week in the world of pricing.

In case you have not heard, Chris Anderson of Wired is set to release his new book Free (the title, not the price), and before it even comes out stirs up a controversy. Surprisingly, the book does not seem to be available on Kindle. Hmmm.

UPDATE: Free is now available for free, at least in audio version. According to a video posted on Wired. Free will be available in most electronic formats for free. The exception is the three hour abridged audio version which Anderson believes has more value than the full-length edition (posted above) because of the opportunity cost trade off of listening to the longer version.

Anyway, first, Malcolm Gladwell chimed in in the New Yorker. Then, Seth Godin responded to Gladwell.

In my opinion, the camp of Anderson/Godin is right and Gladwell is wrong. I think Gladwell misses the idea that free does not mean there is not a business model. He is right that youtube and other free services (Twitter) have yet to create a business model, but that does not mean they never will be able to create one.

Gladwell uses the example of former head of the Atomic Energy Commission, Lewis Strauss’ famous late 1950’s prediction that “our children will enjoy in their homes electrical energy too cheap to meter.” To say that since this prediction has not come to fruition would be shortsighted. Gladwell is right (currently) about that fact that power infrastructure costs are larger that power creation costs, but I can foresee a time when we have personal (or neighborhood) nuclear reactors. This of course will reduce, and almost eliminate, those infrastructure costs.

I would love to hear each of your thoughts on this.

Al the Plumber Gets It

Today, we received our 2009/2010 Allen Community PhoneBook (the book formerly know as the Yellow Pages). With the proliferation of Google and the Web, these books usually make a 10 second trek through the house and land directly in the recycle bin. This one, however, had a advertisement from Al the Plumber. I can’t vouch for his work,  but I sure like his pricing practices.

Go Al!

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My thinks to Christine, my wife, for pointing this out. In fact, I have not yet actually seen this in person. I plan on tearing off the cover and depositing the rest of the book in the green bin.

Five Questions to Get Answered Early

In my recent readings and work with small businesses I have developed a list of five questions that a consultant should get answers to as early in prospect relationship as possible. Once you are hired (or have invested in a long-term sales cycle relationship) getting these answers provides little to no value.

  1. What is the purpose of their organization?
  2. Are they looking for an expert, a pair of hands, or collaborator?
  3. Are you being hired to potentially blame someone if it goes wrong or to reduce chance of it going wrong?
  4. Do they view this purchase as an expense or an investment?
  5. What is the state of their employee restrooms?

Hat tip to Wayne Schulz for the last question.

Thoughts on Pricing with Confidence

Executive summary (and Amazon.com review)

image Reed Holden and Mark Burton’s Pricing with Confidence makes the complex topic of pricing strategy understandable and usable to businesses of all industries and sizes. Many of the examples are easily transferrable from one industry to the next. Their approach is logical and rational and can be adapted to a sole proprietor with an entrepreneurial idea to the largest of companies. The only thing, I severely disliked about the book was the poker analogy which runs throughout the book. Business, unlike poker, is not a zero-sum game. I understand the analogy they are trying to make, but, in my opinion, it detracts from the overall value of the ideas presented.

Important ideas in the book

Develop and offer options. Having at least three options with different value propositions positions the organization to make fewer concessions during negotiation. When a prospect balks at price you can always direct them to a lower cost, but lower value (to them) option. Companies should establish a “walk-away” price for your lowest priced option. This assists in making sure you do not take on a bad customer.

Create a good “fence” between options. A fence is the way to protect one option from the other by providing a clear trade-off of price and value between the options. Well developed fences will make sense for both the customer and provider. The most utilized fence strategy is bundling. When you bundle, if a customer asks for a break down, you should explain that while you could provide that for them, the overall price will be higher.

Setting price is one of the most difficult decisions leaders and managers can make. The strange thing is they often delegate it to others including allowing competitors to be a large influence on price. Price competition (price war) can only work during the high growth phase of a business’ life cycle. At any other time, price competition is never a sustainable business model. Lowering price is the least sustainable competitive advantage.

If you discount to meet the numbers, you will inevitably kill your long-term profitability. It should not come as a surprise that few businesses (if any) have ever created a long-term profit strategy around discounts. Discounting demolishes the self-esteem of the sales force to the point that they themselves begin to question the value of the very products and services that they are selling. This is poison to an organization.

Business must focus on creating greater value for customers. Companies that focus on value, in dollars, delivered to customers are more profitable. Talking about anything other than real financial value is just noise.

Great new term: discount creep – the propensity of a company to begin discounting for good reasons and having it then become systemic. If you must discount by all means measure it. Holden and Burton suggest creating a “discount bucket” that is only allowed to be emptied over a certain predetermined time period.

Pervasive discounting is usually a function of poor customer selection. The authors cite a study which says that 79 percent of business-to-business companies respond in some way to all prospective customers. Going further they posit that there is not just an 80/20 rule for customers but a “20-225 rule.” 20 percent of customers account for 225 percent of the profit. Yes, kids, this means that 80 percent of customers account for a 125 percent loss.

There are only three, count ‘em, three, pricing strategies: skim, neutral and penetration. Skim only applies when you are clearly differentiated from your competition. Chances are, unless you are Apple, you are not clearly differentiated. Neutral pricing is used when you want to compete on something other than price. Penetration pricing is used when you want to establish a dominant position in a new market place.

There are four, count ‘em, four, buyer types: price, value, relationship and unknown (OK, they call these guys poker players, but I dismiss the analogy). Aside from the poor term, the book is worth reading just for this deeply developed idea.

Most companies think they sell to price buyers, they are sadly mistaken. The following sentence clearly excludes all professional knowledge firms from thinking they deal with price buyers – “Price buyers are very careful not to let themselves get committed to any particular supplier by making sure they have no switching costs.” Emphasis added. This is clearly not the case for professional knowledge firms. If all of your customers look like they are price buyers, it is because your sales force is not establishing trust during the sales process.

You need to be paid for your high value knowledge as soon as you begin providing it. The trouble is usually some demonstration of knowledge is needed to get you in the door. Their suggestion is to set a minimum price for knowledge.

A great strategic question for a company to mull is “What can will do (other than discount) that would force our competition to react?” Answering this question is not easy, but it does get to the very heart of innovation.

In conclusion

I thoroughly enjoyed this book and looking back on it has made me realize what an impact it made on me. Many of the ideas listed above have come to the forefront in my coaching conversations with Sage partners. It is clear that this book will continue to influence my thinking for years to come.

Always State a Value When Asked for a Price

This has been around quite a while, but I think it bears repeating.

Often times a professional is asked about cost, as in, “How much will this cost?” One of the best answers I have heard goes something like this – “Customers of ours who have saved and/or seen an increase of $V, have spent $P, but unless we can discover $V we won’t even send you a proposal.”

I personally believe that V should be at least three times P. My reasoning is that in the rare cases the price ends up being 2P, the value is still greater than price.

This is not a perfect answer and does not always move the asker off the cost question, but it is the only way I have seen that has a chance in moving them at all.