Idea x Execution = Value

Derek Sivers does some “entrepreneurial” math:

AWFUL IDEA = -1
WEAK IDEA = 1
SO-SO IDEA = 5
GOOD IDEA = 10
GREAT IDEA = 15
BRILLIANT IDEA = 20

NO EXECUTION = $1
WEAK EXECUTION = $1000
SO-SO- EXECUTION = $10,000
GOOD EXECUTION = $100,000
GREAT EXECUTION = $1,000,000
BRILLIANT EXECUTION = $10,000,000

To make a business, you need to multiply the two.

WiFi While Your Customers Wait

Christopher Carfi pointed me to a great article from Noel Franus titled Building the Better Guest Experience.  Noel suggests four small things that could make a big difference for your customers:

• Provide a comfortable space. A couch or coffee table is the first step you can take in shifting the mood from annoyed to relaxed. (Relaxed customers usually shell out more money than annoyed ones.) Investment: $2,000 (furniture).
• Do you have any coffee? A little java goes a long way toward making customers feel like valued guests. Get a decent coffeemaker and good beans. Or outsource the opportunity to a local brandofcoffeebucks that people know and enjoy. Investment: $1,000 per year (coffeemaker and supply).
• Dish up the fishwrap. For less than a buck a day, you can give them something to read or watch while they pass the time. Newspapers and magazines can keep those rambunctious customers under control. Investment: $100 per year (daily news and magazines).
• Nothing but net. Most people are missing out on work while they're in the store. Give them wi-fi, give them access to information, give them back their productivity, give them back their time. Investment: $700 per year (wireless router and high-speed Internet).

Noel continues:

If you're responsible for your customers' happiness, chances are you have an opportunity to create your own best-imaginable, rich experiences that need not cost an arm and a leg.  Whatever you do, don't just sit there with limited-profit space, focused on today's numbers rather than tomorrow's viability. Providing memorable moments will help your brand become one that customers truly appreciate. With an investment this tiny, there's so little to lose.

I think Noel is right on.  How many doctor’s offices (and lawyers offices and accountants offices …) have you been stuck in for longer than you expected to be?   If you knew there was WiFi (or at least a desk to work on) the wait wouldn’t have been so memorable. 

I'll gladly repay you the second Tuesday of next week.

My newest issue of Brainmail appeared in my inbox this week, and as usual, it is full of interesting tidbits, most that make me say, “huh?”  Here is one that struck me like a ton of bricks, not because it was odd, but that it made so much sense:

 Here is interesting story about human behaviour. A   childcare centre in Israel was having problems with parents that were picking their children up late. As a result they introduced a fine for lateness. The result was that lateness increased. Why? Because the fine normalised the behaviour.

Makes me wonder: if you include a late fee provision on your bill, does it make your client more likely to pay late?

The Best Business Advice for Professionals

Tom Asacker, guest blogging for Fast Company’s Blogjam shares this tremendous insight into building a business:

Today the game is all about going deep, with highly relevant products and services and particularly information, into a unique subculture. Forget about things like reach and frequency. The future of branding is collaboration with -- and for -- a passionate subculture of like-minded people. It's no longer wise to be famous for fifteen minutes. Mass market celebrity is fleeting. Instead, become famous to fifteen people.

I think Tom is right on here.  Because small-firm lawyers, architects, accountants, and other professional service providers will never be able to serve the mass market anyway, it is important for them to take Tom’s advice to heart.  Identify 15 people/businesses you want to serve.  Now, how can you be famous to them? 

Put your clients on the honor system?

Rick Klau reminds us about:

a donut vendor in NYC who put his customers on the honor system, and in the process doubled his customers per minute (as compared to other, similar donut vendors).

What if you clients were on the honor system?  What would they pay you?  Next time you send out your bills, leave the total blank.  Let your customers determine the worth of your services.  What they pay may be more instructive than what they’d say.

Flat Fee Pricing for Decorators

An interior decorator describes the benefits of flat-fee pricing in this Inc.com article:

“To be honest, I did it for my own convenience. The paperwork you have to do when you’re working on commission is miserable. You have to hire people to handle the billing, the collections, the problems with customers wanting to do exchanges or turning things back in. You have to keep track of all the bills. Do I leave a few dollars on the table? Probably. But it doesn’t matter because I can take more jobs, and I’m just working on the parts of the business I love.”

Read the entire article for her client’s perspective as well.

Economics of Software Design

Every once in a while I run across something that I want to share with you, though it may not have anything directly to do with improving your business.  I encourage you to read this essay by Joel on Software  titled Hitting the High Notes.  In the essay, Joel riffs on productivity, the weakness of groups, the economics of software development, and iPod design.  It is worth five minutes of your day (or should I say six minutes, since you lawyers out there will round up to the full tenth of an hour).  Here’s my favorite quote: 

Essentially, design adds value faster than it adds cost.

Serve the Rich

Roy H. Williams shares 5 Tips for Reaching the Rich on Entrepreneur.com.  Though Williams is talking about getting your “product” in the hands of the rich, much of his advice makes sense for service providers as well.  His five tips (read the article for explanations) are:

1. Hang out in their hangouts.

2. Become useful to them.

3. Put your product where they can see it.

4. Target through copy.

5. Pull, don't push. 

At the end of the article, Williams suggests that selling to the rich isn’t as important today as it once was:

Today a middle-income office manager may save her money to buy a single luxury item, like a Chanel jacket, the same one worn by a wealthy woman who has a dozen others like it in her $2.5 million house. While it may feel good to have the truly rich woman as a customer, you don't want to lose sight of the fact that for every one of her, there are at least 250 of those middle-income managers anxious to buy that same Chanel jacket.

Remember that last sentence.  Are you better off in the long run working your tail off to land that one huge client, or looking at ways to become indispensable to small yet growing businesses?

Assess your firm culture.

Arnie Herz points out this Firm Cultural Assessment that’s worth looking at.  The only problem is that those who will ignore the assessment are likely the firms most likely to benefit from it.

What your clients want to tell you.

Michelle Golden, in her blog Golden Practices relays some great advice for CPA’s from a panel of “A-List” accounting firm clients.  The entire post is required reading because there is some really great stuff on it.  Here are just a few favorites:

• Be there when we need you. A great example is when my accountant was on vacation but was able to be reached and even came in, off the beach in his shorts, to the attorney's office to help us finalize a critical deal.
• I feel like my firm sees me as a "nobody." I just can't get good service. My firm checks in with my CFO who thinks things are fine but I'm going to fire my firm in the next few weeks because they aren't meeting MY needs. I may go back to a sole practitioner.
• I don't appreciate when a firm acts like they can be all things to all people.
• Collaborate WITH us. Talk to us and tell us what you're doing. Our accountant recodes/reclassifies things, redoes budgets, etc, and it seems duplicative. They should be teaching us how to do it better so they don't have to re-do it.
• Don't nickel and dime us with a bill for $100 or so.
• Even though I know I'm being charged $100-200 for a single phone call, I don't really want to see it broken out on the bill!
• I’d rather have a “package” price then one based on hours.
• I love to have an idea, say within 10% or so, of what my monthly bills will be.
• The firm has never yet put me in front of another client with whom my business has something in common. I cannot figure out why...
• Offer to be on my board--don't charge for the time...it's an opportunity for you!
• It flabbergasts me that no one has called to offer me another service -- even as my business is changing/growing so rapidly.
• I had no idea of the other services our CPA firm offers. I had to ask my CFO who used to work for the firm so that I could answer questions today about other services I might be interested in. I thought it was neat that they offer to help interview and screen financial people I would hire.
• It's best when you talk to me in person. Maybe a yearly meeting where we talk about what's going on for the next year, touch base, share updates and tell me about additional services.

Lawyers, are you listening?

Make a Million Dollars

Marshall Brain (what a great name!) has a cool article titled, How to Make a Million Dollars.  He has some pretty sound advice, but what made me laugh out loud was when he was talking about one way to do it:

Or there is the well-worn path to a lawsuit. The problem is, a lawsuit can take a long time and you have to spend most of that time talking to lawyers. I'm not sure the rewards outweigh the pain.

Are Professional Service Fees Heading for Collapse?

Dave Pollard looks into the future in his thought provoking post about the Wal-Mart Dilemma, File Sharing and Lousy Service.  He has some sobering things to say about professional services providers:

Providing good service is expensive, and large corporations are trying everything they can to force customers to a 'self-service' (i.e. no service) model. Those in industries where they can't just tell the consumer "Throw it out and buy a new one" are in especially deep trouble. Examples: the news media, professional services (legal, medical, financial etc.) are all under fire for their skyrocketing prices for less and less service time and value.

Dave predicts:

The price 'bubble' for services will collapse, just as it has for products and just as it will for stocks and real estate. This will also be bloody. Public corporations in service industries will be crucified by shareholders as those incumbent service providers who break ranks drive service industry ROIs down to more reasonable levels. Large-firm 'professionals' who would faint at the unheard-of idea of salary cuts will see cuts in double-digits, which, on top of the incredible hours they already work, will probably lead to massive strikes by people you would never expect to see striking. Companies which make shoddy products and which try to shove off all service to outsourcers or offshorers, like the big computer hardware and software makers, construction companies and lawn tractor makers (according to Consumers' Union, these industries' products have the highest failure, repair and complaint rates, and none provides quality service) will face a consumer revolt, and demands for government regulation to improve or offer free replacement for defective products and work -- which these industries will fiercely lobby against.

To call Dave’s viewpoint a bit left of center is an understatement. Nevertheless, Dave makes some compelling arguments.  Take a look at the full post, if only for Dave’s explanation of the ‘Wal-Mart Dilemma’ — one of the best I’ve read.

Price Shoppers

Craig Arthur has an interesting take on responding to Requests for Proposals (RFP’s) that should resonate with every lawyer who has had a prospect call and ask the question, “How much does you charge for X?”  Here are some excerpts from Craig’s post:

… [Y]ou should respond by sending a letter politely explaining why you don't answer RFPs or bids and why it isn't appropriate for either party to do business this way. The letter should make it very clear that you would like to talk with them to explore the full range of their issues to determine if you may be of service to them. If they choose not to do this then that is their choice.

After all, at some point you must eventually get face to face with them if they are to become a client. Why not start that process early? Do this and you will eliminate a lot of wasted time.

Another argument against hourly billing

Mike McLaughlin continues his great tips with Tip #8: Get Paid What You’re Worth.  Here’s just a bit of what Mike has to say:

Want to know the fastest way to earn less than an entry-level consultant in a medium to large consulting firm?

Start your own consulting business and charge by the hour.

According to a recent study by Kennedy Information, Inc., the average salary offered to consultants from top business schools will hit $109,000 this year, and that will be accompanied by five-figure signing bonuses and annual bonuses ranging from $5,000 to $30,000. The total, first year compensation package for a newly-minted consultant could reach over $150,000.

An independent practitioner charging an hourly rate would have to work awfully hard to match that newbie's salary.

Not to be tedious, but do the math: There are 261 days in a year--once you subtract the weekends. If you take a month off for vacations, holidays, and the like, you're starting from a base of 230 billable days, give or take a few.

Research shows that firm owners will burn about 110 days a year on non-billable activities like marketing, administration, education and traveling, leaving about 120 days of billable time.

Assuming you're able to bill for 70% of those 120 days at $2,000 a day, and your overhead is a measly 20% of revenue, your annual, pre-tax earnings would be roughly $135,000. Not a bad day's pay, but you're carrying all of the business risk, and making less than an inexperienced consultant.

Mike is right-on, and goes on to make the argument in favor of charging based upon value instead of time.   

Solo lawyers face the same dilemma.  Using Mike’s math, you’d still have to bill ten hours each day at $200.00 per hour to make the $135K he suggests.  This is why there aren’t many solos making the kind of money new grads from top law schools make their first year in practice.  Part of the problem is that solos tend to devalue their own services, setting their hourly rates far below their big firm colleagues because they feel compelled to compete on price.  The marketplace also discounts the experience and expertise someone working out of a storefront can bring to a complicated transaction. 

So why don’t we all move away from hourly billing?  Some of our clients demand it, but the more pervasive reason is that while lawyers are thirsting for information on how to move away from hourly billing, so few are willing to take the risk (and spend the time) to incorporate value pricing into their practices.  

One solution:  Approach five of your best clients (ones that really like what you do) and ask them how they’d feel about “beta testing” your new value pricing packages.  Ask them what they’d want from you and how much they’d be prepared to pay.  Agree to limit the “test” for 90 days or so, and meet with them regularly to evaluate how things are working. 

Alternatively, if you have a practice with non-repeating clients, offer a value pricing alternative to every 10th client and see how it goes.

Remember, unless you try to change the way you charge for your services, you’ll be tied to your timer as long as you practice.

A quick quality of life quiz.

Anita Sharpe has this quote (which I’ve edited just a bit) from a book she just read:

Of course, everyone spoke ill of his profession, but, basically, it was all a question of selling his time, like everyone else. Doing things he didn't want to do, like everyone else. Putting up with horrible people, like everyone else. Handing over [ ] his precious soul in the name of a future that never arrived, like everyone else. Saying that he still didn't have enough, like everyone else. Waiting just a bit longer, like everyone else. Waiting so that he could earn just a little bit more, postponing the realization of his dreams; he was too busy right now, he had great opportunities ahead of him, loyal clients who were waiting for him. . .

What profession?  Take a look here to find out.  Or read the book.

Take Five and be a Better Boss

Rosa Say has another great tip in her post titled The Daily Five Minutes.  She suggests that each day, managers give five minutes of “no-agenda time” to at least one employee.  Here are some benefits to the managers:

In the process of developing this habit, they greatly improved their own approachability. They had nurtured a circle of comfort for their employees to step into and talk to them——whenever time presented itself. The Daily Five Minutes itself soon became a more personal thing. Employees started to share their lives with them——what they did over the weekend, how their kids were doing in school, how they felt about a local news story. Managers began to know their employees very well, and their employees began to relate to them more as people and not just as managers. They were practicing the art of ‘Ike loa together. 

Managers ceased to judge employee situations prematurely, for they had built up a relationship that demanded all be allowed to speak first——and they wanted to speak with their employees, sure they’d receive more clarity. The Daily Five Minutes became a “safe zone” where employees felt they could talk story with their manager “off the record,” and managers learned to ask, “Are you venting, or asking for help? Do I keep this in confidence, or do you expect me to take action?” It became clearer who was responsible for following up on things.  Managers had less and less of those “if only I had known about this sooner” surprises.

Think about doing a Daily Five Minutes with all of your employees.  Then extend it to your clients and see what happens!

Billable Hour Calculator

Joshua at JD Bliss alerted me to their new “Attorney Work Life Balance Calculator” that will (according to the site) help you determine:

• how many hours you must spend in your office during the week (Monday through Friday) in order to meet the billable hour requirements of your firm (taking into account vacation, personal and other "days off"), and
• the amount of time you'll need to spend working at home after work or on weekends if you can't meet your firm's billable hour requirements solely from your time in the office during the week.

Pretty cool little application, in a kind of fun/scary sort of way.  I did an interview for a profile in JD Bliss that should be coming up in a few weeks.  I’ll alert you when it is posted on the site.

Managers should Manage

 Rosa Say, in her Talking Story Blog,  has a really great explanation of what I believe is the biggest mistake managers make.  In Work World Myth #8: Managers Should Know How To Do Everything, she says:

This is one of those old fallacies about what it takes to be a “good manager.” You often hear it voiced something like this: “Don’t ask an employee to do anything you can’t do yourself.”

There is so much evidence surrounding this to the contrary, that it astounds me this myth is still around. Even worse, mediocre managers are hiding behind it. They are not working ON business health, innovation, and vibrancy because they are “safely” ensconced IN business tasks that should be delegated and assigned to someone else.

If you want to be needed, be needed as a productivity maximizer: an inspiration, visionary, and compelling leader, not as another worker bee. And please, I mean no disrespect whatsoever to the worker bees you manage and lead; I’m just asking you to better understand what your own role is if you are their manager and a leader.

I’ve just started to regularly read Rosa’s blog, and it is really great.  Check out the rest of her Work World Myths.  Well worth your time.

Sage Advice from Ed Poll

Ed Poll, law firm management guru and author of the LawBiz Blog, has some really good advice about how lawyers can respond to a client who demands a lower price:

When you have to bend on the price you quote a client, be sure you first list the things you do for the client for that price. Then, when you lower your price in order to respond to the client's request (based on your competition), take some of those things off the table. Thus, you are not really "lowering the price." You're adjusting the price to fit the appropriate level based on the service to be delivered.

What, you might ask, are the components of an hourly fee? Well, how about returned phone calls within 2 hours. That's now part of your regular hourly rate. Thus, if you lower your hourly rate in response to your client's request, take that response time off the table ... tell the client that your response time will be 24, or even 48, hours. He'll get the point that he's not really lowered the price, but changed the value composition of what he's buying.

The analogy is buying a car at the base price vs the same car with options at a higher price. You've merely unbundled (the current fad term) your services.

Kill the Billable Hour Before It Kills You?

 Jim Logan weighs in on the billable hour:

I'm more convinced than ever the next great opportunity in professional services is value-based billing. In my own business, we don't bill for time - never have, never will - and the results are impressive, both for us and our clients. Billing customers based on results, defined from their business purpose, is a Win-Win business proposition that creates fierce customer loyalty and ultimately more revenue for both the customer and consultant. Once your combined goals are aligned, the opportunity for mutual success increases.

Amen.